IMF Programs Research Articles

Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence

We examine the cyclical properties of development aid using bilateral data for 22 donors and over 100 recipients during 1970?2005. We find that bilateral aid flows are on average procyclical with respect to business cycles in donor and recipient countries. However, they become countercyclical when recipient countries face large adverse shocks to the terms-of-trade or growth collapses-thus playing an important cushioning role. Aid outlays contract sharply during severe donor economic downturns; this effect is magnified by higher public debt levels. Additionally, bilateral aid flows are higher in the presence of IMF programs and are more countercyclical for recipient countries with stronger institutions.

Business Cycle Fluctuations, Large Shocks, and Development Aid: New Evidence

We examine the cyclical properties of development aid using bilateral data for 22 donors and over 100 recipients during 1970?2005. We find that bilateral aid flows are on average procyclical with respect to business cycles in donor and recipient countries. However, they become countercyclical when recipient countries face large adverse shocks to the terms-of-trade or growth collapses-thus playing an important cushioning role. Aid outlays contract sharply during severe donor economic downturns; this effect is magnified by higher public debt levels. Additionally, bilateral aid flows are higher in the presence of IMF programs and are more countercyclical for recipient countries with stronger institutions.

Do IMF Programs Discipline Budget Deficit?: The Effects of IMF Programs on Government Budget Balance, Expenditure, and Revenue

Other SectionsAbstractⅠ. IntroductionⅡ. IMF Program Participation and Budget Deficits: BackgroundⅢ. The Effect of IMF Programs on Budget Deficit: Empirical AnalysisⅣ. ConclusionTableFootnoteReference

International Institutions and Domestic Compensation: The IMF and the Politics of Capital Account Liberalization

Certain governments have been faster than others in relaxing their restrictions on the cross‐border movement of capital. How can we explain the timing and extent of financial liberalization across countries since the 1970s? We argue that IMF stabilization programs provide a window of opportunity for governments to initiate financial reforms, but that policy makers are more likely to seize this opportunity when welfare expenditures are high. Large loans from the IMF shield policy makers from the costs of financial reform, while welfare expenditures provide credibility to the government's ex ante promises of compensation to individuals who are harmed by the reforms. We test this hypothesis on data for 87 countries from 1975 to 2002. We employ a spatial autoregressive error sample selection model which accounts for the nonrandom participation of countries in IMF programs as well as the processes of international policy diffusion. The results provide strong support for the interactive effect of IMF programs and domestic welfare expenditures on financial liberalization.

From Economic Crisis to Reform: IMF Programs in Latin America and Eastern Europe by Grigore Pop-Eleches

From Economic Crisis to Reform: IMF Programs in Latin America and Eastern Europe <i>by Grigore Pop-Eleches</i>

IMF and economic reform in developing countries

In this paper we assess the IMF approach to economic reform in developing countries. The impact of IMF program participation on economic growth has been evaluated empirically in a cross-country literature, with little evidence of IMF programs having been successful. This suggests that a fresh approach is in order. However, the cross-country approach is unlikely to provide a sound basis for drawing clear conclusions, so we review IMF programs from a different perspective, involving a broader literature on development strategy. In particular, it is widely accepted that a common characteristic of IMF programs is a high degree of policy rigidity. This is in contrast with studies which hold that unleashing an economy's growth potential hinges on a set of well-targeted policy interventions aimed at removing country-specific binding constraints. The process of locating constraints that bind involves growth diagnostics and policy trialing. This approach maintains that not all distortions are equally important and, by extension, not all policy reforms. From this point of view, IMF programs based on a list of standard conditionalities will not accomplish much. But policy trialing is more relevant to actors and entities with a broader, and more microeconomic, focus such as national policymakers and the World Bank. It is in choices among competing projects and programs that trial and error is most likely to be necessary. Nevertheless, reforms of the IMF such as the “streamlining initiative” should start from a good understanding of the reasons for adherence to policy orthodoxy. We discuss underlying institutional and organizational reasons for policy rigidity and consider some suggested reforms.

The effects of IMF programs on U.S. foreign direct investment in the developing world

Given the popular wisdom that the U.S. government influences IMF policies and tends to support the business community, it might be expected that IMF programs benefit U.S. firms abroad and thus borrower nations are attractive destinations for U.S. foreign direct investment (FDI). Surprisingly, no study has tested the impact of IMF loans on U.S. FDI. Controlling for common explanations in the literature, we use a treatment effects model and interviews with IMF staff researchers to investigate whether countries under different kinds of IMF programs receive more U.S. FDI than countries not under IMF arrangements. Using panel data for 126 developing countries from 1980 to 2003, we find that IMF borrowers tend to be more attractive to U.S. investors but not all IMF programs have the same effect. Our findings suggest that differences in loan duration, the extent of borrower input in policy decisions, and loan amounts affect borrowers’ leverage with the Fund and the U.S.

Exchange Rate Regimes in Developing and Emerging Economies and the Incidence of IMF Programs

The global economic crisis will compel many countries to revise key economic policies, including their exchange rate regime. The International Monetary Fund will have significant influence on their choices, and has exhibited a bias against intermediate regimes. We examine the link between exchange rate regimes and IMF program use and find no evidence that countries with intermediate exchange rate regimes require more frequent IMF assistance. Rather they appear somewhat less dependent, especially when compared to fixed exchange rates. Our results suggest that intermediate regimes should remain a viable and possibly desirable exchange rate choice for some countries.

Book Review: Pop-Eleches, G. (2009). From Economic Crisis to Reform: IMF Programs in Latin America and Eastern Europe. Princeton, NJ: Princeton University Press

Book Review: Pop-Eleches, G. (2009). From Economic Crisis to Reform: IMF Programs in Latin America and Eastern Europe. Princeton, NJ: Princeton University Press

Changing Patterns in Partisan Politics: Evidence from East European and Latin American IMF Programs

This paper analyzes the changing role of partisan politics in the developing world since the 1980s. The analysis identifies two related but distinct dimensions of partisanship – ideology and institutional ties – and then tests their impact on IMF program initiation in Latin America and Eastern Europe in the last two decades. In addition to this conceptual distinction, I show that partisanship is best understood not in isolation but in its changing interaction with different types of economic crises. In particular, I show that some types of crises (e.g. low foreign currency reserves) elicit similar policy responses across political parties and temporal/regional contexts. By contrast, other crises (such as inflation and recessions) trigger different responses depending on the government's partisan preferences, and these patterns differ across regions and time periods as a function of historical legacies and the international economic and political context.

Does the IMF Help or Hurt? The Effect of IMF Programs on the Likelihood and Outcome of Currency Crises

Using panel data for 68 countries over the period 1975-2002 this paper examines how IMF programs, disbursed loans, and compliance with conditionality affect the risk of currency crises and the outcome of such crises. Specifically, we investigate whether countries with previous IMF intervention are more likely to experience currency crises. In a second step, we analyze the IMF’s impact on a country’s decision to adjust the exchange rate, once a crisis occurred. We find that IMF involvement reduces the probability of a crisis. Once in a crisis, IMF programs significantly increase the probability that the authorities devalue the exchange rate. The amount of loans and compliance with conditionality have no impact. Our results suggest that the IMF – contrary to the Fund’s critics – does indeed fulfill its functions of promoting exchange rate stability and helping its members to correct macroeconomic imbalances.

EVALUATION OF MALAYSIAN CAPITAL CONTROLS IN THE SHORT, MEDIUM, AND LONG RUNS

This paper uses monthly data starting from January 1993 until June 2005 to assess the effectiveness of capital controls in restoring the Malaysian economy as compared to the IMF programs in Indonesia, Korea, and Thailand. We analyse various aspects of the economy by employing time-shifted difference-in-difference estimation. To evaluate the effects in the short, medium, and long runs, this study takes into account one to six years of treatment periods. Our estimation results provide strong evidence in favor of capital controls as a more effective crisis solution than the IMF programs in the short and medium runs.

Macroeconomic Policies for Structural Adjustment Programs

Abstract: This paper aims to explore the macroeconomic policies of IMF and World Bank structural adjustment programs. This paper also provides at first a simple analysis of the main reasons of LDC economic disequilibrium. Then it reviews the main components of the structural adjustment program which include several macroeconomic policies promoted to market-oriented reform in policies and institutions, with the goals of restoring a sustainable balance of payments, reducing Inflation, restore the viability of the current account and the budget and stimulate growth.

Grigore Pop-Eleches. 2009. From Economic Crisis to Reform: IMF Programs in Latin American and Eastern Europe (Princeton: Princeton University Press).

This is an excellent book which brings a new and interesting perspective to an important issue. With the current global financial crisis heightening demand for IMF resources this book could not be timelier. There is, of course, a wealth of scholarly literature on economic crises, market reforms, and IMF programs (Bird 2007). Yet few of these studies have sought to craft a rigorous synthesis of the insights of comparative and international political economists. Pop-Eleches breaks new ground by systematically exploring how the interaction between domestic and international determinants of IMF-supported reforms in Latin America and Eastern Europe since the 1980s is contingent on the temporal and geographic context in which they are situated. Pop-Eleches begins by posing a number of interesting questions. Why and how do economic crises trigger IMF-supported market reforms? How does IMF lending reflect the evolving contours of international financial markets and the political priorities of powerful states? What role do domestic interests and institutions play in a government’s willingness and capacity to implement IMF-supported reforms? In answering these questions, Pop-Eleches offers a novel answer: the response of the IMF and governments to economic crises depends largely on the particular regional and temporal context in which the reforms are situated. At the international level, he shows that the Fund’s response was driven by the evolving contours of international financial markets and the political priorities of its powerful states. In the 1980s, the systemic implications of the Latin American debt crisis took centre stage. The IMF, with its “institutional interest” in preserving international financial stability, responded by prioritizing austerity geared toward debt repayment. Powerful states also shaped the IMF response. These powerful states, many of whose financial institutions were heavily exposed to Latin Rev Int Organ (2009) 4:215–218 DOI 10.1007/s11558-009-9058-5

A true test: do IMF programs hurt the poor?

This article analyses the effect of IMF programs on poverty with data from 82 countries during 1985–2000. Two indicators of poverty, infant mortality rates and the human development index (HDI), are utilized, and the effects of the IMF's concessionary and nonconcessionary programs are investigated, as well as economic and institutional factors. The results show that the IMF's programs have no significant direct impact on poverty. Growth and good institutions, however, both have significant impacts, lowering infant mortality and increasing the HDI. The Fund's concessionary programs increase the impact of growth on lowering infant mortality, while the nonconcessionary programs lower the impact of growth on the HDI. “Where a great proportion of the people are suffered to languish in helpless misery, that country must be ill policed, and wretchedly governed; a decent provision for the poor is the true test of civilization.” –Samuel Johnson, 1791 “… once a country was in crisis, IMF funds and programs not only failed to stabilize the situation but in many cases actually made things worse, especially for the poor.” –Joseph Stiglitz, 2002

Modelling of the change in national exchange rate model depending on the economic parameters of a natural gas cogeneration system: Turkey case

In this paper, to what extent a cogeneration system’s fixed and variable costs and profits are affected from the exchange rate model implemented in the country is examined. An autoproductor system, as known, uses a part of its electrical energy production for its own requirements while selling the remaining energy to the regional energy corporation. As a function of the load factor and the fuel cost, the production cost and energy sale income of the system are influenced much by the exchange rate model of the country. A cost analysis of a natural gas cogeneration (autoproductor) system has been performed for the numerical application, based on the monetary program supported by the IMF commenced in January 2000. In order to investigate the effect of the change in exchange rate model (introducing the floating exchange rate model) on the fuel cost, both the characteristics of the IMF program and some various forecasting methods have been utilized.

Turkey and the IMF: A case study in the political economy of policy implementation

Research into IMF program implementation has usually taken the form of large sample regression analyses. A more detailed explanation is offered in this paper through a case study of program implementation in Turkey between 1999 and 2004. Our research is based on a series of in-depth interviews with policy makers, program negotiators, bureaucrats, interest groups and IMF personnel. Our results reinforce hypotheses that emerge from the theory of implementation and the large sample econometric work, but they also offer new and enhanced explanations. Program implementation depends on a range of factors which interact with one another. These include domestic political economy factors, such as the importance of special interest groups, political cohesiveness and program ownership by the government and the IMF, but also other idiosyncratic factors such as, in the case of Turkey, the existence of a crisis, the desire to join the EU and the role of influential technocrats. Our research has implications for the design of IMF programs.

Assessing the IMF Conditionality Programs: Implications for Governance of International Finance

This paper focuses on the IMF in order to assess the degree to which international financial institutions can meet increasing expectations to stabilize the international financial system. To do so, this paper reviews prior studies of the IMF to examine how political factors affect the IMF’s decision making and policy implementation of IMF programs. The IMF is not free from political interference. This paper also analyzes the IMF from two theoretical perspectives: the IMF as a bureaucratic organization and principal-agent relationships and the IMF. While the IMF makes various reform efforts, balancing the trade-offs between effectiveness and representation remains a difficult task given the sequential principal-agent relationships.

Cameroon: Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Performance Criterion, and Financing Assurances Review: Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cameroon.

The staff report examines Cameroon’s Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criterion. The authorities stressed their interest in a successor IMF program to support Cameroon’s medium-term economic objectives. Sound oil revenue management helped contain money growth, and inflation remained generally low. The government significantly lowered its indebtedness to the banking system, which helped to contain money growth despite a large increase in international reserves.

Do external interventions work? The case of trade reform conditions in IMF supported programs

Trade reform conditions are common in IMF supported programs. Of the 99 countries that had IMF programs during 1993–2003, 77 had trade reform conditions in their programs. Since the WTO has not been found especially effective in promoting trade openness for most developing countries, it is of great interest to see if the IMF has been more effective as it combines carrots and sticks not available to the WTO. Yet, the effectiveness of these trade conditions has not been systematically studied. Using a unique dataset, this paper provides such an assessment. It finds that trade conditions are indeed associated with an increase in trade openness on average, but the effect comes mostly from countries that can be characterized by a high degree of “willingness to reform.”