IMF Programs Research Articles

IMF-lending programs and suicide mortality

While the economic consequences of IMF programs have been extensively analyzed in the literature, much less is known about how key welfare indicators, including suicide-mortality rates, correlate with countries' participation in such programs. This paper examines the impact of IMF lending on suicide mortality, using data from 30 developing and transition countries that received non-concessionary IMF loans during 1991–2008. Our results support the hypothesis of a positive causal relationship between suicide mortality and participation in IMF programs but reveal no systematic suicide-increasing effect from the size of IMF loans. This holds after accounting for self-selection into programs, resulting from the endogeneity of a country's decision to resort to the IMF for funding, and after controlling for standard socio-economic influences on suicidal behaviour. In particular, we find a positive aggregate suicide-mortality differential due to IMF-program participation of between 4 and 14 percentage points. We also find that the positive association between suicides and program participation is stronger and more robust among males. Comparing age groups, individuals belonging to the age group 45-to-64 exhibit the highest increase in suicide due to program-participation, which amounts to over 18 percentage points. Overall, our results imply that when countries are exposed to IMF programs in an attempt to resolve their economic problems, social-safety nets need to be designed to protect the adversely-affected part of the population.

Serbia: Fiscal consolidation: Program design and political economy issues

Fiscal consolidation in Serbia was built on broad-based expenditure cuts, better revenue performance, and related structural reforms and pro-growth policies. In 2015 the actual fiscal performance exceeded the original and revised deficit targets set in the IMF program. The final outcome was a deficit of 3.7 percent of GDP, a huge 2.9 percent improvement over 2014. The result contains a 2.5 percentage points of structural fiscal adjustment with 1.5 percentage points in permanent expenditure cuts and 1.0 percentage point in structural revenue improvements. This increases front loading and allows more fiscal space for the implementation of pending structural reforms. The program had a beneficial impact on economic growth which turned out positive at 0.8 percent, 1.3 percentage points above IMF and IFI projections. With this performance Serbia may become a case of 'expansionary austerity', which demonstrates that fiscal consolidation programs designed in line with sound principles and synchronized with key structural reforms and pro-growth policies can generate growth. Carefully selected expenditure cuts combined with pro-growth revenue collection efforts can have expansionary effect on growth even under the most difficult circumstances. The political economy issues of fiscal consolidation and structural reforms gain increasing importance in the second year of the program, two months before the early parliamentary elections. Fresh thinking is needed to demonstrate that the completion of difficult reforms is a win-win for all, and almost everybody loses if reforms are stalled or abandoned.

International Monetary Fund Lending Effectiveness: Case of Albania

The main aim of the paper is to analyze the effectiveness of IMF funds that Albania receives, and are they good sources to stimulate economic development, reduction of poverty, increase health and help environmental issues. In many countries IMF programs appear to be ineffective and also in Albania somehow, funds did not achieve to be the main source of development. But, it is not only IMF that makes the programs ineffective because very important factor in realization are official people working in corresponding countries, external shocks, policy changes and compatibility of programs with country public policies. DOI: 10.5901/ajis.2015.v4n3s1p205

The International Monetary Fund: 70 Years of Reinvention

A sketch of the International Monetary Fund’s 70-year history reveals an institution that has reinvented itself over time along multiple dimensions. This history is primarily consistent with a “demand driven” theory of institutional change, as the needs of its clients and the type of crisis changed substantially over time. Some deceptively “new” IMF activities are not entirely new. Before emerging market economies dominated IMF programs, advanced economies were its earliest (and largest) clients through the 1970s. While currency problems were the dominant trigger of IMF involvement in the earlier decades, banking crises and sovereign defaults became the key focus after the 1980s. Around this time, the IMF shifted from providing relatively brief (and comparatively modest) balance-of-payments support in the era of fixed exchange rates to coping with more chronic debt sustainability problems that emerged with force in the developing economies and have now migrated to advanced economies. As a consequence, the IMF has engaged in “serial lending,” with programs often spanning decades. Moreover, the institution faces a growing risk of lending into insolvency; this has been most evident in Greece since 2010. We conclude with the observation that the IMF’s role as an international lender of last resort is endangered.

Is It Possible to Adjust ‘With a Human Face’? Differences in Fiscal Consolidation Strategies between Hungary and Iceland

Although Hungary and Iceland suffered a similar fall in GDP, their respective governments decided to follow different strategies of adjustment. Each country cut spending according to different priorities. Moreover, the Hungarian government implemented a flat tax reform, while the Icelandic government replaced the previous flat tax system with a progressive structure. As a result, Iceland met the objectives of the IMF program, while worsening economic conditions forced Hungary to ask for additional external help. In terms of income distribution, social transfers contributed to reducing inequality in Iceland but not in Hungary, while the different tax strategies operated in contrary ways.

Governance and Conditionality: Toward a Sustainable Framework?

The article examines how conditionality has evolved in the Eurozone during the debt crisis. Four main aspects are examined. The first is the trade-off between adjustment and financing, and in particular the possible resort to debt restructuring in advanced economies. The second is the decision-making process, which is particularly cumbersome in the Eurozone, as it relies largely on intergovernmental agreements and procedures, which proved to be inefficient and slow. The third issue concerns the financing conditions, which have initially been inspired on IMF programs, but proved excessively restrictive for a monetary union where countries cannot devalue in order to regain competitiveness. Finally, the article examines the contents of conditionality, and in particular the recent emphasis on structural reforms as a way to strengthen the supply side. A more sustainable framework requires greater political integration, in particular in the fiscal sphere, which is not easy to achieve in particular in the midst of a crisis.

Financial and real sector returns, IMF-related news, and the Asian crisis

We investigate how investors trading in financial and real sectors of a stock market react to IMF announcements during abnormal times, such as a financial crisis. To do so, we examine the impact of IMF-program and negotiation news on financial and real stock sectors in Indonesia, Korea and Thailand during the Asian crisis using time-varying models. The results indicate that IMF actions affect sector returns differently suggesting different wealth effects of IMF programs on investor wealth.

When Do Governments Improve Fiscal Institutions? Lessons from Financial Crisis and Fiscal Reform in Latin America

Do crises really lead to more institutional reforms? This paper explores the connection between financial crises and one type of reform frequently advocated during the recent global financial crisis, namely, fiscal institutional reforms. Some authors expect that crises lead to reforms, but we demonstrate that the relationship is not so straightforward. Using a data set of Latin American countries that experienced several crises and also several periods of reform in the period from 1990 to 2005, we find that the type of crisis and its duration matter. We argue that reforms are less likely during a banking crisis, whereas fiscal crises are most likely to lead to fiscal reforms. This means that the type of economic crisis is important for explaining the likelihood of reforms. We explore other possible explanations for reform, such as the partisanship of the president and whether a country is under an IMF program, and do not find confirming evidence for alternative explanations.
 
 JEL Classification: D72, H12, H62, H63.

When Do Governments Improve Fiscal Institutions?: Lessons from Financial Crisis and Fiscal Reform in Latin America

Do crises really lead to more institutional reforms? This paper explores the connection between financial crises and one type of reform frequently advocated during the recent global financial crisis, namely, fiscal institutional reforms. Some authors expect that crises lead to reforms, but we demonstrate that the relationship is not so straightforward. Using a data set of Latin American countries that experienced several crises and also several periods of reform in the period from 1990 to 2005, we find that the type of crisis and its duration matter. We argue that reforms are less likely during a banking crisis, whereas fiscal crises are most likely to lead to fiscal reforms. This means that the type of economic crisis is important for explaining the likelihood of reforms. We explore other possible explanations for reform, such as the partisanship of the president and whether a country is under an IMF program, and do not find confirming evidence for alternative explanations.

From the Chiang Mai Initiative to an Asian Monetary Fund

In the aftermath of the Asian financial crisis of 1997-98, East Asian finance ministers launched several new initiatives for regional financial cooperation including: (i) regional economic surveillance; (ii) a regional liquidity support arrangement; and (iii) Asian bond markets initiative. This paper evaluates the progress of such initiatives—particularly the Chiang Mai Initiative Multilateralization (CMIM)—and explores the possible evolution of the CMIM toward an Asian Monetary Fund (AMF). The paper argues that for an AMF to emerge, East Asian authorities need to strengthen regional surveillance and upgrade their capacity to formulate independent conditionality in the event of crisis lending so that the CMIM can be delinked from IMF programs. The paper also makes a case for more flexible use of CMIM when the type of external shock that affected the Republic of Korea in the fall of 2008 following the Lehman collapse hits Asia once again in the future. Given capital inflow risks, the paper suggests the authorities to prepare for exchange rate policy coordination—through intensive policy dialogue—to better manage macroeconomic and financial conditions while keeping intraregional exchange rate stability. An Asian Currency Unit should be developed to facilitate such policy dialogue for exchange rate policy coordination. Acknowledgment: This paper is prepared for the conference on the Future Global Reserve System organized by Columbia University in partnership with ADB and ADBI in Tokyo on 17-18 March 2010. It is a revised version of the discussion paper presented for the first phase of the ADB International Monetary Advisory Group (IMAG) meeting held in New York, 16-17 September 2009. The findings, interpretations, and conclusions expressed in the paper are solely the author's alone and do not necessarily represent the views of the Asian Development Bank, its Institute, their respective executive directors, or the countries they represent.

Capital Account Policies, IMF Programs and Growth in Developing Regions

This paper develops an adaptive learning model under uncertainty that examines evolution of capital account polices over time and across developing regions. In the framework, countries’ past experiences and IMF programs influence policymakers’ beliefs about the impact of capital account liberalization on growth, under the ‘Mundell’s trilemma constraint. The model, calibrated to data for Africa, Latin America and developing Asia, reflects relatively well capital account policies adopted in 1980–2010. It shows that even more developed countries with liberalized capital accounts may revert to controls under large output shocks. The outcomes of capital account switches are better and closer to policymakers’ expectations in countries with the IMF programs, underscoring the role of complementarity of policies.

Unpacking Autocracy: Political Regimes and IMF Program Participation

Why do some countries participate in IMF programs while others refuse to do so? We suggest an answer to the question by unpacking one side of the typical democracy–autocracy dichotomy. Specifically, we utilize the growing literature on the varieties of authoritarianism to develop an argument linking the different incentives and constraints that leaders in party-based, personalist, and military regimes face when considering whether to sign agreements with the IMF. Empirically, we demonstrate that distinguishing among autocracies uncovers important variations in the sensitivity of such regimes to the political costs incurred by IMF participation. Party-based autocracies, for instance, respond to both sovereignty costs and the benefits of program participation during severe economic crises. Personalist regimes, however, are not sensitive to the sovereignty costs incurred with IMF participation and thus only participate when doing so provides needed revenue during economic crises. The unique features of military juntas, by contrast, suggests that such regimes are not sensitive to either of these political costs and thus do not respond to economic crises in the same way as their autocratic counterparts.

Capital Account Policies, IMF Programs and Growth in Developing Regions

This paper examines capital account policy choices in an innovative model with adaptive learning under uncertainty. In the model, countries??? past experiences and IMF programs influence policymakers??? beliefs about impact of capital account liberalization on growth, taking into account constraints imposed by the ???Mundell???s trilemma???. The model, calibrated to data for Africa, Latin America and developing Asia, is consistent with capital account policies during 1980 ??? 2010, including the delayed capital account liberalization in Africa. One of the implications of the model is that even countries with liberalized capital accounts could revert to the use of capital controls in the presence of particularly large output shocks.

The International Monetary Fund: 70 Years of Reinvention

A sketch of the International Monetary Fund’s 70-year history reveals an institution that has reinvented itself over time along multiple dimensions. This history is primarily consistent with a “demand driven” theory of institutional change, as the needs of its clients and the type of crisis changed substantially over time. Some deceptively “new” IMF activities are not entirely new. Before emerging market economies dominated IMF programs, advanced economies were its earliest (and largest) clients through the 1970s. While currency problems were the dominant trigger of IMF involvement in the earlier decades, banking crises and sovereign defaults became they key focus since the 1980s. Around this time, the IMF shifted from providing relatively brief (and comparatively modest) balance-of-payments support in the era of fixed exchange rates to coping with more chronic debt sustainability problems that emerged with force in the developing nations and now migrated to advanced ones. As a consequence, the IMF has engaged in “serial lending”, with programs often spanning decades. Moreover, the institution faces a growing risk of lending into insolvency, most widespread among low income countries in chronic arrears to the official sector, but most evident in the case of Greece since 2010. We conclude that these practices impair the IMF’s role as an international lender of last resort.

The International Monetary Fund: 70 Years of Reinvention

A sketch of the International Monetary Fund’s 70-year history reveals an institution that has reinvented itself over time along multiple dimensions. This history is primarily consistent with a “demand driven” theory of institutional change, as the needs of its clients and the type of crisis changed substantially over time. Some deceptively “new” IMF activities are not entirely new. Before emerging market economies dominated IMF programs, advanced economies were its earliest (and largest) clients through the 1970s. While currency problems were the dominant trigger of IMF involvement in the earlier decades, banking crises and sovereign defaults became they key focus since the 1980s. Around this time, the IMF shifted from providing relatively brief (and comparatively modest) balance-of-payments support in the era of fixed exchange rates to coping with more chronic debt sustainability problems that emerged with force in the developing nations and now migrated to advanced ones. As a consequence, the IMF has engaged in “serial lending”, with programs often spanning decades. Moreover, the institution faces a growing risk of lending into insolvency, most widespread among low income countries in chronic arrears to the official sector, but most evident in the case of Greece since 2010. We conclude that these practices impair the IMF’s role as an international lender of last resort.

Stability periods between financial crises: The role of macroeconomic fundamentals and crises management policies

This study aims to identify which factors explain why some countries enjoy long durations of stability, while others experience crises in shorter intervals. We analyze the duration of stability periods between currency, debt, and banking crises by employing an innovative econometric strategy, the Finite Mixture Model (FMM). Real and financial variables show high predictive power for stability spells between currency crises. Regarding debt crises, the real interest rate is observed to be the best predictor. The time between systemic financial crises appears to be prolonged through government interventions and through IMF program participation, while bank recapitalization has a negative impact.

Investor wealth, the IMF, and the Asian crisis

This study further investigates the impact of IMF actions on stock markets during the Asian crisis. Extending two earlier studies by Kho and Stulz (2000) and Evrensel and Kutan (2007), we investigate the long-term shareholder wealth impact of IMF actions and programs on both financial and real sector returns in the stock markets of Thailand, Indonesia, and Korea. We perform a series of tests employed in Cornett and Tehranian (1989, 1990) that incorporate heteroscedasticity across sectors and contemporaneous dependence of the disturbances. The findings indicate that IMF actions regarding liquidity disbursement or liquidity concerns in markets are the most important events affecting abnormal returns and hence investor wealth in both real and financial sectors. However, the response of the financial sector to IMF actions is much stronger than that of the real sector. In addition, the results suggest moral hazard effects during the Asian crisis in all the three countries.

Adverse selection and growth under IMF programs

The dominant approach to studying the effects of IMF programs has emphasized moral hazard, but we find that adverse selection has more impressive effects. We propose a novel strategic selection model to study the growth effects of IMF programs, which allows for the possibility of adverse selection. We find that adverse selection occurs: the countries that are most interested in participating in IMF programs are the least likely to have favorable growth outcomes. Controlling for this selection effect, we find that countries benefit from IMF programs on average in terms of higher growth rates, but that some countries benefit from participation, while others are harmed. Moral hazard predicts that long-term users of Fund resources benefit least from participating in programs, while adverse selection predicts the opposite. Contrary to previous findings, we find that IMF programs have more successful growth performance among long-term users than among short-term users.

Voluntary private sector involvement and the financial crisis in emerging Europe

In 2009, as part of the European Bank Coordination Initiative (also known as the Vienna Initiative (VI)), foreign banks with significant interests in emerging Europe signed voluntary commitment letters to maintain exposure to five countries as long as their International Monetary Fund/European Union (IMF/EU) stabilization programmes remained on track. Using panel regressions based on international bank lending data for 19 emerging European states for 2000–2010, this article shows that countries with Stand-by Arrangements with the IMF attracted less foreign bank lending than justified by fundamentals. However, countries that obtained official financing and participated in the VI did not experience the decline in foreign private loans associated with IMF programmes.

Does the IMF cause civil war? A comment

The global economic downturn has heightened concerns about intervention by global financial institutions and political stability. One prominently-published article purports to show that signing on to an IMF structural adjustment program (SAP) increases the risk of civil war, Hartzell et al. (International Organization 64:339–56, 2010). The authors claim that IMF SAPs push liberalization, which hurts people badly enough that they foment civil war. We advance the debate by critically examining their theoretical and empirical evidence, particularly questioning their crucial assumptions about the impact of IMF programs on the economic environment in terms of who actually wins and loses from liberalization and who might be in a position to rebel. Using their data, we find that signing on to an IMF program predicts the onset of a civil war negatively if one uses a lower threshold of 25 deaths when defining civil war. These results suggest that the operationalization of the IMF variable as well as the use of large-scale civil war (1,000 deaths and above) simply capture the effect of ongoing conflict rather than the effects of liberalization. After extending the time period under study and making only minor changes to operationalization, we find that at no time does IMF involvement successfully predict the onset of a civil war.