IMF Working Papers

Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending

Author/Editor:

Curzio Giannini ; Carlo Cottarelli

Publication Date:

November 1, 2002

Electronic Access:

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Summary:

During the 1990s, the concept of "catalytic official finance" (COF) gained prominence in policy debates. The concept revolves around the idea that the propensity of investors to lend to a country increases when the IMF provides its "seal of approval"-backed up by only limited official financing-on the country's economic program. COF aims at avoiding, on the one hand, the massive use of public money to bail out private investors; on the other, the recourse to coercive bailing-in mechanisms. The paper concludes that COF, while possibly useful in other contexts, is less reliable when used to manage capital account crises.

Series:

Working Paper No. 2002/193

Subject:

Balance of payments Capital account crisis Capital inflows Crisis management Current account Financial crises