IMF Working Papers

Catalyzing Capital Flows: Do IMF-Supported Programs Work As Commitment Devices?

Author/Editor:

Diego Saravia ; Ashoka Mody

Publication Date:

May 1, 2003

Electronic Access:

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Summary:

An objective of IMF-supported programs is to help countries improve their access to international capital markets. In this paper, we examine the issue whether IMF-supported programs influence the ability of developing country issuers to tap international bond markets and whether they improve spreads paid on the bonds issued. We find that IMF-supported programs do not provide a uniformly favorable signaling effect-that is, the mere existence of a program supported by the IMF does not act as a strong "seal of good housekeeping." Instead, the evidence is most consistent with a positive effect of IMF-supported programs when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the IMF-supported program matters, but the credibility of a joint commitment by the country and the IMF appears to be critical.

Series:

Working Paper No. 2003/100

Subject:

Balance of payments Bonds Capital flows Capital markets Financial institutions Financial markets Imports International capital markets International trade