Reputation, Debt, and Policy Conditionality

September 1, 2003

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Format: Chicago

Rodney Ramcharan. Reputation, Debt, and Policy Conditionality, (USA: International Monetary Fund, 2003) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In principle, international financial institutions (IFIs) can use their leverage as creditors to prompt governments to undertake policy reform. Yet such lending has been frequently linked to unsustainable debt levels and little reform. This paper illustrates how the dual roles of IFIs as purveyors of credit and monitors of reform may help explain these negative outcomes. When debt levels rise, the IFIs reforms goals may become subordinated to its creditor's interest, compromising the enforcement of conditionality. Attracted by this prospect, malevolent governments strategically reform, enhancing their reputation in order to maintain lending and build their debt stock. Once debt levels are sufficiently large, such governments can stop policy reforms, assured that lending will continue.

Subject: Debt burden, Debt relief, Debt restructuring, Distressed assets, Stocks

Keywords: Economic growth, Foreign aid, Lending arrangement, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/192
Stock No:

WPIEA1922003
ISBN:

9781451859782
ISSN:

1018-5941

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