Conditional Lending Under Altruism

June 1, 2004

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Alex Mourmouras, and Peter Rangazas. Conditional Lending Under Altruism, (USA: International Monetary Fund, 2004) accessed September 19, 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

We analyze how the altruism of an international financial institution (IFI) towards its lowincome member countries (LICs) alters the effectiveness of its loans. We study IFI loans to a credit-constrained LIC. The IFI's repayment policy is determined by the interplay of its concerns for the welfare of the loan recipient and its fiduciary responsibilities to creditor countries. If the IFI is unable to commit to repayment terms in advance, conditional loans are superior to unconditional loans. Thus, IFI altruism and the inability to commit are sufficient reasons to equip loans with conditions. Conditional loans produce an efficient allocation of resources, so altruism is not a fundamental reason that loans fail to increase welfare.

Subject: Consumption, Debt service schedules, Human capital, Loans, Return on investment

Keywords: Interest rate, Loan schedule, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/100
Stock No:

WPIEA1002004
ISBN:

9781451852431
ISSN:

1018-5941

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