The IMF in a World of Private Capital Markets

Author/Editor:

Ashoka Mody ; Barry J. Eichengreen ; Kenneth Kletzer

Publication Date:

April 1, 2005

Electronic Access:

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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:

The IMF attempts to catalyze and stabilize private capital flows to emerging markets by providing public monitoring and emergency finance. In analyzing its role we contrast cases where banks and bondholders do the lending. Banks have a natural advantage in monitoring and creditor coordination, while bonds have superior risk sharing characteristics. Consistent with this assumption, banks reduce spreads as they obtain more information through repeat transactions with borrowers. By comparison, repeat borrowing has little influence in bond markets, where publicly available information dominates. But spreads on bonds are lower when they are issued in conjunction with IMF-supported programs, as if the existence of a program conveyed positive information to bondholders. The influence of IMF monitoring in bond markets is especially pronounced for countries vulnerable to liquidity crises.

Series:

Working Paper No. 2005/084

Subject:

Bank credit Banking Bonds Loans Securities markets

English

Publication Date:

April 1, 2005

ISBN/ISSN:

9781451861037/1018-5941

Stock No:

WPIEA2005084

Pages:

34

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