Journal article

Publication year: 2012

Pages: 709-725

Journal: Journal of International Money and Finance

Volume number: 31

Issue number: 4

ISSN: 0261-5606

eISSN: 1873-0639

Open access status: Green

DOI Link: https://doi.org/10.1016/j.jimonfin.2012.01.010

Publisher: Elsevier

Abstract: 
This paper explores empirically how the adoption of IMF programs affects sovereign risk over the medium term. We find that IMF programs significantly increase the probability of subsequent sovereign defaults by approximately 1.5-2 percentage points. These results cannot be attributed to endogeneity bias as they are supported by specifications that explain sovereign defaults and program participation simultaneously. Furthermore, IMF programs turn out to be especially detrimental to fiscal solvency when the Fund distributes its resources to countries whose economic fundamentals are already weak. Our evidence is therefore consistent with the hypothesis that debtor moral hazard is most likely to occur in these circumstances. Other explanations that point to the effects of debt dilution and the possibility of IMF triggered debt runs, however, are also possible. (C) 2012 Elsevier Ltd. All rights reserved.

Harvard Citation style: Jorra, M. (2012) The effect of IMF lending on the probability of sovereign debt crises, Journal of International Money and Finance, 31(4), pp. 709-725. https://doi.org/10.1016/j.jimonfin.2012.01.010

APA Citation style: Jorra, M. (2012). The effect of IMF lending on the probability of sovereign debt crises. Journal of International Money and Finance. 31(4), 709-725. https://doi.org/10.1016/j.jimonfin.2012.01.010