 The effect of IMF lending on the probability of sovereign debt crisesJournal of International Money and Finance, 2012, vol. 31, issue 4, 709-725 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. Keywords: IMF programs; Sovereign defaults; Bivariate probit; International financial architecture (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:31:y:2012:i:4:p:709-725 DOI: 10.1016/j.jimonfin.2012.01.010 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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