Hard work, and More: How to successfully conduct adjustment with official assistance

Martin Larch, Kristin Magnusson Bernard and Balint Tatar

No 514, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: What is needed for a country to successfully adjust after a crisis episode is a subject of much debate including in the euro area where four out of seventeen countries were in a full economic adjustment programme by end 2013. We identify adjustment needs by a country's decision to approach the IMF for official assistance. We then investigate the factors conducive to successful exit from official assistance during more than 170 adjustment episodes by means of a panel regression framework. We define success as a resumption of growth and a significant debt reduction. Our econometric results suggest hard work, i.e. policy action such as fiscal adjustment and decisive financial sector repair, play an important role for the probability of a successful exit. We also find that more stringent conditionality, especially in the structural area, increases the chances of success. Supportive external conditions further enhance the prospects for a durable and successful exit. These results also hold up when success is instead defined as the ability of the country to finance itself on capital markets.

JEL-codes: E61 F33 G01 H81 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2014-02
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0514

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