Vested Interests in a Positive Theory of IFI Conditionality

Alex Mourmouras and Wolfgang Mayer

No 2002/073, IMF Working Papers from International Monetary Fund

Abstract: Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.

Keywords: WP; economic policy; objective function; welfare contour (search for similar items in EconPapers)
Pages: 28
Date: 2002-04-01
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Citations: View citations in EconPapers (32)

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