Fortune or fortitude? Determinants of successful adjustment with IMF programs

Larch, Martin; Bernard, Kristin Magnusson; McQuade, Peter

doi:10.1787/eco_studies-2016-5jg1g64g196g

Cited by 1 publication

(12 citation statements)

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“…The results of the first baseline specification are generally intuitive ( (Knight and Santaella, 1997;Bird and Rowlands, 2001), the occurrence of arrears to the IMF (Aylward and Thorne, 1998), or program success (Larch et al, 2017). The results from these studies are generally mixed but public debt is predominantly found to play a minor role (Knight and Santaella, 1997;Cerutti, 2007 Excluding public debt and its adjustment from the baseline specifications somewhat improves the goodness of fit measures (Table 2).…”

Section: A Baseline Regressionsmentioning

confidence: 93%

“…In a study closely related to ours, Larch et al (2017) try to identify the underlying drivers of program success in a sample of 176 GRA-supported programs from 1993 to 2011. The authors define a program as successful if post-program levels of economic activity and the general government debt are at least comparable to pre-program levels.…”

Section: Related Literaturementioning

confidence: 99%

“…The selection of domestic and global variables tries to cover important dimensions of a country's economy and relies heavily on the existing literature (see e.g. Aylward and Thorne, 1998;Cerutti, 2007;Ivanova et al, 2001;Larch et al, 2017;Poulain and Reynaud, 2017). We include key variables that are typically at the center of IMF-supported programs such as GDP growth, the primary balance, public debt, the current account balance, international reserves, the exchange rate, and inflation.…”

Section: A Variablesmentioning

confidence: 99%

“…In a related study, Elekdağ (2008) finds improving global economic activity to have a negative impact on the demand for IMF resources while interest rate increases lead to a higher probability of an arrangement being approved within a certain year. Regarding volatility, Larch et al (2017) finds that rising market uncertainty decreases the chance of program success. All global determinants enter the analysis with their average value over the relevant period prior to a (potential) successor program.…”

Section: A Variablesmentioning

confidence: 99%

“…Ex ante, the impact of exchange rate movements is not clear-cut. While a depreciation can be beneficial for exporting goods, it might also increase a country's debt servicing costs if debt is denominated in foreign currency (Larch et al, 2017). However, when adding the adjustment of the nominal effective exchange rate (NEER) over the program period and a measure of the exchange rate regime to our baseline specifications (Tables 4 and 5), we do not find any of these two variables to have a significant impact on the probability of (no) repeated use.…”

Section: B Expanded Regressionsmentioning

confidence: 99%

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Repeated Use of IMF-Supported Programs

Iseringhausen

Nkusu²,

Wiranto³

2019

IMF Working Papers

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This paper studies the determinants of repeated use of Fund-supported programs in a large sample covering virtually all General Resources Account (GRA) arrangements that were approved between 1952 and 2012. Generally, the revolving nature of the IMF’s resources calls for the temporary sup-port of member countries to address balance of payments problems while repeated use has often been viewed as program failure. First, using probit models we show that a small number of country-specific variables such as growth, the current account balance, the international reserves position, and the institutional framework play a significant role in explaining repeated use. Second, we discuss the role of IMF-specific and program-specific variables and find evidence that a country’s track record with the Fund is a good predictor of repeated use. Finally, we conduct an out-of-sample forecasting exer-cise. While our approach has predictive power for repeated use, exact forecasting remains challenging. From a policy perspective, the results could prove useful to assess the risk IMF programs pose to the revolving nature of the Fund’s financial resources.

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