Need for speed: The lending responsiveness of the IMF

Abstract

How responsive a lender is the International Monetary Fund (IMF)? In this paper, I introduce new data on IMF loan approval periods: The days that transpire between when a borrower submits a "Letter of Intent" to the Executive Board requesting a loan and when the Board approves that request. The data reveal considerable variation across requests. Why are some loan requests approved swiftly while others wait much longer for approval? I argue that the financial interests of the G-5 economies drive variation in responsiveness contingent on when a request was made. I expect that during much of the 1980s, as G-5 commercial bank exposure increases, borrowers will face longer waits for approval. In such cases, the G-5 should have been more likely to press for the use of the "concerted lending" strategy. This protected G-5 financial systems by catalyzing private financing on behalf of those countries, but it also delayed loan approval. Into the 1990s, global capital flows grew more complex and catalyzing private capital flows required a swift response. Thus, during these years I expect increased G-5 bank exposure to be associated with shorter waits for approval. In such cases, the G-5 should have been more likely to press for I would like to thank J. accelerated approval. A quick response would have the best chance of attracting back private capital and reduce the threat posed by the crisis. Statistical analyses of 275 loan requests from 1984-2012 support these expectations.

Stability and change in international policy-making: A punctuated equilibrium approach

“…Our findings speak to the first step in this sequence by highlighting how institutional friction likely reduces IOs' capacity to respond efficiently to shifting societal demands and problem pressures. This has implications for the performance of IOs in general, but particularly for IOs in areas where a swift response is of the essence, such as financial lending (McDowell 2017), peace operations (Hardt 2014), and food security (Agné 2016). It does not mean that there is a quick fix to IO performance, since states sometimes design IOs to be inefficient and producing policy is only a first step toward impact.…”

Closing time: Reputational constraints on capital account policy in emerging markets

“…As a result, economic challenges that originated from peer countries might confound our findings. To account for this, we measured economic crises in three ways: whether a peer, in a given year, (1) experienced a speculative attack on its currency (Leblang, 2003 ), (2) participated in an IMF lending program (McDowell, 2017 ), or (3) experienced a banking crisis (Laeven & Valencia, 2018 ). We then created three time-lagged spatial lags of each measure based on the corresponding peer group (geographic, MSCI, or ratings) and included them as additional controls in each respective model.…”

Transforming ‘Sympathetic Interlocutors’ into Veto Players

“…A country's bargaining power is often determined by the urgency of mobilizing funds (Nooruddin and Simmons, 2006;Stone, 2008). Thus, governments in dire (financial) straits -due to deteriorating financial conditions -might be more willing to sign on to a host of loan conditions and accept IMF-mandated monetary reforms to access much-needed financial relief (McDowell, 2017).…”

“…The bargaining position of a government versus the Fund is determined by the urgency to mobilize funds (Stone, 2008;McDowell, 2017). In this respect, the absorptive capacity of the domestic financial system and thus financial depth play a critical role (Woo, 2006;Menaldo, 2015;Brooks, Cunha and Mosley, 2015).…”