International bailouts, moral hazard and conditionality

Abstract

International Bailouts The IMF's role The large international bailouts of the 1990s have been criticized for generating moral hazard at the expense of the global taxpayer. We argue that this criticism is misleading because international bailouts create no, or very few, costs to the international community. Instead, the problem is to ensure that bailouts are not used to facilitate bad domestic policies, thus creating moral hazard at the expense of domestic taxpayers. This may require a shift towards ex ante conditionality, in the sense that the availability and size of official crisis lending need to be conditional on government policies before the crisis. — Olivier Jeanne and Jeromin Zettelmeyer

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