Conditionality as an Instrument of Borrower Credibility

Pierre Dhonte

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International Development and Aid Global Financial Crisis and Policies Economic, financial, and policy analysis

Abstract

Fund member countries that adopt market-friendly policies often encounter a credibility problem—market-friendly policies are not effective in stimulating private investment as long as there remains a significant risk of policy reversal. The root of this risk lies in the discretionary policy-making authority of governments. Committing to a program with the Fund, and endorsing its conditionality, is one instrument available to governments to overcome this difficulty. The paper develops this interpretation of conditionality and indicates some of its operational implications for Fund programs.

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2003Money Talks: Supplementary Financiers and International Monetary Fund Conditionality 2007THE IMF: A BIRD'S EYE VIEW OF ITS ROLE AND OPERATIONS 2000The political economy of 'policy credibility': the new-classical macroeconomics and the remaking of emerging economies 2001IMF Programs: Do They Work? Can They be Made to Work Better?2006Catalysing Private Capital Flows: Do IMF Programmes Work as Commitment Devices?2001Financial Globalization and Democracy in Emerging Markets 2003Catalyzing Capital Flows 2006Signalling credibility? The IMF and catalytic finance

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