Who Recovers First?

Abstract

This article evaluates conditions that facilitate banking crises resolution using data from 67 developing countries from 1980 to 1995. In particular, the author examines explanatory variables under three categories: external macroeconomic constraints, the role of the International Monetary Fund (IMF), and domestic political conditions. The principal results of the analyses are twofold. First, IMF credits decrease the probability of resolving banking crises. This result holds controlling for potentially confounding variables and in a test for endogeneity. Second, the decisiveness of a political regime significantly influences the probability of emerging from systemic distress. Specifically, in cases of moderate banking distress, decisiveness facilitates resolution of crisis, but during periods of severe crises, less decisive governments (i.e., governments constrained by accountability groups) are likely to recover more quickly than are those with less constrained executives.

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