IMF Lending and Banking Crises

Abstract

This paper looks at the effects of International Monetary Fund (IMF) lending programs on banking crises in a large sample of developing countries, over the period 1970–2010. The endogeneity of the IMF intervention is addressed by adopting an instrumental variable strategy and a propensity score matching estimator. Controlling for the standard determinants of banking crises, the results indicate that countries participating in IMF-supported lending programs are significantly less likely to experience a future banking crisis than nonborrowing countries. The paper also provides evidence suggesting that compliance with conditionality and loan size matter, corroborating the importance of IMF-supported reform and liquidity provision for banking sector stability.

This is a preview of subscription content, log in to check access.

Figure 1
Figure 2
Figure 3

Notes

  1. 1.

    A different strand of literature has investigated whether the existence of an IMF-supported program modifies interest rate spreads, both on commercial bank loans and on international bonds, and countries’ debt maturity (Mody and Saravia, 2006; Saravia, 2010). Chapman and others (2015) find that increasing the scope of conditionality attached to IMF programs reduces the yield on government bonds.

  2. 2.

    In addition to what may be envisaged in the attached conditionality to a specific program, the IMF might facilitate the national authorities’ effort to promote special financial reforms which, in the absence of IMF support, could be politically too difficult to implement due to opposition at home. Consequently, governments of member countries, by using the international financial institution as a scapegoat (Vreeland, 1999), may want to delegate responsibility for carrying out domestic unpopular reforms to the politically unaccountable IMF, deflecting toward the latter the possible blame for the resulting social and political costs (Haggard and Kaufman, 1995; Vreeland, 2003).

  3. 3.

    See Laeven and Valencia (2013, section I) for more details on the actual definition of banking crisis episodes. Their extensive data set dates 147 systemic banking crises over the period 1970–2011, and also lists 211 currency crises and 61 sovereign crises over the same period.

  4. 4.

    Giustiniani and Kronenberg (2005, p. 11) note that “comparing the periods before (1995–96) and after (1997–2003) the Asian crisis, the share of banking sector conditionality has expanded from 65 percent to 80 percent of total financial sector measures [ and that this] is indicative of a growing and more comprehensive attention of IMF programs, and hence of IMF conditionality, to the functioning of the banking industry.”

  5. 5.

    For a recent review of this strand of literature, see Demirguc-Kunt and Detragiache (2005) and Kauko (2014).

  6. 6.

    In addition, the inclusion of country fixed effects weakens our instrumental variable strategy (see the section “The identification strategy”).

  7. 7.

    We also used the ratio of the total amount of loan arrangements agreed with the IMF in previous five-year period to the average value of GDP in the period, finding almost identical results. In addition, unreported regressions also show that results are unaffected measuring loan size as the amount of actual disbursement rather than the agreed quantity. For robustness, we have also measured the ratio between IMF loan and country quota, as published in the IMF’s historical data set. In all cases we take the logarithm of one plus the respective ratio. Results are not reported for the sake of brevity but they are available on request.

  8. 8.

    Admittedly, however, undrawn loans could also be a sign of success associated with a faster recovery of the country’s economy and balance-of-payments problems. In addition, when IMF programs are agreed precautionarily, undrawn loans would only indicate that realized economic conditions in the country have not required a full use of the loan (Bird and Willettt, 2004). That said, the share of undrawn loans at expiration is the most widely used indicator of compliance with conditionalities in the literature, as direct information on the implementation of program conditions provided by the IMF’s database on Monitoring Fund Arrangements (MONA) is largely incomplete in terms of covered programs and number of years.

  9. 9.

    We are helped in this task by the fact that Laeven and Valencia (2013) indicate in their data set the starting and ending year of each crisis. For the episodes which started in 2008, we assume that they are still ongoing in 2010, if no ending year is specified.

  10. 10.

    See the IMF website at: www.imf.org/external/about/lending.htm.

  11. 11.

    In unreported regressions we observe that adding country fixed effects significantly weakens our identification. However, results are robust to the inclusion of region dummies; see the section “Other potential triggers of banking crises.”

  12. 12.

    For a detailed description of the data set, see Kilby (2009b).The data set also includes identification of important votes as declared by the U.S. State Department. However, since this information is not available for the whole time span, we cannot construct the alignment scores based on important UNGA votes. Therefore, we cannot use the difference between the alignment score in important votes in the UNGA and the same score in all other UNGA votes, a measure introduced by Barnebeck Andersen, Harr, and Tarp (2006). As in Thacker (1999) and Dreher and Jensen (2007), the alignment score of country Y with country X is measured considering, for each vote, that country Y scores 1 if it follows X, 0.5 if it abstains or is absent when X votes (or vice versa), and 0 if it opposes X. Political similarity with the G7 is built by averaging the pairwise annual alignment scores.

  13. 13.

    Some authors have used U.S. military aid as a proxy of the country’s economic and strategic importance to the United States (Oatley and Yackee, 2004). We experiment with such indicator, but it does not prove to be a relevant instrument in the first-stage regression.

  14. 14.

    It should be noted that a similar identification strategy based on friendships with IMF major shareholders has been followed to assess the impact of IMF-supported programs on the occurrence of other possible episodes of financial crisis, like sudden stops of capital flows, currency and sovereign debt crises, for which the plausibility of the excluding restriction is equally questionable (Eichengreen, Gupta, and Mody, 2008; Dreher and Walter, 2010; Jorra, 2012).

  15. 15.

    In our sample, the average value of the variable U.S. AID is almost identical (about 21 percent) considering crisis and noncrisis years.

  16. 16.

    In our sample, the average value of the variable ELECTION is even smaller in crisis than in noncrisis years, although the difference is not statistically significant. The simple correlation between ELECTION and BANKING CRISIS is equal to −0.03 and the former does not have any significant impact on the unconditional and conditional probability of a banking crisis (using specification (1) in Table 4).

  17. 17.

    We choose such a threshold range since we are not interested in tails of the sample distribution of the loan size variable. A loan-to-GDP ratio of 0.5 percent (7.5 percent) roughly corresponds to the 5th (95th) percentile of the sample distribution of the IMF LOAN/GDP variable.

  18. 18.

    For instance, Dollar and Svensson (2000) consider 182 adjustment loans disbursed between 1980 and 1995 and show that the average loan size is about USD 160 million; over the same period, the average size of the IMF-supported program in our sample is USD 345 million.

  19. 19.

    A similar IV strategy is followed by Kilby (2009b).

  20. 20.

    Also in this case the F-statistics suggest the risk of weak identification, but the LIML estimates support the 2SLS ones.

  21. 21.

    Indeed, in unreported regressions we find a negative association between past banking crises which were not preceded by any IMF arrangement in the previous three years and the likelihood of a current systemic banking crisis.

  22. 22.

    The Composite Index is a risk rating based on a set of 22 components grouped into three major categories of risk: political, financial, and economic. The index ranges between 0 and 100, with higher values indicating lower levels of risk. For details, see www.prsgroup.com

  23. 23.

    See: www.freetheworld.com/index.php and Gwartney, Lawson, and Hall (2012) for details.

  24. 24.

    Abiad, Tressel, and Detragiache (2008) build a database of financial reforms which covers 91 economies over the period 1973–2005. Financial policy changes are recorded along seven different dimensions: credit controls and reserve requirements, interest rate controls, entry barriers, state ownership, policies on securities markets, banking regulations, and restrictions on the capital account. Liberalization scores for each category are combined in a graded index that is normalized between zero and one. This is the index used in the regressions and it has the advantage of being a continuous measure, rather than a 0/1 dummy for financially liberalized countries.

  25. 25.

    The subsample of low-income countries is too small and the estimates lose power and precision, but the sign on the IMF presence variable is still negative.

References

  1. Abiad, Abdul and Ashoka Mody, March 2005, “Financial Reform: What Shakes It? What Shapes It?,” American Economic Review, Vol. 95, No. 1, pp. 66–88.

    Article  Google Scholar 

  2. Abiad, Abdul, Thierry Tressel, and Enrica Detragiache, 2008, ‘A new Database of Financial Reforms.’ IMF Working Papers 08/266 (International Monetary Fund, December).

  3. Acharya, Viral, Itamar Drechsler, and Phillipp Schnabl, 2014, “A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk,” Journal of Finance, Vol. 69, No. 6, pp. 2686–2739.

    Article  Google Scholar 

  4. Aizenman, Joshua and Ilan Noy, November 2013, “Macroeconomic Adjustment and the History of Crises in Open Economies,” Journal of International Money and Finance, Vol. 38, No. 1, pp. 41–58.

    Article  Google Scholar 

  5. Atoyan, Ruben and Patrick Conway, 2006, “Evaluating the Impact of IMF Programs: A Comparison of Matching and Instrumental-Variable Estimators,” Review of International Organizations, Vol. 1, No. 2, pp. 99–124.

    Article  Google Scholar 

  6. Bal-Gunduz, Yasemin and Masyita Crystallin, 2014, “Do IMF-Supported Programs Catalyze Donor Assistance in Low-Income Countries?” IMF Working Paper 14/202 (Washington, DC: International Monetary Fund).

  7. Barnebeck Andersen, Thomas, Thomas Harr, and Finn Tarp, 2006, “On US Politics and IMF Lending,” European Economic Review, Vol. 50, No. 7, pp. 1843–1862.

    Article  Google Scholar 

  8. Barro, Robert J. and Jong-Wha Lee, 2005, “IMF Programs: Who is Chosen and What are the Effects?” Journal of Monetary Economics, Vol. 52, No. 7, pp. 1245–1269.

    Article  Google Scholar 

  9. Beck, Thorsten, George Clarke, Alberto Groff, Philip Keefer, and Patrick Walsh, 2001, “New Tools in Comparative Political Economy: The Database of Political Institutions,” The World Bank Economic Review, Vol. 15, No. 1, pp. 165–176.

    Article  Google Scholar 

  10. Beck, Thorsten, Asli Demirguc-Kunt, and Ross Levine, May 2006, “Bank Concentration, Competition, and Crises: First Results,” Journal of Banking Finance, Vol. 30, No. 5, pp. 1581–1603.

    Article  Google Scholar 

  11. Bird, Graham, 2007, “The IMF: A Bird’S Eye View of Its Role and Operations,” Journal of Economic Surveys, Vol. 21, No. 4, pp. 683–745.

    Article  Google Scholar 

  12. Bird, Graham and Dane Rowlands, 2002, “Do IMF Programmes Have a Catalytic Effect on Other International Capital Flows?” Oxford Development Studies, Vol. 30, No. 3, pp. 229–249.

    Article  Google Scholar 

  13. Bird, Graham and Dane Rowlands, 2008, “Catalysing Private Capital Flows and IMF Programs: Some Remaining Questions,” Journal of Economic Policy Reform, Vol. 11, No. 1, pp. 37–43.

    Article  Google Scholar 

  14. Bird, Graham and Dane Rowlands, 2009, “The IMF’s Role in Mobilizing Private Capital Flows: Are There Grounds for Catalytic Conversion?” Applied Economics Letters, Vol. 16, No. 17, pp. 1705–1708.

    Article  Google Scholar 

  15. Bird, Graham and T. Willettt, 2004, “IMF Conditionality, Implementation and the New Political Economy of Ownership,” Comparative Economic Studies, Vol. 46, No. 3, pp. 423–450.

    Article  Google Scholar 

  16. Bordo, Michael D. and Harold James, June 2000, “The International Monetary Fund: Its Present role in Historical Perspective,” NBER Working Papers 7724 (National Bureau of Economic Research).

  17. Bussière, Matthieu and Marcel Fratzscher, 2006, “Towards a New Early Warning System of Financial Crises,” Journal of International Money and Finance, Vol. 25, No. 6, pp. 953–973.

    Article  Google Scholar 

  18. Bussière, Matthieu, Claude Lopez, and Cedric Tille, 2015, “Do Real Exchange rate Appreciations Matter for Growth?,” Economic Policy, Vol. 30, No. 81, pp. 5–45.

    Article  Google Scholar 

  19. Caliendo, Marco and Sabine Kopeinig, 2008, “Some Practical Guidance for the Implementation of Propensity Score Matching,” Journal of Economic Surveys, Vol. 22, No. 1, pp. 31–72.

    Article  Google Scholar 

  20. Catão, Luis and Gian Maria Milesi-Ferretti, 2014, “External Liabilities and Crises,” Journal of International Economics, Vol. 94, No. 1, pp. 18–32.

    Article  Google Scholar 

  21. Chapman, Terrence, Songying Fang, X.i.n. Li, and Randall W. Stone, December 2015, “Mixed Signals: Crisis Lending and Capital Markets,” British Journal of Political Science, advance online publication, July 28, 2015; doi: 10.1017/S0007123415000216.

  22. Cheibub, José, Jennifer Gandhi, and James Vreeland, April 2010, “Democracy and Dictatorship Revisited,” Public Choice, Vol. 143, No. 1, pp. 67–101.

    Article  Google Scholar 

  23. Chinn, Menzie D. and Hiro Ito, 2010, “A New Measure of Financial Openness,” Journal of Comparative Policy Analysis, Vol. 10, No. 3, pp. 309–322.

    Article  Google Scholar 

  24. Conway, Patrick, March 2006, “The International Monetary Fund in a Time of Crisis: A Review of Stanley Fischer’s IMF Essays from a Time of Crisis: The International Financial System, Stabilization, and Development,” Journal of Economic Literature, Vol. 44, No. 1, pp. 115–144.

    Article  Google Scholar 

  25. Copeletovich, Mark S., 2010a, The International Monetary Fund in the Global Economy (Cambridge: Cambridge University Press).

    Google Scholar 

  26. Copeletovich, Mark S., 2010b, “Master or Servant? Common Agency and the Political Economy of IMF Lending,” International Studies Quarterly, Vol. 54, No. 1, pp. 49–77.

    Article  Google Scholar 

  27. Corsetti, Giancarlo, Bernardo Guimaraes, and Nouriel Roubini, April 2006, “International Lending of Last Resort and Moral Hazard: A Model of IMF’s Catalytic Finance,” Journal of Monetary Economics, Vol. 53, No. 3, pp. 441–471.

    Article  Google Scholar 

  28. Cottarelli, Carlo and Curzio Giannini, 2006, “Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending,” in IMF Supported Programs—Recent Staff Research, ed. by Ashoka Mody, and Alessandro Rebucci (Washington, DC: International Monetary Fund), pp. 202–227.

    Google Scholar 

  29. Demirguc-Kunt, Asli and Enrica Detragiache, 1998, “The Determinants of Banking Crises in Developing and Developed Countries,” IMF Staff Papers, Vol. 45, No. 1, pp. 81–109.

    Article  Google Scholar 

  30. Demirguc-Kunt, Asli and Enrica Detragiache, 2002, “Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation,” Journal of Monetary Economics, Vol. 49, No. 7, pp. 1373–1406.

    Article  Google Scholar 

  31. Demirguc-Kunt, Asli and Enrica Detragiache, 2005, “Cross-Country Empirical Studies of Systemic Bank Distress: A Survey,” National Institute Economic Review, Vol. 192, No. 1, pp. 68–83.

    Article  Google Scholar 

  32. Demirguc-Kunt, Asli, Edward J. Kane, and L.u.c. Laeven, July 2008, “Determinants of Deposit-Insurance Adoption and Design,” Journal of Financial Intermediation, Vol. 17, No. 3, pp. 407–438.

    Article  Google Scholar 

  33. De Haan, Jakob and Choudhry Tanveer Shehzad, 2009, “Financial Reform and Banking Crises”, CESifo Working Paper Series 2870 (CESifo Group Munich).

  34. Dinç, I. Serdar, 2005, “Politicians and Banks: Political Influences on Government-Owned Banks in Emerging Markets,” Journal of Financial Economics, Vol. 77, No. 2, pp. 453–479.

    Article  Google Scholar 

  35. Dollar, David and Jakob Svensson, 2000, “What Explains the Success or Failure of Structural Adjustment Programmes?,” The Economic Journal, Vol. 110, No. 466, pp. 894–917.

    Article  Google Scholar 

  36. Dreher, Axel, 2003, “The Influence of Elections on IMF Programme Interruptions,” Journal of Development Studies, Vol. 39, No. 6, pp. 101–120.

    Article  Google Scholar 

  37. Dreher, Axel, 2004a, “A Public Choice Perspective of IMF and World Bank Lending and Conditionality,” Public Choice, Vol. 119, No. 3–4, pp. 445–464.

    Article  Google Scholar 

  38. Dreher, Axel, February 2004b, Does the IMF Cause Moral Hazard? A Critical Review of the Evidence, available at SSRN: http://ssrn.com/abstract=505782.

  39. Dreher, Axel, October 2009, “IMF Conditionality: Theory and Evidence,” Public Choice, Vol. 141, No. 1, pp. 233–267.

    Article  Google Scholar 

  40. Dreher, Axel and Nathan M. Jensen, 2007, “Independent Actor or Agent? An Empirical Analysis of the Impact of the US Interests on IMF Conditions,” Journal of Law and Economics, Vol. 50, No. 1, pp. 105–124.

    Article  Google Scholar 

  41. Dreher, Axel, Jan-Egbert Sturm, and James Raymond Vreeland, 2009, “Global Horse Trading: IMF Loans for Votes in the United Nations Security Council,” European Economic Review, Vol. 53, No. 7, pp. 742–757.

    Article  Google Scholar 

  42. Dreher, Axel and Roland Vaubel, January 2004, “Do IMF and IBRD Cause Moral Hazard and Political Business Cycles? Evidence from Panel Data,” Open Economies Review, Vol. 15, No. 1, pp. 5–22.

    Article  Google Scholar 

  43. Dreher, Axel and Stefanie Walter, 2010, “Does the IMF help or Hurt? The Effect of IMF Programs on the Likelihood and Outcome of Currency Crises,” World Development, Vol. 38, No. 1, pp. 1–18.

    Article  Google Scholar 

  44. Duttagupta, Rupa and Paul Cashin, March 2011, “Anatomy of Banking Crises in Developing and Emerging Market Countries,” Journal of International Money and Finance, Vol. 30, No. 2, pp. 354–376.

    Article  Google Scholar 

  45. Easterly, William, February 2005, “What did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans,” Journal of Development Economics, Vol. 76, No. 1, pp. 1–22.

    Google Scholar 

  46. Eichengreen, Barry, Poonam Gupta, and Ashoka Mody, July 2008, “Sudden stops and IMF-supported programs,” in Financial Markets Volatility and Performance in Emerging Markets, NBER Chapters National Bureau of Economic Research, Inc, pp. 219–266.

    Google Scholar 

  47. Feldstein, Martin, 1998, “Refocusing the IMF,” Foreign Affairs, Vol. 77, No. 2, pp. 20–33.

    Article  Google Scholar 

  48. Fischer, Stanley, Fall 1999, “On the Need for an International Lender of Last Resort,” Journal of Economic Perspectives, Vol. 13, No. 4, pp. 85–104.

    Article  Google Scholar 

  49. Forbes, Kristin J and Michael W Klein, 2015, “Pick Your Poison: The Choices and Consequences of Policy Responses to Crises,” IMF Economic Review, Vol. 63, No. 1, pp. 197–237.

    Article  Google Scholar 

  50. Fratianni, Michele, 2003, “The International Monetary Fund and its Critics,” in Sustaining Global Growth and Development: G7 and IMF Contributions and Challenges, ed. by M. Fratianni, P. Savona, and Kirton John (Aldershot: Ashgate), pp. 155–176.

    Google Scholar 

  51. Giustiniani, Alessandro and Roger P. Kronenberg, December 2005, “Financial Sector Conditionality: Is Tougher Better?” IMF Working Papers 05/230 (International Monetary Fund).

  52. Glick, Reuven, Xueyan Guo, and Michael Hutchison, 2006, “Currency Crises, Capital-Account Liberalization, and Selection Bias,” The Review of Economics and Statistics, Vol. 88, No. 4, pp. 698–714.

    Article  Google Scholar 

  53. Goldstein, Morris, 2001, Imf Structural Conditionality: How Much is Too Much? Technical report (Peterson Institute for International Economics).

  54. Gourinchas, Pierre-Olivier and Maurice Obstfeld, 2012, “Stories of the Twentieth Century for the Twenty-First,” American Economic Journal: Macroeconomics, Vol. 4, No. 1, pp. 226–265.

    Google Scholar 

  55. Gwartney, James, Robert Lawson, and Joshua Hall, 2012, Economic Freedom of the World. 2012 Annual Report (Vancouver: Fraser Institute).

  56. Haggard, Stephan and Robert R. Kaufman, 1995, The Political Economy of Democratic Transitions (Princeton, New Jersey: Princeton University Press).

    Google Scholar 

  57. Haldane, Andy, 1999, “Private Sector Involvement in Financial Crises: Analytics and Public Policy Approaches,” Financial Stability Review, Vol. 7, November, pp. 184–202.

    Google Scholar 

  58. Hansen, Bruce E., 2000, “Sample Splitting and Threshold Estimation,” Econometrica, Vol. 68, No. 3, pp. 575–604.

    Article  Google Scholar 

  59. Hardy, Daniel C. and Ceyla Pazarbasioglu, 1999, “Determinants and Leading Indicators of Banking Crises: Further Evidence,” IMF Staff Papers, Vol. 46, No. 3, pp. 247–258.

    Google Scholar 

  60. Harrigan, Jane, Chengang Wang, and Hamed El-Said, 2006, “The Economic and Political Determinants of IMF and World Bank Lending in the Middle East and North Africa,” World Development, Vol. 34, No. 2, pp. 247–270.

    Article  Google Scholar 

  61. Jeanne, Olivier and Charles Wyplosz, 2003, “The International Lender of Last Resort. How Large Is Large Enough?” in Managing Currency Crises in Emerging Markets, NBER Chapters (National Bureau of Economic Research, Inc), pp. 89–124.

    Google Scholar 

  62. Jeanne, Olivier and Jeromin Zettelmeyer, October 2001, “International Bailouts, Moral Hazard and Conditionality,” Economic Policy, Vol. 16, No. 33, pp. 407–432.

    Article  Google Scholar 

  63. Jorra, Markus, 2012, “The Effect of IMF Lending on the Probability of Sovereign Debt Crises,” Journal of International Money and Finance, Vol. 31, No. 4, pp. 709–725.

    Article  Google Scholar 

  64. Joyce, Joseph, November 2011, “Financial Globalization and Banking Crises in Emerging Markets,” Open Economies Review, Vol. 22, No. 5, pp. 875–895.

    Article  Google Scholar 

  65. Joyce, Joseph P. and Ilan Noy, 2008, “The IMF and the Liberalization of Capital Flows,” Review of International Economics, Vol. 16, No. 3, pp. 413–430.

    Article  Google Scholar 

  66. Joyce, Joseph and Raul Razo-Garcia, September 2011, “Reserves, Quotas and the Demand for International Liquidity,” The Review of International Organizations, Vol. 6, No. 3, pp. 393–413.

    Article  Google Scholar 

  67. Kaminsky, Graciela L. and Carmen M. Reinhart, June 1999, “The Twin Crises: The Causes of Banking and Balance-Of-Payments Problems,” American Economic Review, Vol. 89, No. 3, pp. 473–500.

    Article  Google Scholar 

  68. Kauko, Karlo, 2014, “How to Foresee Banking Crises? A Survey of the Empirical Literature,” Economic Systems, Vol. 38, No. 3, pp. 289–308.

    Article  Google Scholar 

  69. Kilby, Christopher, 2009a, Donor Influence in International Financial Institutions: Deciphering What Alignment Measures Measure. Technical Report 8 (Villanova School of Business Department of Economics and Statistics, October).

  70. Kilby, Cristopher, 2009b, “The Political Economy of Conditionality: An Empirical Analysis of World Bank Loan Disbursements,” Journal of Development Economics, Vol. 89, No. 1, pp. 310–329.

    Article  Google Scholar 

  71. Killick, Tony, 1995, IMF Programmes in Developing Countries—Design and Impact (London: Routledge).

    Google Scholar 

  72. Klomp, Jeroen, March 2010, “Causes of Banking Crises Revisited,” The North American Journal of Economics and Finance, Vol. 21, No. 1, pp. 72–87.

    Article  Google Scholar 

  73. Laeven, L.u.c. and Fabian Valencia, 2013, “Systemic banking Crises Database,” IMF Economic Review, Vol. 61, No. 2, pp. 225–270.

    Article  Google Scholar 

  74. Lane, P.R. and G.M. Milesi-Ferretti, 2007, “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004,” Journal of International Economics, Vol. 73, No. 2, pp. 223–250.

    Article  Google Scholar 

  75. Marshall, Monty G., Ted Robert Gurr, and Keith Jaggers, 2010, POLITY IV Project: Political Regime Characteristics and Transitions, 1800–2009 (Vienna, VA, USA: Center for Systemic Peace).

    Google Scholar 

  76. Miller, Marcus and L.e.i. Zhang, January 2000, “Sovereign Liquidity Crises: The Strategic Case for a Payments Standstill,” Economic Journal, Vol. 110, No. 460, pp. 335–62.

    Article  Google Scholar 

  77. Mody, Ashoka and Diego Saravia, 07 2006, “Catalysing Private Capital Flows: Do IMF Programmes Work as Commitment Devices?,” Economic Journal, Vol. 116, No. 513, pp. 843–867.

    Article  Google Scholar 

  78. Morris, Stephen and Hyun Song Shin, 2006, “Catalytic Finance: When Does it Work?” Journal of International Economics, Vol. 70, No. 1, pp. 161–177.

    Article  Google Scholar 

  79. Moser, Christoph and Jan-Egbert Sturm, September 2011, “Explaining IMF Lending Decisions After the Cold War,” The Review of International Organizations, Vol. 6, No. 3, pp. 307–340.

    Article  Google Scholar 

  80. Mumssen, Christian, Yasemin Bal-Gunduz, Christian Ebeke, and Linda Kaltani, 2013, “IMF-Supported Programs in Low Income Countries: Economic Impact Over the Short and Longer Term”, IMF Working Paper 13/273 (Washington, DC: International Monetary Fund).

  81. Noy, Ilan, September 2004, “Financial Liberalization, Prudential Supervision, and the Onset of Banking Crises,” Emerging Markets Review, Vol. 5, No. 3, pp. 341–359.

    Article  Google Scholar 

  82. Oatley, Thomas and Jason Yackee, 2004, “American Interests and IMF Lending,” International Politics, Vol. 41, No. 3, pp. 415–29.

    Article  Google Scholar 

  83. Presbitero, Andrea F. and Alberto Zazzaro, 2012, “IMF Lending in Times of Crisis: Political Influences and Crisis Prevention,” World Development, Vol. 40, No. 10, pp. 1944–1969.

    Article  Google Scholar 

  84. Przeworski, Adam and James Raymond Vreeland, 2000, “The Effect of IMF Programs on Economic Growth,” Journal of Development Economics, Vol. 62, No. 2, pp. 385–421.

    Article  Google Scholar 

  85. Radelet, Steven and Jeffrey D. Sachs, 1998, “The East Asian Financial Crisis: Diagnosis, Remedies, Prospects,” Brookings Papers on Economic Activity, Vol. 1998, No. 1, pp. 1–74.

    Article  Google Scholar 

  86. Reinhart, Carmen M. and Kenneth S. Rogoff, 2009, This Time is Different—Eight Centuries of Financial Folly (Princeton, New Jersey: Princeton University Press).

    Google Scholar 

  87. Reinhart, C.M. and K.S. Rogoff, 2013, “Banking Crises: An Equal Opportunity Menace,” Journal of Banking & Finance, Vol. 37, No. 11, pp. 4557–4573.

    Article  Google Scholar 

  88. Rodrik, Dani, 2006, “The Social Cost of Foreign Exchange Reserves,” International Economic Journal, Vol. 20, No. 3, pp. 253–266.

    Article  Google Scholar 

  89. Rogoff, Kenneth, Fall 1999, “International Institutions for Reducing Global Financial Instability,” Journal of Economic Perspectives, Vol. 13, No. 4, pp. 21–42.

    Article  Google Scholar 

  90. Rosenbaum, Paul R and Donald B Rubin, 1985, “Constructing a Control Group Using Multivariate Matched Sampling Methods that Incorporate the Propensity Score,” The American Statistician, Vol. 39, No. 1, pp. 33–38.

    Google Scholar 

  91. Sachs, Jeffrey D, 2002, “Resolving the Debt Crisis of Low-Income Countries,” Brookings Papers on Economic Activity, Vol. 2002, No. 1, pp. 257–286.

    Article  Google Scholar 

  92. Saravia, Diego, November 2010, “Vulnerability, Crisis and Debt Maturity: Do IMF Interventions Shorten the Length of Borrowing?” Working Papers Central Bank of Chile 600 (Central Bank of Chile).

  93. Steinwand, Martin C. and Randall W. Stone, 2008, “The International Monetary Fund: A Review of the Recent Evidence,” Review of International Organization, Vol. 3, No. 2, pp. 123–149.

    Article  Google Scholar 

  94. Stiglitz, Joseph E., June 2002, Globalization and Its Discontents (New York: W. W. Norton & Company).

    Google Scholar 

  95. Stock, James H. and Motohiro Yogo, 2005, “Testing for Weak Instruments in Linear IV Regression,” in Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg, ed. by Donald W.K. Andrews, and James H. Stock, (Cambridge: Cambridge University Press) chapter 5 pp. 80–108.

  96. Sturm, Jan-Egbert, Helge Berger, and Jakob De Haan, 2005, “Which Variables Explain Decisions on IMF Credit? An Extreme Bounds Analysis,” Economics & Politics, Vol. 17, No. 2, pp. 177–213.

    Article  Google Scholar 

  97. Teorell, Jan et al. April 2011, The Quality of Government Dataset. Technical report (University of Gothenburg: The Quality of Government Institute).

  98. Thacker, Strom Cronan, 1999, “The High Politics of IMF Lending,” World Politics, Vol. 52, No. 10, pp. 38–75.

    Article  Google Scholar 

  99. van der Veer, Koen J. M. and Eelke de Jong, 2013, “IMF-Supported Programmes: Stimulating Capital to Non-Defaulting Countries,” The World Economy, Vol. 36, No. 4, pp. 375–395.

    Article  Google Scholar 

  100. Vaubel, Roland, 1983, “The Moral Hazard of IMF Lending,” The World Economy, Vol. 6, No. 3, pp. 291–304.

    Article  Google Scholar 

  101. Von Hagen, Jürgen and Tai-Kuang Ho, August 2007, “Money Market Pressure and the Determinants of Banking Crises,” Journal of Money, Credit and Banking, Vol. 39, No. 5, pp. 1037–1066.

    Article  Google Scholar 

  102. Vreeland, James Raymond, 1999, The IMF: Lender of Last Resort or Scapegoat? Technical report (New Haven: Yale University).

    Google Scholar 

  103. Vreeland, James Raymond, 2002, “The Effect of IMF Programs on Labor,” World Development, Vol. 30, No. 1, pp. 121–139.

    Article  Google Scholar 

  104. Vreeland, James Raymond, 2003, “Why do Governments and the IMF Enter Into Agreements? Statistically Selected Cases,” International Political Science Review, Vol. 24, No. 3, pp. 321–343.

    Article  Google Scholar 

  105. Zettelmeyer, Jeromin, 2000, “Can Official Crisis Lending be Counterproductive in the Short Run?” Economic Notes, Vol. 29, No. 1, pp. 13–29.

    Article  Google Scholar 

Download references

Authors

Additional information

Supplementary information accompanies this article on the IMF Economic Review website (www.palgrave-journals.com/imfer)

*Luca Papi is professor of economics at the Università Politecnica delle Marche and research affiliate of the MoFiR; his email address is: l.papi@univpm.it. Andrea F. Presbitero is an economist at the International Monetary Fund and MoFiR; his email address is: apresbitero@imf.org. Alberto Zazzaro is professor of economics at the Università Politecnica delle Marche and research affiliate of the MoFiR and CSEF; his email address is: a.zazzaro@univpm.it. The authors thank Axel Dreher, Christopher Kilby, and Gian Maria Milesi-Ferretti for providing data on IMF compliance with conditionality, UN votes and foreign assets and liabilities, respectively. The project was started when Andrea F. Presbitero was visiting scholar at the IMF. The authors wish to thank IMF colleagues for providing historical data on the IMF lending arrangements and for useful guidance. They also thank Pierre-Olivier Gourinchas (the editor), two anonymous referees, Ruchir Agarwal, Michele Fratianni, Joseph Joyce, Jacques Mélitz, Camelia Minoiu, Alessandro Missale, Fabian Valencia, SébastienWalker and participants at the 2013 CSAE Conference (Oxford) and at seminars at the Graduate Institute (Geneva), Università Politecnica delle Marche (Ancona), Università di Genova, and Heriot-Watt University (Edinburgh) for thoughtful suggestions. This research is part of a project on Macroeconomic Research in Low-Income Countries (project id: 60925) supported by the U.K. Department for International Development (DfID).

Electronic supplementary material

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Papi, L., Presbitero, A. & Zazzaro, A. IMF Lending and Banking Crises. IMF Econ Rev 63, 644–691 (2015). https://doi.org/10.1057/imfer.2015.16

Download citation

JEL Classifications

  • F33
  • F34
  • F35
  • O11