Vested Interests in a Positive Theory of IFI Conditionality

April 1, 2002

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Format: Chicago

Alex Mourmouras, and Wolfgang Mayer. Vested Interests in a Positive Theory of IFI Conditionality, (USA: International Monetary Fund, 2002) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Understanding of the domestic political environment is key to building broad country ownership and the successful implementation of reform programs supported by international financial institutions (IFIs). But recipient countries are not unitary actors: policymakers are influenced by special interest groups (SIGs) opposing reforms, leading to distorted policies. Using a new model of the financial relations between a benevolent IFI and a sovereign borrower subject to influence by SIGs, we analyze the determinants and welfare impacts of conditional and unconditional assistance. While conditionality may raise IFI welfare, economize on the amount of assistance, and lower domestic distortions, it may not always raise recipient country welfare. Recipient governments are always better off if assistance is provided unconditionally.

Subject: Foreign aid, Loans

Keywords: Economic policy, Objective function, Welfare contour, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/073
Stock No:

WPIEA0732002
ISBN:

9781451849479
ISSN:

1018-5941

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