The Role of IMF Support in Crisis Prevention

March 1, 2006

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Format: Chicago

Uma Ramakrishnan, and Juan Zalduendo. The Role of IMF Support in Crisis Prevention, (USA: International Monetary Fund, 2006) accessed November 23, 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

This paper examines the role of IMF-supported programs in crisis prevention; specifically, whether, conditional on an episode of intense market pressures, IMF financial support helps prevent a capital account crisis from developing and, if so, through what channels. In doing so, the paper distinguishes between the seal of approval inherent in IMF support and its financing, evaluates the interaction of IMF support with economic policies, and assesses whether IMF financing has a different impact on the likelihood of a crisis than other forms of liquidity. The main result is that IMF financing helps prevent crises through the liquidity provided (i.e., money matters). However, since the effect holds even after controlling for (gross) foreign exchange reserves, stronger policies and the seal of approval under an IMFsupported program must also play a role. Finally, the results suggest that IMF financing as a crisis prevention tool is most effective for an intermediate range of economic fundamentals.

Subject: Capital account crisis, Capital outflows, Crisis prevention, Exchange rate arrangements, Private capital flows

Keywords: Crisis probability, IMF financing, IMF money, IMF resource, IMF staff estimate, IMF support, Market pressure, WP

Publication Details

Pages:

31
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/075
Stock No:

WPIEA2006075
ISBN:

9781451863352
ISSN:

1018-5941

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