The Global Crisis in Low- and Middle-Income Countries: How the IMF Responded

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1 The Global Crisis in Low- and Middle-Income Countries: How the IMF Responded Andrea F. Presbitero Alberto Zazzaro 1 Università Politecnica delle Marche 2 Money and Finance Research group (MoFiR) Real and Financial Causes and Consequences of 2008 Crises Rome, June Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

2 I feel cheated as I wonder how economic problems somewhere in America can make my cash crop suffer here in Malawi. It s a shame that I cannot boil and eat it. A Malawian cotton farmer little of the money given to the IMF was likely to get to the poorest countries [... and that] one of the impetuses for the Western European governments providing funds was that they hoped that the IMF would help Eastern Europe. Joseph Stiglitz, Freefall (2010) Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

3 The global crisis 10 World G7 Emerg. & Dev. Western Hem Dev. Asia SSA CIS CEE April 2008 estimates April 2010 estimates Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

4 Motivations The global financial crisis puts the Fund back at center stage. IMF lending has been criticized by left-wingers, for imposing on borrower countries uniform, intrusive, ineffective and ideological austerity programs, ( Washington Consensus ) and by right-wingers, for encouraging moral hazard (Bird 2007). The common blame is that the Fund (and WB) lending decisions are sensitive not only to the economic imbalances of borrowers, but also to their lobbying capacity and to political-economy interests of the IMF s major shareholders the USA and G-7 countries (Andersen et al. 2006; Dreher and Jensen 2007; Kilby 2009). The research question IMF lending to low- and middle-income countries during the crisis has been driven by the severity of the crisis and/or by the strategic interests of its major shareholders? Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

5 The Financing Gap and the Government Response Developing countries are going to face a financing gap of around $ bn. The poorest people in the poorest countries, the least responsible for the crisis, end up being the most exposed to the global recession. The severity of the crisis in poor countries is harshened by the lack of safety nets and by national governments lack of appropriate tools to tackle the crisis: 1 limited fiscal space (Reinhart and Reinhart 2009); 2 small fiscal multipliers (Ilzetzki and Vegh 2008); 3 limited access to international capital markets and thin domestic financial markets might crowd-out private investment (Berg et al. 2009); 4 a fiscal expansion could result in: vulnerability of debt crisis (HIPC countries) financing deficits with money creation, losing the central bank hard-gained credibility (price stability). Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

6 The International Community Response Given the limited room for counter cyclical policies, the role of donors and of the international community in poor countries becomes fundamental: Between July 2008 and June 2009, the World Bank committed USD 58.8 billion to finance spending in basic infrastructure, health, schooling and social safety net programs. The World Bank is supporting a Vulnerability Fund : industrialized countries should contribute the 0.7% of their economic stimulus packages to a fund providing financial assistance to LDC. UNCTAD calls for a temporary debt moratorium on all official debt of low income countries. The IMF undertook a substantial revision of its lending instruments to poor countries and doubled its borrowing limits, in order to meet the increased needs of LIC. Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

7 The IMF response to the crisis New lending facilities for emerging markets: 1 establishment of the Flexible Credit Line (FCL), based on ex-ante conditionality, and 2 more flexible Stand-By Arrangements (SBA) with fewer structural conditions. for low income countries: 1 faster and easier (fewer conditionalities) access to the Exogenous Shock Facility (ESF) and 2 establishment of the Poverty Reduction and Growth Trust (PRGT). Increased lending capacity August 2009: an SDR allocation equivalent to USD 283 bn (110 for EM and LIC) increasing the Fund s lending capacity to USD 750 bn. Only the 2.5% of the USD 172 bn agreed since 2008 goes to poor (PRGF-eligible) countries (but they account for 6% of GDP and 40% of population). The average loan is equal to 7.3% of GDP for the SBA, 4.4% for the FCL, 2.9% for the ECF and 1.4% for ESF. Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

8 The determinants of IMF loan arrangements There is a vast literature examining the motivations of the Fund and member countries for entering into a lending arrangement (Joyce 2004; Bird 2007; Steinwand and Stone 2008; Ghosh et al. 2008). Among the macroeconomic variables, the probability of participating in an IMF lending arrangement and the size of the loan are greater in countries with low levels of international reserves and income, past IMF loan programs, and overvalued exchange rates (Bird 2003). Current account deficit, large external debt and terms of trade shocks are not always significant. Economic variables alone, apart from providing weak results, have a limited explanatory power. Among political-economy variables, the strategic closeness to the US and EU countries (measured by the voting in UN General Assembly and by bilateral aid) and the economic ties with the IMF major shareholders (proxied by trade flows and the presence of foreign-owned banks) are correlated with the participation in IMF loan programs (Thacker 1999; Bird and Rowlands 2001; Barro and Lee 2005; Broz and Hawes 2006; Andersen et al. 2006; Eichengreen et al. 2006; Dreher 2006). Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

9 IMF lending arrangements in 2008 and 2009 Country Loan size (mil $) (% GDP) Country Loan size (mil $) (% GDP) Stand-By Arrangements (SBA) Honduras % Armenia, Republic of % Georgia % Mongolia % Ukraine % Costa Rica % Hungary % Guatemala % Seychelles % Romania % Iceland % Bosnia and Herzegovina % Pakistan % Sri Lanka % Latvia, Republic of % Dominican Republic % Belarus, Republic of % Angola % El Salvador % Maldives % Serbia, Republic of % Total % Extended Fund Facility (EFF) Liberia % Moldova, Republic of % Seychelles % Total % Flexible Credit Line (FCL) Mexico % Colombia % Poland, Republic of % Total % Extended Credit Facility (ECF) - formerly PRGF Liberia % Sao Tome & Principe 4 2.2% Togo % Cote d Ivoire % Mali % Tajikistan, Republic of % Niger % Ghana % Zambia % Comoros % Burundi % Congo, Democratic Republic of % Djibouti % Moldova, Republic of % Congo, Republic of % Total % Exogenous Shocks Facility - (ESF) Malawi % Mozambique % Kyrgyz Republic % Ethiopia % Senegal % Maldives % Tanzania % Total % Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

10 Sample and empirical strategy PRFG-eligible Income LIC LMIC UMIC Total No Yes Total The IMF lending decision can be modeled as a two-step process (Heckman 1979), the first being the choice whether to lend or not (selection equation) and the second concerning the amount of resources to lend (outcome equation). Sample: 125 low and middle income countries, 45 are IMF loan recipients. Iceland and Hungary are excluded as high income countries and Liberia as an outlier. Countries (Moldova, Seychelles and Maldives) receiving more than one loan are treated as one observation. In the non-treated group we control for the presence of IMF loan arrangement already in place at the end of The key variable CRISIS is the difference in the cumulated GDP growth over the period between the April 2008 and the April 2010 WEO estimates. Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

11 Variables and sources Variable Description Sample means No Pr IMF pr IMF LOAN Dummy equal to one whether the country agreed on an IMF loan in 2008 Whole sample: and Source: IMF LOAN SIZE Amount of IMF credit (% GDP). Source: IMF * CRISIS The difference in the cumulated GDP growth over the period , * between the April 2008 and the April 2010 estimates. Source: WEO GDP 2007 Log of GDP in 2007 (current USD). Source: WDI GDP PC 2007 Log of GDP per capita in 2007 (current USD). Source: WDI * CAB 2007 Current account balance (% GDP) in Source: WDI * RESERVE 2007 Total reserves in months of imports in Source: WDI * IMF LOANS of years during which the country was under an IMF loan program for * at least 5 months between 1990 and Source: Dreher (2006) AID G Official development assistance by G7 countries in 2007 (% GDP). Source: * OECD-DAC and WDI IMPORT G Imports from G7 countries in (%GDP). Source: Barbieri et al (2009) and WDI FOREIGN BANK 2007 Total foreign banks claims (% GDP) in Source: BIS NON COMPLIANCE Share of years ( ) when the country was non-compliant with its * IMF program (at least 25% of the amount agreed remained undrawn at program expiration). Source: Dreher and Walter (2010) UN VOTING G Percentage of votes at the UNGA inline with G-7 countries, votes with > * 80% of the countries agreed discarded, average over Definition according to Thacker (1999). Source: Dreher & Sturm (2006) US AFFINITY Voting similarity in the UNGA with the USA. Source: Gartzke (2007) * DEMOCRACY A dummy for a democracy. Source: Cheibub, Gandhi and Vreeland (2009) Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

12 Global crisis and IMF lending, PRGF-eligible countries No program MDG VCT AZE LCA GRD ERI SDN KHM HTI NIC MRT LSO GIN CPV CMR CAF ALB BEN KIR VNM NGA SLE DMA BFA GMB BGD GUY BOL YEM TCD KEN BTN NPL IND TON UGA LAO GNB UZB SLB RWA VUT PNG SBA EFF ARM GEO MNG MDA PAK AGO HND MDV LKA ECF ZAR DJI BDI COM CIV STP TJK TGO NER COG ZMB MLI GHA ESF SEN TZA KGZ MOZ MWI ETH Revision in the GDP growth rate between WEO April 2010 and April 2008 estimates, over (in percent) Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

13 Global crisis and IMF lending, middle-income countries LTU No program LBY RUS BGR KAZ VEN TUR JAM NAM MKD THA PHL BWA KNA MYS IRN ZAF FJI MUS TUN CHL PRY DZA EGY PAN MAR JOR BLZ SUR ARG ECU IDN GAB BRA SWZ PER CHN SYR URY LBN SBA LVA UKR ROM BIH SRB SLV CRI BLR GTM DOM EFF SYC FCL MEX COL POL Revision in the GDP growth rate between WEO April 2010 and April 2008 estimates, over (in percent) Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

14 IMF lending and the severity of the crisis Impact of the crisis on GDP growth LTU MDG LBY VCT RUS AZE GRD LCA BGR KAZ ERI SDN HTI KHM AGO NIC JAM TUR VEN HND ALB CAF CMR CPV GIN LSO MRT BWA KNA MKD NAM PHL THA SEN FJI IRN MYS MUS ZAF DJI GTM CRI BEN KIR CIV BFA DMA NGA VNM CHL DZA SLE EGY TZA STP GMB KGZ TJK BGD BOL GUY BTN IND KEN TCD YEM ARG BLZ JOR MAR PAN PRY TUN NPL TON BRA ECU GAB IDN SUR NER COG GNB LAO UGA CHN PER SWZ MLI MOZZMB MWI RWA SLB UZB SYR VUT URY PNG ETH LBN SLV GHA MNG ZAR COL MEX COM POL TGO DOM ARM BLR BDI MDV LKA LVA PAK SYC GEO ROM SRBBIH MDA UKR IMF Loan amount (% GDP) PRGF eligible countries Linear fit whole sample Other recipients Linear fit PRGF eligible countries (a) Revision in GDP growth rates Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

15 IMF lending and balance of payment problems LBY 40 LBY Total reserves in months of imports DZA BWA CHN RUS BOL BTN IND NGA UZB BRA IRN SYR LBN PER BEN GNB YEM ARG MAR BFA LAO CMR LSO RWA UGA EGY NPL PNG ALB GMB AZE BGD AGO CAF CPV KEN KGZ DMA GRD GUYHND KHM KIR SLB SLE TCD BGR MLI NER TZA STP TON VNM VUT IDN JOR MYS PHL THA URY VEN FJI MKD MOZ HTI LCA MDG NIC GAB COG SEN VCT CHL KAZ ECU JAM KNA LTU MUS PRY NAM SUR SWZ TUN TUR ZAF DJI CIV GTM CRI ETH ERI MRT MWIZMB GIN SDN BLZ PAN TJK COM COL MNG POL SLV GHA MEX TGO DOM ZAR BLR BDI PAK ARM LKALVA MDV SYC BIH ROM SRB UKR GEO MDA Current account balance (% GDP) AZE DZA NGA AGO BOL LSO BWA GAB MYS BTN GNB CHN IRN NAM UZB VEN CHL ECU PHL RUS THA BGD CMR ERI HTI IND KGZCIV KEN KHM KIR NPL PNG ARG EGY IDN BRA MAR PER PRY SUR URY RWA MWI SLE UGA BLZ ETH CAF VUT SWZ SYR TUN ALB BEN BFA YEM CPV GIN COG MLI NER ZMB GTM KAZ LBN MKD MUS PAN TUR ZAF CRI MRT TCDHND TJK TON VNM TZA GMB SDN SLB SENMOZ LAO MDG GUY NIC FJI JAM LTU JOR BGR KNA DMA VCT GRD LCA DJI STP MEX COL ZAR SLV DOM POLTGO COM GHA MNG BLR LKAPAK ARM BDI LVA SYC MDV UKR BIHROM SRB MDA GEO IMF Loan amount (% GDP) IMF Loan amount (% GDP) PRGF eligible countries Other recipients PRGF eligible countries Other recipients Linear fit whole sample Linear fit PRGF eligible countries Linear fit whole sample Linear fit PRGF eligible countries (b) Reserves (months of imports), 2007 (c) Current account (% GDP), 2007 Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

16 IMF lending and income CHN GDP per capita (current USD) LTU KNA CHL LBY RUS TUR GAB VEN BRA ARG BWA KAZ MYS URY GRD LBN LCA PAN ZAF CRI VCT BGR MUS DMA JAM SUR BLZ AZE DZA FJI IRN MKD NAM ALB PER ECU THA TUN AGO CPV JOR TON CHN VUT MAR SWZ GTM COG BOL BTN CMR GUY KIR EGY IDN PRY SYR PHL HND IND DJI CIV BEN BFA BGD CAF ERI GIN GMB HTI KEN KHM LAO LSO MRT NGA NIC PNG SDN SLB SEN KGZ STP GNB MDG NPL RWA TCD UZB VNM YEM ZMB SLE UGAMLI NER ETH TZA MOZ MWI TJK POL DOM SLV MEX COL MNG GHA COM TGO ZAR BLR LVA MDV ARM LKA PAK BDI SYC SRB BIH ROM UKR GEO MDA log GDP (current USD) IND BRA RUS TUR IDN ARG IRN THA NGA CHL MYS VEN ZAF DZA EGY PHL KAZ PER BGD VNM MAR LBY AGO SDN AZE BGR ECU LTU SYR TUN GTM KEN CMR UZB YEM LBN CRI JOR PAN URY ETH TZA CIV ALB BOLHND BEN BFA HTI KHM NPL UGA BWA GAB JAM PRY SEN ZMB MDG COGMLI MOZ GIN NIC PNG TCD MKD NAM MUS LAO RWA NER FJI MWI KGZ TJK MRT SUR SWZ CAF CPV ERI LSO SLE BTN GUY BLZ LCA DJI GMB GRD SLB VCT VUT KNA DMA GNB TON KIR STP DOM SLV GHA POL COM MEX COL ZAR MNG TGO BLR LKALVA BDI PAK ARM MDV SYC SRB BIH ROM GEO UKR MDA IMF Loan amount (% GDP) IMF Loan amount (% GDP) PRGF eligible countries Other recipients PRGF eligible countries Other recipients Linear fit whole sample Linear fit PRGF eligible countries Linear fit whole sample Linear fit PRGF eligible countries (d) per capita GDP (USD), 2007 (e) log GDP (USD), 2007 Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

17 IMF lending and political ties with G7 countries Aid by G7 countries (% GDP) SLE KIR VCT CMR RWA DJI MWI TZA STP HTI MOZ CAFMLI ETH MDG UGA VUT BFA GNB GUY KHM NER LAO MRT BEN GIN GMB NIC SLB ZMB SEN KEN LSO NPL SDN TCD KGZ BTN ERI TJK ALB BOL CPV TON VNM JOR LBN AZE BGD DMAHND GRD LCA COG IND NGA UZB YEM BLZ BWA AGO CIV PNG ARG BRA CHL CHN DZA ECU EGY KNA MAR MKD NAM FJI GAB MUS IDN IRN JAM KAZ LBY MYS PER PHL PRY SWZ TUN SUR SYR GTM THA TUR URY VEN ZAF CRI PAN GHA COM SLV DOM ZAR TGO MNG COL MEX BLR BDI ARM MDV LKAPAK SYC SRBBIH GEO MDA UKR Voting similarity in the UNGA with the G BGR LTU MKD ALB TUR ARG KAZ RUS UZB AZE KGZ SLB TJK TON KIR CHL PAN PRY ZAF BOL ERI BRA URY GTM KHM VCT AGO BEN CAF CPV DMA GRD GUY HTI HND STP MWI NIC VUT BLZ ECU JAM PER FJI KNA MUS CRI GMB COG ETH CIV BFA BGD GNB LCA MOZ KEN NPL PNG RWA BWA SUR SWZ VEN SEN GAB THA BTN CMR GIN LSO MDG MRT SLE TCDMLI DJIZMB NGA YEM DZA EGY JOR MAR MYS NAM PHL TUN LBN NER UGA CHN IDN TZA IND LAO SDN IRN LBY VNM SYR POL MNG SLV DOM COL MEX ZAR COMTGO GHA BLR LVA ARM LKA BDI PAK SYC MDV SRB BIH ROM MDA GEO UKR IMF Loan amount (% GDP) IMF Loan amount (% GDP) PRGF eligible countries Other recipients PRGF eligible countries Other recipients Linear fit whole sample Linear fit PRGF eligible countries Linear fit whole sample Linear fit PRGF eligible countries (f) ODA form G7 (% GDP), 2007 (g) Share of votes at the UNGA inline with G7, Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

18 IMF lending and economic ties with G7 countries Foreign banks claims (%GDP) PAN BLZ MUS VCT LCA LVA BGR BIH LTU ROM DMA VUT SRB ALB CPV MYS POL GRD CHL FJI JAM ZAF MDV DJI CIV GUY MOZ CRI SLV PNG TON GHA AZE BFA CMR HND BEN BGD AGO BOL BTN GIN GMB IND VNM BRA SEN STP CAF ERI GNB HTI KEN KIR LAO MDG MRT LKA KHM LSO NGA NIC SLB NPL COGMLI NER ETH MWI KGZ COMMNG BDIARM PAK RWA SDN SLE UGA ARG BWA EGY GAB KAZ LBN MEX UKR MAR MKD PER IDN JOR PHL PRY RUS THA TUN TUR URY DOM TZA ZMB TGO TCD UZB YEM CHN VEN GTM COL DZA ECU IRN LBY NAM SUR SWZ SYR TJK ZAR BLR GEOMDA SYC Import from G7 countries (%GDP) LBY HND KHM LSO GAB GUY MYS AGO DZA COG MUS NIC TUN BWA NGA VNM VEN CRI AZE MDG MRT TCD CHN THA PHL BGR SUR CIV ECU KNA NAM SWZ GTM BGD CMR HTI PNG BLZ FJI KAZ LTU MKD SYR MAR JOR RUS ZAF GIN ALB CHL IDN KEN TON EGY JAM TUR PER MOZ MWI BOL CAF GMB GNB IND KIR NER TJK LAO LCA NPL SLE SEN BEN BFA BTN CPV DMA ETH ERI GRD SLB STP RWA SDN UGA UZB VCT VUT YEM ARG BRA IRN URY PAN LBN PRYMLI TZADJI KGZ ZMB MEX DOM MNG SLV POL GHA COMCOL ZAR TGO BLR SYC LKALVA MDV PAK ARM BDI SRB BIH ROM MDA UKR GEO IMF Loan amount (% GDP) IMF Loan amount (% GDP) PRGF eligible countries Other recipients PRGF eligible countries Other recipients Linear fit whole sample Linear fit PRGF eligible countries Linear fit whole sample Linear fit PRGF eligible countries (h) Debt to the private sector (% GDP), 2007 (i) Import from G7 (% GDP), Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

19 The determinants of IMF lending, whole sample (1) Outcome equation Dep Var: LOAN SIZE Selection equation Dep Var: IMF LOAN (1) (2) (3) (1) (2) (3) CRISIS 0.130*** 3.101* (0.038) (1.733) SBA/EFF /FCL (0,1) 0.025** 0.030*** 0.027** (0.011) (0.011) (0.011) GDP ** 0.004* 0.006** (0.003) (0.003) (0.003) (0.092) (0.095) (0.093) GDP PC ** *** ** * * (0.005) (0.005) (0.004) (0.165) (0.217) (0.175) CAB *** *** *** * ** (0.040) (0.041) (0.038) (1.480) (1.697) (1.541) RESERVE *** *** *** (0.002) (0.002) (0.002) (0.079) (0.080) (0.083) CRISIS LLMIC 0.139*** 5.540** (0.041) (2.371) CRISIS UMIC 0.145* (0.077) (3.174) LLMIC (0.014) (0.647) CRISIS DEMOCRACY 0.116*** 3.487* (0.042) (2.034) CRISIS DICTATORSHIP 0.135** (0.054) (3.225) DEMOCRACY (0,1) (0.009) (0.475) EXISTING LOAN (0,1) *** *** *** (0.630) (0.732) (0.638) IMF LOANS ** 0.081*** 0.076** (0.030) (0.031) (0.031) λ 0.015* 0.015* (0.009) (0.009) (0.009) Observations Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

20 The determinants of IMF lending, whole sample (2) Outcome equation Dep Var: LOAN SIZE Selection equation Dep Var: IMF LOAN (1) (2) (3) (1) (2) (3) CRISIS 0.081* 0.110*** 0.120*** * 3.641** (0.045) (0.037) (0.034) (2.116) (1.788) (1.825) SBA/EFF /FCL (0,1) 0.025** 0.038*** 0.024** (0.011) (0.010) (0.010) GDP (0.003) (0.002) (0.002) (0.103) (0.096) (0.098) GDP PC ** *** *** * ** (0.005) (0.005) (0.004) (0.209) (0.195) (0.193) CAB *** ** ** * ** (0.041) (0.041) (0.039) (1.615) (1.654) (1.599) RESERVE *** *** *** (0.002) (0.002) (0.002) (0.086) (0.085) (0.090) UN VOTING G ** (0.052) (2.544) AID G (0.163) (7.702) IMPORT G *** (0.036) (1.567) FOREIGN BANK ** (0.012) (0.483) NON COMPLIANCE ** (0.013) (0.771) EXISTING LOAN (0,1) *** *** *** (0.698) (0.654) (0.651) IMF LOANS ** 0.078** 0.063* (0.033) (0.031) (0.037) λ ** (0.010) (0.009) (0.009) Observations Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

21 IMF lending and foreign assistance, whole sample Auxiliary aid model Two-step model of IMF lending Dep. Var.: ODA G7 t β S.E. β S.E. ODA G7 t *** Outcome equation: Dep. Var.: LOAN SIZE GROWTH t AID COUNTRY FE GROWTHt CRISIS 0.127*** GDP PC t *** SBA/EFF /FCL (0,1) 0.021* GDP PCt *** GDP GDP t *** GDP PC ** GDPt *** CAB *** TDS t RESERVE TDSt DEBT t DEBTt Selection equation: Dep. Var.: IMF LOAN AID COUNTRY FE ** CRISIS 4.234** R 2 within GDP Observations 595 GDP PC Countries 110 CAB Periods 6 RESERVE ** F-test (p-value) IMF LOANS F-test on country fixed effects EXISTING LOAN *** (p-value) λ Obs. (censored) Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

22 Concluding remarks Preliminary analysis of the 2008 and 2009 IMF arrangements in developing countries shows that: 1 as in past experiences, recidivism, balance of payments problems and low levels of income matter; 2 the severity of the economic crisis appears to influence the Fund s lending policies; 3 a decisive role is played also the political affinity between the borrower and the IMF major shareholders and by their strategic interests. Deficit spending coupled with IMF loans are leading to burgeoning public debts, undermining debt sustainability (Presbitero 2009; IMF and WB 2010): 1 Loans or grants to assist LICs? 2 Does the IMF target poor countries? Presbitero Zazzaro (Univpm) IMF lending and the global crisis Rome, June / 22

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