Working Paper: CEPR ID: DP10998
Authors: Carmen M. Reinhart; Christoph Trebesch
Abstract: A sketch of the International Monetary Fund?s 70-year history reveals an institution that has reinvented itself over time along multiple dimensions. This history is primarily consistent with a ?demand driven? theory of institutional change, as the needs of its clients and the type of crisis changed substantially over time. Some deceptively ?new? IMF activities are not entirely new. Before emerging market economies dominated IMF programs, advanced economies were its earliest (and largest) clients through the 1970s. While currency problems were the dominant trigger of IMF involvement in the earlier decades, banking crises and sovereign defaults became they key focus since the 1980s. Around this time, the IMF shifted from providing relatively brief (and comparatively modest) balance-of-payments support in the era of fixed exchange rates to coping with more chronic debt sustainability problems that emerged with force in the developing nations and now migrated to advanced ones. As a consequence, the IMF has engaged in ?serial lending?, with programs often spanning decades. Moreover, the institution faces a growing risk of lending into insolvency, most widespread among low income countries in chronic arrears to the official sector, but most evident in the case of Greece since 2010. We conclude that these practices impair the IMF?s role as an international lender of last resort.
Keywords: currency crashes; financial crashes; IMF; international borrowing; lender of last resort; sovereign default
JEL Codes: E5; F33; F4; F55; G01; G15; G2; N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| IMF lending patterns (F34) | evolving needs of clientele (L84) |
| IMF lending patterns (F34) | types of crises faced over time (H12) |
| shift from currency crises to chronic debt sustainability issues (F65) | changing nature of clientele (D26) |
| IMF's focus on chronic debt sustainability issues (F34) | engagement in serial lending (G21) |
| engagement in serial lending (G21) | lending practices impair IMF's role as lender of last resort (F65) |
| changing nature of crises faced by IMF (F33) | redefinition of IMF's role and tools (F33) |
| IMF's increasing involvement in lending to countries with excessive debt burdens (F34) | demand-driven theory of institutional change (O17) |
| lending practices (G21) | concentration of IMF loans among European countries (F65) |