Sovereign debt workouts with the IMF as delegated monitor - a common agency approach

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 27 May 2003

Working paper no.187
By Prasanna Gai and Nicholas Vause

IMF programmes are frequently criticised for lacking focus and being ineffective in helping maintain private credit lines following a debt crisis. We develop a theoretical model to explore the interlinkages between result-based conditionality and creditor collective action problems. The model highlights the strategic interactions between official and private creditors, and clarifies some of the trade-offs that underpin the design of IMF programmes. We identify conditions under which official creditors are able to limit the efficiency losses generated by creditor non-cooperation and debtor moral hazard. The circumstances under which official lending is able to ‘catalyse’ private sector finance are also analysed.

PDFSovereign debt workouts with the IMF as delegated monitor – a common agency approach

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