Does IMF Financing Result in Moral Hazard?

If and How

Author: Mr. Steven T Phillips and Mr. Timothy D. Lane

The view that the IMF's financial support gives rise to moral hazard has become increasingly prominent in policy discussions, particularly following the 1995 Mexican crisis. This paper seeks to clarify a number of conceptual issues and bring some basic empirical evidence to bear on this hypothesis. While some element of moral hazard is a logical consequence of the IMF's financial support, such moral hazard is difficult to detect in market reactions to various IMF policy announcements and there is no evidence that such moral hazard has recently been on the rise.

Volume/Issue: Volume 2000 Issue 168

Publication date: October 2000

ISBN: 9781451858259

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Topics covered in this book

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Business and Economics , Banks and Banking , Finance , WP , IMF financing , financing package , IMF funds , IMF lending , IMF action , IMF response , IMF staff estimate , IMF , moral hazard , disbursement policy , liquidity position , IMF governor , fund financial support , IMF disbursement , Fund program , Yield curve , Emerging and frontier financial markets , Systemically important financial institutions , Asia and Pacific

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Summary

The view that the IMF’s financial support gives rise to moral hazard has become increasingly prominent in policy discussions, particularly following the 1995 Mexican crisis. This paper seeks to clarify a number of conceptual issues and bring some basic empirical evidence to bear on this hypothesis. While some element of moral hazard is a logical consequence of the IMF’s financial support, such moral hazard is difficult to detect in market reactions to various IMF policy announcements and there is no evidence that such moral hazard has recently been on the rise.