Prague Economic Papers 2002, 11(1):67-86 | DOI: 10.18267/j.pep.189

International monetary fund bailouts, moral hazard and private sector involvement

Jiųķ Jonį¹
International Monetary Fund, Office 11-302, 700 19th Street NW, Washington D.C. 20431 (e-mail: jjonas@imf.org).

Since the mid-1990s, the IMF has provided large financial assistance to a number of member countries affected by serious financial and exchange rate crises. Because of the unprecedented size of these packages and possible negative side effects, the desirability of such assistance has become a hotly discussed issue. A consensus is now forming that official lending to country in crisis should not cease completely, but at the same time, official funds cannot be expected to fill in any existing financing gap. The article evaluates the risk of moral hazard connected with IMF lending. Although the substantial assistance inevitably influences the behavior and expectations of all players, there is little support for argument that lending created serious moral hazard. The role of the IMF conditionality as the traditional tool of reducing moral hazard is described in the circumstances of the new capital account developments.

Keywords: IMF, financial assistance, moral hazard, financial and exchange rate crisis
JEL classification: F33, F34, F35

Published: January 1, 2002  Show citation

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Jonį¹, J. (2002). International monetary fund bailouts, moral hazard and private sector involvement. Prague Economic Papers, 11(1), 67-86. doi: 10.18267/j.pep.189
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