Effectiveness of IMF-supported stabilization programs in developing countries

This paper examines the effectiveness of Fund-supported stabilization programs by investigating whether the IMF achieves its own objectives in such programs. Even though the Fund's conditionality prescribes fiscal and monetary discipline in program countries, the results of the empirical analysis show that the IMF cannot impose its conditionality even during program years. Furthermore, when successive interprogram periods are considered, program countries enter a new program in a worse macroeconomic condition than they entered the previous program. These results and the fact that stabilization programs have a revolving nature are inconsistent with the effectiveness of IMF-supported stabilization programs and may signal the existence of moral hazard. (C) 2002 Elsevier Science Ltd. All rights reserved.