Unsustainable Debt and the Political Economy of Lending: Constraining the IMF's Role in Sovereign Debt Crises | E-Axes
 

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Unsustainable Debt and the Political Economy of Lending: Constraining the IMF's Role in Sovereign Debt Crises

Abstract

The timely resolution of severe debt crises has long been one of the most difficult challenges for global financial cooperation. Focussing on the case of Greece, this paper examines how the euro crisis precipitated large International Monetary Fund (IMF) loans that violated the framework developed on the basis of the preceding decade to prevent a costly delay in restructuring. The paper reveals that safeguards meant to prevent the IMF from providing support for crisis countries without a reasonably clear path to debt sustainability failed. In fact, changes made in the context of the euro crisis to the IMF’s framework for lending in severe sovereign debt crises will weaken the IMF’s effectiveness in future crises. The paper concludes with four suggestions for how to re-establish an adequate framework for IMF intervention in severe debt crises in the future.

To download the PDF version of the working paper click here.


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