Imf Conditionality And Country Ownership Of Programs

IMF Conditionality and Country Ownership of Programs

The paper uses finance and agency theory to establish two main propositions: First, that the conditionality attached to adjustment programs supported by the IMF is justified. Second, that ownership of programs by the borrowing country is crucial for their success. Hence, since both IMF conditionality and country ownership are necessary, the task is one of designing conditionality to maximize program ownership, subject to providing adequate safeguards for IMF lending. The paper discusses some recent proposals for enhancing ownership, and in particular, makes a case for incorporating floating tranches and outcomes-based conditionality in IMF-supported adjustment programs.

IMF Conditionality and Country Ownership of Programs

Imf Conditionality and Program Ownership

Program conditionality and ownership are important considerations in the IMF's current rethinking of program design. This paper contributes to the literature by developing a theory of program conditionality and ownership on the basis of Cumulative Prospect Theory. The policymaker may value a set of programs, each with fewer conditions, more than an extended program with as many conditions. This valuation bias is greater in ambiguity (Knightian uncertainty) than under uncertainty. If greater valuation of a program engenders more explicit and implicit ownership, then programs with fewer conditions may have a better chance of success. Less is more.