The large international bailouts of the 1990s have been criticized for generating moral hazard at the expense of the global taxpayer. We argue that this criticism is misleading because international bailouts create no, or very few, costs to the international community. Instead, the problem is to...

We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the...

We present a framework that clarifies the financial role of the IMF, the rationale for conditionality, and the conditions under which IMF-induced moral hazard can arise. In the model, traditional conditionality commits country authorities to undertake crisis resolution efforts, facilitating the...

The debate on government debt in the context of possible reforms of the international financial architecture has thus far focused on crisis resolution. This paper seeks to broaden this debate. It asks how government debt could be structured to pursue other objectives, including crisis...

Using a simple model of international lending, we show that as long as the IMF lends at an actuarially fair interest rate and debtor governments maximize the welfare of their taxpayers, any changes in policy effort, capital flows, or borrowing costs in response to IMF crisis lending are...

Using a simple model of international lending, we show that as long as the IMF lends at an actuarially fair interest rate and debtor governments maximize the welfare of their taxpayers, any changes in policy effort, capital flows, or borrowing costs in response to IMF crisis lending are...

The large international bailouts of the 1990s have been criticized for differentreasons, in particular for generating moral hazard at the expense of theglobal taxpayer. We argue in this paper that some of these concerns areexaggerated or misleading because international bailouts have no or...

We present a stylized framework which encompasses a variety of "balance sheet approaches" to currency crises that have been suggested in the literature, and analyze their policy implications. The common theme is that currency and maturity mismatches in private sector balance sheets constrain the...

We calculate investor losses ("haircuts") and recovery values in recent debt restructurings in Russia, Ukraine, Pakistan, Ecuador, Argentina, and Uruguay. Haircuts are computed as the percentage difference between the present values of old and new instruments, discounted at the yield prevailing...

We test for the existence of a moral hazard effect attributable to official crisis lending by analyzing the evolution of sovereign bond spreads in emerging markets before and after the Russian crisis. The nonbailout of Russia in August 1998 is interpreted as an event that decreased the perceived...