The Role of IMF Arrangements in Restoring Access to International Capital Markets

By Joseph Kogan, Romina Kazandjian, Shijia Luo, Moustapha Mbohou, Hui Miao

August 9, 2024

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Format: Chicago

Joseph Kogan, Romina Kazandjian, Shijia Luo, Moustapha Mbohou, and Hui Miao. The Role of IMF Arrangements in Restoring Access to International Capital Markets, (USA: International Monetary Fund, 2024) accessed November 12, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Using a database of emerging market fundamentals and bond index spreads across 56 frontier and emerging market countries rated below investment grade during the period 2002-22, we assess whether IMF arrangements can restore access to international capital markets (ICM) for countries in distress through liquidity and conditionality channels. We find that global financial conditions and debt/GDP are the most important determinants of access to ICM within the horizon of a typical IMF arrangement. Using an event study methodology, we show that spreads increase prior to the start of an IMF arrangement and then decrease gradually. By exploiting different characteristics of IMF arrangements, we find evidence that the reforms implemented under the IMF arrangement, as measured by rounds of successful IMF reviews, matter more in the medium term than the IMF’s role as a liquidity provider. These results are consistent with our analysis of 55 credit rating upgrades to ICM access levels, which suggests that debt reduction plays the largest role and that IMF arrangements lend credibility to reforms.

Subject: Balance of payments, Bonds, Credit ratings, Current account balance, Financial institutions, Financial markets, International capital markets, Money, Public debt

Keywords: Bonds, Capital markets department, Credit ratings, Current account balance, Debt crisis, Debt rescheduling, Default, Eurobonds, Global, IMF, IMF arrangement, IMF effect, IMF review, IMF working paper 2024/173, International capital markets, Market access, Sovereign bonds, Sovereign debt, Sovereign debt restructuring

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/173
Stock No:

WPIEA2024173
ISBN:

9798400284021
ISSN:

1018-5941

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