IMF Working Papers

The Macroeconomic Effects of Counterpart Funds and the Underlying Foreign Aid

By Christian B. Mulder

June 1, 1992

Preview Citation

Format: Chicago

Christian B. Mulder The Macroeconomic Effects of Counterpart Funds and the Underlying Foreign Aid, (USA: International Monetary Fund, 1992) accessed September 26, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Counterpart funds generated through foreign currency or commodity aid have again become an issue of interest, in view of the substantial buildup of these funds. Contrary to the usual approach a model is developed in this paper, which takes account of the budgetary impact, supply-side and money demand effects of counterpart funds and the underlying foreign aid. This model is used to show that counterpart funds need not have any economic impact if their creation, use, and effects are adequately monitored and understood, both by donors and by the authorities in the recipient country. The policy rules that ensure an inflation- and foreign reserves-neutral result from expected and unexpected foreign aid are derived and contrasted with a policy rule regarding unexpected foreign aid that is sometimes observed in IMF programs. A feasible alternative is developed. Various real world complications are shown not to alter the conclusions.

Subject: Central banks, Credit, Demand for money, Foreign aid, International reserves, Monetary base, Money, Reserve positions

Keywords: Africa, Commodity aid, Counterpart fund creation, Counterpart fund spending, Counterpart funds, Credit, Foreign currency, Foreign currency aid, International reserves, Monetary base, Money supply, Money supply equation, Reserve positions, WP

Publication Details

  • Pages:

    22

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 1992/047

  • Stock No:

    WPIEA0471992

  • ISBN:

    9781451846591

  • ISSN:

    1018-5941

You May Also Be Interested In...

Zimbabwe: Change in Representative Rate

September 26, 2024

Chinese Banks and Their EMDE Borrowers: Have Their Relationships Changed in Times of Geoeconomic Fragmentation?

September 23, 2024

Togo: Selected Issues

September 23, 2024

Systemic Implications of Financial Inclusion

September 20, 2024