IMF Lending in Times of Crisis: Political Influences and Crisis Prevention

In the wake of the global crisis the International Monetary Fund (IMF) has increased its exposure to developing countries and modified its lending approach to enhance its crisis prevention role. In this paper we examine whether, during the current crisis, IMF lending was actually directed at preventing the spread of the crisis and whether participation in IMF programs was sensitive to the politico-economic interests of the Fund's main shareholders. We find that the political similarity with G7 countries is positively correlated with the probability of entering a loan agreement, while the harsher the crisis and the exposure of foreign banks in the country, the larger the loan granted by the IMF. (C) 2012 Elsevier Ltd. All rights reserved.