Diego Saravia

Catalyzing Capital Flows; Do IMF-Supported Programs Work As Commitment Devices?

An objective of IMF-supported programs is to help countries improve their access to international capital markets. In this paper, we examine the issue whether IMF-supported programs influence the ability of developing country issuers to tap international bond markets and whether they improve spreads paid on the bonds issued. We find that IMF-supported programs do not provide a uniformly favorable signaling effect - that is, the mere existence of a program supported by the IMF does not act as a strong seal of good housekeeping. Instead, the evidence is most consistent with a positive effect of IMF-supported programs when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the IMF-supported program matters, but the credibility of a joint commitment by the country and the IMF appears to be critical.

Catalysing Private Capital Flows: Do IMF Programmes Work as Commitment Devices?

In this article, we examine whether IMF programmes influence the ability of developing country issuers to tap international bond markets and if they improve spreads paid on the bonds issued. We find that Fund programmes do not provide a uniformly favourable signalling effect. Instead, the evidence is most consistent with a positive effect of IMF programmes when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the Funds programme matters but the credibility of a joint commitment by the country and the IMF appears to be critical.

Catalyzing Capital Flows: Do IMF Programs Work as Commitment Devices?

An objective of IMF programs is to help countries improve their access to international capital markets. In this paper, we examine if Fund programs influence the ability of developing country issuers to tap international bond markets and whether they improve spreads paid on the bonds issued. We find that Fund programs do not provide a uniformly favorable signaling effect, i.e., the mere presence of the IMF does not act as a strong seal of good housekeeping. Instead, the evidence is most consistent with a positive effect of IMF programs when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly. The size of the Funds program matters, but the credibility of a joint commitment by the country and the IMF appears to be critical.

Imported Inputs, Quality Complementarity, and Skill Demand

This paper analyzes how access to imported inputs affects firms in developing countries, where domestically produced high-quality inputs are relatively costly. We build an O-Ring type model with quality complementarity across input tasks, ranking tasks by their quality sensitivity. Because high-quality inputs are relatively cheap in international markets, firms use these instead of domestic inputs for quality-sensitive production steps. This substitution effect lowers the demand for domestic input quality (such as skilled labor), while it raises output quality. At the same time, the complementarity effect increases the return to quality in the remaining domestic tasks. This raises output quality further; it also increases the demand for domestic input quality (skills), counterbalancing the first effect. To provide evidence for this mechanism, we match high-resolution data from Chilean customs to a large firm-level panel for the period 1992-2005. In line with the models predictions, importers use ceteris paribus a lower share of skilled workers, while their skill demand increases significantly with the quality of imports.

From Crisis to IMF-Supported Program: Does Democracy Impede the Speed Required by Financial Markets?

Has the spread of democracy and political participation impeded the need for speed required by financial markets and the elevated threat of contagion across borders? We examine the time span between the onset of a financial crisis and the agreement on an IMF-supported adjustment program. This span appears to have decreased over time. More precisely, we find that the time from a crisis to the approval of a program has been smaller the more serious the crisis. Importantly, this responsiveness to a widening range of financial vulnerabilities has increased with growing financial integration. Democracies, particularly those with checks and balances, have been sensitive to time pressures.

Seniority in International Markets: The Case of the IMF

The IMF is a preferred creditor. Introducing this in the analysis gives that too much rescuing in the future would lead to too little borrowing in the present, which is the contrary to the standard moral hazard critique. Ex-post, an IMF intervention always make the country better off. However, IMF interventions make existing creditors worse off when the country solvency and liquidity situation is either good or weak and make them better off when it is in an intermediate range. This is consistent with the empirical evidence. The possibility of a future senior intervention can make the country ex-ante better off by preventing inefficient liquidation. However, although such an intervention always makes the country ex-post better off, it might actually hurt the country ex-ante. In this case the country would be ex-ante better off by committing today not to borrow from the IMF in the future, although this promise is not time consistent.