Costs of IMF Supported Stabilization Programs"
BY: MICHAEL M. HUTCHISON
University of California at Santa Cruz
Department of Economics
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Paper ID: UCSC Dept. of Economics Working Paper No. 485
Date: May 2001
Contact: MICHAEL M. HUTCHISON
Email: Mailto:hutch at cats.ucsc.edu
Postal: University of California at Santa Cruz
Department of Economics
Social Sciences I
Santa Cruz, CA 95064 UNITED STATES
Phone: 831 459-2600
Fax: 831 459-5900
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ABSTRACT:
This paper investigates the output effects of IMF-supported
stabilization programs, especially those introduced at the time
of a severe balance of payments/currency crisis. Using a panel
data set over the 1975-97 period and covering 67 developing and
emerging-market economies (with 461 IMF stabilization programs
and 160 currency crises), we find that currency crises-even
after controlling for macroeconomic developments, political and
regional factors-significantly reduce output growth for 1-2
years. Output growth is also lower (0.7 percentage points
annually) during IMF-stabilization programs, but it appears that
growth generally slows prior to implementation of the program.
Moreover, programs coinciding with recent balance of payments or
currency crises do not appear to further damage short-run growth
prospects. Countries participating in IMF programs significantly
reduce domestic credit growth, but no effect is found on budget
policy. Applying this model to the collapse of output in East
Asia following the 1997 crisis, we find that the unexpected
(forecast error) collapse of output in Malaysia-where an
IMF-program was not followed -- was similar in magnitude to
those countries adopting IMF programs (Indonesia, Korea,
Philippines and Thailand).