What Determines the Success or Failure of Fund-Supported Programs?

Abstract

This paper is a theoretical and empirical exploration into the factors influencing the outcomes of Fund-supported programs. First, new measures are constructed related to: (1) the incidence of major program interruptions; (2) overall compliance with conditionality; and (3) the Fund’s effort in designing and monitoring programs. Second, a political economy model is presented of IFI-borrower interactions in which resistance by vested interests is a key factor inhibiting reforms. Third, an econometric model is tested that relates program implementation to initial conditions, political economy influences, and Fund effort and conditionality. We find that the prospects of Fund-supported reform programs depend primarily on domestic political economy conditions. Ethnic and linguistic divisions, strong special interests, and lack of political cohesion contribute to program failures. Fund effort or the structure of conditionality do not materially influence program prospects. 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. JEL Classification Numbers: