July 2021
Stephen B. Kaplan (George Washington University)
Sujeong Shim (University of Wisconsin-Madison)
Abstract: The International Monetary Fund (IMF) has an incomplete governance architecture characterized by insufficient resources to fulfill its global financial stability mandate. We argue this institutional incompleteness influences how the IMF balances tensions between systemic risks and moral hazard, and when it surprisingly exits lending relationships. During high global contagion periods, the IMF targets stabilizing systemic risks to fulfill its mandate, granting large loans and overlooking non-compliance with conditionality. However, when the IMF perceives minimal contagion risk, it focuses on moral hazard, extending smaller loans with stricter conditionality, and willingly cuts financial ties to preserve its reputation and resources for future crises. Employing a comparative case analysis of IMF decision-making for Argentina (1998-2001) and Greece (2010-2015), we find evidence supporting our theoretical priors from content analysis of IMF executive board meeting minutes, complementary archival evidence, and field research interviews. These findings have important implications for the IMF, institutionalism, and development.
JEL Codes: O1, O16, O19, 052, 054, F21, F33, F34, F42, F49, F50, F55, F60, F65
Key Words: IMF, lender of last resort, financial crises, international financial risk, contagion risk, Argentina, Greece
