TY - JOUR
T1 - The IMF, Domestic Public Sector Banks, and Currency Crises in Developing States
AU - Mukherjee, Bumba
AU - Bagozzi, Benjamin E.
PY - 2013
Y1 - 2013
N2 - The stabilization programs of the International Monetary Fund (IMF)-which are often designed to prevent currency crashes and promote exchange rate stability-frequently fail to prevent currency crises in program-recipient developing countries. This leads to the following puzzle: when do IMF programs fail to prevent currency crises in developing states that turn to the Fund for assistance? We suggest that the likelihood that a currency crisis may occur under an IMF program depends on the market concentration of public sector banks in program-participating developing countries: the higher the market concentration of public banks in a program recipient nation, the more likely that the IMF program will be associated with a currency crisis. Specifically, if the market concentration of public banks in a program-participating developing country is high, then banks will compel the government to renege on its commitment to implement banking sector reforms. This induces a financial panic among investors that leads to a currency crisis. Statistical tests from a sample of developing countries provide robust support for our hypothesis.
AB - The stabilization programs of the International Monetary Fund (IMF)-which are often designed to prevent currency crashes and promote exchange rate stability-frequently fail to prevent currency crises in program-recipient developing countries. This leads to the following puzzle: when do IMF programs fail to prevent currency crises in developing states that turn to the Fund for assistance? We suggest that the likelihood that a currency crisis may occur under an IMF program depends on the market concentration of public sector banks in program-participating developing countries: the higher the market concentration of public banks in a program recipient nation, the more likely that the IMF program will be associated with a currency crisis. Specifically, if the market concentration of public banks in a program-participating developing country is high, then banks will compel the government to renege on its commitment to implement banking sector reforms. This induces a financial panic among investors that leads to a currency crisis. Statistical tests from a sample of developing countries provide robust support for our hypothesis.
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U2 - 10.1080/03050629.2013.749748
DO - 10.1080/03050629.2013.749748
M3 - Article
AN - SCOPUS:84874120565
SN - 0305-0629
VL - 39
SP - 1
EP - 29
JO - International Interactions
JF - International Interactions
IS - 1
ER -