CHAPTER 11 International Bailouts, Moral Hazard, and Conditionality

Alessandro Rebucci, and Ashoka Mody
Published Date:
April 2006
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    Olivier Jeanne and Jeromin Zettelmeyer1 

    The large international bailouts of the 1990s have been criticized for generating moral hazard at the expense of the global taxpayer. We argue that this criticism is misleading because international bailouts create either no or very few costs to the international community. Instead, the problem is that bailouts may be used to facilitate bad domestic policies, thus creating moral hazard at the expense of domestic taxpayers. Ensuring that this does not happen may require a shift toward ex ante conditionality, in the sense that the availability and size of official crisis lending need to be conditional on government policies before the crisis.

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