4.2.1. Determinants of Fund arrangement
The variables that enter in the equation which determines a Fund arrangement
are policy target variables, whose values are taken two years before the adoption
of the IMF programme.
As the external factors are concerned, countries with a structural unbalance
in their Balance of Payments (BOP) and Current Account (CA) will be likely to
need Fund ...nancial assistance. Thus, we expect that both BOP and CA enter
with a negative sign in the regression. We also expect that a country which ex-
periments a low value of its exports (EXP) and of its reserves (RES) will be more
likely to ask for a Fund arrangements. This need for .nancial assistance will also
be rejected in a high external indebtedness (EDT) and in a high value of total
debt service (TDS). Thus, we expect to .nd a positive correlation between the
dependent variable and both EDT and TDS. We have also included other two
variables, corresponding to arrears in interests payments (IAR) and in the prin-
cipal component (PAR), as general indicators of a country’s .nancial d^culty.16
However, these two variables should enter with a negative sign in the Fund equa-
tion since the IMF prefers not to grant new loans to a country which is already
in arrears with its payments.
As the domestic factors are concerned, countries experiencing relatively low
levels in per capita Gross Domestic Product (GDPPC), low investments (GDI) and
high injation (INFL) will also be more likely to seek Fund assistance. Therefore,
we expect to .nd a negative correlation between IMF and both GDPPC and
GDI. As we saw in Section 4.1, the growth of government consumption (GGC) is
one of the two instruments in the reduced form, where the rate of change in the
government consumption is used to capture the behaviour of the variable “.scal
policy” two years before the programme begins. As we said above, we expect to
16 For this reason these variables are expected to enter with a positive sign in the equation of
the debt rescheduling.
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