This paper investigates the output effects of IMF-supported stabilization programs,
especially those introduced at the time of a severe balance of payments/currency
crisis. Using a panel data set over the 1975-97 period and covering 67 developing
and emerging-market economies (with 461 IMF stabilization programs and 160 currency
crises), we find that currency crises even after controlling for macroeconomic developments,
political and regional factors significantly reduce output growth for 1-2 years.
Output growth is also lower (0.7 percentage points annually) during IMF-stabilization
programs, but it appears that growth generally slows prior to implementation of the
program. Moreover, programs coinciding with recent balance of payments or currency
crises do not appear to further damage short-run growth prospects. Countries participating
in IMF programs significantly reduce domestic credit growth, but no effect is found
on budget policy. Applying this model to the collapse of output in East Asia following
the 1997 crisis, we find that the unexpected (forecast error) collapse of output
in Malaysia where an IMF-program was not followed-- was similar in magnitude to those
countries adopting IMF programs (Indonesia, Korea, Philippines and Thailand).