The paper shows that an IMF-like coinsurance arrangement among countries can play
a useful role in the global financial system. The operation of the coinsurance arrangement
is examined under different loan contracts. It shows that, if the IMFґs objective
is to safeguard its resources and be concerned about the welfare of the borrower,
an ex ante loan contract is more likely to create the right incentives than an ex
post loan contract. Such contracts highlight the need for precommitment to contend
with the Samaritanґs dilemma and time inconsistency, and state-contingent repayment
schemes to deal with King Learґs dilemma.