Welfare Implications Of A Second Lender In The International Markets
Source: Central Bank of Chile
The role of an extra lender in the international markets - such the IMF or another similar institution - has been widely covered in academic discussions and among policy makers. However, there is neither a clear answer nor a consensus about its welfare consequences. On the one hand, it is argued that the moral hazard consequences of an extra lender could be strong enough to offset any positive effect of an additional source of funding. On the other hand, it is argued that moral hazard consequences could be negligible and, therefore, the second lender's presence could be welfare improving.