DRAFT—PLEASE DO NOT QUOTE OR CIRCULATE

Despite the popularity of the argument that the IMF extends new loans to ensure that existing loans are serviced on schedule, evidence of such defensive-lending behavior is mixed. In this paper, we use a new database on IMF program conditionality and implementation that offers fresh insights on the issue of defensive lending. In particular, we analyze whether a large prominence of a borrower in the IMF’s loan portfolio results in less ambitious program targets and weaker program implementation. For the sample of emerging market economies, our estimation results suggest that countries with a larger share in the loan portfolio typically target a lower degree of fiscal effort under IMF programs. Similarly, we find that emerging market borrowers that account for a large share of the loan portfolio are more frequently granted waivers for unmet policy conditionality. By contrast, we fail to find any symptoms of defensive-lending behavior in the case of low-income borrowers, where loans are not funded by the IMF’s own financial resources