1. ¹Arizona State University, AZ, USA
2. ²Economics and Finance Department, Southern Illinois University Edwardsville, IL 62016-1102, USA. E-mail: akutan@siue.edu
3. ³The Center for European Integration Studies (ZEI), Bonn, Germany
4. ⁴The Emerging Markets Group (EMG), London, UK
5. ⁵The William Davidson Institute (WDI), MI, USA

Abstract

We review IMF programmes implemented in Bulgaria and Poland during the 1990s and compare their outcomes. Although Poland did not sign new programmes with the Fund after 1994, IMF programmes have been in effect in Bulgaria since 1991. We also examine empirically the effectiveness of IMF programmes in reducing the crisis probabilities for foreign exchange, output and inflation crises. We find that IMF programmes have been more effective in Bulgaria, especially in reducing inflation crises, than in Poland. Bulgaria's success may be explained by the signing of the recent currency board arrangement after the 1997 financial crisis and the gradual improvement in the country's political environment over time. The results for Poland may be driven by the impact of the initial shock associated with the transition process, including hyperinflation, which coincided with the implementation of fund programmes. Overall, our results support the view that a stable political environment is a key factor for the effectiveness of fund programmes.