Sovereign default is the switching state between successful and unsuccessful Fund catalysis. We find the IMF to be effective in mobilising private capital flows to middle-income countries that participate in a Fund program, but do not restructure their debt. A debt restructuring is a clear signal of very weak economic fundamentals, deterring creditors from resuming lending, even when the IMF intervenes. As long as default is avoided, IMF programs help a country signal its willingness to reform and repay debts, thereby catalysing private capital. This signalling role appears to be more important for Fund catalysis, than the size of IMF lending.
Keywords: IMF, Sovereign default, Private capital flows, Catalytic effect. JEL Codes: F32, F33, F34.