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Abstract
The ultimate objective for interest rates in IMF-supported programs is to contribute to the allocation of savings according to competitive market principles, free of distortions or market failures. In this ideal situation real interest rates would normally be positive at moderate levels and reflective of underlying market forces such as the return on investments and the marginal utility of deferred consumption. Over short periods, of course, even market-determined interest rates may deviate from these benchmarks because the authorities may have to react to transient pressures in international or domestic capital markets by tightening credit. Moreover, high or time-varying risk premia—not uncommon in countries undertaking adjustment programs—can also cause a departure from these norms.
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