Macroeconomic Effects of Policy-Based Loans: Evidence from Latin America and the Caribbean

This paper examines the association between fiscal policy-based loans (PBLs) and macroeconomic performance in five Latin American and Caribbean countries that received fiscal PBLs in response to the 2008 global downturn. We combine three alternative counterfactual estimators for GDP per capita—Synthetic Control Method (SCM), Matrix Completion (MC), and a Cointegration-Based Counterfactual (CBC)—with an Event Study with Single Treated Units (ES-STU) for a broader set of macroeconomic outcomes. Across Costa Rica, the Dominican Republic, El Salvador, and Guatemala, SCM, MC, and CBC show substantial convergence in the direction of the longer-run GDP-per-capita gap, although the timing and magnitude of the estimates differ. Jamaica is the main exception, displaying greater dispersion across counterfactual estimators, consistent with the greater uncertainty revealed by the sensitivity analyses and with the identification challenges posed by its unusually long intervention period, which increases the scope for intervening shocks and domestic reforms to confound the estimated effects. For the broader macroeconomic outcomes, the ES-STU evidence is strongest for inflation, with favorable post-intervention differences and sufficiently comparable pre-treatment trends in Costa Rica, the Dominican Republic, El Salvador, and Guatemala; selected fiscal-balance outcomes, particularly in Costa Rica and El Salvador, also provide relatively strong evidence. Our findings are therefore best interpreted as case-specific evidence on PBL-supported reform episodes as a whole—combining financing, conditionality, institutional support, and domestic reforms—rather than as treatment effects attributable to any single multilateral institution.