An Analysis of IMF Conditionality - UNCTADunctad.org/en/docs/gdsmdpbg2420033.pdfAn Analysis of IMF...

G-24 Discussion Paper Series

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

UNITED NATIONS

CENTER FORINTERNATIONALDEVELOPMENTHARVARD UNIVERSITY

An Analysis of IMF Conditionality

Ariel Buira

No. 22, August 2003

G-24 Discussion Paper Series

Research papers for the Intergovernmental Group of Twenty-Fouron International Monetary Affairs

UNITED NATIONSNew York and Geneva, August 2003

CENTER FOR INTERNATIONAL DEVELOPMENTHARVARD UNIVERSITY

UNITED NATIONS CONFERENCE ONTRADE AND DEVELOPMENT

Note

Symbols of United Nations documents are composed of capitalletters combined with figures. Mention of such a symbol indicates areference to a United Nations document.

*

* *

The views expressed in this Series are those of the authors anddo not necessarily reflect the views of the UNCTAD secretariat. Thedesignations employed and the presentation of the material do notimply the expression of any opinion whatsoever on the part of theSecretariat of the United Nations concerning the legal status of anycountry, territory, city or area, or of its authorities, or concerning thedelimitation of its frontiers or boundaries.

*

* *

Material in this publication may be freely quoted; acknowl-edgement, however, is requested (including reference to the documentnumber). It would be appreciated if a copy of the publicationcontaining the quotation were sent to the Publications Assistant,Macroeconomic and Development Policies Branch, Division onGlobalization and Development Strategies, UNCTAD, Palais desNations, CH-1211 Geneva 10.

UNITED NATIONS PUBLICATION

UNCTAD/GDS/MDPB/G24/2003/3

Copyright © United Nations, 2003All rights reserved

iiiAn Analysis of IMF Conditionality

PREFACE

The G-24 Discussion Paper Series is a collection of research papers preparedunder the UNCTAD Project of Technical Support to the Intergovernmental Group ofTwenty-Four on International Monetary Affairs (G-24). The G-24 was established in1971 with a view to increasing the analytical capacity and the negotiating strength ofthe developing countries in discussions and negotiations in the international financialinstitutions. The G-24 is the only formal developing-country grouping within the IMFand the World Bank. Its meetings are open to all developing countries.

The G-24 Project, which is administered by UNCTAD�s Macroeconomic andDevelopment Policies Branch, aims at enhancing the understanding of policy makers indeveloping countries of the complex issues in the international monetary and financialsystem, and at raising awareness outside developing countries of the need to introducea development dimension into the discussion of international financial and institutionalreform.

The research carried out under the project is coordinated by Professor Dani Rodrik,John F. Kennedy School of Government, Harvard University. The research papers arediscussed among experts and policy makers at the meetings of the G-24 TechnicalGroup, and provide inputs to the meetings of the G-24 Ministers and Deputies in theirpreparations for negotiations and discussions in the framework of the IMF�s InternationalMonetary and Financial Committee (formerly Interim Committee) and the Joint IMF/IBRD Development Committee, as well as in other forums. Previously, the researchpapers for the G-24 were published by UNCTAD in the collection International Monetaryand Financial Issues for the 1990s. Between 1992 and 1999 more than 80 papers werepublished in 11 volumes of this collection, covering a wide range of monetary andfinancial issues of major interest to developing countries. Since the beginning of 2000the studies are published jointly by UNCTAD and the Center for InternationalDevelopment at Harvard University in the G-24 Discussion Paper Series.

The Project of Technical Support to the G-24 receives generous financial supportfrom the International Development Research Centre of Canada and the Government ofDenmark, as well as contributions from the countries participating in the meetings ofthe G-24.

AN ANALYSIS OF IMF CONDITIONALITY

Ariel Buira

DirectorG-24 Secretariat, Washington, DC

G-24 Discussion Paper No. 22

August 2003

viiAn Analysis of IMF Conditionality

Abstract

IMF conditionality was introduced in the 1950s as a means to restoremembers� balance-of-payments viability, to ensure that Fund resources wouldnot be wasted and to ensure that the institution would be able to recover theloans it extended to member countries. For several decades, until the earlyeighties, Fund Conditionality centred on the monetary, fiscal and exchangepolicies of members. Over the last 20 years, while the resources of the Funddeclined as a proportion of world trade, the number of Fund programmesincreased steadily, and conditionality underwent substantial changes, expandingthe scope of conditionality into fields that previously had been largely outsideits purview. As the number of conditions increased, the rate of member country�scompliance with Fund supported programmes declined, and reviewing andstreamlining conditionality became inevitable.

Experience and the Fund�s own studies show that programme success isclosely related to ownership, and that ownership cannot be externally imposed.It must result from internal analysis and discussion, leading to the convictionby domestic actors that compliance with the programme is conducive to theattainment of their own objectives. Conditionality can neither substitute noroffset a lack of ownership.

This paper reviews the origins and purpose of conditionality, as well as itsnature and evolution over time. It looks into the reasons for increasedconditionality during the 1980s and 1990s and reviews the recent IMF debateon conditionality and on the proposed changes in Fund practices. It distinguishesbetween short-term imbalances that result from excess demand and structuraldisequilibria and the new type of financial crises associated with short-termcapital movements, asking whether different problems call for differentconditionality. The paper also discusses how the economic and social costs ofadjustment may be minimized and whether Fund resources are sufficient toenable it to comply with its mandate.

ixAn Analysis of IMF Conditionality

Table of contents

Preface ............................................................................................................................................ iii

Abstract ........................................................................................................................................... vii

I. Introduction ................................................................................................................................ 1

II. Some unresolved questions on conditionality ........................................................................... 2

III. The origins of conditionality ..................................................................................................... 2

IV. The nature and purposes of conditionality ................................................................................ 3

V. Does conditionality safeguard Fund resources? ........................................................................ 5

VI. The new guidelines on conditionality ...................................................................................... 10

VII. Excess demand and structural imbalances .............................................................................. 13

VIII. Capital account crises .............................................................................................................. 14

IX. The rise and fall of structural conditionality ........................................................................... 16

X. Conclusion ............................................................................................................................... 19

Annex 1 ........................................................................................................................................... 20

References ........................................................................................................................................... 21

List of tables

1 The size of the Fund as a proportion of international trade and GDP, 1944�1998 ................... 72 The declining rates of compliance with Fund programmes ...................................................... 9

List of figures

1 Average number of structural conditions per programme year, 1987�1999 ........................... 172 Average number of structural conditions per programme year

by type of country, 1987�1999 ................................................................................................ 17

I. Introduction

Conditionality is perhaps the most controver-sial aspect of IMF policies. Among the traditionalcriticisms of Fund conditionality are that it is tooshort-run oriented, too focused on demand man-agement and does not pay adequate attention toits impact on growth and the effects of programmeson social spending and on income distribution. Inparticular, fiscal and monetary policies � the coreof programmes � are seen as too restrictive andhave a strong deflationary impact to the pointwhere the essence of the correction of the externalpayments imbalance came from sheer deflation.

More recently, following the sharp rise inconditionality that had been observed in the 1990s,criticisms of Fund conditionality have also tendedto centre on its loss of focus, on imposing an ex-cessive number of structural conditions, trying todo too many things at the same time, and onexpanding Fund influence beyond its area ofcompetence. The Meltzer Report (2000) states�detailed conditionality (often including dozensof conditions) has burdened IMF programmes in

recent years and made such programmes unwieldy,highly conflictive, time consuming to negotiate,and often ineffectual.�

Similarly, the Council on Foreign RelationsTask Force Report (1999) finds that �Both theFund and the Bank have tried to do too much inrecent years, and they have lost sight of their re-spective strengths. Both need to return to basics� (The Fund) should focus on a leaner agenda ofmonetary, fiscal and exchange rate policies, andon banking and financial sector surveillance andreform.�

Feldstein (1998) considers that �The Fundshould resist the temptation to use currency cri-ses as an opportunity to force fundamentalstructural reforms on countries, however usefulthey may be in the long term unless they are abso-lutely necessary to revive access to internationalfunds� adding that �The fundamental issue is theappropriate role for an international agency andits technical staff in dealing with sovereign coun-tries that come to it for assistance. It is importantto remember that the IMF cannot initiate pro-grammes but develops a programme for a member

AN ANALYSIS OF IMF CONDITIONALITY

Ariel Buira

Institutions are not � created to be socially efficient; rather they, or at least the formal rules,are created to serve the interests of those with the bargaining power to create new rules.(Douglas C. North, Nobel Lecture, 1993)

2 G-24 Discussion Paper Series, No. 22

country only when that country seeks help. Thecountry is then the IMF�s client or patient, but notits ward. The legitimate political institutions ofthe country should determine the nation�s eco-nomic structure and the nature of its institutions.A nation�s desperate need for short-term financialhelp does not give the IMF the moral right to sub-stitute its technical judgments for the outcome ofthe nation�s political process.�

II. Some unresolved questions onconditionality

Apart from the numerous economic policyissues to which conditionality gives rise (to bediscussed below), there are political and philo-sophical questions that have yet to be fully andopenly addressed by the Fund and other interna-tional financial institutions (IFIs). Some suchquestions are:

1) Can programme ownership by a country bemade compatible with externally imposedconditionality? Can externally imposed poli-cies or values become internalized in recipientcountries?

2) Is conditionality compatible with democracy?

3) To what extent is IFI conditionality powerwithout responsibility?

4) Should economic policy decisions that affectall be taken outside the domestic politicalprocess?

5) Are the transparency and accountability ofgovernments, which the IFIs consider essen-tial to good governance, compatible withconditionality?

6) When conditionality is coercive, can govern-ments be held domestically accountable andresponsible for the effects of policies imposedfrom outside? Are governments accountableto, their electorate, or to some external insti-tutions wherein they are under-represented?(Buira, 2002)

7) Since the political viability of an adjustmentprogramme is related to the depth of a crisis,

to the actions of the government and to theamount and timeliness of external support,when can inadequate financial support by theinternational community be considered re-sponsible for its failure?

8) Governments and IFIs are prepared to inter-vene in the affairs of third counties, but arethey prepared to take political responsibilityfor the policies or measures they sponsor?

9) Since the majority of programmes are notcompleted successfully what, if any, are theconsequences for the staff and for the Fundof imposing programmes that fail more of-ten than not? (See 3 above.)

10) Should liberalization of the markets takeplace before liberalization of the state?

III. The origins of conditionality

When the IMF was established as an institu-tion for monetary cooperation there was noreference to conditionality. Indeed, the concept ofconditionality is not written in the Fund�s origi-nal Articles of Agreement. This concept wasintroduced only several years later in an Execu-tive Board decision in 1952, and much laterincorporated in the Articles as part of the FirstAmendment.

Writing in January 1944, before the BrettonWoods Conference, Lord Keynes described theviews of the United States government on the fu-ture character of the IMF as follows: �In their eyesit should have wide discretionary powers andshould exercise something of the same grand-motherly influence and control over the centralbanks of member countries, that these centralbanks in turn are accustomed to exercise over theother banks within their own countries�. TheUnited States delegation was well aware that asthe countries of Europe embarked on their post-war reconstruction, the United States would be theonly substantial net creditor to the Fund for sometime to come. On the other hand, the United King-dom negotiators were under explicit instructionsfrom Churchill�s War Cabinet that a deficit coun-try should not be required to introduce �a defla-tionary policy, enforced by dear money and simi-

3An Analysis of IMF Conditionality

lar measures, having the effect of causing unem-ployment; for this would amount to restoring, sub-ject to insufficient safeguards, the evils of the oldautomatic gold standard� (Moggridge, 1980: 143).Lord Keynes believed that as a result of the Anglo-American discussions on this and related matters,�the American representatives were persuaded ofthe unacceptability of such a scheme of things, ofthe undesirability of giving so much authority toan untried institution, and of the importance ofgiving the member countries as much certainty aspossible about what they had to expect from thenew institution and about the amount of facilitieswhich would be at their disposal� (Moggridge,1980: 404�405). He further believed that he hadgained agreement for the view that the Fund should�be entirely passive in all normal circumstances,the right of initiative being reserved to the centralbanks of the member countries.�

As explained in Annex 1, the link between amember�s policies and the access to Fund re-sources (which had been rejected at the time ofthe establishment of the Fund) was adopted by anExecutive Board decision in 1952. In 1969, dur-ing the time of the First Amendment, these linkswere incorporated in Article I Section (v) and Ar-ticle V Section 3(a) of the Articles of Agreement.The amendments by which conditionality was in-troduced into the Articles began with the referenceto the �temporary� use in Article I. Thus the fifthpurpose of the Fund was amended to read:

�To give confidence to members by making theFund�s resource temporarily available to themunder adequate safeguards, thus providing themwith opportunity to correct maladjustments intheir balance of payments without resorting tomeasures destructive of national or internationalprosperity.�

The last sentence of Article I was changed toread:

�The Fund shall be guided in all its policies anddecisions by the purposes of this Article.�

The italicized words are additions that wereintroduced in the First amendment. These concep-tual additions were reflected and given operationalcontent by the two subsections added to Article VSection 3, entitled �Conditions governing use ofFund resources�:

�(c) A member�s use of the resources of the Fundshall be in accordance with the purposes of theFund. The Fund shall adopt policies on the use ofits resources that will assist members to solve theirbalance of payments problems in a manner con-sistent with the purposes of the Fund and that willestablish adequate safeguards for the temporaryuse of its resources.�

�(d) A representation by a member under (a) aboveshall be examined by the Fund to determinewhether the proposed purchase would be consist-ent with the provisions of this Agreement and withthe policies adopted under them, with the excep-tion that proposed gold tranche purchases shallnot be subject to challenge.�

The new subsections state that the Fund musthave policies based on the principle of condi-tionality and that all representations made bymembers in connection with requests to use Fundresources beyond the reserve (gold) tranche mustbe consistent with those policies.

IV. The nature and purposes ofconditionality

Conditionality may be defined as a means bywhich one offers support and attempts to influ-ence the policies of another in order to securecompliance with a programme of measures. It is atool by which a country is made to adopt specificpolicies or to undertake certain reforms that itwould not otherwise have undertaken, in exchangefor support. Within the context of the IMF, con-ditionality refers to policies a member must adoptto secure access to Fund resources. These poli-cies are intended to help the member countryovercome its external payments problem and thusbe in a position to repay the Fund in a timely man-ner, thereby ultimately assuring the �revolvingcharacter� of Fund resources. (Fund resources thatare made available to a member are repaid over astipulated period of time which is normally withinthree to five years.) The assurance is to be de-rived from the adoption by the member of certaincorrective measures or policies which, in the judg-ment of the Fund, will allow it to restore thebalance-of-payments position and to repay theFund, thereby ensuring that the same resourceswill be available to support other members in fu-


ture. Under Article V Section 3(c) of the Agreement,the Fund must examine the member�s representa-tion to determine that the requested repurchasewould be consistent with the Articles of Agree-ment and the policies on the use of Fund resources.

The Articles also provide that requests forreserve tranche purchases, i.e. drawings that willraise Fund holdings of a member�s currency up to100 per cent of quota, may be considered as auto-matic and will not be subject to challenge.Additionally, the Fund�s attitude to those draw-ings that raise currency holdings up to 125 percent of quota � the first credit tranche � is gener-ally a liberal one, provided that the member ismaking a reasonable effort to solve its problems.Since 1955, the conditionality applied on the useof Fund resources increases when drawings go be-yond the first credit tranche, i.e. when Fund�sholdings of a members currency rise beyond125 per cent of the member�s quota. These are re-ferred to as drawings in the upper credit tranchesand require substantial justification.

At the heart of conditionality lies a processof negotiation. The Fund will seek to use its supe-rior financial position, its financial strength tooffer support in exchange for a government com-mitment to effect particular changes in the membercountry�s policies. Thus, the larger the country,the stronger its financial position, the more numer-ous the financing alternatives are made availableto it; the better the quality of its economic team,the less likely it will have to accept conditions itdoes not agree to. Other things being equal, thegreater the asymmetry in power between the coun-try and the Fund � the greater the country�s need� the more likely it is that conditionality will leadto an imposition of policies.

Is conditionality intrusive? When a countryfreely approaches the Fund for support, the rela-tion would appear to be a voluntary one, similarto that prevailing in any contract among equals.However, governments are not normally mono-lithic. There are often differences of view andtensions to be found within them, particularly be-tween the �spending ministries� charged with thedevelopment of the countries productive poten-tial, i.e. the public works, transportation, health,education, industry and defense on the one handand on the other the financial authorities chargedwith the macroeconomic and financial manage-

ment of the economy, in particular the ministry offinance and the central bank. Note that the differ-ences between the finance minister and others maynot be merely technical, or solely related to eco-nomic policy matters. They may also reflectdifferent political interests and views. The inter-vention of outside forces such as the IFIs, whichoffer financial incentives in exchange for the adop-tion of certain policies, may tip the balance infavour of the �financial� view. This argument sug-gests that, although a country may not have to enterinto a dialogue with the Fund; when it does, in sofar as external elements seek to influence theoutcome of the domestic policy discussion, con-ditionality is intrusive.

Considering that governments often harbourpolicy differences within, the support of the Fundfor its natural allies holding the �financial� viewraises the issue of programme ownership; i.e., whoowns the programme? Is it owned by the govern-ment as a whole or simply by the finance ministry?Does the Fund seek to further its own views bysupporting its allies? In the latter case is the pro-gramme seen by the rest of the government as anexternal imposition? Could the finance ministryinclude certain issues in the Letter of Intent to theFund to gain political leverage domestically andto favour some political interests over others?

Is conditionality coercive? The answerwould appear to depend on the circumstances pre-vailing in each case. For instance, a country withgood access to international financial markets, andgenerally good macroeconomic fundamentals (e.g.China, Mexico or the Republic of Korea) will bein a strong negotiating position vis-à-vis the Fund.It will thus not be compelled to accept unpalat-able conditions in exchange for financial support.On the other hand, if the same country is in themidst of a deep financial crisis, with a low levelof international reserves and no access to exter-nal credit from other sources, it may be compelledto accept conditions that in better circumstancesit would have considered politically unacceptable.Too often, however, countries refuse to turn to theFund unless compelled by circumstances to do so.Within broad limits, conditionality is a relationof power. On this relation, Paul Volcker has stated:�When the Fund consults with a poor and weakcountry, the country gets in line. When it consultswith a big and strong country, the Fund gets inline� (Volcker and Toyoo Gyoten, 1992).


Thus, the answer to whether conditionalitymay be considered coercive appears to depend onthe asymmetry of power between the member andthe Fund, and is largely determined by the coun-try�s need and its access to alternative sources offinance (Collingwood, 2001). The answer is foundby asking questions like: What choices does thecountry have? What are the real options availableto the country at the time? Often a country facinga balance-of-payments crisis will not be able toobtain any external financial support from marketsor other IFIs unless it first reaches an agreementwith the Fund. This was the situation in Argen-tina during the period February to September 2002.It is coercive if the cost of not accepting theconditionality is so much higher. A country hasno choice but to accept conditions and is obligedto do things it would not otherwise do, and par-ticularly because it prefers strongly to avoid thecosts of default.

At best, conditionality is a form of paternal-ism, by which a country is guided towards its owngood, rather like a parent or a teacher guides achild in its own best interests. This may often bethe case in programmes associated with the HIPCinitiative where certain states lack the technicalknowledge and/or the financial resources to pur-sue good policies, and where the IFIs have boththe expertise and resources to assist the country.

The Fund has no particular expertise on pov-erty reduction or developmental strategy � issuesthat are within the Bank�s primary purview. How-ever, perhaps to show it has a social conscience,the Fund has been unwilling to remove itself fromthese issues. The Fund should probably withdrawfrom them and keep itself within its original sim-plified mandate by giving advice and technicalassistance within in its areas of competence.

At worst, conditionality implies the imposi-tion on a country of a mixture of policy agendathat contain elements that are unnecessary to over-coming the payments crisis. These elements mayhave been suggested by a third party and may notbe in the country�s best interest. At best, a wellfocused, limited and technically sound condi-tionality may make a valuable contribution to therestoration of the country�s external viability, par-ticularly when the economic programme is �owned�by it. However, there are a number of related po-litical issues that merit careful consideration.

V. Does conditionality safeguard Fundresources?

We have seen that conditionality was intro-duced and is justified as a means to ensure the�revolving character� of Fund resources. Condi-tionality also means a lack of trust in the country�sown judgment by those who �know best�. Conse-quently, the use of the resources provided byexternal sources such as the IFIs must be moni-tored to ensure these are not wasted. On the onehand it would seem that the purpose of condi-tionality is to tie the hands of governments ofrecipient countries, particularly countries in po-litical transition, as was the case of Brazil andTurkey which have undergone strict conditionsand careful supervision to ensure that the resourcesreceived are used as intended so that they will berepaid on schedule. On the other, some proponentsof conditionality argue that the mere fact that thecountry is in balance-of-payments difficulty showsits inability to manage its own affairs without get-ting into more difficulties.

Further, when one considers the experienceof other creditors � i.e. commercial banks, bondholders and project lending by development fi-nance institutions that do not normally require theadoption of an adjustment programme by debtorcountries � one may well wonder whether condi-tionality is in fact required to protect the �revolvingcharacter of the Fund�s resources� or whether itis the debtor countries� own desire to protect theircreditworthiness that secures repayment to theFund. After all, conditionality ends when the pro-gramme it underpins ends, while repayments falldue at a later date, over an extended period of 3 to5 years after the date of disbursements in the caseof stand-by arrangements and of 4 to 7 years inthe case of EFF loans.

Fund resources should be preserved for thebenefit of all member countries. However, theemphasis placed on �preserving the revolvingcharacter of Fund resources� can be carried toofar and give rise to a conservative bias in theiradministration � one that gives priority to the goalof achieving a prompt external adjustment to per-mit a prompt recovery of the resources lent by theFund � over the objectives of the Fund as writtenout in its Articles of Agreement. It must be re-called that these include the �promotion and


maintenance of high levels of employment and realincome and to the development of the productiveresources of all members as primary objectives ofeconomic policy� (Article I section (ii)). Althoughthe Articles do not provide any indication as tothe speed and nature of the adjustment to be fol-lowed, by this and the additional statement of�providing (members) with opportunity to correctmaladjustments in their balance of payments with-out resorting to measures destructive of nationaland international prosperity�, Article I section (v)clearly suggest that the priority of the foundingfathers is the protection of the levels of economicactivity and, consequently, that deflationary ad-justment is to be avoided to the greatest extentpossible.

Nevertheless, countries that are recipient ofFund programmes often perceive them as undulyrestrictive. In their view, the �preservation of therevolving character� seems to take first priority.This is compounded by the limited Fund financ-ing in support of the adjustment programme andthe optimistic nature of the assumptions frequentlymade by the Fund staff regarding the availabilityof external financing. However, constructing theprogramme around an unduly optimistic assump-tion on the amount of external financing availableto the country, and the limited amount of financ-ing to be made available by the Fund mayundermine the viability of the programme andmay prove contrary to its purpose, which referexplicitly to the maintenance of high levels of em-ployment and to providing members with theopportunity to correct maladjustments in theirbalance of payments without resorting to defla-tionary adjustment.

One may wonder whether this apparent�creditor bias� in programme design gives rise tothe restrictive, short-term nature of the Fund-supported programmes that are so frequentlycriticized by developing country members. Couldit also lead to the repeated use of resources bysome members that could not successfully com-plete the required adjustment during the life ofthe programme?

The availability of resources is a major de-terminant of the nature and speed of the adjustmentprocess undertaken by a country. A country with

access to unlimited financing would not have toadjust, and if it were to do so, would be able topostpone adjustment for years. The United States,as a reserve currency country, has this advantageas long as holding dollars as reserve assets remainsattractive. Moreover it may choose, among thedifferent adjustment paths available, that whichis more palatable and less costly in economic andpolitical terms. However, a country undertakingadjustment with low reserves and very limitedfinancing available to it, may of necessity, becompelled to adopt very severe, short-term pro-grammes. These measures conflict with the goalof maintaining high levels of activity and compelthe country to sacrifice some of its longer-termdevelopment goals by resorting to a �trade-off�between adjustment and financing of imbalances.The Fund�s role would be to seek a �golden rule�� a mix of measures and financing that fosters thenecessary adjustment � while avoiding the severerecessionary and destructive aspects of under-financed programmes (in some cases, the Fundresources may be constrained by unpaid borrow-ing). Since well-financed programmes would bemuch more attractive than more severe ones, theywould encourage the early correction of imbalances.

Since the harshness of a programme and,consequently, its viability largely depend on theamount of financing available, the reduction in theresources of the Fund introduces a bias for theadoption of increased conditionality and for moresevere, shorter-term adjustments. The rate of suc-cess under such terms is bound to diminish. Thedecline observed in total Fund resources over time,when measured as a proportion of internationaltrade or of GDP, would appear to have required,and has been associated with, stiffer and moredemanding conditionality.

Moreover, as countries become more open totrade and capital movements, they also becomemore vulnerable. Most member countries, includ-ing emerging market economies, when faced withdifficulties do not have significant access to othersources of external finance. Additionally, the newtype of financial crisis, associated with the capi-tal account and the volatility of capital flows, callsfor much larger amounts of support than the moretraditional one resulting from trade or current ac-count imbalances.


Could the decline in Fund resources be re-lated to the observed hardening of conditionality?More pointedly, can an undue hardening of condi-tionality be avoided, in view of the relative declinein Fund resources? The decline in Fund resourcessuggests that these were probably insufficient toallow for the provision of adequate support tomember countries, without the conditionality un-der which it makes its resources available. Thisleads to the question of: Should adjustment pro-grammes be constructed around access to Fundresources? Should conditionality be determinedby the availability of resources when these havediminished sharply over time? Or, in keeping withits purposes and nature as an institution for inter-national cooperation, should Fund resources beincreased in line with needs, in view of the ex-pansion of international trade and the volatilityof capital movements? If the answer to this lastquestion is yes: Why have quota increases not keptpace with these trends? The majority of Fundmember countries usually favour quota increases,which, nevertheless, would require an 85 per centmajority under the weighted voting system. Whatcountries limit the increase in Fund resources?Is the growing schism between creditors andprospective debtors relevant for the analysis oftrends in the size of the Fund and the evolution ofconditionality?

Since the late-1970s no industrial country hasresorted to Fund support because they find unac-ceptable its conditionality. The last such occasionwas when Italy and the United Kingdom requestedFund assistance under the (lower conditionality)Oil Facility. Indeed, these countries have devel-oped a network of swaps, monetary cooperationarrangements and other sources of balance-of-

payments support. As a result, only developingcountries and economies in transition have re-sorted to Fund support in the last 24 years. Thisis not to ignore that in a number of cases large,systemically or strategically important countries(among others Brazil, Mexico, Russia, the Repub-lic of Korea and Turkey) have received financialsupport far in excess of their quota access underFund policies. But such exceptional support isneither transparent nor predictable, since it is notavailable to all Fund members, and at times comeswith conditions imposed by countries that contrib-ute to the financial rescue package (Feldstein,1998).

Occasionally, references are made to the�catalytic role of the Fund�, as justification forits limited financing to members. This is a strangeargument for the Fund to put forward because thereis no reference to a �catalytic role� in the Fund�sArticles. Nevertheless, the argument that a mem-ber�s access to the Fund�s resources in the uppercredit tranches is regarded by potential creditors,and others, as an endorsement of the country�spolicies and is sufficient to induce additional pri-vate capital flows could be acceptable if, in fact,it assured that financing from the markets wereforthcoming. Unfortunately, this is not the case.While the Fund did play a role in inducing capitalflows to Latin America in the debt crisis of the1980s, empirical studies of the catalytic effectconclude that there is little evidence to supportits existence in the 1990s (Bird and Rowlands,1997).

Unfortunately, as is often the case when theconclusion of negotiations of a Fund programmedoes not bring forth market financing in sufficient

Table 1

THE SIZE OF THE FUND AS A PROPORTION OF INTERNATIONAL TRADE AND GDP, 1944�1998

1944 1965 1970 1990 1998

Ratio of quotas/imports 0.58 0.57 0.15 0.14 0.06Ratio of quotas/GDP 0.04 0.02 0.02 0.01 0.01

Source: Calculations based on IFS data.


amounts, the programme may be under-financedto allow an adjustment that is not sharply con-tractionary. Indeed, as pointed out by Bird andRowlands, �Structural adjustment is unlikely tosucceed if starved of finance. The Fund appearsto have assumed, perhaps on the basis of partialand, in the event, unrepresentative evidence, thatfinance would come from elsewhere, catalyzed byits own involvement. In practice the catalytic ef-fect was largely unforthcoming and IMF pro-grammes showed an increasing tendency to breakdown. Significantly, the likelihood of breakdownappears to vary inversely with the amount of fi-nance provided by the Fund� (op. cit.: 984), add-ing that �The premise of a universally positivecatalytic effect will lead to inappropriate condi-tionality and will have adverse consequences forits effectiveness� (op. cit.: 988). However, it mustbe admitted that often other IFIs condition theirfinancial support to countries which have an agree-ment with the Fund. This practice gives rise to whatis referred to as �cross conditionality� and greatlystrengthens the Fund�s negotiating position; it isnot the usual meaning of the �catalytic effect�.

At times, some observers, particularly thosein creditor countries take the view that the hard-ships of adjustment that result from poor policiesare in some sense deserved. The Articles do notmake a play with morality by which those whoerr fall from grace and are punished. As an insti-tution for monetary cooperation, the role of theFund is to assist countries overcome paymentsdifficulties �without resorting to measures destruc-tive of national and international prosperity�. Inany event, questions could be raised regarding themorality of punishing the population of a wholenation, particularly the poor and the unemployedwho invariably bear the brunt of adjustment, for thefailings of a government or for exogenous factorssuch as downturns in terms of trade, for interna-tional recessions, changes in the markets appetitefor developing country assets and contagion.

The argument that conditionality is essentialto secure repayment and thus �preserve the revolv-ing character of Fund resources� is further weak-ened by the high failure rate of Fund programmes.As shown in table 2, less than half of the Fund-supported programmes are successful in the senseof full implementation of the programme. Indeeda recent Fund study by Mussa and Savastano foundthat if one considers the disbursement of 75 per

cent or more of the total loan as the test to meas-ure of compliance with Fund policy conditionality,less than half (45.5 per cent) of all Fund-supportedprogrammes over the period 1973�97 would meetthe test (Mussa and Savastano, 2000). Further,with the increase in structural conditionalityobserved in the 1990s, the rate of compliancedeclined markedly after 1988 and more so in1993�97 when only 27.6 per cent of 141 arrange-ments could be considered in compliance.

When the rate of compliance of programmesfalls below half, and all the more when it falls toless than a third, it can be argued that the wholerationale and relevance of conditionality havebecome questionable. Despite the very low ratesof programme success or compliance, membershave continued to repay the Fund loans. Thisshould be taken as evidence that the traditionalargument underpinning conditionality is of dubi-ous validity (table 2).

If conditionality as currently practised is noteffective in �preserving the revolving characterof the Fund�s resources�, should it revised? Sinceconditionality gives rise to many problems and hasa number of negative features, the answer is yes.In terms of preserving the Fund�s resources, it isworth considering whether the outcome would beany different from that of today if the Fund�s atti-tude to requests to use its resources were moreliberal, i.e. one similar to that currently prevail-ing for drawings under the first credit tranchewhere all that is required for access to it is for themember to �make reasonable efforts to solve itsproblems� (IMF, 1963). First credit tranche pro-grammes are characterized by low conditionality.They are essentially developed by the membercountry and are thus owned by it. These charac-teristics are what contribute to the authorities�commitment to the programme. Since the amountinvolved is a small, phasing and performanceclauses are not required in stand-by arrangementsthat do not go beyond the first credit tranche. Nev-ertheless, for more significant access to Fundresources it would be helpful to members to havesome indicative objectives or targets to guide themin the application of their programme.

The 1979 Guidelines on Conditionality un-derscored the need to limit performance criteriato the minimum required to assure policy imple-mentation. The current Managing Director of the

9An Analysis of IM

F Conditionality

Table 2

THE DECLINING RATES OF COMPLIANCE WITH FUND PROGRAMMES

(Percentage of IMF loan actually disbursed under each arrangement. Distribution by quartiles)

(1) (2) (3) (4) (5) (6) (7)

Fully disbursed (4)+(5) Number ofAll arrangements x<0.25 0.25=<x<0.5 0.50=<x<0.7 0.75=��1.0 (x=1.0) 0.75=<x arrangements

1973�1977 36.5 7.1 5.9 5.9 44.7 50.6 851978�1982 19.4 16.1 10.5 12.9 41.1 54.0 1241983�1987 12.9 15.8 19.4 7.9 43.9 51.8 1391988�1992 17.5 15.1 20.6 14.3 32.5 46.8 1261993�1997 27.0 19.1 26.2 11.3 16.3 27.6 141

Full period (1973�1997) 21.6 15.3 17.6 10.7 34.8 45.5 615of which:

Stand-By 23.1 13.4 15.0 9.5 39.0 48.5 441EFF 33.3 22.2 19.0 15.9 9.5 25.4 63SAF/ESAF 9.0 18.9 27.0 12.6 32.4 45.0 111

Source: IMF, Transactions of the Fund, 1998.


Fund has clearly seen the wisdom of these prin-ciples and the need to review and streamlineconditionality, particularly structural condition-ality. In light of the sharp fall in programmecompliance (table 2), his decision must be seenas very timely and should be supported by mem-ber countries because the Managing Director willundoubtedly meet resistance and will need to over-come the entrenched habits of a number of staffmembers.

VI. The new guidelines on conditionality

The Executive Board had approved the newguidelines on conditionality on 20 September2002. These are a very commendable guidelinesaimed at improving the effectiveness of condi-tionality, essentially by recognizing the centralimportance of:

1) national ownership of programmes, imply-ing the need for involvement of the memberin the formulation of the programme and theauthorities assumption of responsibility forits implementation;

2) parsimony in the application of conditions,i.e. reducing the number of conditions andfocusing on those measures that are consid-ered to be essential to overcoming the problemand critical to the success of the programme;

3) tailoring the programme to the member�s cir-cumstances, i.e, recognizing and addressingthe factors behind the balance-of-paymentsproblem, while allowing the policy adjust-ments and the mix of adjustment and financingto reflect the member�s preferences and cir-cumstances;

4) clarity as to what essential aspects of the pro-gramme must be complied with, and whatadditional measures are contemplated whosenon-observance will not constitute a breachof the agreement and impair the country�sability to draw Fund resources.

In substance, however, the new Guidelinesare not very different from the previous ones thathad been in force since 1979. In fact, although

the word �ownership� was not in use then, Guide-line 4 stipulated that: �In helping members todevise adjustment programmes, the Fund will paydue regard to the domestic, social and politicalobjectives, the economic priorities and the circum-stances of members, including the causes of theirbalance-of-payments problems.�

As regards the number and content of condi-tions, Guideline 9 stated �Performance criteria willbe limited to those that are necessary to evaluateimplementation of the programme with a viewto ensuring the achievement of its objectives.Performance criteria will normally be confined to(i) macroeconomic variables and (ii) those nec-essary to implement specific provisions of theArticles or policies adopted under them. Perform-ance criteria may relate to other variables only inexceptional cases when they are essential for theeffectiveness of the member�s programme becauseof their macroeconomic impact�.

Why were they revised? In practice, theguidelines had been ignored by the Fund staff inresponse to external pressures and to the views ofsome high Fund officials. These officials believedthat when a country came to the Fund for balance-of-payments assistance, they should avail them-selves of the opportunity to push for reforms in awide range of matters, many of them structural,presumably because these reforms would be ofbenefit to the country. The approval of the newguidelines constituted an attempt to re-focusconditionality by establishing a presumption thatevery condition included has to be justified. It isan implicit recognition that the previous approachhad resulted in over-burdening programmes withconditions which led to a high rate of programmefailures. Thus, to the extent that conditionality hadbecome dysfunctional, it had to be revised.

By proposing the new guidelines, Manage-ment expresses a renewed concern with promotingprogramme ownership as a key to success andseeks to give a new orientation to programme de-sign. The new approach would establish thepresumption of parsimony and restrict the numberof conditions or performance criteria contained ina programme to those considered critical for itssuccess. The new guidelines reflect an attempt onthe part of Management to reform the Fund�s op-erating procedures. It is an attempt to foster a newattitude among the staff with a view to attaining a


higher rate of programme success. The intention�is to change the mindset with which the staff,management and Board consider whether certainstructural measures should be covered underconditionality, shifting from a presumption ofcomprehensiveness to a presumption of parsi-mony, and thus putting the burden of proof in eachcase on those that would argue for the inclusionof additional measures under conditionality.�(IMF, 2001a)

As stated in the new guidelines, Fund sup-ported programmes should be directed primarilytoward the following macroeconomic goals:

(a) solving the member�s balance-of-paymentsproblems without recourse to measures de-structive of national or international prosper-ity; and

(b) achieving medium term external viabilitywhile maintaining sustainable economicgrowth.

The �new� approach to conditionality is avery welcome one. It seeks to address many ofthe weaknesses and shortcomings of previouspractice that gave rise to failures and complaints.To be successfully implemented, the new approachwill have to overcome considerable inertia withinthe staff. Operating procedures form part of deeplyentrenched habits and it would be difficult tochange one part of a self-sustaining system with-out modifying its other components. It may take ayear or two before being certain that inertia hasbeen overcome and the approach of the new guide-lines fully adopted. After all, since in the past theguidelines on conditionality were disregarded, theproof of the pudding is in the eating.

Take for instance stand-by arrangement withTurkey of January 2002. The two-year programmecontains 5 performance criteria for 2002 and in-dicative targets for 2003. It had no less than37 structural conditions: in the areas of fiscalpolicy (2), public debt management (1), bankingreform (10), public sector reform (16) and on en-hancing the role of the private sector (6). Condi-tions included 18 prior actions, some of whichwere required for stand-by approval and others forthe completion of subsequent reviews. Such wide-ranging conditionality gives the impression of alack of clarity as to what is really critical to thesuccess of the programme. Moreover, if all these

conditions are not met, will the Fund suspend fi-nancial support? A programme with 42 conditions(5 performance criteria and 37 structural condi-tions) cannot give the impression of parsimonyand of addressing the macroeconomic critical is-sues, but rather of a wide-ranging micromanage-ment and lack of focus.

Is the Fund again resorting to micromanagingthe economy? Are several of the imposed condi-tions simply a mapping out of detailed steps toreach a policy outcome? This raises the questionwhether the practice of conditionality is keepingup with the agreed new policies. Are all the aboveconditions really essential to correct Turkey�s pay-ments imbalance? If not, are the same problemsof lack of compliance with the guidelines observedin the past to be expected? It would seem as thoughwhen faced with difficulties in the implementa-tion of a programme, the Fund sought to gaincredibility by resorting to the introduction of ad-ditional conditions.

There is, moreover, an additional structuralproblem that the Fund has not yet addressed. Thisrelates to the mix between adjustment and financ-ing.

As the size of Fund resources has declinedand on average, quotas have fallen to below 1 percent of GDP, and to the equivalent of 3.7 per centof current payments, the question arises whetherthe financial support by the Fund to its membersunder access policies will suffice to meet the itemsa) and b) of the new guidelines mentioned above.In particular, can the Fund provide sufficient re-sources to sustain a mix of adjustment and financ-ing which would allow members to undertake anadjustment process that is non-deflationary, i.e.non-destructive of national and international pros-perity? Given the small size of quotas, the answerto this question will most likely be negative.

A particular difficulty arises in the case ofthose countries with open capital accounts. Be-cause of capital volatility, a loss of confidence maygive rise to large, sudden capital outflows, irre-spective of whether this being a result of domes-tic policy errors or of exogenous developments.While access limits appear to have been aban-doned on an �ad hoc� basis in dealing with capital-account crises in those countries of systemic im-portance, this practice is discretionary and dis-


criminatory since it does not apply equally tosmaller countries, nor does it help them resolvethe more traditional type of payments imbalances.Moreover, it is not transparent as it does not al-low members to know beforehand the amount theymight receive from the Fund.

The problem of the limited size of the Fundis aggravated by the fact that quota formulasgenerally underestimate the size of developingeconomies; hence the distribution of quota sharesshort-changes developing countries. Consequently,their share of a small Fund is made even smallerthan it would be if quotas were a fair reflection ofthe size of their economies.

As the 1979 Guidelines on Conditionalitystated, conditionality is to be non-discriminatory.An equal treatment is to be given to all membercountries. However, since conditionality is ulti-mately the result of a negotiation, there is littlequestion that the larger, systemically importantcountries with access to financial markets and arerepresented by strong economic teams generallyhave a more favourable negotiating position andcan get a better deal than small, low-income coun-tries. Indeed, the financial situation of the countryat the time of the negotiation is a major influenceon the outcome of the negotiation.

Moreover, the strategic, economic and politi-cal importance of a particular country, whichtranslates into the political support of the majorpowers, can and does influence the negotiatingposition of a country vis-à-vis the Fund. (Do geo-political considerations have a bearing in thenegotiating position of Argentina and Turkey?) Ofcourse, very large, or strategically and politicallyvery important countries like Brazil, China, Egypt,India, Mexico, and Russia are always a specialcase (Killick et al., 1998).

IMF staff members have had to learn thatsome countries are more equal than others. Butfew have taken their objection to political pres-sures to the point of resignation as did D. Finch,the former Director of the Exchange and TradeRelations Department who resigned when pressedto reduce conditionality for political reasons (Fi-nancial Times, 1987).

Are the conditions and policies required toobtain the financial support of the Fund always

essential to the resolution of a country�s paymentsproblem and in the country�s best interest or canthey be influenced by the political and/or com-mercial interest of others? At the time of the itsfinancial crisis, the Republic of Korea was re-quired to open up certain services, i.e. the bankand insurance services, to foreign investment andto liberalize the imports of certain industrial prod-ucts, including Japanese cars in exchange forfinancial support. Was this liberalization on thepart of the Republic of Korea required to over-come her payments problems? Did it in any wayrespond to third-party interests? Eminent econo-mists such as Feldstein (op. cit.) and Stiglitz haveexpressed their doubts in this regard.

While most Fund policy prescriptions on afundamental issue are generally sound, bringingstability to a high inflation economy will help re-store confidence and improve the climate for in-vestment and growth. However, it is not alwaysclear that all conditions included in Fund pro-grammes, particularly the proliferation of struc-tural conditions in recent years, are required todeal with the imbalance at hand, are timely andunquestionably to the benefit of the country.Moreover, it may be argued that in certain casesthe Fund recommendations have been mistakeni.e., was the rapid liberalization of the capital ac-count and financial markets in emerging marketeconomies propounded in the 1990s always to thebenefit of recipient countries or did it help pre-cipitate financial crisis? Bhagwati believes it did(Bhagwati, 1998).

In the same way there is more than one modelof market economy and of capitalism (i.e. com-pare the Asian model with those prevailing inFrance, Germany and the United States) since de-velopment economics is not an exact science andthe political and cultural traditions of countriesdiffer, there is more than one model of develop-ment. Compare, for instance, the role of the statein industrial policy in China or in South-East Asiawith that in the United States. However, the po-litical values and development perspectives of IFIsare implicit in the programmes they support andgenerally favour approaches which are in conform-ity with the current views of their major share-holder, irrespective of the views of the membercountry on the matter. This does not favour com-mitment to the programme by the authorities.


VII.Excess demand and structuralimbalances

When industrial countries face a recession,they normally pursue expansionary fiscal andmonetary policies to stimulate the recovery ofdemand. The Germany, the United Kingdom, theUnited States and other countries have recentlydone so. With the exception of a few high saversin Asia, emerging market economies are unableto pursue similar expansionary policies to stimu-late their economy. Given the volatility of financialmarkets, they are normally obliged to adopt re-strictive fiscal and monetary policies to protecttheir reserves lest they trigger confidence crisis.These restrictive policies aggravate the contrac-tion of domestic and international economicactivity. Should the Fund provide financial sup-port to emerging market economies with soundfoundations to allow them to avoid contractionarypolicies? Here is a case where Fund support couldmake all the difference and where Article I Sec-tion (v) on the purposes of the Fund assures that�To give confidence to members by making thegeneral resources of the Fund temporarily avail-able to them under adequate safeguards, thusproviding them with opportunity to correct mal-adjustments in their balance of payments withoutresorting to measures destructive of national andinternational prosperity�.

Should a country undergoing a balance-of-payments crisis and deep recession, (unemploy-ment stands at around 20 per cent in Argentina),be required to balance the fiscal accounts at de-pressed levels of activity as a condition for Fundsupport? Is this consistent with the purposes ofthe Fund; or will it exacerbate the downturn? Asfiscal revenues decline with economic activity, aneconomy in recession will normally run a fiscaldeficit. Should the Fund distinguish between thecyclical and the structural component of a deficitto avoid pushing the economy deeper into reces-sion? Should the Fund provide support to a well-constructed programme that would secure fiscalbalance at a modest but positive growth rate?

The conditionality prescribed for the use ofFund resources requires that the member adopt anadjustment programme to deal with the externalimbalance. This means that the Fund requires thatthe member adopt measures to restore a sustain-

able balance between aggregate demand for, andthe aggregate supply of resources in the economy.The policies adopted for this purpose and the par-ticular policy instruments chosen to do so shouldvary with the nature and size of the imbalance,but since the most frequent case is that of an im-balance arising from an unsustainable expansionof aggregate demand, the traditional Fund pro-gramme relies on a demand management approach,i.e., essentially a reduction of aggregate demandto restore external balance.

This usually entails the limitation of publicexpenditures and the increase in public sectorrevenues in order to reduce or eliminate the ex-pansionary impact of public sector financing re-quirements and the limitation of domestic creditexpansion. While this is of course the right ap-proach to deal with excess demand, fiscal adjust-ments required by Fund programmes are oftenunduly severe and consequently have an unneces-sarily restrictive impact on economic activity andgrowth. This is often the result of the underesti-mation of the impact of reduced public expendi-ture on private sector activity and investment.Moreover, cuts in expenditure tend to focus oninvestment and social expenditures � such ashealth and education that benefit the poorer sec-tors of the population � which undermines thepotential for future growth. The reason behind thistrend is that governments find these expenditureseasier to cut than wages and other current expendi-ture. Additionally, the deflationary impact of lowerlevels of public expenditure may also be com-pounded by the limitation of net domestic creditto the private sector that programmes usually en-tail in order to limit aggregate expenditure.

Deflationary policies are suitable for deal-ing with excess demand, and may restore externalbalance. However, they are not likely to increasesupply or to overcome production imbalances. Noris demand management always the best way to dealwith imported inflation. Other measures may berequired for those purposes. For example, theadoption of supply-oriented structural measuresmay be successful where large price and cost dis-tortions have to be corrected, as in the case ofmany economies in transition. However, in theexperience of other countries, the introduction ofstructural measures in Fund programmes has beenrather less successful than was expected (seesection below on: The rise and fall of structural


conditionality). More generally, the analysis of theeffect of Fund programmes on member countriesshows that while most strengthen the current ac-count and consequently reduce the overall imbal-ance on the external accounts, which is consist-ent with the view that the essence of conditionalityis deflation, their impact on growth and inflationis not statistically significant.

Not all imbalances are the result of excessdemand arising from expansionary policies. Con-sequently, a traditional demand managementapproach is not one appropriate to deal with struc-tural problems where new investment and areallocation of productive resources are requiredto improve the supply response of the economy.For instance, consider the investments and theperiod of time required for the development ofdomestic energy resources, whether hydroelectricor an oil field that will reduce future imports.Moreover, since structural adjustments for such adevelopment project will normally require greateramounts of financing over an extended period oftime than sheer demand management, the type ofadjustment policies to be followed will often giverise to policy differences and tensions between theFund and the member country.

Additionally, the pace and the economic andsocial cost of adjustment largely depend on thetotal amount of financing available: the greaterthe financing available, the more this likelihoodwill allow the country to extend the adjustmentprocess over a longer period. Thus the nature ofthe imbalance, the amount of support and the du-ration of the adjustment process will be issues fordiscussion and negotiation between the authori-ties of the member country and the Fund. Theanswers, given by the Fund to these and otherquestions, as they embedded in the programmefrequently determine whether the conditionalityapplied in a particular case is seen as either ap-propriate or too severe; and consequently whetherthe authorities will be committed to the successof the programme. The adjustment of an imbal-ance is not simply an economic problem, but onethat will usually have significant social and po-litical repercussions. Its success requires thepolitical commitment of the authorities. It ofteninvolves technical and political trade-offs and callsfor fine political judgments that are known to andshould be made by the authorities.

VIII. Capital account crises

In a world of increasingly integrated finan-cial markets and high capital mobility, the loss ofmarket confidence in a country or in a currencymay give rise to a massive capital outflow, caus-ing a severe financial crisis that has internationalrepercussions. Mexico in 1995, Indonesia, Thai-land and the Republic of Korea in 1997, to be laterfollowed by Argentina, Brazil, Russia, Turkey andVenezuela, to name only the best-known cases.Abrupt confidence reversals of this sort have cre-ated a new kind of problem for emerging marketcountries and for the Fund itself. At the outbreakof the Mexican crisis, the Fund�s Managing Di-rector characterized it as �the first financial crisisof the twenty first century�, thus implying that itcalled for a different response from the IMF. How-ever, the Fund response has been similar to thatgiven to any other balance-of-payments crisis ex-cept that in some cases it has been quicker andsupport larger than in the traditional case. Theproblem with this approach is that it implies thatthe crisis should be allowed to erupt and thereaf-ter should be resolved by an economic programmebacked by large-scale financial support. Implicitin it is the belief that a loss of confidence is in-variably caused by poor policies on the part ofthe affected country and can thus be reversed bystrong adjustment measures. These assumptionsare questionable. Sudden shifts in short-term capi-tal often appear to be as much the product of weakfundamentals as of speculators� desire for profitand their often-incorrect interpretation of nationalor international events. In other words they mayresemble more closely the type of crisis modelledby Obstfeld (Obstfeld, 1986 and 1995) than themore traditional payments crises modelled byKrugman (Krugman, 1979).

It is widely recognized in the literature,including Fund papers, that capital flows to emerg-ing markets are often volatile for reasons that mayhave little relation to country risk. Among the rea-sons that may affect capital flows are:

1) Exogenous and unanticipated changes infinancial conditions in industrial countriesthat are unrelated to their policies can have asevere destabilizing impact on capital-im-porting countries. For instance, a tightening


of monetary policy that gives rise to higherinterest rates (as when P. Vickers raised in-terest rates in the United States in 1982 whichhad pushed the United States into recessionand detonated the Latin American debt cri-sis) and/or to exchange rate fluctuations maysharply increase the cost or reduce the avail-ability of financing to developing countries.

2) The pro-cyclical nature of capital flows.Capital tends to flow out of industrial coun-tries when economic activity is at low levelsand to return to these countries when the eco-nomic and business prospects are favourable.Thus markets tend to undermine the credit-worthiness of emerging market economies.

3) Information asymmetries and contagion ef-fects characterize financial markets. Countryrisk perceptions often respond to �herding�behaviour rather than serene analysis, butonce a run is underway the self-fulfillingnature of speculative attacks can make itmuch more risky for the investor to resist thanto join the bandwagon. Recent episodes offinancial market turbulence show that a coun-try may lose its creditworthiness overnightleave the authorities little time to react. In anumber of cases this sudden loss of confi-dence may be unjustified. However, there canbe no question that the bandwagon effect canabruptly reduce liquidity across the board,disrupt the economies of capital-importingcountries and destabilize the economies of agroup of countries or a region. The case ofthe Argentine crisis is the most recent exam-ple of this phenomenon.

The current Fund approach to financial cri-ses seems to imply that the best way to deal withthese is to let them run their course; then to try torestore confidence by an abrupt change in eco-nomic policies coupled with substantial financialsupport. This approach is unsatisfactory becausecrises inflict very great damage on the affectedcountry over a very short time. One need not lookbeyond the sharp contraction of GDP, the fall inconsumption, investment and employment, and thewave of bankruptcies and banking crisis that en-

sue to realize that every effort should be made tofind a less destructive and costly approach to thesolution of problems of this kind. This would bemore in line with the purposes of the Fund as con-tained in Article 1 of the Articles of Agreementwhich is �to give confidence to member countries,by making the resources of the Fund temporarilyavailable to them, thus providing them with theopportunity to correct maladjustments in theirbalance of payments without resorting to meas-ures destructive of national and internationalprosperity�.

Because the flow of capital is crucially de-pendent upon the confidence of internationalinvestors, timely and ample financial support mayprevent a crisis. Therefore, the Fund should beready to act very quickly, at the outset of a specu-lative attack, before the country falls prey to afinancial crisis, rather than coming in after thecrisis to pick up the pieces. This would not pre-clude any exchange-rate or fiscal adjustments thatmay be required under the circumstances, butwould simply allow these to take place in an or-derly manner.

The key to the approach suggested is to sus-tain confidence by the timely provision of a largeamount of financial support and thereby avoid thepanic and its very costly sequel, the overshootingof exchange and other markets and the recessionthat takes place as a result of the loss of confi-dence in the currency. While the creation of theContingent Credit Lines (CCL) in the Fund ap-pears to recognize the validity of this argument,no country has resorted to it despite several fi-nancial crises in the three years since its estab-lishment. This would seem to indicate that it hasfailed the test of the market. Members may feelthat Fund support is not sufficiently certain, nortimely and sufficiently large to be able to protectthem from a speculative attack that would triggeroff a crisis. Given the small size of quotas, finan-cial support that is little more than a normal day�strading in the exchange market, as in the Mexicancase, is not likely to impress the financial market.The CCL could therefore be redesigned the cor-rect its shortcomings and to render it operational(Buira, 1999).


IX. The rise and fall of structuralconditionality

While conditionality has been the subject ofmuch discussion over the life of the Fund, it isimportant to note its evolution and the changes ithas been subjected to over the last twenty years.

The Fund and the Bank have modified theirlending policies over time to keep in step withchanging international economic conditions andevolving economic orthodoxies. In fact, in the1980s and 1990s, a significant increase in thenumber of conditions can be observed. �The av-erage number of (IMF) conditions rose from aboutsix in the 1970s to 10 in the 1980s (figures 1 and 2).In the Bank�s case the average number of condi-tions rose from thirty two in 1980�83 to fifty sixby the decade�s end� (Kapur and Webb, 2000).The number of conditions continued to rise dur-ing the 1990s and was focused on structuralconditionality.

The number of structural policy commitments� prior actions, structural benchmarks, conditionsfor programme reviews and performance criteria� in Fund programmes reached its peak during theAsian crisis. At their highest, the programmes withthe Republic of Korea included 94 structural con-ditions; with Thailand, 73; and with Indonesia,140 structural policy undertakings! In addition,there were of course, a number of other traditionalquantitative performance criteria to be met withinthe fiscal, monetary and on the exchange system.Since there was no ranking as to their importance,trying to keep track of so many commitments andvariables could overwhelm the authorities of anycountry; and must have become a nightmare forthose developing countries in the midst of a cri-sis. Needless to say that conditionality herein hadgone too far. Moreover, the programme results (ta-ble 2) soon confirmed that this approach hadbecome dysfunctional.

Let us now consider the factors behind thisexplosion of conditionality. Since the early 1980s,as the Thatcher and Regan doctrines gained as-cendancy in the United Kingdom and the UnitedStates, both countries adopted a more neo-liberaleconomic stance and increasingly favoured poli-cies aimed at reducing the role of the state: thereduction or elimination of subsidies, market lib-

eralization, and privatization of public enterprises.These views, which were to be translated into anew type of structural conditionality, were super-imposed on the more traditional macroeconomicconditionality. According to Michel Camdessus,the goals included �financial market operationsorganized around objective financial criteria,transparency in industrial conglomerates and ingovernment business relations more generally, thedismantling of monopolies, and the eliminationof government-directed lending and procurementprogrammes�. Although the above watchwords didnot describe the history of any industrial country,they reflected the vision of a global market sys-tem that was increasingly being advocated sincethe seventies by the United States business andgovernment sector.

The reasons for the change in the condi-tionality of the IFIs were not, however, purelyideological. It is a combination of several otherfactors, among which:

1) The limited (declining in relation to demand)financial resources of development financeinstitutions which reflected a policy shift inmajor industrial countries away from theprovision of public financing to developingcountries, in favour of a policy aimed at the�graduation� of middle income countries toprivate financing, that had started during thelate seventies. This meant that programmesand loan requests had to give prominence topurely economic and financial results to sat-isfy financial markets.

2) The rise of supply-side economics, the pre-cursor of structural adjustment, in the UnitedStates. While this theory was initially resistedby many developing countries in the earlyeighties, the policy makers of these countrieshad over time become convinced that therewas no alternative to increased reliance onmarket financing. Moreover, as structuralconditionality seemed to match what finan-cial markets required to have confidence inborrowers, it was gradually accepted.

3) A conversion of national authorities in anumber of developing countries to the neweconomic orthodoxy as �technocrats�, usu-ally economists who trained in the UnitedStates and favoured market liberalization and


Figure 1

AVERAGE NUMBER OF STRUCTURAL CONDITIONS PER PROGRAMME YEAR,a 1987�1999

Source: International Monetary Fund, MONA database; and country papers.a Total number of structural performance criteria, benchmarks, prior actions, and conditions for completion of review

stand-by, EFF, and SAF/ESAF/PRGF-supported programmes, adjusted for differences of programme length.

0

2

4

6

8

10

12

14

16

18

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

0

5

10

15

20

25

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Transition economies SAF/ESAF/PRGF countries Other countries Asian crisis countries

Figure 2

AVERAGE NUMBER OF STRUCTURAL CONDITIONS PER PROGRAMME YEARBY TYPE OF COUNTRY,a 1987�1999

Source: International Monetary Fund, MONA database; and country papers.Note: Transition economies: as defined in the World Economic Outlook, covering former centrally planned economies in Eastern

Europe, FSU countries and Mongolia. SAF/ESAF/PRGF countries: countries with SAF/ESAF/PRGF-supportedarrangements, excluding transition economies. Other countries: residual group, encompassing programmes in countries thatdo not fall into any of the other categories. Asian crisis countries: Indonesia, Republic of Korea, and Thailand.

a Total number of performance criteria, prior action, conditions for completion of review, and structural benchmarks perprogramme, adjusted for differences in programme length.


a smaller role for the state, gained ascend-ancy in many developing country govern-ments.

4) The Brady Plan that conditioned externaldebt reductions to policy adjustment pro-grammes emphasizing changes in economicstructures as well as macroeconomic bal-ances.

5) The criticism of Fund programmes by devel-oping country representatives as too restric-tive and demand oriented and insufficientlyconcerned with economic growth, led theFund to put emphasis on the structural changes�required� by long term growth. This becameapparent in the Structural Adjustment Facil-ity (SAF), created in 1986, which requiredapplicant low-income countries to submit athree-year programme �to correct macro-economic and structural problems that haveimpeded balance of payments adjustment andeconomic growth.� The Extended StructuralAdjustment Facility (ESAF), which was es-tablished a year after included similar require-ments (IMF Decision No. 8240 - (86/56)SAFMarch 26, 1986.) See Selected Decisions andSelected Documents of the IMF, Washington,DC, December 31, 2000).

6) The revised Article IV giving the Fund ex-panded surveillance responsibilities in mis-sions to members that made the staff andBoard more aware of structural issues, par-ticularly when these appeared to have a bear-ing on balance of payments problems.

7) The major structural problems faced by theeconomies in transition and the far-reachingtransformations these countries required inorder to establish market economies.

8) The emergence of the Asian crisis, which ledto the proliferation of norms and standardsin a number of fields.

Kapur (2000) comments that �There is an un-derstandable skepticism that rich countriesare long on norms when they are short on re-sources, and the increasing resort to normsof governance even as development budgetsdecline is perhaps not entirely coincidental.As long as the cold war was on, �crony capi-

talism� in Indonesia was not considered aproblem. Nor was it a problem while the EastAsian �miracle� was being trumpeted. Butwhen the Asia crisis of 1997�98 erupted,norms of corporate governance were strenu-ously advanced to deflect attention frombroader issues of the nature and quality ofinternational financial regulation.�

9) The tendency of major countries to ask theFund to include certain structural issues ofinterest to them in programme conditionalitydespite the injunction in the Fund�s Articles(Art XII Section IV) that members �refrainfrom all attempts to influence any of the(Fund) staff in the discharge of (their) func-tions.� Goldstein (2000) cites the programmesof the Republic of Korea and of Indonesia asprogrammes as cases in point

In addition to fulfilling an instrumental rolein triggering disbursements, compliance with per-formance clauses or targets also has a doubleconfidence building role: from the country to thefinancial markets and from the institution to itsmajor shareholders.

As Kapur, Lewis and Webb (1997) hadpointed out �multiplying the number of reformsper loan appeared to increase the reform mileage� that could be gotten from limited policy loanmoney�. However, the result of the proliferationof conditions left a lot to be desired: First, therewas a loss of transparency and increased uncer-tainty as to programme compliance on the part ofthe countries and their access to Fund financialsupport, i.e., Would a country that had met, say47 out of 60 policy commitments, (performancecriteria, prior actions and structural benchmarks)be considered in compliance and allowed to dis-burse? Second, as a general rule, the greater thenumber of conditions in a programme the lesslikely it was that the authorities felt a strong com-mitment to and ownership of the programme, afact that diminished the chances of successfulprogramme completion. Third, the high and in-creasing proportion of programme failures gaverise to questions as to the point of having evermore comprehensive and ambitious programmesthat were not complied with.

The analysis of programme compliance sincethe seventies suggests there is an inverse relation


between the number of performance criteria andprogramme success. The reasons for this appearobvious: the greater the number of performancecriteria, structural benchmarks and other targets,the greater the chance that some will not be met.Thus, more modest and more realistic programmes,centred on certain key issues, those critical to eco-nomic performance and the achievement of theprogramme objectives, are more likely to com-mand political support and ownership by theauthorities than much broader ones, thereby im-proving their chances of success.

By the mid 1990s, faced with the failure ofstructural policies to secure objectives such ashigher rates of growth, the reduction of povertyand an improved distribution of income, the IFIsre-discovered the role of government and aimedto improve governance in member countries, par-ticularly through increased transparency, greateraccountability and the reduction of corruption. Forthis both the Fund and the Bank encouragedreform of public institutions by adding governance-related conditions, including cutting expenditureon arms, the strengthening of civil society and therule of law to the traditional macroeconomic is-sues.

X. Conclusion

Conditionality was not always a characteris-tic of the Fund. It was introduced in the 1950s, asa means to restore members� balance-of-paymentsviability and to ensure that Fund resources wouldnot be wasted; that the institution would be ableto recover the loans it extended to member coun-tries. The practice of conditionality was incorpo-rated as a requirement into the Agreement only in1969, as part of the First Amendment of the Arti-cles. For several decades, until the early eighties,Fund Conditionality centred on the monetary, fis-cal and exchange policies of members.

Over the last 20 years, while the resourcesof the Fund declined as a proportion of worldtrade, the number of Fund programmes increasedsteadily. Not surprisingly, the conditionality con-tained in programmes experienced substantialchange. On the one hand the scope of condi-tionality was substantially expanded into fields

that had been largely outside its purview. Thus,conditionality was expanded well beyond the tra-ditional fields of monetary and fiscal policy andissues related to the exchange system to also en-compass structural change in the trade regime,pricing and marketing policy, public sector man-agement, public safety nets, restructuring andprivatization of public enterprises, the agriculturalsector, the energy sector, the financial sector, andmore recently to issues of governance and othersin which the expertise of the Fund is limited.

As the number of conditions, particularlystructural conditions, increased gradually duringthe 80s, and rapidly during the 90s, the rate ofmember country�s compliance with Fund sup-ported programmes showed a parallel and no lessremarkable decline. Programmes that were suc-cessfully completed programmes or were incompliance, fell from the rate of over 50 per centin the late seventies and early 80s, to below thirtyper cent in the nineties if compliance is definedas that which permitted the disbursement of over75 per cent of the loan, and to only sixteen percent if the test of compliance is the full disburse-ment of the loan. The decline in the relative sizeof the Fund in relation to needs must have alsocontributed to the hardening of conditionality.

As a result of the very low rates of pro-gramme compliance, it would be very difficult toargue that conditionality restores external balanceand secures the repayment of loans, or that it isneeded to ensure the revolving nature of Fund re-sources. It may however, serve the purpose ofobtaining certain policy changes desired by credi-tor countries. Moreover, as compliance declined,the credibility of Fund programmes had beeneroded and their catalytic character is increasinglyquestionable, a fact that has obvious implicationsfor the size of the Fund.

As conditionality had become dysfunctional,its review and streamline became inevitable. Inthis regard the initiative of the Managing Direc-tor to address the very high rates of programmefailure is both necessary and welcome The Boardhas also recognized the nature of the problem.Experience and the Fund�s own studies show thatprogramme success is closely related to owner-ship, and that ownership cannot be externallyimposed. It must result from internal analysis anddiscussion, leading to the conviction by domestic


actors that compliance with the programme is con-ducive to the attainment of their own objectives.Since conditionality cannot compensate for lackof programme ownership, it can only be seen ashelpful to the extent that it fits in with the mem-ber�s goals and is seen by the authorities as a roadmap to their own purposes. What makes for a suc-cessful programme is the authorities� commitmentto its objectives. Conditionality can neither sub-stitute nor offset a lack of ownership.

This suggests that the role of the Fund staffshould be more akin to that of an external advisoror consultant who can assist the authorities de-velop their own programmes, by helping them inthe identification of available paths and policyoptions, when they have the conviction to pursueobjectives consistent with the Fund�s mandate.Programmes, however detailed, are likely to failwhen the authorities accept them without convic-tion as the price they must pay for externalfinancial support in times of need. On the otherhand, when the authorities and more broadly, thesociety are committed to certain policy objectives,these can be attained without the doubtful �ben-efit� of very detailed conditionality.

Although the Managing Director appearsdetermined to streamline conditionality, the iner-tia prevailing as a result of many years practice,among a generally very competent and dedicatedstaff, may take time to overcome. However, asshown by the new Fund policies toward capitalaccount liberalization, change is under way.

The review of conditionality should lead toincreased participation of members in programmedesign in order to secure greater ownership andtransparency. Programmes developed by the au-thorities, preferably in broad consultation withsocial forces, do not require a multitude of per-formance criteria, structural benchmarks and prioractions to secure compliance. The Fund�s attitudeto its members should be a more liberal one, ofgreater trust, akin to what is currently requiredfor drawings under the first credit tranche. TheFund should need no more than a reasonable pro-gramme focused on the essentials, usually centredon the Fund�s core areas of competence: fiscal,monetary and exchange rate policies. Provided themember shows its clear understanding of the is-sues and a commitment to a sound programme,Fund support should be made available. Some

flexibility as to the measures to be adopted andtheir timing should be allowed to permit the mem-ber to respond to changing circumstances. Thisapproach should serve members better and safe-guard Fund resources more effectively than theonerous conditionality practices of the 1990s thatresulted in such poor programme compliance.

In addition, the changing conditions of theinternational scene and the recurrence of finan-cial crises call for a review of the role of the Fund,the nature and character of its operations, and theadequacy of its resources. The Fund�s own gov-ernance and accountability and members contri-butions and participation in decision-makingshould also be reviewed.

Annex 1

In the discussions in Atlantic City in June1944, prior to the Bretton Woods conference, thedelegates from the United States had raised theissue of requiring member countries that requestedfinancial support, to give certain policy undertak-ings to the Fund who would decide whether thecurrency purchase was consistent with the pur-poses of the Fund. This notion was stronglyrejected. Virtually all other countries believed thataccess to Fund resources should be automatic andunchallenged. Moreover, these countries believedthat Fund intrusion in their internal affairs wouldbe intolerable. Within the prescribed limits, thedecision to purchase foreign currency in exchangefor the country�s own currency could not be chal-lenged; the role of the Fund should be strictlylimited. By the time of the Conference, the twoamendments that had been proposed by the UnitedStates delegation had been dropped. Thus the is-sue appeared to have been settled, and since it wasnot then raised by the United States delegation, itwas not discussed any further. Consequently, theoriginal Articles contained no statement that theFund had to adopt policies on the use of its re-sources. A member country was therefore entitledto make purchases provided that �it represents thatit is presently needed for making in that currencypayments which are consistent with the provisionsof this Agreement.� (Article V Section 3(a))

Even in the United States� view, the Fund wasnot to interfere in member country�s domestic


policies. A valuable insight into this thinking bythe United States is provided in a statement byWhite in October 1943: �The Fund�s facilitiesshould not be used to finance either a flight ofcapital or the issue of foreign loans by a countrywhich could not afford to undertake foreignlending. Again, the Fund would be justified in in-tervening where a country was using its quota forrearmament. On the other hand, it would not bejustified in the case of an unbalanced budget. Ingeneral the Fund would intervene only in extremecases of violation of qualitative rules, and wouldbear the burden of proof.� (Horsefield, 1969)

As Article IV Section 5(f) of the originalArticles of Agreement stated, as long as the Fundwas assured that a change in par value of a par-ticular member�s currency was necessary tocorrect a fundamental disequilibrium,� it shall notobject to a proposed change because of the do-mestic social or political policies of the memberproposing the change.� This wording makes itclear that the intention of the Agreement as awhole was to preclude Fund interference withdomestic policies having social objectives suchas the subsidization of food or other essential con-sumption goods for the protection of low incomegroups�. (Dell, 1981)

While the United States had lost the battle togive the Fund supervisory functions, they wouldnot agree to the use of Fund resources withoutcertain additional safeguards. �The Europeans hadthe best of the argument, perhaps, but it was theUnited States that had the resources, and it wasthe resources that counted, specially in the imme-diate aftermath of World War II� (op. cit.). After anumber of years of very limited Fund operations,it was the need to obtain the financial support andcooperation of the United States that in 13 Febru-ary 1952, the Executive Board was persuaded toaccept a proposal by the Managing Director toembody the United States concept of condition-ality by which:

�� the task of the Fund is to help members thatneed temporary help, and requests should be ex-pected from members that are in trouble in agreater or lesser degree. The Fund�s attitude to-wards the position of each member should turnon whether the problem is of a temporary natureand whether the policies the member will pursuewill be adequate to overcome the problem within

such a period. The policies, above all, should de-termine the Fund�s attitude.� (Decision No.10 (52/11) para. 1; italics used for emphasis.)

And additionally �considering especially thenecessity for ensuring the revolving character ofthe Fund�s resources, exchange purchased fromthe Fund should not remain outstanding beyondthe period reasonably related to the paymentsproblem for which it was purchased from the Fund.The period should fall within an outside range ofthree to five years. Members will be expected notto request the purchase of exchange from the Fundin circumstances where the reduction of the Fund�sholdings of their currencies by an equivalent amountwithin that period cannot reasonably be envis-aged.� (op. cit., para. 2)

References

Bhagwati J (1998). The capital myth: the difference betweentrade in widgets and dollars. Foreign Affairs, 77(3): 7�12, May/June.

Bird G and Rowlands D (1997). The catalytic effect of lendingby the international financial institutions. World Economy,20(7): 967�991, November.

Bird G and Rowlands D (2001). World Bank lending and otherfinancial flows: Is there a connection? The Journal ofDevelopment Studies, 37(5): 83�013, June.

Boughton JM (1997). From Suez to Tequila: The Fund as cri-ses manager. IMF Working Paper, 97/90. Washington,DC, International Monetary Fund.

Buira A (1983). IMF financial programs and conditionality.Journal of Development Economics, 12: 111�136. Am-sterdam, North Holland Publishing Company.

Buira A (1999). An alternative approach to financial crises.Essays in International Finance, 212. Princeton, NJ,Princeton University, International Finance Section, Feb-ruary.

Buira A (2002). An Analysis of IMF Conditionality. Depart-ment of Economics Series Ref: 104, University of Ox-ford, June.

Collingwood V (2001). Between Consensus and Coercion:Defining the Parameters of Political Conditionality. M.Phil. thesis, unpublished. Oxford, Christ Church.

Council on Foreign Relations (1999). Independent Task Force:Safeguarding Prosperity in a Global Financial System.The Future International Financial Architecture. NewYork, NY and Washington, DC (www.ciaonet.org/conf/cfr21).

Dell S (1981). On being grandmotherly: The evolution of IMFconditionality Essays in International Finance, 144: 6.Princeton, N.J., Princeton University, International Fi-nance Section, October.

Feldstein M (1998). Refocusing the IMF. Foreign Affairs, 77(2):20�33, March/April.


Financial Times (1987). IMF silent on resignation. 21 March.Goldstein M (2000). IMF Structural Programs. Paper prepared

for NBER Conference on Economic and Financial Cri-ses in Emerging Markets, Woodstock, Vermont, 19�22October. Washington, DC, Institute for International Eco-nomics, December.

Guitian M (1995). Past, present, future. IMF Staff Papers, 42(4):792�835. Washington, DC, International Monetary Fund.

Horsefield JK (1969). The International Monetary Fund 1945-1965. Twenty Years of International Monetary Coopera-tion. Volume III, Documents: Part I Before BrettonWoods, White Plan: 37�96. Washington, DC, Interna-tional Monetary Fund.

IMF (1963). Annual Report of the Executive Directors. Wash-ington, DC, International Monetary Fund.

IMF (1993). Articles of Agreement. Washington, DC, Interna-tional Monetary Fund. April.

IMF (1998). Transactions of the Fund. Washington, DC, Inter-national Monetary Fund.

IMF (2000). Selected Decisions and Selected Documents ofthe IMF, Washington, DC, International Monetary Fund,31 December.

IMF (2001). Conditionality in Fund-Supported Programs �External Consultations (SM/01/219 Supplements 1 and 2).Washington, DC, International Monetary Fund, July.

IMF (2001). Conditionality in Fund-Supported Programs �Policy Issues (SM/01/60 Supplements 1 and 2). Wash-ington, DC, International Monetary Fund, February.

IMF (2001). Streamlining Structural Conditionality � Reviewof Experience (SM/01/219). Washington, DC, Interna-tional Monetary Fund, July.

IMF (2001). Strengthening Country Ownership of Fund-Sup-ported Programs (SM/01/340). Washington, DC, Inter-national Monetary Fund, November.

IMF (various issues). International Financial Statistics. Wash-ington, DC, International Monetary Fund.

International Financial Institutions Advisory Commission(IFIC) (2000). Meltzer Report: 7�8; 43. Washington, DC.March.

Kapur D (2000). Processes of change in international organi-zations. Weatherhead Center Working Paper Series, 00-02, Cambridge, MA, Harvard University.

Kapur D, Lewis J and Webb R (1997). The World Bank: Its FirstHalf Century. Washington, DC, The Brookings Institution.

Kapur D and Webb R (2000). Governance related condi-tionalities of the international financial institutions. G-24Discussion Paper Series, 6: 3�4. New York and Geneva,UNCTAD and Center for International Development,Harvard University, August.

Killick T, Gunalatika R and Marr A (1998). Aid and the Politi-cal Economy of Change. London, Routledge.

Krugman P (1979). A model of balance-of-payments crises.Journal of Money, Credit and Banking, 11: 311�325,August.

Moggridge D, ed. (1974). Keynes: Aspects of the Man and HisWork. London, Macmillan Press.

Moggridge D, ed. (1980). The collected writings of JohnMaynard Keynes, 25. Cambridge University Press.

Mussa M and Savastano M (2000). The IMF approach tostabilization. IMF Working Paper, 104: 12. Washington,DC, International Monetary Fund, 13 September.

Obstfeld M (1986). Rational and self-fulfilling balance-of-pay-ments crisis. American Economic Review, 76: 72�81,March.

Obstfeld M (1995). The Logic of Currency Crises. In: Eichen-green B, Frieden J, von Hagen J, eds. Monetary and Fis-cal Policy in an Integrated Europe: 62�90. European andTransatlantic Studies. Heidelberg, London and New York,Springer.

Polak J (1993). The changing nature of IMF conditionality.Princeton Essays in International Finance, 184.Princeton, NJ, Princeton University, International FinanceSection, October.

Rodrik D (1999). Governing the Global Economy: Does onearchitectural style fit all? www.ksg.harvard.edu/rodrik/papers.html).

Schadler S, Bennett A, Carcovic M, Dicks-Mireaux L, MecagniM, Morsink J and Savastano M (1995). IMF condi-tionality: Experience under stand-by and extended ar-rangements. Part I: Key issues and general findings; andPart II: Background papers. IMF Occasional Papers, 128and 129. Washington, DC, International Monetary Fund,September.

Volcker, P and Toyoo Gyoten (1992). Changing Fortunes. NewYork, Times Books.


G-24 Discussion Paper Series*

Research papers for the Intergovernmental Group of Twenty-Four on International Monetary Affairs

No. 21 April 2003 Jim LEVINSOHN The World Bank�s Poverty Reduction Strategy PaperApproach: Good Marketing or Good Policy?

No. 20 February 2003 Devesh KAPUR Do As I Say Not As I Do: A Critique of G-7 Proposalson Reforming the Multilateral Development Banks

No. 19 December 2002 Ravi KANBUR International Financial Institutions and InternationalPublic Goods: Operational Implications for the WorldBank

No. 18 September 2002 Ajit SINGH Competition and Competition Policy in EmergingMarkets: International and Developmental Dimensions

No. 17 April 2002 F. LÓPEZ-DE-SILANES The Politics of Legal ReformNo. 16 January 2002 Gerardo ESQUIVEL and The Impact of G-3 Exchange Rate Volatility on

Felipe LARRAÍN B. Developing CountriesNo. 15 December 2001 Peter EVANS and Organizational Reform and the Expansion of the South�s

Martha FINNEMORE Voice at the FundNo. 14 September 2001 Charles WYPLOSZ How Risky is Financial Liberalization in the

Developing Countries?No. 13 July 2001 José Antonio OCAMPO Recasting the International Financial AgendaNo. 12 July 2001 Yung Chul PARK and Reform of the International Financial System and

Yunjong WANG Institutions in Light of the Asian Financial CrisisNo. 11 April 2001 Aziz Ali MOHAMMED The Future Role of the International Monetary FundNo. 10 March 2001 JOMO K.S. Growth After the Asian Crisis: What Remains of the East

Asian Model?No. 9 February 2001 Gordon H. HANSON Should Countries Promote Foreign Direct Investment?No. 8 January 2001 Ilan GOLDFAJN and Can Flexible Exchange Rates Still �Work� in Financially

Gino OLIVARES Open Economies?No. 7 December 2000 Andrew CORNFORD Commentary on the Financial Stability Forum�s Report

of the Working Group on Capital FlowsNo. 6 August 2000 Devesh KAPUR and Governance-related Conditionalities of the International

Richard WEBB Financial InstitutionsNo. 5 June 2000 Andrés VELASCO Exchange-rate Policies for Developing Countries: What

Have We Learned? What Do We Still Not Know?No. 4 June 2000 Katharina PISTOR The Standardization of Law and Its Effect on Developing

EconomiesNo. 3 May 2000 Andrew CORNFORD The Basle Committee�s Proposals for Revised Capital

Standards: Rationale, Design and Possible IncidenceNo. 2 May 2000 T. Ademola OYEJIDE Interests and Options of Developing and Least-developed

Countries in a New Round of Multilateral Trade Nego-tiations

No. 1 March 2000 Arvind PANAGARIYA The Millennium Round and Developing Countries:Negotiating Strategies and Areas of Benefits

* G-24 Discussion Paper Series are available on the website at: http://www.unctad.org. Copies of G-24 Discussion Paper Seriesmay be obtained from the Publications Assistant, Macroeconomic and Development Policies Branch, Division on Globalization andDevelopment Strategies, United Nations Conference on Trade and Development (UNCTAD), Palais des Nations, CH-1211 Geneva 10,Switzerland; E-mail: [email protected].

An Analysis of IMF Conditionality - UNCTADunctad.org/en/docs/gdsmdpbg2420033.pdfAn Analysis of IMF...

Documents

Transcript of An Analysis of IMF Conditionality - UNCTADunctad.org/en/docs/gdsmdpbg2420033.pdfAn Analysis of IMF...