AN ANALYSIS OF IMF CONDITIONALITY

Ariel Buira

No 22, G-24 Discussion Papers from United Nations Conference on Trade and Development

Abstract: IMF conditionality was introduced in the 1950s as a means to restore members´ balance-of-payments viability, to ensure that Fund resources would not be wasted and to ensure that the institution would be able to recover the loans it extended to member countries. For several decades, until the early eighties, Fund Conditionality centred on the monetary, fiscal and exchange policies of members. Over the last 20 years, while the resources of the Fund declined as a proportion of world trade, the number of Fund programmes increased steadily, and conditionality underwent substantial changes, expanding the scope of conditionality into fields that previously had been largely outside its purview. As the number of conditions increased, the rate of member country´s compliance with Fund supported programmes declined, and reviewing and streamlining conditionality became inevitable. Experience and the Fund´s own studies show that programme success is closely related to ownership, and that ownership cannot be externally imposed. It must result from internal analysis and discussion, leading to the conviction by domestic actors that compliance with the programme is conducive to the attainment of their own objectives. Conditionality can neither substitute nor offset a lack of ownership. This paper reviews the origins and purpose of conditionality, as well as its nature and evolution over time. It looks into the reasons for increased conditionality during the 1980s and 1990s and reviews the recent IMF debate on conditionality and on the proposed changes in Fund practices. It distinguishes between short-term imbalances that result from excess demand and structural disequilibria and the new type of financial crises associated with short-term capital movements, asking whether different problems call for different conditionality. The paper also discusses how the economic and social costs of adjustment may be minimized and whether Fund resources are sufficient to enable it to comply with its mandate.

Date: 2003
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