IMF Conditionality

Abstract

IMF programs are part “carrot” and part “stick.” My theory posits that the Fund’s largest shareholders have incentives to relax the punitive element of conditionality where their banks and exporters are exposed to risk and loss in developing and emerging markets. By using their influence at the IMF to relax conditionality, the Fund’s major shareholders can take the pain out of an adjustment program by reducing the number of binding conditions that a borrowing country must implement. By making it easier for a borrowing country to implement the terms of its IMF program, the G5 can maximize the amount of resources that can be diverted back to their domestic interests.