IDEAS home Printed from https://ideas.repec.org/p/iie/wpaper/wp01-4.html
   My bibliography  Save this paper

IMF Structural Conditionality: How Much is Too Much?

Author

Listed:
  • Morris Goldstein

    () (Peterson Institute for International Economics)

Abstract

As suggested above, an active debate has long been underway - and has intensified in the wake of the Asian crisis - about the appropriate scope and intrusiveness of IMF policy conditionality. In this paper, I take up one key element of that debate, namely, the role of structural policies in IMF-supported adjustment programs. By "structural policies," I mean policies aimed not at the management of aggregate demand but rather at either improving the efficiency of resource use and/or increasing the economy's productive capacity. Structural policies are usually aimed at reducing/dismantling government - imposed distortions or putting in place various institutional features of a modern market economy. Such structural policies include, inter alia: financial-sector policies; liberalization of trade, capital markets, and of the exchange rate system; privatization and public enterprise policies; tax and expenditure policies (apart from the overall fiscal stance); labor market policies; pricing and marketing policies; transparency and disclosure policies; poverty-reduction and social safety-net policies; pension policies; corporate governance policies (including anti-corruption measures); and environmental policies. To set the stage for what follows, it is worth summarizing the main concerns and criticisms that have been expressed about the IMF's existing approach to structural policy conditionality. These typically take one or more of the following forms. First, there is a worry that wide-ranging and micro-managed structural policy recommendations will be viewed by developing-country borrowers as so costly and intrusive as to discourage unduly the demand for Fund assistance during crises. Even though the cost of borrowing from the Fund (the so-called rate of charge) is much lower than the cost of borrowing from private creditors - particularly during times of stress - we observe that developing countries usually come to the Fund "late in the day" when their balance-of-payments problems are already severe. This suggests that developing countries place a non-trivial shadow price on the policy conditions associated with Fund borrowing. The concern is that if these conditions become too onerous, emerging economies will wait even longer to come to the Fund (as Thailand did in 1997) and/or will turn to regional official crisis lenders that offer easier policy conditionality (e.g., in 1998 Malaysia was one of the first beneficiaries of low-conditionality Miyazawa Initiative funds, and Asian countries could eventually decide to elevate the infant Chiang-Mai swap arrangements into a full-fledged Asian Monetary Fund). The outcome - so the argument goes - would then be even more difficult initial crisis conditions, greater resort to the anti-social behavior that the Fund was established to prevent, and a tendency toward Gresham's Law of conditionality (where weak regional conditionality would drive out not only the unnecessary but also the necessary elements of Fund conditionality).

Suggested Citation

  • Morris Goldstein, 2001. "IMF Structural Conditionality: How Much is Too Much?," Working Paper Series WP01-4, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp01-4
    as

    Download full text from publisher

    File URL: https://piie.com/publications/working-papers/imf-structural-conditionality-how-much-too-much
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stanley Fischer, 1999. "On the Need for an International Lender of Last Resort," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 85-104, Fall.
    2. Yung Chul Park, 1996. "East Asian Liberalization and the Challenge from China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 357-371.
    3. Conway, Patrick, 1994. "IMF lending programs: Participation and impact," Journal of Development Economics, Elsevier, vol. 45(2), pages 365-391, December.
    4. Polak, J.J., 1991. "The Changing Nature of IMF Conditionality," Princeton Studies in International Economics 184, International Economics Section, Departement of Economics Princeton University,.
    5. Borensztein, Eduardo & Lee, Jong-Wha, 2002. "Financial crisis and credit crunch in Korea: evidence from firm-level data," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 853-875, May.
    6. repec:mes:challe:v:33:y:1990:i:4:p:57-59 is not listed on IDEAS
    7. Timothy D. Lane & Marianne Schulze-Gattas & Tsidi M Tsikata & Steven T Phillips & Atish R. Ghosh & A. Javier Hamann, 1999. "IMF-Supported Programs in Indonesia, Korea and Thailand," IMF Occasional Papers 178, International Monetary Fund.
    8. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    9. Patrick Honohan & Daniela Klingebiel, 2000. "Controlling fiscal costs of banking crises," Proceedings 682, Federal Reserve Bank of Chicago.
    10. Edwards, Sebastian, 1989. "The international monetary fund and the developing countries: A critical evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 7-68, January.
    11. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186.
    12. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
    13. Dooley, Michael P., 2000. "Debt management and crisis in developing countries," Journal of Development Economics, Elsevier, vol. 63(1), pages 45-58, October.
    14. Michael Mussa & Miguel Savastano, 2000. "The IMF Approach to Economic Stabilization," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 79-128 National Bureau of Economic Research, Inc.
    15. Feldstein, Martin, 1999. "A Self-Help Guide for Emerging Markets," Scholarly Articles 2961700, Harvard University Department of Economics.
    16. John Williamson, 2000. "The Role of the IMF: A Guide to the Reports," Policy Briefs PB00-5, Peterson Institute for International Economics.
    17. Anne O. Krueger, 2000. "Conflicting Demands on the International Monetary Fund," American Economic Review, American Economic Association, vol. 90(2), pages 38-42, May.
    18. Atish R. Ghosh & Swart R. Ghosh, 1999. "East Asia in the Aftermath; Was there a Crunch?," IMF Working Papers 99/38, International Monetary Fund.
    19. Jacques J. Polak, 1991. "The Changing Nature of IMF Conditionality," OECD Development Centre Working Papers 41, OECD Publishing.
    20. Garuda, Gopal, 2000. "The Distributional Effects of IMF Programs: A Cross-Country Analysis," World Development, Elsevier, vol. 28(6), pages 1031-1051, June.
    21. Anna Unigovskaya & Valerie A Mercer-Blackman, 2000. "Compliance with IMF Program Indicators and Growth in Transition Economies," IMF Working Papers 00/47, International Monetary Fund.
    22. Fischer, Stanley, 1997. "Applied Economics in Action: IMF Programs," American Economic Review, American Economic Association, vol. 87(2), pages 23-27, May.
    23. Pavan Ahluwalia, 2000. "Discriminating Contagion; An Alternative Explanation of Contagious Currency Crises in Emerging Markets," IMF Working Papers 00/14, International Monetary Fund.
    24. Bordo, Michael D. & Schwartz, Anna J., 2000. "Measuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailouts," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 81-167, December.
    25. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ryan Felushko & Eric Santor, 2006. "The International Monetary Fund's Balance-Sheet and Credit Risk," Staff Working Papers 06-21, Bank of Canada.
    2. Luca Papi & Andrea F Presbitero & Alberto Zazzaro, 2015. "IMF Lending and Banking Crises," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(3), pages 644-691, November.
    3. Tito Cordella & Eduardo Levy Yeyati, 2006. "A (New) Country Insurance Facility," International Finance, Wiley Blackwell, vol. 9(1), pages 1-36, May.
    4. Stubbs, Thomas H. & Kentikelenis, Alexander E. & King, Lawrence P., 2016. "Catalyzing Aid? The IMF and Donor Behavior in Aid Allocation," World Development, Elsevier, vol. 78(C), pages 511-528.
    5. William Easterly, 2003. "IMF and World Bank Structural Adjustment Programs and Poverty," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 361-392 National Bureau of Economic Research, Inc.
    6. Abbott, Philip & Andersen, Thomas Barnebeck & Tarp, Finn, 2010. "IMF and economic reform in developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 17-26, February.
    7. Vessela Todorova, 2011. "Theoretical Link between the Economic and Financial Crises in Evolution," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 55-74.
    8. Frank Bohn, 2006. "Eliminating The Inflationary Finance Trap In A Politically Unstable Country: Domestic Politics Vs. International Pressure," Economics and Politics, Wiley Blackwell, vol. 18(1), pages 71-94, March.
    9. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
    10. Martin Steinwand & Randall Stone, 2008. "The International Monetary Fund: A review of the recent evidence," The Review of International Organizations, Springer, vol. 3(2), pages 123-149, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp01-4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster). General contact details of provider: http://edirc.repec.org/data/iieeeus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.