The IMF bailout gives countries in crisis a chance to make the necessary policy adjustments for sustainable growth. The IMF’s approach to this is based on the initial understanding (often called a “staff-level agreement”) reached between Fund staff and the government of a member country.
Typically, these policies are designed to restore investor confidence and address the structural problems that created the crisis in the first place. These might include close economic relationships between governments and businesses or family-owned conglomerates, the mismanagement of foreign exchange reserves, high debt levels or excessive borrowing, and a lack of free and competitive financial markets.
A successful IMF bailout also includes the commitment of a country to implement policies that would allow it to recover from its crisis and return to international capital markets in a timely manner. This is why the IMF’s conditions are so stringent, even if the Fund has no way of knowing whether a government will succeed in achieving its promises.
Nevertheless, the United States must leverage its leadership in the IMF to ensure that the institution’s policy criteria are sound. The Fund must stop lending money to countries whose political systems are hostile to US interests, as it did with Mobutu’s dictatorship in Zaire in the late Cold War, and insist on market-based alternatives that promote an international monetary system that supports private markets and sustainable development. It must also stop assessing a country’s fitness for IMF lending by using political criteria, as it has done with the Democratic Republic of Congo, Pakistan, and Uganda.
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