The International Monetary Fund, the global lender of last resort, has a unique role in stabilizing economies when they run into financial difficulties. But the Fund’s effectiveness remains controversial, with critics accusing it of promoting policies that benefit US corporations while penalizing ordinary people and undermining democracy.
The IMF is funded by a set of member quotas that are assessed regularly and new Arrangements to Borrow, which can be supplemented with bilateral borrowing agreements (BBAs). A country in need of financing approaches the IMF with a request to discuss its economic situation and its financing needs. The Fund’s staff then develops a policy program and presents it to the Executive Board, which endorses it and offers financing. The IMF monitors how members implement the policy actions underlying their arrangements to ensure that they are successful and that borrowed funds are repaid promptly.
A successful IMF bailout provides a breathing space to allow countries to adjust their policies in order to achieve long-term stability and growth. However, the benefits of IMF lending are often short-lived if governments do not address structural problems and high expenditure slippages, as well as corruption in their governance systems. Otherwise, the need for an IMF bailout becomes a vicious cycle.
The conditions IMF staff imposes on loan recipients have also been criticised for being too harsh. For example, in Greece, the Fund insisted that it follow strict austerity policies to reduce government debt levels – which was deemed excessive by some observers.