The IMF stabilisation program

IMF imposed its conditionality medicine of tough stabilisation policies

Four basic components of the IMF stabilisation program

1. Abolition or liberalisation of foreign exchange and import controls

2. Devaluation of the official exchange rate ( to boost export led growth)
3. A stringent domestic anti-inflation program consisting of:
Control of bank credit to raise interest rates and reserve requirements
Control of the government deficit through curbs on spending, including in the areas of
social services for the poor and staple food subsidies
Increase taxation
Increases in prices of public enterprises
Control of wage increases, in particular abolish wage indexing
Promoting freer markets and dismantling price controls
4. Greater hospitality to foreign investment

In the early 1980’s numerous debtor countries e.g Mexico, Brazil, Argentina had to
turn to the IMF to secure extra foreign exchange
By 1992 10 countries had agreed to borrow $27bn from the IMF
1997 Asian crisis IMF intervened intervened with large sums of money
Thailand $3.9bn, Pakistan $1.6bn, South Korea $21bn etc
To receive these loans and to negotiate extra credits from private banks all of the
nations had to agree to some or all of the stabilisation policies

Although such policies may be successful in reducing inflation (macroeconomic

stability) and improving the LDC’s position on current account they hurt the poorest
people disproportionately
Policies aimed to improve the efficiency and discipline, responsibility of the
governments of the LDC (remember the video – ‘’these countries must get their act
together’’ World Bank representative)
Aim not to just hand out money
Important to try and see the thinking behind it
Critics argue double standards of IMF harsh treatment of debtor countries but no
adjustment for the USA – the world’s greatest debtor

Both structural adjustment and stabilisation policies have been found to contribute to
rising hardships amongst the poorest people in developing countries

 This is generally due to cuts in government services, (Niger video some

government workers hadn’t been employed)
 Rising unemployment
 Falling real wages
 Elimination of food subsidies (people will have to pay more now for food
which impacts more on the poor)
As a result numerous countries have experienced rising infant mortality rates,
malnutrition and declining school enrolment rates
Critics argue that the terms of conditionality associated with adjustment loans are
anti-developmental where they reverse or slow improvements in living conditions
amongst the very poor
Many Development agencies place greater emphasis on reducing or eradicating
poverty and stress that it is misleading to include countries with rising rates of
malnutrition among the adjustment success stories
Children are frequently the group most vulnerable to the harsh consequences imposed
by restrictive macroeconomic policies according to UNICEF
They agree that structural changes are needed for economic recovery but programs are
needed which protect the interests of the poor

Between 1982 and 1988 the IMF strategy was tested in 28 out of 32 nations of Latin
America and the Caribbean
Latin America financed $145bn in debt repayments at a cost of economic stagnation
and rising unemployment
The policies were clearly not working

World bank and IMF despite the criticism have failed to restructure adjustment
policies that hurt the poor
Compensatory programs have been ad hoc at best and little or no effort has been made
to restructure policies fundamentally

Recommendations see p632 Todaro