Global123_PolicyBrief

Global123_PolicyBrief - Jordan Townsend Section: Fri 12pm...

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Jordan Townsend Section: Fri 12pm TA: Rod Albuyeh Global123/PolSci186 IMF Lending Policies in Developing Countries During the last two decades, the focus of International Monetary Fund (IMF) involvement amongst developing countries has shifted. Following Bretton Woods, the IMF began issuing loans to developed countries in 1947 with the original intent to provide short-term assistance to countries with balance of payment difficulties through loans to cover their trading debts, and reduce foreign currency restrictions. However, in the 1980s IMF took on new role of debt management for developing countries, through Structural Adjustment Programs (SAPs). These SAPs are implemented by the IMF to enable developing countries to pay back future loans. The IMF holds developing countries accountable to certain conditions tied to the issuance of future loans. The SAPs aim to reduce the borrowing country’s fiscal imbalances and enable developing countries to orient themselves within the international economy (IMF.org). Conditionality is seen as a central principle to IMF lending, and is meant to assure a borrowing country that if it implements these structural adjustments, future loans will be forthcoming and developing countries are able to invest in long term policy adjustments. IMF loans focus were originally intended to fix temporary short-term 2 to 4 year problems, but today many countries in times of crises or conflict have opted for the new 7 year term options (IMF.org). The focus of this paper will be to analyze the deficiencies within IMF policy implementation to developing countries, in addition to the reasons causing SAPs to fail and the liberal economic policies which cause developing countries to fail.
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The IMF’s involvement has not only shifted towards longer term loans, but has also oriented itself toward policy reform through conditions tied to loans. The problems facing developing countries when receiving loans from the IMF stem from these conditions tied to the SAPs. The conditions in which the IMF generally implements through their SAPs include: privatization of state-owned enterprises, austerity measures through a balanced budget by cutting government spending on welfare, infrastructure, and schools, focus economy on direct export and resource extraction, trade liberalization, currency devaluation to raise costs of imports, opening up borders to foreign investment, fighting corruption, and numerous other liberal economic policies which make up the conditions tied to IMF loans when lending to developing countries. In many
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This note was uploaded on 02/01/2011 for the course GLOBAL 123 taught by Professor Cohen during the Fall '10 term at UCSB.

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Global123_PolicyBrief - Jordan Townsend Section: Fri 12pm...

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