Conditionality of the IMF Supported Programs and the global financial crisis

The conditionality of the IMF financial support is its immanent attribute defining the formal criteria with reference to obtaining and maintaining lending support delivered by the organization to the beneficiaries. At the same time the conditionality is related to the IMF's Supported Programs (specified stabilization and development strategies) funded by the IMF in countries requiring the credit support and the selection of an appropriate lending facility. Moreover in assumptions, the application of conditionality in corrective as well as remedial plans offered by the organization should obligate financial aid recipients to implement certain actions (reforms and structural changes), and secure hereby the future repayment commitments towards the IMF (and therefore to the other Member States of the organization) [16].

The IMF's conditionality in the financial support is used by the institution in question almost from the beginning of its operation. However, the criteria used to grant and maintain support loan by the beneficiaries, especially the so- called structural conditionality, were the subject of harsh criticism after many crisis episodes in the second half of the 1990s century and at the beginning of the new millennium. Furthermore, the formulated difficult conditions of access to the institution resources ultimately contributed to the decline in the demand for its assistance in the period 2003-2007. Ardent opponents of the IMF, among other issues, criticize an extensive set of conditions for obtaining and maintaining the financial support (especially in the cases of emergency, when rapid assistance is necessary), unclear and not fully transparent operational criteria of its receipt and too long verification procedures related to these problems. Partial confirmation of these allegations and critical opinions could then be found in a special report of the Independent Evaluation Office in 2007 dedicated to the conditionality of the IMF, which clearly stated that the criteria used by the organization were too detailed, too numerous, and often with no appropriate substantive justification [IEO, 2007].

It should be noted here that the Fund — precisely because of the numerous critical opinions concerning its former activity — since 2000, has declared to take decisive attempts to reform and optimize the use of financial support for the beneficiaries of the aid (the IMF's Streamlining Initiative). The IMF package of new guidelines {Conditionality Guidelines [6]) adopted already in 2002 outlined the main changes with respect to conditionality as a basis for deeper reforms of the credit activity. In practice, however, the implementation of the reform measures in the field of conditionality was executed very slowly and selectively. The IEO in the previously mentioned report noted only gradual ure- turn” of the IMF in the construction of the financial assistance to its core com- petencies relating to macroeconomic and financial stabilization of the Member States, while reducing criteria substantially beyond those areas. Bird, however, rightly points out that only since 2008 a more active approach of the institution to implementing the new rules of conditionality can be seen, especially with reference to the poorest countries (Low-income countries, LIC), which was undoubtedly a result of the challenges created by the global financial crisis and earlier crisis experiences of the organization [1].

It is worth noting that in the last four years, the IMF conducted evaluations of the applicable rules of its conditionality twice. In 2009, the institution proposed modernization of instruments within the most important source of financing lending operations which is still the General Resources Account (GRA) and has increased its financial capacity (since 2009, the IMF, after G-20 negotiations, had assets worth 750 billion) [ 17] A key change can be considered here primarily discontinuation in all programs, including of the LIC countries, use of structural conditionality in the framework of the so-called Performance Criteria (PC), and maintained them only in Quantitative Criteria. Formally, therefore, struc- tural criteria are no longer present in the IMF Supported Programs, although some reform recommendations in this area can be a part of them (but focusing primarily on the fiscal sphere), in particular concentrating on increasing the efficiency of public expenditure management as well as on activities that stimulate economic growth [13]. In addition, the IMF in its new lending procedures focused more on ex ante conditionality (and not as before on the traditional ex post conditionality) [7]. Substantial changes in funding during the global financial crisis are also expressed by dispensing with the use of selected credit instruments (Supplemental Reserve Facility, SRF, Compensatory Financing Facility, CFF, Short Term Liquidity Facility, SLF), leaving, however, SBA and EFF. It should be noted, however, that SB A was modernized significantly in 2009 (greater flexibility in the offered assistance has been implemented into the instrument), while the EFF maintained almost unchanged. Interestingly, the IMF gave up entirely of ex-post conditionality in the case of FCL, although in principle this mechanism is regarded as a specific form of preventive security (addressees are countries with generally sound macroeconomic fundamentals). Also IMF has introduced a PLL as a tool for short-term emergency liquidity assistance.

It is necessary to notice that the most important changes in the IMF's conditionality were introduced towards the poorest countries, which are potentially the most vulnerable to the negative consequences of different external shocks (including also the global financial crisis). Therefore the financial support for the LIC was increased (PRGT — assets increase of 17 bln USD in 2009-2014) and made more flexible as well as extended by three new instruments (ECF - medium term support for balance of payment problems, SCF — short term support for balance of payment problems, RCF — rapid support with the minimal set of the conditionality). The IMF has also created a non-financial instrument (called the Policy Support Instrument, PSI) allowing the LIC to gain relatively easy access to the financial resources within the SCF and RCF. All of these activities in the intention of the institution have to focus on creating more favourable conditions for LIC countries interested in the IMF's financial aid, particularly in relation to short-term and crisis support, reducing the problems of poverty as well [IMF, 2009b].

IMF Supported Programs directed to a designated group of countries were more preferential and adequate to the character of those entities. First of all, these strategies anticipated much more the negative impact of external conditions (eg. an increase of fuel and food prices on the world markets) on projected and agreed results in the stabilization and remedial actions. For this reason, the expected quantitative conditions were appropriately modified (raised or lowered) in relation to monetary policy, and accept higher levels of deficit on the current account as well. Similarly, a more flexible approach was evident in the fiscal sphere, in which the higher levels of budget and public finance deficits were accepted. As the IMF presents, most Supported Programs for the LIC in 2007- 2009 (2/3 of all strategies) proposed the liberalization of fiscal policy and even public expenditure growth. The result of this kind of institution's attitude was also taking into account, to a greater extent than previously, social issues. New programs argued for increasing spending on social protection and social security especially for the poorest, which could be observed in their internal design [12].

It is significant that the overall decline in the number of conditions in the IMF Supported Programs has enhanced the effectiveness of their implementation (in 2001 -2004 on average, only 15% conditions were completed by the beneficiaries, and now even 86%) [11]. However, these data should be approached with natural research caution, bearing in mind that 85% of the emergency (crisis) support has so far been directed to European countries, including mostly the euro area members, and therefore relatively affluent and better organized than most of the poorest countries. Generally, however, it seems that the efficiency of IMF Supported Programs has improved through the implementation of a number of substantive changes with reference to the content of these strategies as well as the conditionality reforms. In this way it was also possible to increase the availability of IMF resources for countries experiencing severe financial turbulences and improve the speed of the IMF response to the global financial crisis.


The global financial crisis has become a clear catalyst for major changes in relation to the IMF credit activity. The financial instruments portfolio of the institution has been transformed both in terms of the conditionality and the design of supported programs as well as in terms of the creation of new credit tools. It seems that initiatives that have been taken by the organization, led to a more adequate response of the IMF, including the broader lending and better adjustment of the aid to individual cases, towards the global crisis.

As pointed out by Joyce, paradoxically, the global financial crisis was the beginning of a kind of rebirth and restoration of the IMF, which seems today to be an effective guardian of the global public good (that is the international financial stability) [15]. The transformation of the IMF also resulted from a broader internal reform of the organization, in response to the severe criticism directed towards it by various influential opinion groups since the beginning of the new millennium, and the IMF’s previous experience with financial crises. It should also be noted that the internal reforms of the IMF do not exhaust the whole catalogue of all the proposed changes and reforms. Also in terms of the conditionality and construction programs, among other issues, the institution recognizes the need for further concentration on the improvement of the criteria for financial assistance, taking into account more widely the social problems, improvement of risk evaluation models as well as necessity to strengthen transparency and cooperation in this field with other institutions.

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