The Kinder, Gentler IMF? Easing Conditionalities

The IMF is now in the negotiating stages with several countries affected by the credit crunch. The troubles of these countries have been discussed elsewhere on this blog. Anyway, the introduction to the recent IMF release goes like this:

The International Monetary Fund (IMF), which has announced its readiness to lend billions of dollars to support nations hit by fallout from the global financial turmoil, is holding talks with several countries about possible new lending programs.

"I have been on the phone with leaders in several capitals who have asked the Fund for assistance. We now have mission teams in some of these countries assessing their needs and, where asked to do, discussing programs that could be supported by an IMF loan," says IMF Managing Director Dominique Strauss-Kahn.

The IMF is currently discussing possible loan packages for Hungary, Iceland, Pakistan, and Ukraine. It is also in discussions with a number of other countries about possible financing needs, and is providing confidential policy advice to governments in emerging and developing economies on how to adapt to the current turmoil. It said on October 22 that it would also begin discussions with Belarus.

With the exception of mentioning Belarus, there's new here. So what do I mean by "a kinder, gentler IMF?" Use "IMF conditionality" as a search term and you will see that loan covenants prescribing austerity measures and the like have been accused of nearly everything from social instability to further impoverishing the already destitute. Given that Western countries have taken the opposite tack to their credit crunch woes by pump-priming their economies, it is of little surprise that the IMF is promising to take it easy on conditionalities this time around. It would be hypocrisy for the IMF to do otherwise and economic fashions do change. Besides, isn't un grande seducteur Dominique Strauss-Kahn a French Socialist Party member? The IMF release continues...

Strauss-Kahn says that although some policy conditions will still be attached to loans from the IMF, the conditions will be fewer and more targeted than in the past. Given that the IMF is a financial institution, its lending has to be accompanied with some policy conditions, he adds.

However, he told IMF staff recently that "conditionality has to be defined as what is needed to achieve the goals of the program... it should not attempt to fix the world." These measures must be directly related to achieving the goals of the program, he emphasized. "This is the way for us to be recognized by the membership as addressing the needs they have and not the agenda we have."

I surely hope so: "fewer and more targeted" do not necessarily mean "less onerous." Just how politically onerous these conditionalities are will determine the willingness of others to approach the IMF.