The International Monetary Fund (IMF) hurts countries like El Salvador that are suffering from lack of money

Some experts argue that many International Monetary Fund (IMF) programs never complete because they don’t work. In addition, the International Monetary Fund (IMF) is harming countries, forcing them to return to the IMF for more, which could also be considered for El Salvador. The country is negotiating a $ 1 billion loan with the IMF to fill the budget gap by 2023 and aims to introduce Bitcoin (BTC) as legal tender in September. And of course the IMF is not happy about that.

The International Monetary Fund (IMF) is damaging countries with tight budgets

The International Monetary Fund (IMF) gives money to countries with economic difficulties. In return, the countries had to carry out a painful program of political reform. Countries rarely complete these programs.

Policy Terms to Extend Time

IMF programs typically last 1 to 3 years. Countries must meet policy conditions, with regular reviews, usually every 3 to 6 months, in order to gain access to the grants. If they are not executed, the program will be interrupted.

Of the 763 programs between 1980 and 2015, 512 were interrupted, 291 of which were not – as our data from the IMF Tracking Database shows. This is a very high margin of error considering that the IMF closes any deal on the basis that it wants it to be closed.

Complicated insurance conditions

Many reform programs allegedly did not work, they simply entail too many political obligations. Even reform-minded governments struggle to implement them.

Program interruption leads to a negative market reaction

Several studies also examined the reactions of financial markets to program interruptions. They found that the failure of the program had serious consequences for economic development. Failure sends a negative signal to markets and causes them to lose confidence in governments’ ability to stabilize economies and initiate reforms. The result is, very often, an increase in inflation and an increase in capital mobility, depriving countries of much-needed capital to invest in public goods and services.

The International Monetary Fund (IMF) hurts countries – what to do?

Given the negative impact of the disruptions in the IMF program on developing countries, it is difficult to understand that improving IMF conditions is lagging behind.

The IMF often blames weak capacities and a lack of “political will” for poor performance. This widespread view was challenged by Horst Köhler, the former managing director of the IMF, who started the “Streamlining Initiative”. Its aim is to reduce the number of conditions.

But the number of conditions is still high. This is partly due to the rigid process by which new IMF programs are launched. When a country applies for a program, the draft agreement must be approved by all nine IMF departments. This allows the departments to cover their “pet themes”, resulting in comprehensive programs.

Therefore, stronger leadership is needed to ensure the policy coherence of IMF programs. This is even more important right now as the COVID-19 crisis has seen a record 80 new IMF loan arrangements in developing countries.

Given the dual COVID-19 health and economic crisis, these programs run the risk of having too many conditions. This could plunge countries into financial disaster … and back into the IMF.

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