Conditionalities: Ties that Bind or Enable?
The International Monetary Fund, World Bank, and various regional development banks have commonly issued conditionalities on the loans they provide to developing countries: conditions that require certain structural adjustments to a borrowing country’s national economic, monetary, and social policies (such as lowering government spending, eliminating subsidies to domestic industries, promoting greater interstate trade by reducing tariff and non-tariff barriers, and limiting the authority of its central bank to set interest rates or the value of its currency). Examples abound of the alleged harmful impact that these strict conditions have on developing nations and their capacity to grow economically and create stable, competitive economies. Consider, e.g., recent criticisms of IMF policies toward the African bloc or the IMF’s historical impact on Jamaica’s economy or Pakistan’s turn to the World Bank and its reliance on further IMF loans to pay off its existing debt to the organization.
Are conditionalities on such loans justified? Why or why not? In answering this question, you must (1) briefly explain what you believe the central point is of these conditions, (2) find one example in which a developing country received loans from the IMF, World Bank, or some regional development bank, which entailed certain structural adjustments, (3) briefly describe the example and the conditions that the borrowing country was required to meet, (4) explain how the country instituted these necessary changes, and lastly (5) describe what the long-term impact of these loans and structural adjustments were on the borrowing country’s economy.