Reform of IMF Conditionality - a Proposal for Self-Imposed Conditionality

Abstract

The IMF has faced criticism of its expansive use of conditionality. The paper proposes a new procedure for IMF lending designed to meet these criticisms by arguing for the legalization and formalization of the procedure for IMF lending in the light of legal concepts derived mainly from national administrative laws. The gist of the procedure is that, rather than have the IMF determine loan conditions following informal negotiations with member countries, countries seeking Fund assistance will design the conditions themselves. The IMF will have specified powers under which to review these conditions. Apart from other procedural requirements, conditions will have to meet the standard of reasonableness. Subject to reasonableness, the IMF will have to lend on the conditions proposed by the country approaching it. Submissions to the IMF, IMF decisions and the reasons for them will be published. This proposal promotes transparency and accountability of the IMF and the participation of developing countries. It induces countries to initiate effective economic reforms while maintaining their economic sovereignty. Finally, I argue that self-imposed conditionality is not more costly than the current procedure and that legalization and transparency will not disrupt the operation of the IMF.

JEL Classification: K29