IMF bailout is the financial support a country receives from the International Monetary Fund (IMF) to alleviate a balance of payments crisis. The IMF lending or bailout is usually accompanied by a number of corrective policy actions in the affected country. While proponents of IMF bailouts argue that they provide much-needed liquidity to nations in trouble, critics accuse the Fund of causing moral hazard and fostering dependency on foreign aid.
In the aftermath of the Asian financial crisis, the Clinton Administration has been pushing Congress to approve additional funds for the IMF. Such funding increases would further increase American taxpayers’ accumulated indebtedness to the IMF and condemn Asian economies to long-term dependence on IMF aid. Instead, the United States should withdraw its financial assistance from this institution and seek reimbursement for the money it has contributed so far.
Realistic questions relating to IMF bailouts include whether the government of a financially troubled country should request assistance from international official organizations, whether these organizations agree to issue loans, and what conditions they will attach to such loans. The decision to request IMF aid largely depends on the degree of resilience that a country possesses. It is not uncommon for governments to realize that they must sacrifice policy autonomy in order to obtain IMF aid, which may cause them to experience uncomfortable governance situations. It is also difficult for IMF and World Bank officials to impose strict conditionality on their political allies. For example, Stone (2004) and Kilby (2009) have found that the IMF rarely enforces its structural adjustment conditionality on countries that are close political allies of the United States.