When a country’s financial crisis reaches critical levels, it may turn to the International Monetary Fund (IMF) for assistance. In exchange for billions of dollars in emergency loans, the IMF demands policies that aim to put government finances on a sound footing and restore growth. These policies include balancing the budget, privatizing state enterprises, liberalizing trade and currency policy, and reducing barriers to foreign investment and capital flows.
While these policies are meant to improve the outlook for a country’s economy, they often fail to accomplish that goal. Instead, they impose draconian economic pain on the people and create incentives for corrupt officials and privileged businesses to delay or circumvent them.
In fact, a recent IMF bailout in Ghana exemplifies these problems. While the program has helped stabilize GDP and avert a currency crisis, it has failed to produce significant poverty reduction or employment gains. The reason is that IMF conditions compel governments to tick boxes to secure the loan, but they do not lead to broad economic improvement.
The United States should help these nations with more effective private market solutions that encourage good governance and economic reforms, rather than placing the burden of IMF loans on U.S. taxpayers and consumers around the world who bear no responsibility for the unwise monetary policies that cause these crises in the first place. It’s time to take a stand against IMF lending that undermines the credibility of this international institution.