IMF policies reinforce inequality

Although studies have investigated the impact of IMF loans on poverty in borrower states, no works have attempted to unpack the multiple different conditions of Fund arrangements on poverty in debtor countries. In this paper, we have developed the first study to distinguish between the effects of structural and stabilisation conditionality on poverty and found that countries under IMF structural conditions tend to experience increases in poverty while countries under stabilisation conditions tend to see fairly minimal changes in poverty. Consistent with much of the literature (Easterly 2003; Garuda 2000; Oberdabernig 2013; Pastor 1987; Vreeland 2002), we also note that countries under IMF arrangements are more prone to observe an increase in poverty. However, this study moves beyond earlier research (e.g. Oberdabernig 2013) by showing the IMF conditions that are most likely to produce increased poverty.

All told, the findings presented here hold important policy implications and substantive meaning, given that 1.28 billion people (or 32.7% of the cases in our sample) live in poverty. First, most studies in the IMF literature have lumped together loans with all types of conditions, and treated them equally, as if fund programmes are all the same. By showing that variations exist among programmes in terms of the conditions imposed upon borrower countries, our study helps explain differences in poverty outcomes among borrower countries. Focusing on the specific IMF conditions and how they fit under structuralism or stabilisation also provides possible clues as to why scholars in the literature have reached disparate conclusions regarding the impact of the fund on economic development in the developing world.

Second, the findings advance theoretical debates in the globalisation literature. Many studies inform us that globalisation, as measured by trade (Ha 2012; Reuveny and Li 2003; Rudra 2002) and foreign direct investment (Ha 2012; Huber et al. 2006; Reuveny and Li 2003), worsens poverty. Scholars long have argued that economic integration and increased foreign competition causes domestic job losses especially in developing countries who tend to provide inadequate social safety nets (Kaufman and Segura-Ubiergo 2001). The globalisation debate also has targeted the IMF for its one-size-fits-all approach to conditionality and policies that favour the interests of its wealthiest donor countries (Stiglitz 2002). Our research suggests that specific fund conditions affect poverty in borrower countries.

Third, the work also offers more information about the politics of IMF lending. There is a large body of literature that considers how powerful member-states and politics influence conditionality (e.g. Thacker 1999; Copelovitch 2010). The IMF and its staff are aware that many developing countries hold negative perceptions about the fund’s policy recommendations. In response, the IMF and its staff have tried to improve their reputation by providing concessional financial support through the Poverty Reduction and Growth Trust (IMF 2021), supporting fiscal stimulus measures during COVID-19 (Fiscal Monitor 2020), and placing less emphasis on financial austerity since the Great Recession (Ban 2015; Ostry et al. 2016), giving borrowers added policy discretion. However, as long as the IMF and its staff continue to require structural conditions, the likelihood is that borrower countries will see increased poverty, regardless of whether the fund and its staff imposed the policies to further the interests of powerful member-states or they are truly unintended effects of the policies.