Are Imf Loans Good Poor Countires
Bailing out the poor chap (6) by William Easterly
ARE IMF LOANS GOOD FOR POOR COUNTRIES?
A poor country with a weak government is suffering from shortages in terms of financial resources. Most of its population lives below poverty levels, there is high unemployment, low literacy rate, food shortages, no clean water and due to a combination of drought and lack of technology, no crops to export. As if it didn’t have enough problems, the country has debts to pay back to foreign governments, investors and agencies. This is where the IMF, which Easterly calls ‘the world’s most powerful creditor’, steps into the picture.[1] It was originally set up by the West in order to prevent large trade imbalances and unstable currencies. However, it shifted focus and started bailing out poor countries in financial crises. It has had success in helping countries out on a short-term basis. Most of the countries that have benefited from IMF loans are countries that need temporary assistance, do not qualify as ‘emerging markets’ and face difficulties in attracting foreign investors and lenders. For example, the IMF successfully helped South Korea and Thailand during their financial squeezes in the 1980’s[2] .
However, there are problems in terms of the long-term development of countries which rely on the IMF. Easterly begins his article by describing a meeting between the IMF and the minister of finance and economic development of Ethiopia. At the meeting, the IMF set out several conditions that the government of Ethiopia would have to satisfy in order to receive assistance and most importantly, pay back their loans. The problem with the conditions was that they were at times contradictory and unrealistic. For example, while stating that it supported the government’s food security program, the IMF also told the finance minister that he would have to be careful that the program did not endanger
ARE IMF LOANS GOOD FOR POOR COUNTRIES?
A poor country with a weak government is suffering from shortages in terms of financial resources. Most of its population lives below poverty levels, there is high unemployment, low literacy rate, food shortages, no clean water and due to a combination of drought and lack of technology, no crops to export. As if it didn’t have enough problems, the country has debts to pay back to foreign governments, investors and agencies. This is where the IMF, which Easterly calls ‘the world’s most powerful creditor’, steps into the picture.[1] It was originally set up by the West in order to prevent large trade imbalances and unstable currencies. However, it shifted focus and started bailing out poor countries in financial crises. It has had success in helping countries out on a short-term basis. Most of the countries that have benefited from IMF loans are countries that need temporary assistance, do not qualify as ‘emerging markets’ and face difficulties in attracting foreign investors and lenders. For example, the IMF successfully helped South Korea and Thailand during their financial squeezes in the 1980’s[2] .
However, there are problems in terms of the long-term development of countries which rely on the IMF. Easterly begins his article by describing a meeting between the IMF and the minister of finance and economic development of Ethiopia. At the meeting, the IMF set out several conditions that the government of Ethiopia would have to satisfy in order to receive assistance and most importantly, pay back their loans. The problem with the conditions was that they were at times contradictory and unrealistic. For example, while stating that it supported the government’s food security program, the IMF also told the finance minister that he would have to be careful that the program did not endanger