IMF structural conditionality: how much is too much?

This article discusses the role of structural policies in IMF-supported adjustment programs. The article looks at ways the IMF can simplify conditionality, in order to make it more effective.The article outlines various approaches to streamlining fund structural policy conditionality:<B>structural pre-conditions. </B>this approach would jettison ex-post Fund conditionality in favor of a small number of pre-conditions, namely, freedom of entry and operation for foreign financial institutions, regular and timely publication of the maturity structure of outstanding sovereign and guaranteed debt and off-balance sheet liabilities, adequate capitalization of commercial banks, and a proper fiscal requirement. Developing countries that met these pre-conditions would be eligible immediately for short-term liquidity assistance; those developing countries that didn’t meet them would not be eligible<B>collateralised fund-lending</B>. Another radical approach to reducing or eliminating Fund structural policy conditionality would have the Fund lend on good collateral<B>Put restrictons or penalties on foreign-currency borrowing. </B>Much of structural policy conditionality comes from balance-sheet problems of banks and corporates and the latter, in turn, often derive from the build-up of large currency mismatches. The problem is tackled at the source by seeking to discourage foreign-currency borrowing?<B>Greater resort to international standards</B>Instead of custom- tailoring structural conditions to a particular crisis situation or particular financial institutions, the Fund and its member countries could rely more on generic international standards<B>leaner structural conditionality within present arrangements. </B>For instance each structural condition included in a program would have to be directly related to financial stability and would have to carry a macroeconomic impactallowing the Fund to borrow in the private capital markets.</B> This would increase its independenceclearer division of responsibility with the World Bank and more outsourcing of structural conditionality in non-core areas. The aim here is to retain the advantages of a “comprehensive” approach to crisis prevention/management, sustainable growth, and poverty reduction, while improving the effectiveness of (total) structural policy conditionality by paying greater attention to the different comparative advantages of the various IFIsThe article concludes by emphasising that the compliance with Fund conditionality has been a serious and growing problem. [author]