What should trigger an IMF loan?
Fund financing may only be committed on the basis of an actual or potential balance of payments need, but BOP crises may originate in domestic fiscal or banking disruption. IMF economists asked whether the very definition of a balance of payments need should be rethought in light of financial globalization. What should be the role of conditionality? Most IMF lending is disbursed in tranches and is subject to conditionality to ensure that problems are resolved in a manner that is not destructive to national or international prosperity and to limit risks to the Fund. But as member countries strengthen their policies and gain better market access, their need for traditional phased support has declined, while their need for support to cope with potentially self-correcting shocks and maintain investor confidence has risen. The paper floated three alternative approaches that could be considered instead of traditional loan conditionality in certain circumstances: • Relying on selective qualif
