New Challenges for a World in Flux
Edited by Linda Yueh
Chapter 6: The Development of IMF and World Bank Conditionality
6. The development of IMF and World Bank conditionality Axel Dreher INTRODUCTION After World War II, the international community created the International Monetary Fund (IMF) and the World Bank, taking account of the growing interdependence of international economic markets. Since the 1970s, economic, social, and political globalisation has been accelerating rapidly (Dreher 2006a, Dreher, Gaston and Martens 2008), resulting in the potential for massive capital withdrawals from a country’s financial markets and infrastructure. In an attempt to battle this contagion, IMF and World Bank conditions rapidly expanded in number and scope. Arguably, the expansion of conditionality leads to the globalization of economic policies. When the IMF and World Bank export policies favored by their major Western shareholders to developing and transition countries, policies will to some extent become similar across the world. This is not what the Institutions have been created for. As the IMF and World Bank were founded in 1944, there was no consideration of intrusive conditionality now common under the International Financial Institutions’ (IFIs) programs. However, over time, conditionality gradually increased and became inseparably associated with IMF and World Bank loans. This evolution was never without critics.1 While there are those criticizing conditionality as overly intrusive (for example Williamson 1983), others claim it would be ineffective (for example Spraos 1986). As empirical studies have shown, a huge share of conditionality has indeed not been implemented as negotiated (IFIAC 2000, Dreher 2003). Moreover, there is substantial evidence that IMF and World Bank programs fall short of their targets...
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