In brief

Fewer strings attached

The IMF has revised its guidelines for the conditions it attaches to loans-the first such change in nearly a quarter century. When countries borrow from the IMF to support an economic reform program, they must meet certain conditions to receive loan disbursements. This is known as conditionality. The new guidelines are the culmination of an extensive review of conditionality over the past two years, initiated by IMF Managing Director Horst Köhler. The conclusions of this review, reflecting consultations with country officials and nongovernmental organizations around the world, are already being put into practice, resulting in significant changes in the way the IMF does business.

The IMF's earlier guidelines, written in 1979, limited conditionality mainly to macroeconomic policies such as monetary expansion, fiscal deficits, and currency exchange controls. But over time, especially in the last decade, conditions were broadened to cover a range of structural issues, such as how taxes are collected, how wages are set, and how crops are marketed. While this broadening partly reflected the nature of the economic problems countries are trying to tackle with the IMF's help, it also led to concerns that the IMF's involvement in countries' domestic decision-making processes had become too pervasive.

"The Center will be successful if it makes itself superfluous."

-Tanzanian President Benjamin William Mkapa at the opening of the IMF's regional technical assistance center in Dar es Salaam

The new guidelines recognize that some structural conditionality is needed because macroeconomic problems often have structural roots, but they seek to limit structural conditions to those that are of critical macroeconomic importance for the success of the IMF-funded reform program. For instance, when Indonesia requested IMF financing in 1998, a central problem was the collapse of its corporate sector, so structural reforms to deal with insolvency were an essential element of the program. At the same time, a number of other measures included in the 1998 program, such as those related to international trade and agricultural marketing, although desirable, would not be included under the new guidelines because they were not critical to the program's objectives. The hope is that this new approach will help strengthen country...