In a general sense, an IMF bailout refers to the financial support that the International Monetary Fund (IMF) provides to countries suffering from severe economic crises. The IMF provides loans and other financial instruments to help stabilize the economy, restore confidence in the currency, and boost growth.
When a member country requests IMF assistance, the IMF staff conducts an evaluation of the economic and financial situation and the financing needs of the country. Then the Fund staff makes a recommendation to its Executive Board, which endorses the policy program and offers funding. Finally, the IMF supervises the implementation of the policy program.
Research has shown that IMF programs can have positive effects on bailed-out countries’ current account balances, inflation, and GDP. However, the benefits are short-lived if the bailed-out government does not address structural problems like high expenditure slippages and corruption in its governance system. Instead, it tends to move back to irresponsible fiscal policies.
In addition to its traditional conditionality, the IMF is moving toward a performance-based approach. This would allow the IMF to link aid disbursements with the performance of its client countries in areas such as macroeconomic stability, governance, and poverty reduction. However, such an approach is unlikely to be adopted given the political constraints faced by the IMF’s largest shareholders — especially the United States. In this context, a policy agenda that prioritizes the welfare of the poor and marginalized is needed to ensure that the IMF’s role in global poverty alleviation is maximized.