Abstract
In 2009, the International Monetary Fund (IMF) reformed its lending arrangements and conditionality. Thereafter, it has pursued “parsimony,” emphasizing headline fiscal adjustments rather than detailed budgetary changes. This paper analyzes the extent to which these reforms have resulted in changes to the overall austerity required by IMF agreements. We create a new variable measuring the level of fiscal consolidation required in each IMF program from 2001 through 2021 the IMF Fiscal Adjustment Indicator (IMF FAI). We explore whether IMF austerity eased after the financial crisis and the later COVID-19 pandemic. We also estimate the economic and political determinants that help explain varying levels of IMF austerity across IMF programs during this period. We find that IMF conditions were less austere for the years of 2009 and 2020, but quickly returned to their previous levels, echoing the IMF’s advice to “keep the receipts” during crises. However, these temporary relaxations were not statistically significant, pointing to overarching continuity. We find that countries that were granted relatively more lenient conditionality were found to be those with closer relations with major shareholders of the IMF: Western Europe and the United States. In contrast, countries with close diplomatic relations with China face higher IMF austerity.
Acknowledgements
The authors would like to thank Amanda Parejas Villegas and Corinne Stephenson for invaluable research assistance on this paper. The authors also gratefully acknowledge helpful comments provided by participants in the October 2019 workshop entitled “Reforming the Global Financial Safety Net: Financial Instability, Global Pandemics, Climate Change, and Sustainable Development” hosted by the Boston University Global Development Policy Center (GDP Center) and the Institute of World Economics and Politics (IWEP) of the Chinese Academy of Social Sciences (CASS). Any mistakes however are the responsibility of the authors.
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Research funding: None to disclose.
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Conflicts of interest statements: The authors have no competing/conflicting interests.
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Availability of data and material: Data is freely available upon requiest.
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Code availability: Stata code is freely available upon request.
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