Why the IMF Keeps Returning - EUROPE SAYS
In 2022, Sri Lanka defaulted on its sovereign debt for the first time in its post-independence history. Fuel queues stretched for kilometres. Hospitals ran out of medicines. The president fled the country. . . .
In 2022, Sri Lanka defaulted on its sovereign debt for the first time in its post-independence history. Fuel queues stretched for kilometres. Hospitals ran out of medicines. The president fled the country. Within months, Sri Lanka had signed itsseventeenth IMF programmea number that is worth pausing on. Seventeen. For a country the size of Sri Lanka, with a population of roughly 22 million, to have required IMF intervention seventeen times since independence is not a story of a single crisis, or a single government’s failure. It is a story about a structural relationship between certain categories of countries and the international financial system, a relationship in which the IMF sits at the centre, and that deserves to be understood on its own terms rather than through either uncritical acceptance or reflexive dismissal. What the IMF Actually DoesThe International Monetary Fund was established at Bretton Woods in 1944 with a clear purpose: to provide emergency financing to countries facing balance-of-payments crises—situations where a government runs out of foreign currency and can no longer meet its external debt obligations or pay for essential imports. The idea was straightforward. Currency crises can spread quickly. If one country defaults on its debts, the resulting panic can spill across borders and threaten the wider financial system. The IMF was created to act as an international lender of last resort. But IMF loans come with conditions. In principle, that makes sense. Any lender wants some assurance that the problems behind the crisis will be addressed. The debate over the past four decades has never really been about whether conditions should exist. It has been about what those conditions have required—and whether they have consistently served the interests of the borrowing country’s people, or primarily those of its creditors. The Pattern of ConditionalityThe standard package of conditions attached to IMF programmes since the 1980s has followed a recognisable template: fiscal austerity reducing government deficits by cutting expenditure and raising taxes; monetary tightening raising interest rates to stabilise currencies and control inflation; trade and financial liberalisation removing barriers to imports and capital flows; and privatisation — selling state-owned enterprises to raise revenue and improve efficiency. This package became known as structural adjustment, and by the 1990s it had been applied, with variations, across Latin America, sub-Saharan Africa, and large parts of Asia. Joseph Stiglitz, who served as chief economist of the World Bank during this period before leaving in protest, subsequently argued that the IMF’s one-size-fits-all approach caused serious harm in country after country, deepening recessions rather than ending them, dismantling the public institutions countries needed to recover, and prioritising creditor repayment over economic stabilisation. His critique was not that emergency lending was wrong, but that the specific conditions attached to it reflected the ideological preferences of creditor governments, primarily the United States and Western Europe, more than the developmental needs of the borrowing country. The East Asian financial crisis of 1997-98 sharpened this debate. When Thailand, Indonesia and South Korea sought IMF assistance after their currencies collapsed, the programmes imposed austerity and fiscal contraction in economies already contracting sharply — the opposite of what macroeconomic theory would prescribe for a recession. Malaysia, which chose not to take an IMF programme and instead imposed capital controls, recovered faster than its neighbours that did. The IMF later acknowledged that some of its prescriptions during that crisis were mistaken. Ghana, Pakistan and Argentina: The Same Story in Different RegistersThe contemporary evidence is no less mixed. Ghana entered an IMF programme in 2023 after its debt burden became unsustainable, with the programme requiring steep cuts to public subsidies, a VAT increase, and wage restraint for public workers conditions that fell heavily on the population least responsible for the debt accumulation. Pakistan has been in and out of IMF programmes with such regularity —23 programmes since 1958— that the programmes themselves have become part of Pakistan’s political economy, with governments using the IMF’s demands as political cover for austerity they might have implemented anyway but prefer not to own. Argentina’s relationship with the IMF is the most extensively documented and the most painful. Aftera $57 billion programme in 2018,the largest in the IMF’s history at the time, failed to prevent Argentina’s currency collapse and subsequent default, the IMF commissioned an internal review that found significant errors in its analysis of Argentina’s debt sustainability. A new programme negotiated in 2022 required primary fiscal surpluses in an economy still recovering from pandemic-driven contraction. Argentina’s debt to the IMF has become a defining issue in its domestic politics, invoked by governments across the ideological spectrum as a constraint on sovereign economic decision-making. Why Countries Keep ReturningThe IMF’s critics ask an obvious question: if these programmes are so frequently problematic, why do countries keep signing them? The answer is structural rather than irrational. A country in a balance-of-payments crisis has, by definition, run out of foreign currency. Without an IMF programme, the alternative is typically a disorderly default, loss of access to international capital markets, and an inability to finance essential imports. The IMF programme, however costly its conditions, at least provides a bridge. Countries return not because the programmes work in the way their architects intend, but because the alternative unassisted default in a world financial system designed by and for creditors — is often worse. The Bretton Woods Project, which monitors the IMF and World Bank, has argued that Sri Lanka’s seventeenth programme risks producing the same outcome as its previous sixteen: short-term stabilisation that addresses creditor concerns without resolving the underlying structural vulnerabilities, potentially setting up a further crisis, with some analysts projecting another Sri Lankan default as early as 2028. This is not simply the failure of one programme or another. It reflects a deeper problem in the way the international financial system is organised. The institution responsible for managing sovereign debt crises is also one whose governance gives the greatest influence to the countries whose financial institutions are often the largest creditors. The IMF’s voting system allocates influence according to economic size, leaving the United States with effective veto power over major decisions. That creates a tension the institution has never fully resolved. It is expected to serve all its members, yet its decision-making is shaped disproportionately by a small group of wealthy creditor nations. Understanding why the IMF keeps returning to the same countries means understanding that tension not as evidence of bad faith, but as a structural feature of an international financial architecture built for the post-war world of 1944 and only partially adapted to the realities of today’s global economy. Subscribe to Our NewsletterGet the latest CounterCurrents updates delivered straight to your inbox. Utkarsh Mishra is a journalist based in Ranchi writing on law, labour rights, and the environment. His work has appeared in Feminism in India, The India Forum, Down to Earth, The Policy Circle, Verdicto News and Zee News.