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With the high U.S. dollar and sticky inflation squeezing countries around the world, the International Monetary Fund (IMF) will be at its busiest in a long while. Sri Lanka, Pakistan and Ghana have received nearly US$10 billion in new bailout deals this year alone, while numerous other countries are likely teetering.
IMF loans have long been villifed in some quarters for imposing economic shock therapy on countries, forcing them into endless debt traps that prevent them from ever becoming self-sufficient. Ghana, for example, is embarking on its 17th IMF program, while Pakistan is on its 23rd.
IMF programs also create numerous winners and losers within countries. For instance, public servants invariably bear the brunt of austerity, while exporters such as farmers do better.
Bernhard Reinsberg and Rodwan Abouharb, political scientists at the University of Glasgow and University College London, respectively, have published a book that uncovers a new finding about bailout effects.
By examining some 40 years of data in scores of countries, they have shown that the leaders of borrower countries play politics with loans by imposing the worst of IMF conditions on their opponents. In their article How governments use IMF bailouts to hurt political opponents – new research, they offer some thought-provoking suggestions on what can be done.
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