Abstract

This article uses finance and agency theory to establish two key propositions about IMF conditionality and country ownership of IMF-supported adjustment programs—first, that the conditionality attached to these programs is justified and, second, that country ownership of these programs is crucial for their success. Because IMF conditionality and country ownership are both necessary, the challenge is designing conditionality that maximizes ownership while providing adequate safeguards for IMF lending. The article analyzes several recent proposals aimed at enhancing country ownership of policies contained in IMF-supported programs. These proposals include encouraging countries to design their own adjustment and reform programs, streamlining structural conditionality, introducing flexibility in the timing of structural policy measures (floating tranche conditionality), and applying conditionality to outcomes rather than policies (outcomes-based conditionality).

Recent Staff Research