Conditionality: Forms, Function, and History

Abstract

The International Monetary Fund (IMF) is famous for its practice of conditionality—making the disbursement of resources to national governments contingent on the performance of certain policies. We survey the history of conditionality and show that the IMF is only one of many organizations that have historically engaged in this practice. Conditionality can be imposed by either private lenders (such as banks) or official organizations (such as international financial institutions), through a range of policy instruments, and to serve different kinds of goals. Over the course of the twentieth century, the conditionality of private lenders came to be replaced by official conditionality and was increasingly applied exclusively to the governments of developing countries. Today, conditionality is being used by more official organizations to address a broader range of goals than ever before. At the same time, however, conditionality is beset by critics who argue that it is illegitimate or ineffective. In response to such criticisms, the IMF and other practitioners of conditionality have developed new techniques and have attempted to bolster their legitimacy by making their operations more transparent and by emphasizing recipient-country participation.