ABSTRACT
The IMF extends credit to countries with an external imbalance, conditional on the country’s commitment to implement economic policies that will restore equilibrium. That conditionality serves two purposes. First, it ensures that the IMF’s financial resources are used for the intended purpose, to the benefit of the country. Second, it ensures that the IMF will operate as a revolving fund for the benefit of all member countries. This simple description, however, gives rise to a conundrum. If the intended purpose is to benefit the borrower, then why is conditionality necessary? Why is it not sufficient to rely on the government to look after its own interests?
