International demands for austerity: Examining the impact of the IMF on the public sector

Stephanie J. Rickard, Teri L. Caraway

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

Abstract

What effects do International Monetary Fund (IMF) loans have on borrowing countries? Even after decades of research, no consensus exists. We offer a straightforward explanation for the seemingly mixed effects of IMF loans. We argue that different loans have different effects because of the varied conditions attached to IMF financing. To demonstrate this point, we investigate IMF loans with and without conditions that require public sector reforms in exchange for financing. We find that the addition of a public sector reform condition to a country’s IMF program significantly reduces government spending on the public sector wage bill. This evidence suggest that conditions are a key mechanism linking IMF lending to policy outcomes. Although IMF loans with public sector conditions prompt cuts to the wage bill in the short-term, these cuts do not persist in the longer-term. Borrowers backslide on internationally mandated spending cuts in response to domestic political pressures.

Original languageEnglish (US)
Pages (from-to)35-57
Number of pages23
JournalReview of International Organizations
Volume14
Issue number1
DOIs
StatePublished - Mar 15 2019

Keywords

  • Austerity
  • Backsliding
  • Conditionality
  • Government spending
  • IMF
  • Loan conditions
  • Public sector
  • Public sector employment
  • Reform
  • Wage bill

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