The IMF bailout refers to the process of international official organizations issuing special loans to a financially troubled country. The loan is meant to help bailed-out countries restore their budgets to surplus and promote economic growth. In order to achieve these objectives, a loan recipient is typically required to implement specific economic reforms and policies, such as cutting expenditures or raising taxes. These policies are often referred to as austerity measures. The effectiveness of IMF bailouts has been a subject of controversy. It has been found that most of the loans do not produce desired economic outcomes and that the policies imposed are largely impractical or inappropriate for recipient countries based on their unique political, social and economic structures.
The first step of the bailout process is when a government decides to seek assistance from international official organizations. This decision is based on the degree of the government’s resilience and its willingness to give up some level of sovereign control in exchange for funding from these organizations.
Once a country is selected as a candidate for financial support, the second stage begins, which involves the IMF or World Bank choosing whether to provide assistance. This is a highly politicized decision, as it depends on the country’s current economic fundamentals, its political connection to these international organizations and how exposed its domestic economy is to foreign creditors. Previous studies have found that the IMF’s decisions to impose policy conditionality on borrower countries are influenced by these considerations.
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