The role of the International Monetary Fund (IMF) has become increasingly focused on maintaining stability in the international economy. The IMF provides financial recourses and education to countries that need assistance in exchange for compliance with the conditionality attached to those loans. The IMF argues that this is necessary to ensure that those who accept these will pay them back. My paper does not disagree with the assertion that the IMF needs to take steps to ensure that their loans are repaid. Instead, I offer a sharp critique aimed at the policy decisions that the IMF forces upon each loanee.
The balancing of budgets is the main policy condition that is almost universally included in the conditionality of loans. This is the opposite of what Keynesian economics and developed countries advocate during economic crises.
This paper shows that expansionary policies, both fiscal and monetary, result in the best possible outcome during economic crises. Examples of expansionary policies are increased government spending, lower taxes, lower interest rates, and increased money supply. These policies usually lead to budget deficits, and therefore should be temporary, for no longer than absolutely needed, and paired with budget surpluses during economic upswings. The evidence presented in this paper shows examples of when expansionary policies have succeeded, and when contractionary policies have failed. I hope that developed countries, who control a vast majority of the voting power in the IMF and partake in expansionary policies themselves, will move towards expansionary policies in the conditionality of IMF loans.