Conditionality and the Washington Consensus

IMF loans usually come with conditions: borrowing governments agree to policy changes intended to fix the problems that caused the crisis and to make repayment likely. In the 1980s and 1990s, many programs in Latin America, Africa and the former Soviet bloc required 'structural adjustment', including cutting budget deficits, removing subsidies, privatizing state firms, liberalizing trade and freeing prices. In 1989 economist John Williamson summarized ten such reforms favored by Washington-based institutions as the 'Washington Consensus'.

Supporters argue that these reforms tackled real problems such as runaway inflation and inefficient state enterprises, and point to successes like the end of high inflation in much of Latin America. Critics, including economist Joseph Stiglitz, argue that programs were applied too uniformly, cut social spending, worsened recessions and paid too little attention to local institutions. The IMF has since revised its approach, accepting some capital controls and emphasizing social spending floors.