Add to ORKGFrom the beginning of IMF lending in 1947, the staff understood that countries could have difficulty financing their balance of payments for two reasons: either because their economic policies were inadequate or because of circumstances beyond their control. With experience, though, the Fund realized a basic lesson. Even if the root cause of the problem was an external shock, such as a weak market for the country’s exports, policies would have to be adjusted to compensate unless the shock was temporary and the gap could be covered by a repayable loan. Because few shocks could be judged reliably to be “temporary, ” the Fund increasingly conditioned its lending on policy adjustments. This confidence in and reliance on conditionality reached i...
