The purpose of this paper is to outline the basic policy content of adjustment programmes supported by the International Monetary Fund (IMF), and to show how these policies work in achieving macroeconomic stability, and thereby higher economic growth. Although the IMF is not a development agency, nevertheless by establishing macroeconomic equilibrium in the economy, it lays the necessary foundation of development to take place. The policies it recommends, which typically include aggregate demand policies, structural policies, exchange rate policies, and external debt policies, are all designed towards the objective of balance of payments viability, price stability, and a sustainable high growth rate that would support a steady improvement in living standards of the population. The paper reviews available empirical evidence which indicates the IMF-supported adjustment programmes have had beneficial effects in terms of reducing external and internal imbalances in a broad sample of developing countries, The paper also discusses the empirical evidence demonstrating a link between macroeconomic stability and higher long term economic growth. Therefore, it is concluded on both theoretical and empirical grounds that the adjustment policies recommended by the IMF are supportive of the basic structural and social transformations which make up the process of economic development.
Frenkel et al. (Tue,) studied this question.
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