A new study shows that lending conditions imposed by the International Monetary Fund (IMF) undermine “state capacity” in developing nations – preventing state bureaucrats from implementing essential policies in health, education, and national security.

Dr Thomas Stubbs, Lecturer in International Relations at Royal Holloway, University of London, along with researchers from the Universities of Cambridge, Glasgow and Bocconi, analysed the IMF’s loan documents to evaluate the relationship between IMF-mandated policy reforms and bureaucratic quality in developing countries.

The team collected over 4,500 loan-related IMF documents to identify policy conditions imposed on 131 borrowing countries between 1985 and 2014.

They found that public administrations become weaker when they need to implement ‘structural’ reforms that target the public sector and the privatisation of state-owned enterprises. They conclude that the IMF’s attempts to shape political economies in the image of Western countries are misguided.

Speaking of their research, Dr Stubbs, said: “IMF-mandated policies need to be carefully designed so as not to undermine local institutions. The IMF should phase out its structural reforms and focus on its core mandate of helping countries stabilise their economies, as proposed by its founding father John Maynard Keynes.”

Dr Bernhard Reinsberg, from the University of Glasgow, added: “Much of the previous research on the socioeconomic impact of IMF programs has focused on economic growth, but neglected how such programs transform state institutions. This is surprising given what we know today about able states as necessary conditions for economic development.”

The paper can be read in full here.