Speech by Martin Guzman (Professor, Columbia University SIPA) at the 2026 International Monetary Fund (IMF)/World Bank Spring Meetings
Date: April 14, 2026
Place: IMF Headquarters I
IMF lending is supposed to support countercyclical macroeconomic policies. Yet in practice, when the Fund provides loan programs, fiscal conditionality is built on the principle of fiscal consolidation — not output stabilization and recovery. This stance is self-serving—it is subordinated to the practice IMF debt policies that contribute to the “too little, too late” syndrome in sovereign debt restructuring, as I will explain shortly.
There are two things that should never happen with an IMF loan:
(i) It should not finance capital flight — this is explicitly prohibited by Article VI of the IMF’s Articles of Agreement.
(ii) It should not be used to repay unsustainable debt.
On the first point, the Fund clearly violated its own article of agreement with its 2018 loan to Argentina: of the $45 billion disbursed in 2018–2019, approximately $21 billion effectively financed capital flight — providing a clean exit for carry-trade investors who had speculated on the high-interest-rate policies of 2016–2017.
On the second point, it is the IMF itself that determines whether a country’s debt is sustainable. And what has been happening, particularly among low- and lower-middle-income countries in debt distress since the beginning of the war in Ukraine in 2022? IMF lending has repeatedly been used to repay distressed debt on the grounds that the problem is merely one of «liquidity,» rather than unsustainability. The result: private creditors — who had already earned substantial returns in the form of risk premia — are being bailed out, while debtor countries accumulate further obligations to the IMF, which holds preferred creditor status. This makes future restructurings harder and more costly. It is precisely this dynamic that the Jubilee Report commissioned by Pope Francis identified in 2025 as a defining challenge for the future of developing countries.
Meanwhile, countries receiving this financing are required to implement fiscal consolidation — cutting spending on education, health, and public infrastructure. This is, in effect, a default on economic development itself.
The IMF’s approach to fiscal policy is thus in service of debt policies that worsen the “too little, too late” problem in sovereign debt restructuring, while simultaneously making macroeconomic policy more procyclical in the short term and anti-development in the medium term.
The logic should be reversed. The IMF should identify debt restructuring needs more promptly and lend exclusively to support economic recovery. Access to IMF financing should be conditional on a government’s willingness to restructure its debt when that debt becomes unsustainable — and when restructuring is a necessary condition for restoring the policy space needed for countercyclical macroeconomic management. This is what the IMF’s own rules establish. But the institution’s power dynamics mean that those rules are followed only when the most influential shareholders wish it — and bent through heroic assumptions when their international financial or foreign policy goals require otherwise.
