The IMF Approach to Economic Stabilization

This paper explains the IMF approach to economic stabilization, with emphasis on its quantitative aspects. It argues that a Fund-supported program is a process, comprising six broadly defined phases, that evolves along a multiplicity of potential pathways delimited by the Fund's policies governing assistance to members and by the member's resolve to implement the measures needed to restore external payments viability. The paper discusses the three-pronged approach to stabilization that is at the core of all IMF programs, stresses the iterative character of the Fund's "financial programming" framework, and explains the rationale for setting quantitative performance criteria for fiscal and monetary policy in all Fund arrangements. A main theme of the paper is that IMF programs contain a great deal of flexibility to respond both to differences in circumstances and to changes in conditions in individual cases.