The term IMF bailout refers to financial lending from the International Monetary Fund (IMF) to help countries that are experiencing economic crisis. IMF lending gives countries the breathing room they need to realign their policies for sustainable growth. The specific policy adjustments vary according to a country’s circumstances. For example, a country in the midst of a currency crisis might need to restore investor confidence while taking steps to strengthen its economy and diversify its exports. A country that is experiencing a balance of payments crisis might need to address its insolvency or debt problems or improve the transparency and efficiency of its banking system.
The problem with IMF aid, particularly when it comes backed by the U.S. government, is that it creates a moral hazard: governments can use the aid to underwrite unsustainable policies. The Argentine case is just one example of this. Continual IMF support allowed the Argentine government to avoid addressing its fiscal imbalances by continually postponing the day of reckoning.
Instead of making the ill-advised assumption that IMF monetary and fiscal assistance can compel governments to change their policies, the United States should encourage these nations to seek market-driven private solutions to their problems. That would provide incentives for these countries to reform their economic institutions and allow foreign investors to privately renegotiate their loans with these governments. It would also prevent these governments from putting the burden of their debt on American taxpayers and consumers, who bear no responsibility for the misguided monetary policies that are at the root of these crises.