Why does the IMF insist on maintaining the privatization of state entities as a reform policy as a prerequisite for borrowing states?


Critics have emphasised that the Washington Consensus greatly exaggerated both the ease of implementing privatisation and the gains from privatisation (Cook 1997; Heald, 1992, cited in Cook and Kirkpatrick, 1995, 22). And the World Bank itself has found that efforts to encourage privatisation have been among the most disappointing of all structural adjustment policies (Helleiner, 1994). The Post-Washington Consensus recognises that privatisation was not well planned: “From today’s vantage point, the advocates of privatisation may have over-estimated the benefits and underestimated the costs" (Stiglitz, 1997a, 19). In Stiglitz’s view, most people at the time would have preferred to have proper regulatory systems and competition in place before privatisation but the reason it was pushed through was that “no-one knew how long the reform window would stay open” (ibid, 20). In this situation privatising without the appropriate prerequisites in place “seemed a reasonable gamble”.

It is well known at this point that the IMF privatization policy had a poor track record of success, yet it's still one of the keys conditional policy for countries to have access to IMF loans.


Allowing a modicum of policy autonomy while under IMF programs has been at the forefront of developing countries’ and observers’ criticisms for decades. Such concerns — and the poor record of IMF programs — sparked a period of widely advertised reforms to conditionality over the 2000s.

Which makes me wonder if the IMF ever publicly addressed this issue through a publication or whatever other means.


There is a mismatch between what the IMF says and what the IMF actually does. Available evidence provides little support for the organization’s fundamental-transformation rhetoric. Instead, we find that the scale of organizational change was both modest and short-lived.

At the core of the controversy are IMF-mandated structural reforms. Unlike common IMF macroeconomic conditions (e.g., requiring borrowing countries to balance their budgets or reduce public debt), these types of policy reforms directly target market-state relations in borrowing countries. For example, they mandate the privatization of public utilities or changing the competition framework. As a result, governments’ freedom to select policy instruments in dealing with crises is constrained.

Why is that?

  • 1
    Do you have any reason to expect the official IMF rationale to be something other than the [Western, neoliberal] economic orthodoxy that privately run enterprises perform better? Someone can do the footwork and post the IMF's wording, but it seems a foregone conclusion what the gist of that would be... Sep 15, 2019 at 23:12

2 Answers 2


From the summary of a recent IMF publication, which is a working paper, so not the official position of the IMF, but it probably reflects it by and large given that an entire IMF department basically signs off on it...

SOEs [state-owned enterprises] systematically underperform relative to their private sector counterparts. Statistical analysis in the paper finds that SOEs (1) generate less revenue per employee, (2) pay higher wages than private companies, and, not surprisingly, (3) are significantly less profitable. These results hold to varying degrees in every country in the [Central, Eastern, and Southeastern European] region and in every sector of the economy. A related concept of efficiency, namely total factor productivity, is also found to be lower in SOEs. The key reason for this underperformance is the inefficient use of resources, most notably labor; SOEs use too much labor for the output they produce.

Basically, this is just a reiteration of the neoliberal economic orthodoxy.

And they do look at "nonprofit-maximizing motivations for SOEs" as well, but their overall conclusion is that

This paper finds little evidence that inefficiencies tied to state ownership can be justified by nonfinancial (social) objectives.

In even more official (and sufficiently recent) works, like those of the Independent Evaluation Office of the IMF, there is a growing emphasis is on economic growth rather than privatization (and the broader structural reforms) per se. [I think this aspect is described by others as the "cuddly IMF".] But clearly the IMF thinks the latter kind of measures imply more growth, at least in the long run... There is this implicit reference (privatization falls under "structural reforms") in the 2019 draft IEO report:

Structural reforms are an important aspect of program design to support growth and facilitate needed policy adjustments. While structural reforms would normally be expected to have long-lasting impact on growth, they may take time to put in place and take effect. Reform strategies also need to consider country ownership, focus, and technical support to foster adequate implementation, follow-through, and impact. The 2018 ROC [review of conditionality] found that structural conditionalities often did not address gaps identified in prior surveillance especially in macrostructural areas outside the Fund’s core expertise. This background paper will draw on the country case studies to dig deeper to assess country experiences on growth-enhancing structural reforms undertaken in the context of IMF-supported programs.

Alas the full report is not yet published, so the last sentence is just a teaser for now. But do note the official phrase "growth-enhancing structural reforms"; it seems to be gist of the "cuddly" IMF. The EU has a web page detailing what they mean by "structural reforms for economic growth"; it includes "make labour markets more adaptable and responsive" and "liberalise service sectors, boost competition in product and service markets, specific sectors, or improve the overall business environment". The IMF's interpretation of the similar phrase they employ cannot be all that different.

  • 2
    It is, of course, the neoliberal economic orthodoxy, but why did you specifically qualify it as Western?
    – michau
    Sep 15, 2019 at 23:44
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    It's a strange classification, then. It makes quite a few East Asian countries more "Western" than whole Northern Europe.
    – michau
    Sep 15, 2019 at 23:54
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    It is interesting that the three 'issues' in the first quote seem like points in favour of nationalisation. 1) make less revenue = no overcharging 2) Pay higher wages = supposed to be the point of capitalism 3) make less profit = essential services should not be profit making also see points 1 and 2 for why this should be expected.
    – Jontia
    Sep 16, 2019 at 6:28
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    @Jontia It's almost as if neoliberal doctrine is about profit for owner-class at expense of everyone else...
    – M i ech
    Sep 16, 2019 at 7:36
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    @jamesqf Please read the question, especially the parts in bold. If the policy was based on observable data, it would have to be much more nuanced than "private good, state-owned bad".
    – michau
    Sep 16, 2019 at 18:29

First things first (highlight mine):

Q. Does the IMF advocate privatization and market liberalization in poor countries, ignoring local conditions and adverse social consequences of such policies?

A. As part of the Fund's policy to streamline conditions within Fund-supported programs, privatization and market liberalization policies are only considered when they are essential to restore financial stability and unlock economic growth. The IMF relies on the World Bank and other agencies for information and expertise in these areas, and every attempt is made to take account of social conditions and prevent adverse social consequences of any policies.

The goal is re-starting the recipient country's economy, making it self-sustainable.

Here's more rationale.

The IMF is not a normal bank. A normal bank would offer you a loan in expectation of receiving an interest.

If a country already has a working economy, it may not need loans at all. For large infrastructure projects that require massive financing, a government or private businesses can simply borrow from a normal bank (with or without Sovereign guarantee), pay the interest, and that's it. No obligations that accompany IMF's grants and loans — in terms of privatization, tax structure, cost reduction, social expenses, and many more.

If, however, the country's economy is in that bad shape so it cannot service the "normal" loan, its economy needs a "kick-starting". Which, in turn, requires extremely cheap financing programme, because paying a normal interest rate would "eat up" the whole benefit of economy that is in crisis or has just resolved one.

The IMF needs to make sure that the financing actually serves its purpose, restoring financial stability and unlocking economic growth. So in return,

[IMF] discusses with the country’s authorities the policies that are most conducive to a stable and prosperous economy, drawing on experience across its membership. Member countries may agree to publish the IMF’s assessment of their economies, with the vast majority of countries opting to do so. — About the IMF

This does not necessarily include privatization, but apparently, many recent IMF-supported programs included privatization because the IMF and World Bank's analysts suggested it will serve the goal stated above.

  • 1
    You have my upvote for finding a more direct quote about privatization in IMF programs, but I'm amused how they predicated that with "in poor countries"... If (say) Argentina (or even Moldavia) is not deemed a poor country, then they can well insist on privatization? (Rhetorical question.) Sep 17, 2019 at 6:27

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