Anonymous
Anonymous asked in Social ScienceEconomics · 9 years ago

So, my country is about to ask for an IMF bailout, what does that exactly mean in practical terms?

I know, I know, and thank you for the congrats!! lol :P

Anyway, Greece and Ireland, any tips? I know that it could mean that the country will never be able to ask for credit and things like that, that it totally loses it's credibility next to the international community, and so on... but I really couldn't be freaking bothered about any of that crap, and by a mile.

What I am expectant about is to see whether this will actually have any sort of practical effect on people's day to day lives... Any economists around?

Thank you.

Update:

OMG no one knows!!? LOL

3 Answers

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  • John M
    Lv 7
    9 years ago
    Best Answer

    If a country has a high level of debt relative to GDP and has problems in its economy that cause the bond investors to doubt the country's ability to repay bonds, the interest rates required to refinance bonds that are coming due and to finance addition debt due to a deficit to be so high as to make default very likely. This is when the IMF steps in and finances the debt in exchange for promises from the country to enact various reforms. Generally this happens because it is in the best interests of the economies related to yours, as well as all the bond holders, that you restructure, make the changes the IMF requires, and get back to a state of solvency. If we look at the European experience so far in the current world wide recession, we are beginning to see signs that the austerity moves advocated in some countries seem to be creating the difficulties many expected, slowing growth, increased unemployment etc. but for countries like greece, where there were substantial problems with costs, austerity can mean simply more realistic expectations on the part of the people as to how much work it takes to earn a comfortable retirement in a viable economy during this era. This is of course a relative number, relative to the standard of living and the cultural expectations regarding the distribution of wealth, etc.

    Ireland had a different situation, and so the impact of the IMF agreements will be different there.

    Overall, look for the IMP money to come with some strings attached that will cause the government to move the economic policies more in-line with a sustainable economic strategy specific to your country.

  • Alex N
    Lv 4
    9 years ago

    They would be unable to refinance their country using IMF funds. They lose a source of finance that could boost the economy during recession. Without support from IMF, the country savings would not grow as their is no security from IMF.

    Interest rate rise, making biz borrowings more difficult. Cost-push inflation might be resulted. Also, R&D and innovation would slow down.

  • Anonymous
    9 years ago

    IMF gives you a bunch of money. It could be a loan that you have to repay, or it could be a "gift".

    A "gift" will likely come with some conditions, like government promising to reduce budget deficit through increases taxes or reduced spending.

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