Insights into the IMF bailout debate: A review and research agenda

News reports of the International Monetary Fund's (IMF) activities abound in most countries across the globe yet there is little consensus in the literature as to the effectiveness of the IMF's work. The purpose of this study is to provide a systematic review of the IMF literature that identifies the effects of IMF bailouts from the 1970s to the present. We investigate significant elements and consequences of the IMF's bailout policies and implementation approaches such as bailout effectiveness, moral hazard, conditionality, leadership, governance and the sustainability of IMF policy. Based on our review, we develop the ‘Spiral of Doom’ framework and argue that the effectiveness of the austerity package attached to bailout funds is questionable because the design of the package overlooks the recipient country's unique economic status and cultural background. We then propose financial engineering solutions as an alternative to IMF bailouts which it is envisaged may minimize the moral hazard problem associated with bailouts.