Conditionality

Conditionality usually comes into play when a country finds itself in financial trouble and seeks a loan or debt relief from another country or an international organization, such as the International Monetary Fund (IMF) or the World Bank.

These organizations are willing to help, but they need to have some assurance that the country in need will change their ways so this situation will not happen again. The funder might place certain conditions on the loan or debt forgiveness, such as controlling inflation, reducing their deficit, eliminating corruption (easier said than done), or even improving human rights. Many times the funds must be used for a specific purpose or project, rather than being left to the country’s own discretion. The loan could also be given out in installments, with later ones contingent on the country meeting certain conditions.

Think back to the financial crisis in Greece that started in 2008. The Greek government owed a substantial amount of debt to the European Union and threatened to default on it. The EU agreed to loan them billions of Euros, with the conditions that Greece increase their Value Added Tax (VAT) and the corporate tax rate, close tax loopholes, reduce incentives for early retirement, raise worker contributions to the pension system, and privatize many Greek businesses. By the summer of 2018, employment improved and the economy grew by 2.5%. It hopes to repay at least 75 percent of its debt by 2060.

Greece is the word.