A developing country has experienced a sharp fall in its export earnings and can no longer afford to pay for essential imports. The government applies for emergency financial support from an international institution. Which institution would most likely provide this short-term support, and on what condition?

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Question

A developing country has experienced a sharp fall in its export earnings and can no longer afford to pay for essential imports. The government applies for emergency financial support from an international institution. Which institution would most likely provide this short-term support, and on what condition?

Accepted Answer

The IMF, on condition that the country implements structural adjustment policies to stabilise its economy — Award 1 mark for identifying the IMF as the institution providing short-term balance of payments support, and 1 mark for stating that conditions typically include structural adjustment policies such as reducing government spending, controlling inflation, or liberalising markets. A is incorrect — the World Bank focuses on long-term development rather than emergency balance of payments support. C is incorrect — the WTO does not provide financial assistance; it governs trade rules. D is incorrect — IMF conditionality typically requires contractionary policies to stabilise the economy, not an increase in the money supply.

Answer

The WTO, on condition that the country reduces its import tariffs immediately

Answer

The IMF, on condition that the country implements structural adjustment policies to stabilise its economy

Answer

The World Bank, on condition that the country invests the funds in healthcare infrastructure

Answer

The IMF, on condition that the country increases its money supply to stimulate growth

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