Discuss the basic theories regarding IMF stabilization program-00632

IMF's Stabilization Theories

Tight Fiscal Policy

It works through higher revenues and reduced government expenditure.

Devaluation

Switching from imports to home produced goods. It increases competitiveness, exports and increase investors confidence in local currency.

Tight Monetary Policy

Higher interest rates resulting in reduced private sector consumption and investment demand. It reduces inflation and increases savings. High interest rates also results in higher capital inflow.

Theses theories are generally not successful in lower income countries (LICs).
Because they caused the problems of:

Devaluation

It raises the price of imports and also increased the inflation while the real wage rate could not increase.

Stabilization hurts poor

It decrease in expenditure always badly effects the poor which can then cause political instability