Does international investor sentiment improve when a crises-ridden country participates in an International Monetary Fund (IMF) program? I argue that merely participating in an IMF program may not revive the sentiments of investors. Rather, investor sentiment would improve when governments enhance the credibility of their commitment to reforms by accepting severe conditions imposed by the IMF, which incur ex ante and ex post political costs. Using panel data on 166 countries during the 1992–2013 period (twenty-two years), I find that countries participating in IMF programs, with conditions attached, specifically prior actions and performance criteria conditions, after controlling for endogeneity concerns using exogeneous instruments, are associated with an increase in long-term investor sentiment. These results are robust to using alternative data, variables and estimation methods. My findings are in stark contrast to those who argue that IMF conditional programs are akin to swallowing a bitter pill. In fact, my results demonstrate that the so-called bitter pill may act as a palliative.

This article examines conditionalities in the Generalized System of Preferences (GSP) in light of the European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries (EC – Tariff Preferences) case at the World Trade Organization (WTO). The article largely undertakes this examination from the point of view of developing countries. It mainly examines the issue of discrimination in conditionalities since this was the principal question raised in the EC – Tariff Preferences case and makes suggestions regarding the regulation of conditionalities. In doing so, the article follows two trajectories: first, it makes suggestions for the WTO panels and Appellate Body, and, second, it makes suggestions for GSP donors, by analyzing the new European GSP + Scheme and by drawing inspiration from conditionalities in the loans granted by the World Bank.