Final answer:
The IMF assists countries in addressing their Balance of Payment issues through financial assistance and policy recommendations, often involving structural adjustments and economic reforms known as conditionalities. These measures are designed to promote stability and growth but have been subject to criticism for often benefiting creditors more than borrowers.
Step-by-step explanation:
The International Monetary Fund (IMF) corrects Balance of Payment (BOP) problems by offering financial assistance and policy advice to member countries facing economic imbalances. During the post-Bretton Woods era, this assistance comes with conditionalities, which are a set of economic policy reforms the borrowing country must implement. These reforms often include fiscal discipline, tax reform, deregulation, privatization, and liberalization of foreign direct investment.
In response to challenges such as oil shocks, debt crises, and currency devaluations, the IMF began to provide loans for structural adjustments to promote economic stability, sound macroeconomic indicators, and growth. However, criticisms arise, such as those from economist Joseph Stiglitz, citing that these conditions tend to benefit foreign creditors and hurt the workers in the borrowing countries.
The IMF seeks to prevent or mitigate financial crises through the use of conditional loans, with the aim of improving the borrowers' economic performance and thereby sending a positive signal to international financial markets. Despite the critiques and varied outcomes, the IMF's engagement with developing countries represents an attempt to restore credibility and stability to economies facing a variety of modern economic challenges.