Monthly Archives: September 2014

IMF stands for the International Monetary Fund, an international organizations that offers both loans and bailout packages, and that has been subjected to extensive debate and controversy over the past years. Initially designed to ensure the stability of the worldwide financial system after World War III, the IMF has become one of the most important financial institutions of its kind, with a great influence over many countries. The policies of the International Monetary Fund has changed, and while many agree with them, others claim that they bring a lot of damage not only to the economy, but also to the surrounding environment. That being said, here is a deeper insight into some of the most important and controversial aspects related to the IMF:

1. Some Say Its Policies Hurt The Surrounding Environment

Many environmentalists and other environmentally-conscious people claim that the International Monetary Fund offers loans that are paving the way for the exploitation of the natural resources, which are depleting at a very fast pace. Apparently, the IMF does not take into account the impact of its lending policies on nature, and environmental aspects are not included in the policy making process. Some people also claim that the struggle to pay back the loans granted by the International Monetary Fund has lead to an unsustainable and damaging liquidation of some of the world’s most valuable natural resources, such as cocoa. The cocoa exports have soared in the Ivory Coast, and this has led to the loss of approximately 70% of the forests found here.

2. Some Critics Consider The Lending Conditions To Be Too Harsh

The lending conditions imposed by the International Monetary Fund are by far the most controversial and most commonly debated topic, and for a good reason given the fact that the IMF primarily lends money to poorer countries and then it applies severe financial restrictions. The problem is not the fact that it helps poor countries re-stabilize their economy as it did after the recession that hit the entire world a few years back, as this is a very good and helpful thing for the countries in question, but the fact that the conditions attached to these loans are very difficult to meet, and often with great sacrifices.

With that in mind, it must be said that in order for a country to repay its loans (usually millions or billions of dollars), its economy must be liberalized and there must be some serious government spending cuts involved, which can take their toll on the country’s economy in the long run. Besides this, the overall social structure of the country can be impacted as well, given the fact that the conditions imposed by the IMF often reflect the finance-related beliefs of Western nations, which may not always be in the best interests of the borrower.

Many people claim that these conditions are often designed to compromise not only the economic sovereignty of the receiving countries, but also their political structure. The fact that the conditions are too intrusive has generated a lot of backlash from other countries, and so did the so-called “structural adjustments” that the receiving countries had to meet in order to be eligible for the loan.

In addition to the government spending cuts imposed by the International Monetary Fund, the IMF also implies strict banking regulations, addressing various government deficits as well as a regulated pension policy. All these changed have caused a severe domestic opposition in most of the receiving countries, over the years.

3. The Policies Are Imposed All At Once, Which Leads To Privatization And An Increased Unemployment Rate

Besides the fact that these policies are severe enough and likely to cause domestic opposition, the IMF did not even impose them in an appropriate sequence, but rather all at once, which leads to a serious of consequences including the privatization of government services in a very rapid manner (for instances, selling utilities companies to private investors).

In turn, given the fact that private owners aim to make a company as efficient and as cost-effective as possible, the chances are that the new owners of such companies (which, as stated above, are often either utilities or water supply companies) are very likely to let go a significant part of the staff, which leads to an increased rate an unemployment. The reduced government salaries and pensions coupled with an increased unemployment rate can destabilize the financial and social structure of a country even more than the financial crisis itself.

In some cases, the borrowing countries do not have a properly developed unemployment management program, neither does it have social safety programs or other plans to support families who have lost one or more primary sources of income. In other words, those people who were fired when the company they worked for was sold will be unable to financially support their families.

This is why privatization must be introduced as part of a larger, more comprehensive and thoroughly designed program that involves creating new jobs designed to replace the lost ones. These programs should include low interest rates for mortgages and other loans, along with other more specific macroeconomic policies.

4. The IMF Accepts Little To No Public Criticism

Those who oppose the policies of IMF claim that the International Monetary Fund was not even open to public criticism when it came out with these severe policies, and in many cases the agreements that took place between the receiving countries and the IMF were often kept secret until the papers were signs and the loan was already taken out. In many times,this led to a severe backlash from the general public in the borrowing countries.

5. The Policies Of The Washington Consensus Are Universally Imposed

Last, but certainly not least, the critics of the International Monetary Fund also claims that the institution imposes the policies of the Washington Consensus on all the borrowing countries, without understanding the distinct and primary financial and social characteristics (and differences) of the borrowing countries, which in turn makes these policies very difficult to carry out and, as mentioned earlier, often very counter-productive for the general economy of the receiving countries.

In order for an international monetary organization such as the IMF to be able to impose generally applicable rules, regulations and policies, it must firstly study and specialize in the economies and the political climate of the borrowing countries, economies that the International Monetary Fund often oversees.

Sources:

http://www.globalexchange.org/resources/wbimf/oppose
http://en.wikipedia.org/wiki/International_Monetary_Fund
http://www.ifitransparencyresource.org/imf-international-monetary-fund.php
http://www.globalization101.org/why-is-the-imf-controversial/
http://www.brettonwoodsproject.org/2005/08/art-320869/

The International Monetary Fund (IMF), conceived in July 1944 at a UN’s conference held in Bretton, New Hampshire, U.S.A is a leading global financial organization made up of 188 countries. Its main goals concentrate on securing financial stability, facilitating international trade, alleviating high rates of unemployment and reducing poverty around the world. During its establishment, the 44 governments, which were represented in the conference, created a credible framework that would eradicate competitive devaluations that were witnessed after the First World War that caused 1930s Great Depression. This is an international organization whose functions keeps on expanding year by year owing to various economic, social and political factors. But still its core functions will always stand out and they include the following.

Providing Financial Assistance

The primary objective of IMF is to provide financial assistance to poor countries that are experiencing difficult economic times due to civil wars, natural disasters etc. Member countries who would want to boost their economies through infrastructural development and other things that help to create a good investing environment may also solicit funds from IMF. This organization lends out money through loans that are given under certain conditions.

Preventing Possible Financial Crisis

Countries are required to launch certain reforms that will regulate how the borrowed funds will be utilized to prevent fraudulent individuals from embezzling the funds. Also, these reforms are meant to cushion those countries which have fixed exchange rates policies from a crisis resulting from monetary, fiscal and various political practices. The risk of a possible staggering balance of payments in future may arise due to under/over-valued currencies, inflation and budget deficits if these reforms aren’t put in place. Therefore, IMF not only assists member states to develop economically by lending them loans but they also provide measures that cushion them from experiencing a possible financial crisis.

Carrying Out National, Regional & Global Surveillance

Through a formal system known as surveillance, IMF tries to review a country’s policies, regional and global financial and economic developments to ensure its own stability and prevent a financial crisis from happening in their system. By so doing, this organization encourages all member countries to establish policies that stirs up economic growth as well as polices which fosters living standards of the locals in a particular state. It also gives countries various advices that guide them in reducing financial instabilities and vulnerability to economic recessions.
Using its World Economic Outlook, this organization provides a reliable and regular assessment of all global prospects found in the world’s financial markets. It also assesses public financial developments in its Fiscal Monitor and Global Financial Stability Report. After thorough assessment it publishes a series of region-based economic outlooks which countries can take advantage of them to assess their own economic system.

Providing Various Types of Financial & Economic Training to Member Countries

Apart from lending loans to the member countries, IMF trains individual countries on various monetary habits to avoid rampant inflation, disequilibrium in the balance of payments and other financial crises, which affect most countries having ‘struggling’ economies. Since, 1950s, IMF has been offering various training courses on international economics and on balance of payments statistics. In fact, in 1964, the IMF Institute was founded to foster these training activities allowing various countries to take advantage of good money management habits. The IMF Institute is composed of professional monetary and management officers that equip officials from member countries with lots of financial knowledge. These officials benefit from various subjects including methodologies used in balance of payments, managing public finance, analyzing government finance statistics and subjects that deal with financial policies.
Providing Technical Assistance

This is another important and core function of IMF that aims at providing technical assistance in various sectors to individual countries. It is a program, which is regulated by the Fiscal Affairs Department, the Bureau of Statistics and Monetary and Exchange Affairs Department. Other departments, which may chip in, include the Bureau of Computing Services, the Legal Department and country-based departments may participate.

How Technical Assistance is Offered

Technical assistance is delivered through field assignments, staff missions and studies as well as workshops meant to update state officials with trending developments in the global financial industry. In this particular training, IMF focuses on ensuring that each and every official of its member countries are well conversant with tax systems, analysis of huge financial statistical data, macroeconomic management, developing a central banking system and regional and global fiscal policies.
Member countries also benefit from advices on central and general banking legislation, money and capital markets, as well as structure of interest rates at different times of the year. IMF’s objective is to ensure that, through regional and global cooperation, every country gets to take advantage of the various financial and economic instruments it provides. This is evident in Eastern Europe and Soviet Union where IMF has transformed the centrally planned economies through their technical assistance services to holistic market oriented economies.

Partnering With Donors

IMF collaborates with various donors on behalf of each member country that requires assistance at any time. These donors may be either bilateral or multilateral donors. They both help IMF in meeting the requirements of all member countries. Robust and well-bonded partnerships with other institutions such as UN ensure that countries receive every kind of assistance whether political, social, or economic.

What About New Members?

This international monetary organization assist new member states in developing export and import sectors, choosing the right currency, setting up interest rates and credit regulations, making structural reforms and reserving certain financial requirements. This enables the new members to acquaint themselves with IMF’s rules, terms, & conditions before starting a long-term economic relationship.

Generally, the functions of IMF not only involve financial assistance but also incorporates various things that are meant to improve economic status of each member country. Since the Asian crisis (1997-1998) and Mexican peso crisis (1994 – 1995), IMF has been very vibrant in providing technical, financial and economic assistance to all member countries to prevent such crises from happening in the future. It develops universal standards that help in creating an equal platform where all countries can access help. It offers useful advices to member countries regarding financial markets and how to create a good business environment where investors can find it favorable. This allows countries to develop economically without straining their resources.