International Monitory Fund (Aditya) Eco

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1. INTRODUCTION

International Monetary Fund:

The International Monetary Fund (IMF) is an international organization that provides

financial assistance and advice to member countries. The International Monetary Fund (IMF)

is the international organization that oversees the global financial system by following the

macroeconomic policies of its member countries; in particular those with an impact on

echange rate and the balance of payments. It is an organization formed with a stated

ob!ective of stabilizing international echange rates and facilitating development through the

enforcement of liberalizing economic policies on other countries as a condition for loans"

restructuring or aid. It also offers loans with varying levels of conditionality" mainly topoorer countries. Its headquarters are in Washington, D.C., United tates. The IMF#s

relatively high influence in world affairs and development has drawn heavy criticism from

some sources.

The IMF wor$s to foster global growth and economic stability. It provides policy advice and

financing to members in economic difficulties and also wor$s with developing nations to

help them achieve macroeconomic stability and reduce poverty. The International Monetary

Fund was conceived in %uly &' originally with members and came into eistence in

*ecember &' when +' countries signed the agreement" with a goal to stabilize echange

rates and assist the reconstruction of the world#s international payment system. ,ountries

contributed to a pool which could be borrowed from" on a temporary basis" by countries with

payment imbalances. The IMF was important when it was first created because it helped the

world stabilize the economic system. The IMF wor$s to improve the economies of its

member countries. The IMF describes itself as -an organization of &/ countries" wor$ing to

foster global monetary cooperation" secure financial stability" facilitate international trade"

promote high employment and sustainable economic growth" and reduce poverty-.

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1.1 !istory:

The International Monetary Fund was conceived in %uly &' during the 0nited 1ations

Monetary and Financial ,onference. The representatives of governments met in the

Mount 2ashington 3otel in the area of 4retton 2oods" 1ew 3ampshire" 0nited 5tates" with

the delegates to the conference agreeing on a framewor$ for international economic

cooperation. The IMF was formally organized on *ecember +/" &'" when the first +'

countries signed its 6rticles of 6greement. The statutory purposes of the IMF today are the

same as when they were formulated in &'7.

The IMF#s influence in the global economy steadily increased as it accumulated more

members. The number of IMF member countries has more than 8uadrupled from the

states involved in its establishment" reflecting in particular the attainment of political

independence by many developing countries and more recently the collapse of the 5oviet

bloc. The epansion of the IMF9s membership" together with the changes in the world

economy" has re8uired the IMF to adapt in a variety of ways to continue serving its purposes

effectively.

6t the +::' &+.AA billion)" 3ungary (>&&./ billion) and

reece (>7: billion) are the largest borrowers of the fund.

Organi"ation # Finan$es

The IMF has a management team and &/ departments that carry out its country" policy"

analytical" and technical wor$. @ne department is charged with managing the IMF#s

resources. This section also eplains where the IMF gets its resources and how they are used.

The IMF is led by a Managing *irector" who is head of the staff and ,hairman of the

Cecutive 4oard. 3e is assisted by a First *eputy Managing *irector and two other *eputyManaging *irectors. The Management team oversees the wor$ of the staff" and maintains

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high


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and the rest of the recognition. 6ll member states participate directly in the IMF. Member

states are represented on a +


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The 4oard of overnors also elects or appoints eecutive directors and is the ultimate arbiter

on issues related to the interpretation of the IMF#s 6rticles of 6greement. Hoting by the

4oard of overnors usually ta$es place by mail


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0. RO+ OF IMF:

The International Monetary Fund is a global organisation founded in &'. It aims was to

help stabilise echange rates and provide loans to countries in need. 1early all members of

the 0nited 1ations are members of the IMF with a few eceptions such as ,uba"

=ichtenstein and 6ndorra. The IMF is independent of the 2orld 4an$ although both are

0nited 1ations agencies and both are aiming to increase living standards. The 2orld 4an$

concentrates on long term loans to developing countries. o%e Main Fun$tions o/ IMF

are:

0.1 Fun$tions o/ IMF

International Monetary ,ooperation

Jromote echange ?ate stability

To help deal with 4alance of Jayments ad!ustment

3elp *eal 2ith Cconomic ,risis by providing international coordination

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What the IMF does

2ith its near


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5ince then the world has changed dramatically" bringing etensive prosperity and lifting

millions out of poverty" especially in 6sia. In many ways the IMF3s %ain 'ur'oseto

provide the global public good of financial stabilityis the same today as it was when the

organization was established. More specifically" the IMF continues to

provide a forum for cooperation on international monetary problems

facilitate the growth of international trade" thus promoting !ob creation" economic

growth" and poverty reduction;

promote echange rate stability and an open system of international payments; and

=end countries foreign echange when needed" on a temporary basis and under

ade8uate safeguards" to help them address balance of payments problems.

!o4 they do it

The IMF#s main goal is to ensure the stability of the international monetary and financial

system. It helps resolve crises" and wor$s with its member countries to promote growth and

alleviate poverty. It has three main tools at its disposal to carry out its mandateE surveillance"

technical assistance and training" and lending. These functions are underpinned by the IMF#s

research and statistics.

ur-eillan$e:

The IMF promotes economic stability and global growth by encouraging countries to adopt

sound economic and financial policies. To do this" it regularly monitors global" regional" and

national economic developments. It also see$s to assess the impact of the policies ofindividual countries on other economies.

This process of monitoring and discussing countries9 economic and financial policies is

$nown as bilateral surveillance. @n a regular basisusually once each yearthe IMF

conducts in depth appraisals of each member country#s economic situation. It discusses with

the country#s authorities the policies that are most conducive to a stable and prosperous

economy. ,onsistent with the decision on bilateral surveillance adopted in %une +::/" the

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as9et o/ $urren$ies deter%ines the -alue o/ the DR

The value of the 5*? was initially defined as e8uivalent to :.A/& grams of fine gold

which" at the time" was also e8uivalent to one 0.5. dollar. 6fter the collapse of the 4retton

2oods system in &'/7" however" the 5*? was redefined as a bas$et of currencies" today

consisting of the euro" %apanese yen" pound sterling" and 0.5. dollar. The 0.5. dollar+: billion in bilateral government loans as part of moves to triple the IMF9s lendable

resources to >/: billion. 6greements are already in place with %apan (>&:: billion)" ,anada

(>&: billion)" and 1orway (>. billion)" and a number of other countries have committed

funds either through loans or the purchase of IMF notes.

In addition" the Fund is closely trac$ing economic and financial developments worldwide so

that it can provide policyma$ers with the latest forecasts and analysis of developments in

financial mar$ets. 6nd it is engaging with the roup of +: (


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doubling of borrowing limits" zero interest rates until the end of +:&&" and new lending

instruments that offer more fleible terms. Most low& billion of a planned >+: billion allocation of IMF 5pecial

*rawing ?ights (5*?s) will go to low


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=. T!+ IMF ND IT CRITIC:

@ver time" the IMF has been sub!ect to a range of criticisms" generally focused on the

conditions of its loans. The IMF has also been criticised for its lac$ of accountability and

willingness to lend to countries with bad human rights record. Two criticisms from

economists have been that financial aid is always bound to so


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1. Conditions o/ oansE

@n giving loans to countries" the IMF ma$es the loan conditional on the

implementation of certain economic policies. These policies tend to involveE

?educing government borrowing < 3igher taes and lower spending

3igher interest rates to stabilize the currency.

6llow failing firms to go ban$rupt.

5tructural ad!ustment. Jrivatization" deregulation" reducing corruption and

bureaucracy.

The problem is that these policies of structural ad!ustment and macroeconomic

intervention ma$e the situation worse.

For eample" in the 6sian crisis of &''/" many countries such as Indonesia" Malaysia

and Thailand were re8uired by IMF to pursue tight monetary policy (higher interest

rates) and tight fiscal policy to reduce the budget deficit and strengthen echange

rates. 3owever" these policies caused a minor slowdown to turn into a serious

recession with mass unemployment.

In +::&" 6rgentina was forced into a similar policy of fiscal restraint. This led to a

decline in investment in public services which arguably damaged the economy.

(. +>$hange Rate Re/or%sE

2hen the IMF intervened in Genya in the &'':s" they made the ,entral ban$ remove

controls over flows of capital. The consensus was that this decision made it easier for

corrupt politicians to transfer money out of the economy ($nown as the oldman

scandal). ,ritics argue this is another eample of how the IMF failed to understand

the dynamics of the country that they were dealing with < insisting on blan$et

reforms.

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The economist %oseph 5tieglitz has criticised the more monetarist approach of the

IMF in recent years. 3e argues it is failing to ta$e the best policy to improve the

welfare of developing countries saying the IMF -was not participating in a

conspiracy" but it was reflecting the interests and ideology of the 2estern financial

community.-

0. De-aluations

In earlier days" the IMF have been criticised for allowing inflationary devaluations.

5. Neo i&eral Criti$is%s

There is also criticism of neo liberal policies such as privatisation. 6rguably these

free mar$et policies were not always suitable for the situation of the country. For

eample" privatisation can create lead to the creation of private monopolies who

eploit consumers.

. Free Mar9et Criti$is%s o/ IMF

6s well as being criticised for implementing #free mar$et reforms# other cities the

IMF for being too interventionist. 4elievers in free mar$ets argue that it is better to

let capital mar$ets operate without attempts at intervention. They argue attempts to

influence echange rates only ma$e things worse < it is better to allow currencies to

reach their mar$et level.

There is also a criticism that bailout countries with large debt create moral hazard.

4ecause of the possibility of getting bailed out it encourages people to borrow more.

=. a$9 o/ Trans'aren$y and in-ol-e%ent:

The IMF have been criticised for imposing policy with little or no consultation with

affected countries.

%effrey 5achs" the head of the 3arvard Institute for International *evelopment saidE

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-In Gorea the IMF insisted that all presidential candidates immediately -endorse- an

agreement which they had no part in drafting or negotiating" and no time to

understand. The situation is out of hand...It defies logic to believe the small group of

&"::: economists on &'th 5treet in 2ashington should dictate the economicconditions of life to / developing countries with around &. billion people.- K

?. u''orting Military di$tatorshi's:

The IMF have been criticised for supporting military dictatorships in 4razil and

6rgentina" such as ,astillo 4ranco in &'A:s received IMF funds denied to other

countries.

Res'onse to Criti$is% o/ IMF

Crisis l4ays lead to so%e Di//i$ulties:

4ecause the IMF deal with economic crisis" whatever policy they offer" there is

li$ely to be difficulties. It is not possible to deal with a balance of payments without

some painful read!ustment.

IMF has had o%e u$$esses:

The Failures of the IMF tend to be widely publicised. 4ut" its successes less so. 6lso

criticism tends to focus on short term problems and ignores longer term view

Con/iden$eE

The fact there is a lender of last resort provides an important confidence boost for

investors. This is important during current financial turmoil.

Countries are not O&liged to ta9e an IMF loan:

It is countries that approach the IMF for a loan. The fact so many ta$e loans

suggests there must be at least some benefits of the IMF.

IMF +asy target:

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5ometimes countries may want to underta$e painful short term ad!ustment but there

is a lac$ of political will. 6n IMF intervention enables the government to secure a

loan and then pass the blame on to the IMF for the difficulties.

@verall" the IMF success record is perceived as limited. 2hile it was created to help

stabilize the global economy" since &': critics claim over &:: countries (or

reputedly most of the Fund#s membership) have eperienced a ban$ing collapse that

they claim have reduced *J by four percent or more" far more than at any time in

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?. IM6CT OF IMF ON *RIOU FCTOR:

The IMF policies and rules have an impact on some factors li$e access to food" environment"

public health etc.E

I%'a$t on a$$ess to /ood

6 number of civil society organizations have criticized the IMF#s policies for their impact on

people#s access to food" particularly in developing countries. In @ctober +::" former 05

Jresident 4ill ,linton !oined this chorus in a speech to the 0nited 1ations 2orld Food *ay"

which criticized the 2orld 4an$ and IMF for their policies on food and agriculture.

I%'a$t on 'u&li$ health

In +::" a study by analysts from ,ambridge and ale 0niversity9s published on the open

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International Monitory Fund (Aditya) Eco