Role of IMF

INTRODUCTION
The International Monetary Fund (IMF) is an organization of 186 countries, wor ing to foster glo!al "onetary coo#eration, secure financial sta!ility, facilitate international trade, #ro"ote high e"#loy"ent and sustaina!le econo"ic growth, and reduce #o$erty around the world% The International Monetary Fund (IMF) is the international organization that o$ersees the glo!al financial syste" !y following the "acroecono"ic #olicies of its "e"!er countries& in #articular those with an i"#act on e'change rate and the !alance of #ay"ents% It is an organization for"ed with a stated o!(ecti$e of sta!ilizing international e'change rates and facilitating de$elo#"ent% It also offers highly le$eraged loans, "ainly to #oorer countries% Its head)uarters are in *ashington, +%,%, -nited .tates% The IMF/s #ri"ary #ur#ose is to ensure the sta!ility of the international "onetarysyste"0the syste" of e'change rates and international #ay"ents that ena!les countries (and their citizens) to !uy goods and ser$ices fro" each other% This is essential for sustaina!le econo"ic growth and rising li$ing standards% The International Monetary Fund or IMF ca"e into e'istence in 1142, after the end of *orld *ar II and at the !eginning of the ,old *ar% ,urrently, the IMF has its head)uarters in *ashington, +%,% and co"#rises 182 "e"!er nations% ,onsidering its growing rele$ance as an international lender that offers financial and technical aid to its "e"!er nations, understanding the IMF is econo"ics% ey understanding "odern glo!al
40

Role of IMF

WHAT IS IMF?
The IMF is the world3s central organization for international "onetary coo#eration% *ith 186 "e"!er countries (as of 4une 5001), it is an organization in which al"ost all of the countries in the world wor together to #ro"ote the co""on good% The IMF3s #ri"ary #ur#ose is to safeguard the sta!ility of the international "onetary syste"6the syste" of e'change rates and international #ay"ents that ena!les countries (and
40

Role of IMF
their citizens) to !uy goods and ser$ices fro" one another% This is essential for achie$ing sustaina!le econo"ic growth and raising li$ing standards%

Definition
International Monetary Fund% 7n organization set u# in 1144 to lower trade !arriers !etween countries and to sta!ilize currencies !y "onitoring the foreign e'change syste"s of "e"!er countries, and lending "oney to de$elo#ing nations%

History of IMF
IMF is an international organization created in 1142 to su#er$ise glo!al econo"ic affairs, to gi$e financial ad$ice and aid to its "e"!er countries% Today, the IMF has o$er 180 "e"!er countries, which it hel#s !y8 .ur$eying glo!al econo"ic conditions% 7d$ising "e"!er countries on "ethods to i"#ro$e their econo"y% 9ro$iding short:ter" loans to a$oid currency insta!ility%

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Role of IMF
Reasons for Founding the IMF
In an 7"erican town called ;retton *oods in <ew =a"#shire, re#resentati$es of 42 western countries, led !y the -. and ->, and not including the .o$iet -nion and co""unist !loc countries, agreed to esta!lish a glo!al econo"ic institution% ?f these, 51 countries signed the 7rticles of 7gree"ent that included the following o!(ecti$es8 @li"inate any disastrous re#etitions of the Areat +e#ression%

Facilitate glo!al financial sta!ility !y sta!ilizing #re$ailing e'change rates% Beduce #o$erty so that econo"ic growth is triggered% Increase international trade and e"#loy"ent%

Responsibilities of IMF:7rticle 1 set out "ain res#onsi!ilities of IMF which are as follows, 1) 9ro"oting international "onetary coo#eration% 5) Facilitating the e'#ansion and !alanced growth of international trade% C) 9ro"oting e'change sta!ility% 4) 7ssisting in the esta!lish"ent of a "ultilateral syste" of #ay"ents and 2) Ma ing its resources a$aila!le (under ade)uate safeguards) to "e"!ers e'#eriencing !alance of #ay"ents difficulties% Aenerally, the IMF is res#onsi!le for ensuring the sta!ility of the international "onetary and financial syste" : the syste" of international #ay"ents and e'change rates a"ong national currencies that ena!les trade to ta e #lace !etween countries% The Fund see s to #ro"ote econo"ic sta!ility and #re$ent crises& to hel# resol$e crises when they do occur& and to #ro"ote growth and alle$iate #o$erty% It e"#loys three "ain functions8

.ur$eillance

40

Role of IMF

Technical assistance Dending to "eet these o!(ecti$es%

Importance of the IMF:

The i"#ortance of the IMF has increased since the glo!al financial crisis started in 500E% The IMF has !een called u#on "ore and "ore to #ro$ide glo!al econo"ic sur$eillance% It is in the !est #osition to do so !ecause of its "e"!ershi# re)uire"ents% The 180 "e"!er countries ha$e already agreed to su!(ect their econo"ic #olicies to IMF scrutiny% They co""itted to8

9ursue #olicies that are conduci$e to reasona!le #rice sta!ility% 7$oid "ani#ulating e'change rates for unfair co"#etiti$e ad$antage% 9ro$ide the IMF with data a!out its econo"y% 7n IMF sur$eillance re#ort warned a!out the econo"ic crisis, !ut was

ignored% The IMF was concei$ed in 4uly 1144, when re#resentati$es of 42 go$ern"ents "eeting in the town of ;retton *oods, <ew =a"#shire, in the northeastern -nited .tates, agreed on a fra"ewor for international econo"ic coo#eration% They !elie$ed that such a fra"ewor had contri!uted to the Areat +e#ression of the 11C0s% +uring that decade, atte"#ts !y countries to shore u# their failing econo"ies6!y li"iting i"#orts, de$aluing their currencies to co"#ete against each other for e'#ort "ar ets, and curtailing their citizens/ freedo" to !uy goods a!road and to hold foreign e'change6#ro$ed to !e
40

was

necessary to a$oid a re#etition of the disastrous econo"ic #olicies that

Role of IMF
self:defeating% *orld trade declined shar#ly, and e"#loy"ent and li$ing standards #lu""eted in "any countries% .ee ing to restore order to international "onetary relations, the IMF/s founders charged the new institution with o$erseeing the international "onetary syste" to ensure e'change rate sta!ility and encouraging "e"!er countries to eli"inate e'change restrictions that hindered trade% The IMF ca"e into e'istence in +ece"!er 1142, when its first 51 "e"!er countries signed its 7rticles of 7gree"ent% .ince then, the IMF has ada#ted itself as often as needed to changes in the world econo"y% ee# u# with the e'#ansion of its "e"!ershi#6184 countries as of 4une 50066and

OTH R ACTI!ITI S OF IMF: IMF A"#ises Mem$er Co%ntries:

.ince the Me'ican #eso crisis of 1114F12 and the 7sian crisis of 111EF 18, the IMF has ta en a "ore acti$e role to hel# countries #re$ent financial crises% It de$elo#s standards that countries should follow, such as #ro$iding ade)uate foreign e'change reser$es in good ti"es to hel# #ro$ide for increased s#ending during recessions% It re#orts on "e"!ers countries/ o!ser$ance of these standards% It also issues "e"!er country re#orts that in$estors use to "a e well:infor"ed decisions, i"#ro$ing the functioning of financial "ar ets, and reducing #otential financial shoc s%
40

Role of IMF
IMF &ro#i"es Short'term (oans:
The IMF #ro$ides loans to hel# its "e"!ers tac le !alance of #ay"ents #ro!le"s, sta!ilize their econo"ies, and restore sustaina!le econo"ic growth% -nli e the *orld ;an and other de$elo#"ent agencies, the IMF does not finance #ro(ects% Most IMF !orrowers are de$elo#ing countries which ha$e only li"ited access to international ca#ital "ar ets, #artly !ecause of their econo"ic difficulties% .ince IMF lending signals that a country/s econo"ic #olicies are on the right trac , it reassures in$estors and can act as a catalyst for attracting funds fro" other sources%

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Role of IMF
Ho) the IMF Wor*s
The "ain functions of IMF can !e di$ided into three categories8

Surveillance: This in$ol$es colla!oration !etween the IMF and its "e"!er

nations% The IMF continues to assess the econo"ic conditions of its "e"!ers and offers in:de#th ad$ice to hel# the" for"ulate sound econo"ic #olicies% Lending: Financial aid is #ro$ided to "e"!er countries who are struggling with !alance of #ay"ent #ro!le"s% Through @'ogenous .hoc s Facility (@.F) and the 9o$erty Beduction and Arowth Facility (9BAF), the IMF hel#s its "e"!ers and e$en colla!orates with the *orld ;an to lend "oney to the"% Technical Assistance: The IMF offers technical assistance in areas such as !an ing, fiscal and econo"ic #olicies as well as e'change rate #olicies% It also hel#s its "e"!er nations to fight threats such as terroris" and "oney: laundering%

IMF Acti#ities ' Hi+h,i+hts: '

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Role of IMF
The IMF wor s to #ro"ote +,o$a, +ro)th an" economic sta$i,ity and there !y #re$ent econo"ic crisis : !y encouraging countries to ado#t sound econo"ic #olicies% 7ct of !eing $igilant is the regular dialogue and #olicy ad$ice that the IMF offers to each of its "e"!ers% Aenerally once a year, the Fund conducts in:de#th a##raisals of each "e"!er country/s econo"ic situation% It discusses with the country3s authorities the #olicies that are "ost conduci$e to sta!le e'change rates and a growing and #ros#erous econo"y% Me"!ers ha$e the o#tion to #u!lish the Fund/s assess"ent, and the o$erwhel"ing "a(ority of countries o#t for trans#arency, "a ing e'tensi$e infor"ation on !ilateral sur$eillance a$aila!le to the #u!lic% The IMF also co"!ines infor"ation fro" indi$idual consultations to for" assess"ents of glo!al and regional de$elo#"ents and #ros#ects% These $iews on the IMF/s "ultilateral sur$eillance are #u!lished twice each year in the world econo"ic outloo and the glo!al financial sta!ility re#ort% Technical assistance and training are offered : "ostly free of charge : to hel# "e"!er countries strengthen their ca#acity to design and i"#le"ent effecti$e #olicies% Technical assistance is offered in se$eral areas, including fiscal #olicy, "onetary and e'change rate #olicies, !an ing and financial syste" su#er$ision and regulation, and statistics% In the e$ent that "e"!er countries do e'#erience difficulties financing there%

40

Role of IMF

A"#anta+es of the IMF

IMF can !e seen as lender of last resort% *hen a country is seeing an e'odus of currency due to a !alance of #ay"ents crisis, the IMF can #ro$ide crucial loans to sta!ilize the econo"y and #re$ent a colla#se of confidence %e%g% Becent loans to8

.u##orters argue that the IMF can also i"#ose necessary refor"s on an econo"y% Befor"s such as #ri$atization, fiscal res#onsi!ility, control of Money su##ly, and attac ing corru#tion%
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Role of IMF
These #olicies "ay cause short ter" #ain, !ut, are essential for #re$enting future crisis and long ter" de$elo#"ent%

9ro$ides an e'ternal assess"ent of the econo"y, which hel#s the go$ern"ent to i"#le"ent #o#ular ideas% Get, des#ite the #otential !enefits of ha$ing a "onetary fund which

can #ro$ide an effecti$e counter to financial crisis, the role of the IMF has #ro$ed $ery contro$ersial% Its critics argue the IMF is do"inated !y the #ers#ecti$e of the A8 industrialized nations% They argue the IMF insists on !lan et #olicies of structural ad(ust"ent which "ay actually har" the econo"ies they are inter$ening% .ee8 ,riticis"s of IMF

yet, whilst it is easy to criticize the doctor which #rescri!es a !itter #ill, there is a consensus that, now "ore than e$er, we need an effecti$e international organisation which can deal with the "any financial crises that are occurring around the world%

AD!ANTA- S OF IMF
1% 9ro"otes international "onetary coo#eration% 5% =el#s the countries to i"#ro$e !alance of #ay"ents%

C% It encourages econo"ic growth% 4% It gi$es financial ad$ice to countries a!out how to run their econo"ies%

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Role of IMF

DISAD!ANTA- S OF IMF
1% Mostly #ower is in the hand of rich countries 5% IMF i"#oses hard conditions to #ro$ide loans C% ,onditions i"#osed results in increase in #o$erty and low #er ca#ita inco"e

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Role of IMF
Where "oes the IMF +et its money?
The IMF/s resources co"e "ainly fro" the )uotas that countries de#osit when they (oin the IMF% Huotas !roadly reflect the size of each "e"!er/s econo"y8 the larger a country/s econo"y in ter"s of out#ut, and the larger and "ore $aria!le its trade, the larger its )uota tends to !e% For e'a"#le, the -nited .tates, the world/s largest econo"y, has the largest )uota in the IMF% Huotas are re$iewed #eriodically and can !e increased when dee"ed necessary !y the ;oard of Ao$ernors% ,ountries de#osit 52 #ercent of their )uota su!scri#tions in .#ecial +rawing Bights or "a(or currencies, such as -%.% dollars or 4a#anese yen% The IMF can call on the re"ainder, #aya!le in the "e"!er/s own currency, to !e "ade a$aila!le for lending as needed% Huotas, together with the e)ual nu"!er of !asic $otes each "e"!er has, deter"ine countries/ $oting #ower% Huotas also hel# to deter"ine the a"ount of financing countries can !orrow fro" the IMF, and their share in .+B allocations%

Most IMF loans are financed out of "e"!ers/ )uotas% The e'ce#tions are loans under the 9o$erty Beduction and Arowth Facility, which are #aid out of trust funds ad"inistered !y the IMF and financed !y contri!utions fro" the IMF itself and a !road s#ectru" of its "e"!er countries% If necessary, the IMF "ay !orrow fro" a nu"!er of its financially strongest "e"!er countries to su##le"ent the resources a$aila!le fro"
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Role of IMF
its )uotas% It has done so on se$eral occasions when !orrowing countries needed large a"ounts of financing and a failure to hel# the" "ight ha$e #ut the international "onetary syste" at ris % Di e other financial institutions, the IMF also earns inco"e fro" the interest charges and fees le$ied on its loans% It uses this inco"e to "eet funding costs, #ay for ad"inistrati$e e'#enses, and "aintain #recautionary !alances% In the early 5000s, there was a decline in the de"and for the IMF/s no concessional loans, reflecting !enign glo!al econo"ic and financial conditions as well as #olicies in "any e"erging "ar et countries that had reduced their $ulnera!ility to crises% To di$ersify its inco"e sources, the IMF esta!lished an in$est"ent account in 5002% The funds in the account are in$ested in eligi!le "ar eta!le o!ligations deno"inated in .+Bs or in the securities of "e"!ers whose currencies are included in the .+B !as et% The Fund also !egan to e'#lore other o#tions for reducing its de#endence on lending for its inco"e%

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Role of IMF

Cooperation an" Reconstr%ction ./011'2/3

Great Depression
+uring the Areat +e#ression of the 11C0s, countries

atte"#ted to shore u# their failing econo"ies !y shar#ly raising !arriers to foreign trade, de$aluing their currencies to co"#ete against each other for e'#ort "ar ets, and curtailing their citizens/ freedo" to hold foreign e'change% These atte"#ts #ro$ed to !e self:defeating% *orld trade declined shar#ly (see chart !elow), and e"#loy"ent and li$ing standards dro# shar#ly in "any countries% This !rea down in international "onetary coo#eration led the IMF/s founders to #lan an institution charged with o$erseeing the international "onetary syste" the syste" of e'change rates and international #ay"ents that ena!les countries and their citizens to !uy goods and ser$ices fro" each other%
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Role of IMF

Economics Chart during Great Depression

The retton !oods agree"ent

7 "eeting of EC0 delegates, fro" the 44 allied nations, was held at

the

Mount

*ashington =otel,

situated

in ;retton

*oods,

<ew

=a"#shire, -nited .tates% The "eeting lasted for 55 days : 4uly 1 to 4uly 55, 1144, and the "ain issue was regulation of the #ost:war international "onetary and financial order% The "ain de!ate was !etween the -%.% and -%>% delegations, regarding the nature of the i"#ending organization% The ;ritish delegation argued for a fund which could hel# the "e"!er nations econo"ically, during the ti"es of crisis%

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Role of IMF
The -%.% delegation wanted a !an :li e institution, fro" where the "e"!er countries could !orrow "oney, which would ha$e to !e re#aid in ti"e% Finally, the -%.% $iew was acce#ted% The IMF was concei$ed in 4uly 1144, when re#resentati$es of 42 countries "eeting in the town of ;retton *oods, <ew =a"#shire, in the northeastern -nited .tates, agreed on a fra"ewor for international econo"ic coo#eration, to !e esta!lished after the .econd *orld *ar% They !elie$ed that such a fra"ewor was necessary to a$oid a re#etition of the disastrous econo"ic #olicies that had contri!uted to the Areat +e#ression%

Promotion of International Monetary System The IMF ca"e into for"al e'istence in +ece"!er 1142, when its first 51 "e"!er countries signed its 7rticles of 7gree"ent% It !egan o#erations on March 1, 114E% Dater that year, France !eca"e the first country to !orrow fro" the IMF% The IMF/s "e"!ershi# !egan to e'#and in the late 1120s and during the 1160s as "any 7frican countries !eca"e inde#endent and
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Role of IMF
a##lied for "e"!ershi#% ;ut the ,old *ar li"ited the Fund/s "e"!ershi#, with "ost countries in the .o$iet s#here of influence not (oining%

#ar value s$ste"

The countries that (oined the IMF !etween 1142 and 11E1 agreed to ee# their e'change rates (the $alue of their currencies in ter"s of the -%.% dollar and, in the case of the -nited .tates, the $alue of the dollar in ter"s of gold) #egged at rates that could !e ad(usted only to correct a Ifunda"ental dise)uili!riu"I in the !alance of #ay"ents, and only with the IMF/s agree"ent% This #ar $alue syste" also nown as the ;retton *oods syste" #re$ailed until 11E1,when the -%.% go$ern"ent sus#ended the con$erti!ility of the dollar (and dollar reser$es held !y other go$ern"ents) into gold%

De$t an" painf%, reforms ./045'403

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Role of IMF
The oil shoc s of the 11E0s, which forced "any oil:i"#orting countries to !orrow fro" co""ercial !an s, and the interest rate increases in industrial countries trying to control inflation led to an international de!t crisis% +uring the 11E0s, *estern co""ercial !an s lent !illions of IrecycledI #etrodollars, getting de#osits fro" oil e'#orters and lending those resources to oil:i"#orting and de$elo#ing countries, usually at $aria!le, or floating, interest rates% .o when interest rates !egan to soar in 11E1, the floating rates on de$elo#ing countries3 loans also shot u#% =igher interest #ay"ents are esti"ated to ha$e cost the non:oil:#roducing de$elo#ing countries at least J55 !illion during 11E8K81% 7t the sa"e ti"e, the #rice of co""odities fro" de$elo#ing countries slu"#ed !ecause of the recession !rought a!out !y "onetary #olicies% Many ti"es, the res#onse !y de$elo#ing countries to those shoc s included e'#ansionary fiscal #olicies and o$er$alued e'change rates, sustained !y further "assi$e !orrowings%

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Role of IMF
,otton har$est in ;ur ina Faso (9rices for co""odities fro" de$elo#ing countries slu"#ed in the early 1180s !ecause of recessions in industrial countries) *hen a crisis !ro e out in Me'ico in 1185, the IMF coordinated the glo!al res#onse, e$en engaging the co""ercial !an s% It realized that no!ody would !enefit if country after country failed to re#ay its de!ts% The IMF/s initiati$es cal"ed the initial #anic and defused its e'#losi$e #otential% ;ut along road of #ainful refor" in the de!tor countries, and additional coo#erati$e glo!al "easures, would !e necessary to eli"inate the #ro!le"%

-,o$a,i6ation an" the Crisis .5778 ' present3

The IMF has !een on the front lines of lending to countries to hel# !oost the glo!al econo"y as it suffers fro" a dee# crisis not seen since the Areat +e#ression% For "ost of the first decade of the 51st century, international ca#ital flows fueled a glo!al e'#ansion that ena!led "any countries to re#ay "oney they had !orrowed fro" the IMF and other official creditors and to accu"ulate foreign e'change reser$es%
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Role of IMF
The glo!al econo"ic crisis that !egan with the colla#se of "ortgage lending in the -nited .tates in 500E, and s#read around the world in 5008 was #receded !y large i"!alances in glo!al ca#ital flows% Alo!al ca#ital flows fluctuated !etween 5 and 6 #ercent of world A+9 during 1180:12, !ut since then they ha$e risen to 12 #ercent of A+9% In 5006, they totaled JE%5 trillion "ore than a tri#ling since 1112% The "ost ra#id increase has !een e'#erienced !y ad$anced econo"ies, !ut e"erging "ar ets and de$elo#ing countries ha$e also !eco"e "ore financially integrated% The founders of the ;retton *oods syste" had ta en it for granted that #ri$ate ca#ital flows would ne$er again resu"e the #ro"inent role they had in the nineteenth and early twentieth centuries, and the IMF had traditionally lent to "e"!ers facing current account difficulties% The latest glo!al crisis unco$ered fragility in the ad$anced financial "ar ets that soon led to the worst glo!al downturn since the Areat +e#ression% .uddenly, the IMF was inundated with re)uests for stand:!y arrange"ents and other for"s of financial and #olicy su##ort% The international co""unity recognized that the IMF3s financial resources were as i"#ortant as e$er and were li ely to !e stretched thin !efore the crisis was o$er% *ith !road su##ort fro" creditor countries, the Fund3s lending ca#acity was tri#led to aroundJE20 !illion% To use those funds effecti$ely, the IMF o$erhauled its lending #olicies, including !y creating a fle'i!le credit line for countries with strong econo"ic funda"entals and a trac record of successful #olicy
40

i"#le"entation% ?ther refor"s, including ones tailored to hel# low:

Role of IMF
inco"e countries, ena!led the IMF to dis!urse $ery large su"s )uic ly, !ased on the needs of !orrowing countries and not tightly constrained !y )uotas, as in the #ast%

Ho) IMF he,ps Internationa, Monetary System .IMS3

The IMF is the world/s central organization for international "onetary syste"% It is an organization in which al"ost all countries in the world wor together to #ro"ote the co""on good% The IMF/s #ri"ary #ur#ose is to ensure the sta!ility of the international "onetary syste" the syste" of e'change rates and international #ay"ents that ena!les countries (and their citizens) to !uy goods and ser$ices fro" each other% This is essential for sustaina!le econo"ic growth and rising li$ing standards% To "aintain sta!ility and #re$ent crises in the international

"onetary syste", the IMF re$iews national, regional, and glo!al econo"ic and financial de$elo#"ents% It #ro$ides ad$ice to its 184 "e"!er countries, encouraging

the" to ado#t #olicies that foster econo"ic sta!ility, reduce their $ulnera!ility to econo"ic and financial crises, and raise li$ing standards, and ser$es as a foru" where they can discuss the national, regional, and glo!al conse)uences of their #olicies%

40

Role of IMF

IMF member states in green

The IMF also makes financing temporarily a ailable to member countries to help them address balance of payments problems!

"nd it pro ides technical assistance and training to help countries build the e#pertise and institutions they need for economic stability and gro$th!

40

Role of IMF
The IMF9s main $%siness Macroeconomic an" financia, sector po,icies
In its o$ersight of "e"!er countries, the IMF focuses on the following8 Macroecono"ic #olicies relating to the go$ern"ent/s !udget, the "anage"ent of "oney and credit, and the e'change rate& Macroecono"ic #erfor"ance6go$ern"ent and consu"er

s#ending, !usiness in$est"ent, e'#orts and i"#orts, out#ut (A+9), e"#loy"ent, and inflation& ;alance of #ay"ents6that is, the !alance of a country/s transactions with the rest of the world& Financial sector #olicies, including the regulation and su#er$ision of !an s and other financial institutions& and .tructural #olicies that affect "acroecono"ic #erfor"ance, such as those go$erning la!or "ar ets, the energy sector, and trade% The IMF ad$ises "e"!ers on how they "ight i"#ro$e their #olicies in these areas so as to achie$e higher rates of e"#loy"ent, lower inflation, and sustaina!le econo"ic growth%

40

Role of IMF

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Role of IMF
IMF Technica, Assistance an" Trainin+
"nd it pro ides technical assistance and training to help countries build the e#pertise and institutions they need for economic stability and gro$th! The IMF pro ides technical assistance and training mainly in four areas% Monetary and financial policies &monetary policy super ision( and restructuring' foreign settlement systems for payments'

instruments' banking system

management and operations' clearing

and structure de elopment of central banks) Fiscal policy and management &ta# and customs policies and formulation, expenditure management( of domestic and foreign

administration, budget debt)'

design of social safety nets( and management

Compilation( management( dissemination( and impro ement

of statistical data' and Economic and finance legislation!

Technical assistance is deli ered in a ariety of $ays! IMF staff may isit member countries to ad ise go ernment and central bank officials on specific issues or the IMF may pro ide resident specialists on a short* or a long*term basis!

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Role of IMF
The IMF offers training courses for go ernment and central bank officials of member countries at its head+uarters in ,ashington( D!C!( and at regional training centers in "ustria( -ra.il( China( India( Singapore( Tunisia( and the /nited "rab Emirates!

Criticism a+ainst IMF

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Role of IMF
Two criticis"s fro" econo"ists ha$e !een that financial aid is always !ound to so:called I,onditionality3sI, including .tructural 7d(ust"ent 9rogra"s% ,onditionality3s, which are the econo"ic #erfor"ance targets esta!lished as a #recondition for IMF loans, it is clai"ed, retard social sta!ility and hence inhi!it the stated goals of the IMF, while .tructural 7d(ust"ent 9rogra"s lead to an increase in #o$erty in reci#ient countries% Ty#ically the IMF and its su##orters ad$ocate a >eynes Ian a##roach% 7s such, adherents of su##ly:side econo"ics generally find the"sel$es in o#en disagree"ent with the IMF% The IMF fre)uently ad$ocates currency de$aluation, criticized !y #ro#onents of su##ly: side econo"ics as inflationary% .econdly they lin Iausterity #rogra""ersI with econo"ic contraction% ,urrency de$aluation is reco""ended !y the IMF to the go$ern"ents of #oor nations with struggling econo"ies% .u##ly:side econo"ists clai" these >eynesian IMF #olicies are destructi$e to econo"ic #ros#erity% The IMF so"eti"es ad$ocates Iausterity #rogra""ers,I increasing ta'es e$en when the econo"y is wea , in order to generate go$ern"ent re$enue and !alance !udget deficits, which is the o##osite of >eynesian #olicy% These #olicies were criticized !y 4ose#h @% .tieglitz, for"er chief econo"ist and .enior Lice 9resident at the *orld ;an , in his !oo Alo!alization and Its +iscontents% =e argued that !y con$erting to a "ore Monetarist a##roach, the fund no longer had
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higher ta'es under

Role of IMF
a $alid #ur#ose, as it was designed to #ro$ide funds for countries to carry out >eynesian re$elations% 7rgentina, which had !een considered !y the IMF to !e a "odel country in its co"#liance to #olicy #ro#osals !y the ;reton *oods institutions, e'#erienced a catastro#hic econo"ic crisis in 5001 , which so"e !elie$e to ha$e !een caused !y IMF: induced !udget restrictions 6 which undercut the go$ern"ent/s a!ility to sustain national infrastructure e$en in crucial areas such as health, education, and security 6 and #ri$atization of strategically $ital national resources% ?thers attri!ute the crisis to 7rgentina/s "al designed fiscal federalis", which caused su! national s#ending to increase ra#idly% The crisis added to wides#read hatred of this institution in 7rgentina and other .outh 7"erican countries, with "any !la"ing the IMF for the region/s econo"ic #ro!le"s% The current 6 as of early 5006 6 trend towards "oderate left: wing go$ern"ents in the region and a growing concern with the de$elo#"ent of a regional econo"ic #olicy largely inde#endent of !ig !usiness #ressures has !een ascri!ed to this crisis% *hen 7rgentina eru#ted on the international news scene in 5001 for co""itting the !iggest default !y a so$ereign country on an international loan cor#orate "edia focused on fi'ing the !la"e on 7rgentina% In reality, 7rgentina3s case is a #articularly good illustration of how a healthy, rich country was de$astated under IMF tutelage% ,on$ersely, 7rgentina today can also !e an ins#iring e'a"#le of how ordinary citizens can organize the"sel$es to rise a!o$e the #ro!le"s created for the" !y local and international elites%
40

Role of IMF
7rgentina3s econo"ic and #olitical health was dealt a death!low not !ecause it did not follow the IMF dictates closely enough, !ut !ecause it was indeed doing e$erything according to IMF agenda% 7ll through the 1110s, o#inion "a ers li e the Financial Ti"es hailed 7rgentina as the Mstar #u#il3 of the IMF% The A+9 rose !y 60N o$er the decade, and foreign in$est"ent #oured in% =owe$er, this glorious facade hid a cru"!ling edifice% The wealth flowing into 7rgentina during the 1110s was a co"!ination of s#eculati$e finance and one:off sales8 the #hone co"#any, the oil co"#any, the #ost, rails, and airline% ;etween 1181 and 1111, national de!t rose !y J80!n and un:e"#loy"ent soared fro" 6%2N in 1181 to 50N in 5000% Today 2EN of 7rgentina3s #o#ulation li$es !elow the #o$erty line% 4ust !efore the default and right afterwards as well, "ainstrea" econo"ics "achinery #ounced on the country for #lunging itself into international isolation, a sin !eyond rede"#tion according to the gods of glo!alization% The real fear underlying this hysteria was that 7rgentina "ight set a !ad e'a"#le for other countries caught in the de!t s#iral% ?ther inde!ted countries could also default and use default on "ultilateral de!t as a !argaining chi# with creditors% 7nother e'a"#le of where IMF .tructural 7d(ust"ent 9rogra"s aggra$ated the #ro!le" was in >enya% ;efore the IMF got in$ol$ed in the country, the >enyan central !an o$ersaw all currency "o$e"ents in and out of the country% The IMF "andated that the >enyan central !an had to allow easier currency "o$e"ent% =owe$er, the ad(ust"ent resulted in $ery little foreign in$est"ent, !ut allowed >a"lesh Manusu lal +a"(i 9attni, with the hel# of corru#t go$ern"ent officials, to si#hon off !illions of >enyan shillings in what ca"e to !e nown as the Aolden!erg
40

Role of IMF
scandal, lea$ing the country worse off than it was !efore the IMF refor"s were i"#le"ented% ?$erall the IMF success record is #ercei$ed as li"ited% *hile it was created to hel# sta!ilize the glo!al econo"y, since 1180 critics clai" o$er 100 countries (or re#utedly "ost of the Fund/s "e"!ershi#) ha$e e'#erienced a !an ing colla#se that they clai" ha$e reduced A+9 !y four #ercent or "ore, far "ore than at any ti"e in 9ost:+e#ression history% The considera!le delay in the IMF/s res#onse to any crisis, and the fact that it tends to only res#ond to the" or e$en create the" rather than #re$ent the", has led "any econo"ists to argue for refor"% In 5006, an IMF refor" agenda called the Mediu" Ter" .trategy was widely endorsed !y the institution/s "e"!er countries% The agenda includes changes in IMF go$ernance to enhance the role of de$elo#ing countries in the institution/s decision:"a ing #rocess and ste#s to dee#en the effecti$eness of its core "andate, which is nown as econo"ic sur$eillance or hel#ing "e"!er countries ado#t "acroecono"ic #olicies that will sustain glo!al growth and reduce #o$erty% ?n 4une 12, 500E, the @'ecuti$e ;oard of the IMF ado#ted the 500E +ecision on ;ilateral .ur$eillance, a land"ar "easure that re#laced a C0:year:old decision of the Fund/s "e"!er countries on how the IMF should analyze econo"ic outco"es at the country le$el% The "a(or argu"ent against the IMF !y leading econo"ist is that the wea er are getting wea est% *hen the IMF gi$es loans it i"#oses conditionality3s on the !orrowing countries% =owe$er, it does not "a e sure where the actual funds are going% The !orrowing countries are often not a!le to co"e out of the crisis and they fall in to a crazy cycle of de!t
40

Role of IMF
and interest #ay"ent% The corru#t #oliticians of the de$elo#ing countries then !urden the general #u!lic with high ta'es to #ay out their de!ts% The -nited .tates is the !iggest shareholder in the IMF, holding nearly 18N in shares, and the IMF is generally considered a tool of the -. Treasury% OThere are #lenty of good econo"ists at the IMF and I do not ha$e a #ro!le" with the", !ut the #ro!le" lies with #olicy "a ers at the highest le$el,P says free:"ar et #ro#onent and econo"ist +a$id +eBosa, who is o##osed to IMF !ailouts and its #olicy ad$ice to e"erging "ar ets% +eBosa last wee released a !oo titled OIn +efense of Free

,a#ital Mar etsP in which he criticizes aggressi$e inter$entions such as those carried out !y the IMF in ti"es of currency and e"erging:"ar et "eltdowns%

Ter" A++. A+9 A<9 =I9,

+efinition Aeneral +ata +isse"ination .yste" Aross +o"estic 9roduct Aross <ational 9roduct =ea$ily Inde!ted 9oor ,ountries
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Role of IMF
IMF IM. M+A M+BI .7F .++. International Monetary Fund International Monetary .yste" Millenniu" +e$elo#"ent Aoals Multilateral +e!t Belief Initiati$e .tructural 7d(ust"ent Facility .#ecial +ata +isse"ination .tandard

CONC(USION
The IMF is the world3s central organization for international "onetary coo#eration% *ith 186 "e"!er countries (as of 4une 5001), it is an organization in which al"ost all of the countries in the world wor together to #ro"ote the co""on good% Aenerally, the IMF is res#onsi!le for ensuring the sta!ility of the international "onetary and financial syste" : the syste" of international #ay"ents and e'change rates a"ong national currencies that ena!les trade to ta e #lace !etween countries% The Fund see s to #ro"ote
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Role of IMF
econo"ic sta!ility and #re$ent crises& to hel# resol$e crises when they do occur& and to #ro"ote growth and alle$iate #o$erty% ?ne of disad$antages of IMF is that it "a es the wea er section wea er% *hen the IMF gi$es loans it i"#oses conditionality3s on the !orrowing countries% =owe$er, it does not "a e sure where the actual funds are going% The !orrowing countries are often not a!le to co"e out of the crisis and they fall in to a crazy cycle of de!t and interest #ay"ent% The corru#t #oliticians of the de$elo#ing countries then !urden the general #u!lic with high ta'es to #ay out their de!ts% Di e other financial institutions, the IMF also earns inco"e fro" the interest charges and fees le$ied on its loans% It uses this inco"e to "eet funding costs, #ay for ad"inistrati$e e'#enses, and "aintain #recautionary !alances% Most IMF loans are financed out of "e"!ers/ )uotas% Huotas, together with the e)ual nu"!er of !asic $otes each "e"!er has, deter"ine countries/ $oting #ower% ,ountries de#osit 52 #ercent of their )uota su!scri#tions in .#ecial +rawing Bights or "a(or currencies, such as -%.% dollars or 4a#anese yen% IMF #ro"otes international "onetary coo#eration% =el#s the countries to i"#ro$e !alance of #ay"ents% It encourages econo"ic growth% It gi$es financial ad$ice to countries a!out how to run their econo"ies% =ence IMF is the instruction which hel#s "e"!er nations at international le$el and hence such institutions "ust !e encourage !y "e"!er nations !y #ro$iding funds%

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Role of IMF
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