Q-4: Discuss the role of the IMF and the challenges it faces in dealing with instability in the

global economy?

The International Monetary Fund (IMF) is an organisation included consists of 189 members of
countries and founded founded inon 1944. In gGenerally, tThe IMF worksing for in order to
foster global monetary cooperation, protected financial stability, simplify international trade,
improve high employment and sustainable economic growth, and decrease poverty all over the
world (IMF, 2015). This essay critically discusses the role of IMF and the challenges it is facing
in tackling the instability in the global economy. This essay compares and contrasts the views of
a wide range of researchers about IMF role and the effectiveness of the measures it has taken in
dealing with the challenges posed by the instability in the global economy.

The IMF main goal of IMF is to ensureing the solidity of international monetary system (IMF,
2016). Its means all country working together in problems that involve money. Such as IMFS
advance committee arranges meeting for countries to discuss economic matters and advise the
suggestions (Farrokhi & Kashfi, 2015). Another IMF goal of IMF is to encourageing the growth
of international trade. Hollander (2013) argues that trading between two countries include
imports and exports. For example Americans imports Japanese cars and American company
selling electronics product to England, which is export. So exchangeing product between two
countries put more money into the economy and its helps the economicy growth. To maintaining
sustainability for global economy, the IMF caries three types of operational activities:
surveillance, financial assistance and technical assistance (IMF, 2016)

Surveillance is the process that promotes economic stability and global development by inspiring
countries to adopt sound economic and financial policies. It frequently monitors global, regional,
and national economic developments. Also assessed the effect of the policies of individual
countries on other economies is assessed (IMF, 2016). Once a year, it assesses members'
exchange rate policies within the overall framework of their economic policies in what is known
as an article IV consultation. The IMF also carries out widespread analysis of global and regional

economic trends, known as multilateral surveillance. For example, as a part of its multilateral
surveillance, the IMF analysed is the development of the EU and the euro area which and
reported its in Worldk Economic Outlook (WEO) and Global Financial Stability Report (GFSR)
(ECB, 2015). However , IMF (2013) admitted that it failed to understand the damage of austerity
of on Greece economy (Elliott, et al., 2013).

Financial assistance involve credits and loans extended by the IMF to member countries with
balance of payments problems so that they can restore situations for fiscal and macroeconomic
constancy and sustainable economic growth. The financial assistance delivered by the IMF
enables countries to build their international reserves, stabilize their currencies and continue
paying for imports without having to impose trade limitations or capital controls (Farrokhi &
Kashfi, 2015). However, Barro and Lee (2004) argueds that the IMF loans facilitateies in
imbalance in the global economy. The loan is more likely to exist and in larger size to when
countries have larger quotas and, more relation with economically and politically to the USA and
developed western countries (Barro & Lee, 2004). For instance, currently IMF has $15b resource
for loan whereas SDR is $11b which means other members of countries rather than developing
country get more loan rather than developing country (IMF, 2016).

Technical assistance involves of knowledge and training provided by the IMF to help member
countries strengthen their human and institutional ability and design and implement active
macroeconomic and structural policies. Itis offered in several broad areas-namely, monetary
policy and financial systems, fiscal policy and management, and macroeconomic and financial
statistics (IMF, 2016).

IMF (2015) is facing the challenge of increasing financial uncertainty and instability in the
global economy. Global growth is uneven and predicted to be 3.1% in 2016. To respond the
global economic crisis IMF increased the lending facility, supported global policy coordination
and reformed the way it makes decision (IMF, 2015). However, still they have some challenges
in global economicy sustainability. One of the biggest challenges is, the IMFs current

governance. Lessambo (2015) argued IMF remains fully committed to following to

implementation of the G-20 approvals in the midst of 2008 crises, however, still no considerable
reform is yet done. He said, without sound operational and governance reforms, the future of the
IMF is miserable. For example, more developing countries are turning to China and Saudi Arabia
and other oil-rich county for financial facilities, rather than IMF. For instance, Egypt declined,
US $3 billion loans (at almost 0% interest) from IMFs to turn to Saudi Arabia. As same as in
2013, Nigeria negotiates $3 billion loans (for iInfrastructure development) from China rather
than the IMF (Lessambo, 2015).
Another big challenge for the IMF is, boosting the safety net for emerging economies.
According to Donnan (2016), problems are extending a downfall in commodity prices to slower
growth that have been hitting emerging economics like Russia and Brazil and tumbling to the
recession in recent years (figure 1). As a result, developing economic countries are approaching
the IMF for emergency loans. However, since the implementation of reforms in 2010, emerging
economics are bigger voice at IMFs fund., though, the IMF is better position to deal any crises.
Lagarde (2015) calling for a global policy upgrade and argueding that broader safety is not in
such rude health, particularly for emerging economies. She also argued safety net expanded in
size since 2008 financial crisis, now a daysnow a day, it becomes more fragmented and
asymmetric. As a follow-through, she was concerned that a lack of access of emerging
economics switcha lack of access of emerging economics switches lines among the central bank,
like the European Central Bank, US Federal Reserve and Bank of Japan. Its created problem for
the IMF because many of emerging economies trading depends on US dollar (Donnan, 2016).

Figure: 1, Emerging country GDP growth (FT, 2016).

On the other hand, tThe IMFs decision to add the Chinese renminbi to the elite currencies gives
China is a substantial boost as well -increasedas increased pressuere into US dollar. By including
the yuan in currency basket is so-called special drawing rights (Lee & Kaiman, 2015). However,
the renminbi failed 5% against the dollar last year and heads to go more weakweakerness in
January (figure 2). There are strong argument for letting the renminbi continue to fall in 2016.
In contrast, aAccording to FT (2016) confidential research, 56% exporter manufacture said they
are not worried about the impact of the renminbi exchange rate on their profits. Although, in
January 2014, 76% of exporter said they weare worried or very worried about their profits
(Wilder, 2016). These results shows the external demand problems that have determined
cChineseas exporters since the global financial crisis . So, IMF has a big challenge to show
their potentiality to hold chinas feet tofeet to the reform fire and help Beijing to without
harmingful the IMFs reliability (Donnan, 2016).

Figure: 2 China market in January 2016 (FT, 2016)

Nevertheless Besides, Greek debt crisis which is is still causing major instability in the global
economy. The IMF tackled the crisis by giving a loan to Greece which resulted in a contraction
in the Greek economy (Joyce, 2015). However, the Greek economys continuing troubles mean
that problem is not over yet (Figure: 3).The main question is: What will be the IMF role if
86bn third EU-led bailout of Greece? The IMF has confronted its European partners in relation
to their projections of the Greek debt, budget and fiscal targets. IMF argues that the debt
projections are very optimistic. Although the IMF is pressing Athens to deliver to other difficult
reforms. IMF believes that Greece debt can be sustainable if there is a large scale debt relief that
is bigger than the European governments are willing to take on. Donan (2016) argues if the IMF
fails to convince Germanys Angela Merkel and other European leaders to do so, the IMF
perhaps have to take the high road and walk away.

Figure: 3 Greece GDP (FT, 2016)

Furthermore, geopolitical tensions, domestic tensions in several global economies are increasing
which are raising economic and social costs. External market conditions are becoming very
challenging in several emerging global economies. The outlook for increasing UK interest rates
and increase in the value of the dollar are resulting in higher financing costs for a few borrowers
such as emerging and developing countries (IMF, 2015).
In the light of above discussion, this essay clearly shown that how the IMF is partly contributed
in global economy and face challenges against strongest country and corporation. Even though
IMF played a big role in the global economy, rapidly some issues arise in the economy. There is
a big challenge for IMF is is the chinesea renminbi, which is important for global economicy
stability. Commodity price fall and current governance of the IMF isare also the tuff tough
challenge task for global economicy stability. Furthermore, emerging country like Russia and
Brazil economys slow growth are also impacting the economic sustainability.

References
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