IMF

International Monetary Fund

International Monetary Fund

Introduction

The International Monetary Fund (IMF) is a treaty-based, voluntary association of countries based on their real or potential impacts on the world's economy. It currently controls assets amounting to US$215 billion and has 182 member countries. Unlike the World Bank, the other “pillar” of the world economy, the IMF has no subsidiaries or affiliates. Its highest authority resides with the Board of Governors (which meets annually), each of whom is appointed by a member country.

Thesis Paragraph

The World Bank and the IMF have set the conditions for Third World development since Bretton Woods. The IMF was created to provide an international financial pool of funds on which member countries could draw to help resolve a temporary balance of payment deficits that threatened the stability of their currencies. Any nation that experienced a negative balance of trade that threatened to upset its economy could borrow from the fund on a short-term basis to avert an economic downturn or currency crisis. Stabilization provided by the IMF would also prevent future global depressions because IMF loans would provide the liquidity necessary to maintain aggregate consumer demand in the global economy. However, the much debatable question is that does IMF impose certain conditions on the third world and developing countries to extend them a loan in order to stabilize the economy? Do these conditions put barriers in the re-structuring of developing economy?

Discussion

In its current incarnation, the core mission of the IMF broadly remains the same as its founders' intention: to ensure a smooth, orderly world economy by helping member countries find the most accurate price for their currencies. However, following the debt crises of the 1990s in Brazil, Russia, and five Asian countries (to which the IMF had extended more than US$100 billion in credit), the IMF's expanded role of structural adjustment of economies has exacerbated or done little to forestall economic or political instability. A lack of expertise in the area of structural adjustment is unsurprising, as it was a relatively minor function of the IMF at its original inception. The enforcement mechanism was intended to prevent countries from pursuing policies detrimental to their trading partners, not to restructure economies to facilitate smooth participation in the global economy. Similar to the World Bank, the IMF can now use its power as a lender over countries struggling to honor their currency exchange values through the imposition of “conditionalities” that the debtor country must follow to receive a loan. These conditionalities can range from fiscal policy (curtailing domestic spending) to trade policy (increased liberalization) to monetary policy (tightly controlling reserves to discourage inflation). The logic of the conditionalities is that they are designed to ensure that the borrowing country will be able to repay the loan by stimulating exports and increasing the government's money supply without leading to inflation. However, there are significant political costs attached to radical economic restructuring, which the IMF has been criticized for not recognizing (Vreeland, 2007).

Ironically, this restructuring role for the IMF would have been difficult for ...