IMF programs

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Literature Review

The International Monetary Fund was created under the Bretton Woods Agreement in 1944 (Park, Chul, 2001). At the time, in the aftermath of the Great Depression, a new "financial architecture" was needed to tackle the problems of destabilizing short-term capital flows and the breakdown of capital markets, and the spread of exchange rate controls and trade protection. The IMF's purpose was to safeguard the newly established system of adjustable exchange rates, by providing short-term balance of payments support to countries that needed additional foreign exchange reserves. Longer term development assistance and advising was left to its sister institution, the World Bank.

Arguments for success and failure of IMF programs in Asia and Africa

According to Dollar, David, Svensson (2000) though primarily a financial institution, the IMF's mandate has widened over the years, notably after the financial crises of the second half of the twentieth century forced it to expand its assistance to economies in trouble. It has evolved from a financier of advanced countries' temporary current account deficits to a development financier and crisis manager for the developing world. By the time the Asian crisis came around, the IMF's rescue packages included prescriptions not just for macroeconomic policy, but for more fundamental structural reforms as well. This widening of the scope of the IMF's policy advice began with a series of major global political and economic shocks, beginning with the oil price shocks of the 1970s (Rajan, Ramkishen, Siregar, 2000). This was followed by the debt crisis of the 1980s, the collapse of communism in the Soviet Union and the emergence of the transition economies in the late 1980s, and the financial crises in Mexico and East Asia in the 1990.

Today the IMF is an almost universal financial institution; its membership has expanded from 44 (the Bretton Woods participants) to 184 (almost all the economies of the world with a few exceptions, such as North Korea and Cuba). Each member country of the Fund contributes a "quota", the magnitude of which is determined by the size of its national economy. Borrowing from the Fund is related to the size of a country's initial deposit or quota, and credit is provided in ''tranches'', one of which amounts to 25% of the quota. The interest rate is based on market rates of principal member countries, and the larger the number of tranches drawn, the higher the extent of policy reform required. The IMP's intention, as defined in the Articles of Agreement in 1944, is in very general terms to support the stability of the world financial system, through promoting. International monetary cooperation, international trade, and exchange rate stability. Today it still seeks to advance this goal by way of analysis and advice, and by providing credit as a financial instruction (described above);

Cho, West (2003) argued that during the Asian crisis it also came close to being a traditional lender of last resort, by creating the "Supplemental Reserve Facility" to deal with unexpected reversals of ...