Public Policy

Public Policy

Introduction

This paper will provide the discussion on the formation of public policy and its historical perspectives. For this study, the policy we have chosen is the IMF policy and we will discuss the historical perspectives of the policy the situation at present (Funabashi, 1989). IMF is considered as an institution which is associated with providing emergency credits to the countries which are in condition of difficulty either as a result of external circumstances or as a result of poor economic policies. The external circumstances can be due to the financial crisis in a neighboring country or a drop in the commodity prices. In this regard there is a need to apply severe policies which include reduction in the budget deficits by increased revenue, alteration of the exchange rate (devaluation) and rise in interest rates.

Description of IMF

IMF has a major influence on the development of the economy of the world. There are many functions related to the mandate and other functions have also been added. The main function of IMF is that it is involved in securing the well being of the world economy and promoting the world trade by advise and analysis. This advice aims to avoid the inconsistency between the policies developed by different member states and it is believed that policies which are not properly developed will have a negative effect on the national frontiers.

History of IMF

The Second World War showed a self-destructive strength of capitalism. After 15 years of neo-liberalism, welfare state was developed against the danger of social revolution and proclamations were launched for reconstructing a stable and fair world economy. In 1944, a conference was held in Bretton Woods, a small town in the U.S. state of New Hampshire, where ways were introduced to establish international monetary policy. In Bretton Woods's two institutions, the IMF and the World Bank were initially developed with positive intention to develop stability of the world economy.

Harry Dexter White, the U.S. Treasury Dept., proposed in 1942 a Stabilization Fund of the United Nations" that would become the IMF, a background of international currencies consisting of the fees paid by member countries. Richer countries are the most marketed and are running the institution, since the voting power is related to the amount contributed. The IMF became an international agency controlled by Washington and the international monetary system would not be based on the dollar but would replace the pound as world currency (Boughton, James, 2000). The IMF's original mission was to ensure the stability of the global financial system. Financial institutions and markets which were unregulated and speculative tended to destabilize the financial system and the economy as a whole. The initial purpose was the domestication and regulation at global and national financial system. The crisis and the war had a major effect on the currency. In the pre-Bretton Woods conference, JM Keynes, representing England proposed the creation of an international currency issued and controlled by a global financial authority to facilitate expanding world market and control ...