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12/25/2011

Globalization & InstitutionThe role of International Monetary Fund aka IMF

Report Assessment By Muhammad




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Globalization & InstitutionThe role of International Monetary Fund aka IMF

A Report On International Monitory Fund

Introduction

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global

monetary cooperation, secure financial stability, facilitate international trade, promote high employment

and sustainable economic growth, and reduce poverty around the world. The organization's stated

objectives are to promote international economic cooperation, international trade, employment, and

exchange rate stability, including by making resources available to member countries to meet balance of

payments needs. Its headquarters are in Washington, D.C.

The Objective Of this Assignment is to provide the reader with the in depth detail observation over the

Role of IMF on the World Economy , this report will counter below points

1. The benefits of the IMF on world economy

2. Why is it Necessary

3. How nations could benefits from the funds and the application criteria




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The IMF was conceived on July 22, 1944

originally with 45 members and came into

existence on December 27, 1945 when 29

countries signed the agreement, with a goal to

stabilize exchange rates and assist the

reconstruction of the world¶s international

payment system. Countries contributed to a

pool which could be borrowed from, on a temporary basis, by countries with

payment imbalances. The IMF works to improve the economies of its member

countries. The IMF describes itself as ³an organization of 187 countries (as of July

2010), working to foster global monetary cooperation, secure financial stability,

facilitate international trade, promote high employment and sustainable

economic growth, and reduce poverty.´

The Benefits Of The IMF on World Economy

In the early days of the new millennium, the global economic landscape looks markedly changed from

even just a decade ago. It is being shaped by accelerating globalization, one of the chief topics of debate in

international circles. Globalization, of course, is not just a recent phenomenon. But what is different about

the current epoch is the enormous impact that the revolution in information technology is having on the

way we do business and the way we invest in people.




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For the IMF and other international agencies, this changed environment demands that we adapt swiftly

and nimbly if we are to harness the enormous benefits of globalization. These come in the form of sharing

knowledge and technology, boosting efficiency, and raising living standards. But at stake is our ability to

usher in not only higher living standards, but also a more stable world economy and a more secure peace-

because a healthy and growing world economy is truly our best hope for peace.

A big part of the challenge for the IMF and the rest of the international community is how to capture these

benefits for all people while minimizing the drawbacks. We must find a way to protect economies against

volatile capital flows and social havoc-as brought home to us by the spate of financial crises in recent

years, especially in Asia, Latin America, and Russia. We must also find a way to ensure that all people

benefit, not just some privileged countries and individuals. For the reality is that there is a large, and

growing gap between rich and poor, not just among countries but also within countries.

Economically, politically, and ethically, such huge gaps between rich and poor are unacceptable!

Individual countries will prosper over time only if prosperity is broadly shared. Moreover, in an

increasingly interconnected and interdependent world, we are bound together by ties of common interest

and humanity that stretch far beyond local, or even national boundaries.

Why IMF is Necessary

The IMF helps make the global economy a safer place for all countries to flourish. The institution's vision-

as spelled out by Managing Director Horst Köhler at the September 2000 Annual Meetings of the IMF

and World Bank, where our shareholders mapped out our future path-emphasizes four key areas. It is

based on the universally accepted premise that we need lasting growth and a stable international

monetary system to make everyone better off.




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First, the IMF should promote lasting, non-inflationary growth for all. Economic growth is by far the best

way to reduce poverty, and it is a vital source of funds for carefully designed spending on health and

education-which is more needed than ever in a "knowledge economy."

The recipe for achieving lasting, healthy growth depends, of course, on the special circumstances of each

country. But all countries need to pursue sound, market-friendly, and equitable economic policies, and to

rethink and reshape their institutions if called for by the ever-changing demands of the international

marketplace. Industrial countries can help themselves, as well as the poor countries, by opening up their

markets to exports of developing countries. And all countries that suffer from problems of poor

governance, corruption, and civil and armed conflicts need to tackle them energetically to improve the

human condition for their citizens.

The Process

The IMF work closely with the other international institutions set up to protect global public goods. Each

institution needs to concentrate better on its areas of responsibility and expertise to be more efficient and

accountable. For the IMF, this means a more intensive focus on its core areas of responsibility: providing

advice on monetary, budget, and exchange rate policies, along with financial sector issues. And we are

working more closely with the World Bank and other agencies in diverse areas-in developing

internationally recognized standards and codes of good practice in policymaking, strengthening financial

systems, reducing poverty, and providing debt relief. In fact, during the year 2000, we approved debt

relief for about 20 of the world's poorest, most heavily indebted countries.




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The Recent Development Programs By IMF

IMF's Advice, Money Help Combat Global Crisis

The IMF is working on several fronts to help its members combat the worldwide economic and financial

crisis.

The Fund is tracking economic and financial developments worldwide so that it can help policymakers

with the latest forecasts and analysis of developments in financial markets. It is giving policy advice to

countries and regions, and money to assist emerging market and low-income economies that have been

hit by the crisis. And it is assisting the Group of 20 industrialized and emerging economies with

recommendations to reshape the system of international regulation and governance.

This page pulls together the IMF's work on the financial crisis and includes links to key articles,

documents, and background information.

Crisis jolts globalization process

Economic and financial globalization and the expansion of world trade have brought substantial benefits

to countries around the world. But the current financial crisis has put globalization on hold, with capital

flows reversing and global trade shrinking.

Some analysts see the drivers of the recent globalization wave getting undermined, with protectionism on

the rise.

Even supporters of globalization agree that the benefits of globalization are not without risks²such as

those arising from volatile capital movements. The IMF works to help economies manage or reduce these

risks, through economic analysis and policy advice and through technical assistance in areas such as

macroeconomic policy, financial sector sustainability, and the exchange-rate system.




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This page pulls together the IMF¶s work on globalization and includes links to key articles, documents,

and background information.

Zimbabwe IMF Decision to Lift Suspension of Technical Assistance

Zimbabwe's new unity government has welcomed Wednesday's decision by the International Monetary

Fund (IMF) to lift partially a technical assistance restraint it imposed on Harare. Lifting the suspension,

the IMF board said that next week it plans to review Zimbabwe's overdue financial obligations to the

Poverty Reduction and Growth Facility -Exogenous Shock Facility (PRGF-ESF) Trust. The IMF also plans

to help Harare in targeted areas such as tax policy and administration, payments systems, banking

supervision, and central banking governance.

Political analyst George Mkwananzi told VOA that the IMF decision is a significant boost to the new unity

government's rebuilding efforts.

"I want to say that we welcome such a kind of announcement from the IMF with guarded caution in the

sense that obviously the people of Zimbabwe would be relieved to hear such kinds of news, because it

comes with a lot of things that would improve their life," Mkwananzi said.

Source Link

Advantages Of IMF

The importance of the IMF has increased since the onset of the 2008 global financial crisis. In fact, an

IMF surveillance report warned about the economic crisis, but was ignored. As a result, the IMF has been

called upon more and more to provide global economic surveillance. It's in the best position to do so

because its requires members to subject their economic policies to IMF scrutiny. Member countries also




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committed to pursue policies that are conducive to reasonable price stability, and avoid manipulating

exchange rates for unfair competitive advantage.

Impact on public health

In 2008 a study by analysts from Cambridge and Yale universities published on the open-access Public

Library of Science concluded that strict conditions on the international loans by the IMF resulted in

thousands of deaths in Eastern Europe by tuberculosis as public health care had to be weakened. In the 21

countries to which the IMF had given loans, tuberculosis deaths rose by 16.6%.

In 2009, a book by Rick Rowden titled The Deadly Ideas of Neoliberalism: How the IMF has

Undermined Public Health and the Fight Against AIDS , claimed that the IMF¶s monetarist approach

towards prioritizing price stability (low inflation) and fiscal restraint (low budget deficits) was

unnecessarily restrictive and has prevented developing countries from being able to scale up long-term

public investment as a percent of GDP in the underlying public health infrastructure. The book claimed

the consequences have been chronically underfunded public health systems, leading to dilapidated health

infrastructure, inadequate numbers of health personnel, and demoralizing working conditions that have

fueled the ³push factors´ driving the brain drain of nurses migrating from poor countries to rich ones, all

of which has undermined public health systems and the fight against HIV/AIDS in developing countries.

Impact on environment

IMF policies have been repeatedly criticized for making it difficult for indebted countries to avoid

ecosystem-damaging projects that generate cash flow, in particular oil, coal, and forest-destroying lumber

and agriculture projects. Ecuador for example had to defy IMF advice repeatedly in order to pursue the

protection of its rain forests, though paradoxically this need was cited in IMF argument to support that

country. The IMF acknowledged this paradox in a March 2010 staff position report which proposed the

IMF Green Fund, a mechanism to issue Special Drawing Rights directly to pay for climate harm




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prevention and potentially other ecological protection as pursued generally by other environmental

finance.

While the response to these moves was generally positive possibly because ecological protection and

energy and infrastructure transformation are more politically neutral than pressures to change social

policy. Some experts voiced concern that the IMF was not representative, and that the IMF proposals to

generate only US$200 billion a year by 2020 with the SDRs as seed funds, did not go far enough to undo

the general incentive to pursue destructive projects inherent in the world commodity trading and banking

systems²criticisms often leveled at the World Trade Organization and large global banking institutions.

IMF Advises Member Countries:

Since the Mexican peso crisis of 1994±95 and the Asian crisis of 1997±98, the IMF has taken a more active

role to help countries prevent financial crises. It develops standards that countries should follow, such as

providing adequate foreign exchange reserves in good times to help provide for increased spending during

recessions. It reports on members countries' observance of these standards. It also issues member country

reports that investors use to make well-informed decisions, improving the functioning of financial

markets, and reducing potential financial shocks.

IMF Provides Short-term Loans:

The Fund provides loans to help its members tackle balance of payments problems, stabilize their

economies, and restore sustainable growth. Unlike the World Bank and other development agencies, the

IMF does not finance projects.

Traditionally, most IMF borrowers were developing countries which have only limited access to

international capital markets, partly because of their economic difficulties. Since IMF lending signals that




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a country's economic policies are on the right track, it reassures investors and can act as a catalyst for

attracting funds from other sources.

The Criticism on IMF , is it Saint or Sinner!

The reality is something in between. At times they have appeared rather inflexible insisting on fiscal

responsibility and privatisation at a time which might not be helpful for the economy. The criticism of

exacerbating the Asian crisis has a strong argument.

But, at the same time, it must be remembered, people call on the IMF in times of crisis. When you have a

balance of payments crisis, depreciating exchange rate, there is no easy painless fix. Whatever the IMF

recommend people would use it as a convenient point of blame. It is hardly surprising governments do

blame an external body like the IMF, it helps to deflect criticism from the government and why the

economy ended up needing a bailout.

This does not mean that the IMF are blameless, far from it. They have made many mistakes and errors of

policy. But, they have been criticised for both doing too much and also doing too little. They have accused

of being free market ideologues but also have been accused of interfering too much with free market

mechanisms.

The problem the IMF face at the moment, is that they simply don't have the necessary funds to bailout the

amount of debt in emerging economies. The President of Pakistan has complained that the current

response of the IMF has been tardy and too slow (link) It may require greater intervention from member




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states such as the US, gulf states and the European Union. If the intervention is carefully managed, then

short term loans may mitigate some of the worst effects of the current financial crisis.

First, the sources of the continuing Asian economic crisis -- and its cures -- are more complex, and

run deeper, than is generally recognized. They originated in serious deficiencies in national economic

policies and in major flaws in the international financial system. Admittedly, it does seem almost

unimaginable, even in retrospect, that so much could go wrong so quickly for the economies in Asia.

The very success of these economies, however, made it especially difficult for political leaders in the

region to accept the quiet counsel (yes, possibly too quiet!) of the IMF, the World Bank and other

institutions to reform their financial systems and correct the glaring deficiencies of corporate

governance.

Health Poverty Action says:

The IMF needs a radical change of direction to ensure its policy prescriptions work to increase

investment in healthcare and start to plug the global shortfall in healthcare workers.

The voting powers and board composition of the International Monetary Fund and World Bank

must be overhauled to reflect the needs and interests of developing countries far better.

The Bank must cancel all illegitimate and unpayable debts being claimed from all developing

countries, not just the debts of countries which manage to fit the criteria of the existing

international debt relief scheme. The Bank should not attach strings to debt relief or loans which

press governments to follow particular economic policies ± such as limiting public spending or

specifying how healthcare should be delivered.

Lastly is the point that the Fund's policies lack a clear economic rationale. Its policy foundations were

theoretical and unclear due to differing opinions and departmental rivalries whilst dealing with countries

with widely varying economic circumstances.




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Conclusion

Many Latin American countries reduced their reliance on IMF loans in recent years, arguing they would

rather manage their own affairs without outside interference. However, the global economic crisis has

started to see a return of IMF and World Bank lending to these countries, while also reopening

opportunities for reforming the institutions.

Both the IMF and World Bank escaped the efforts of the Republican U.S. Congress in the mid-1990s to

sharply curtail and even eliminate both organizations. These agencies have been less successful in

answering the charges from the left, as the IMF retains its demand for "structural adjustments" and the

World Bank still favors funding for large, project-driven funding. While both the IMF and the World Bank

have instituted some reforms, they have been unable to appease the concerns of outraged

environmentalists, labor unionists, and nationalists and advocates of indigenous peoples in the

developing world.

It is likely this globalization would have occurred whether or not there had been a Bretton Woods

conference, and it is all but certain it will continue in the future regardless of the policies pursued by the

IMF and World Bank. While it is true that they have often been too driven by U.S. foreign policy concerns,

in the end the influence of both institutions has been widely overstated. And despite their mistakes during

the past half century, they have rarely been given credit for many of the little things they do well. For

example, both institutions perform economic surveillance over most of the world's economy, a valuable

task that no other international or private organization could perform with such skill. Both agencies also

serve as a store of expert knowledge and wisdom for countries throughout the world that lack trained

specialists. While neither the IMF nor the World Bank has met the lofty goals of their founders or wielded

the nefarious influence charged by their critics, they have and should continue to play a small but

important role in promoting prosperity and economic stability worldwide.




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