Question

Your job is to ensure that there is financial stability among the international community. Your response should discuss the role of the IMF in the world financial system.

Address the concepts listed below within your submission.              

• Identify the tools of international economic policy.               
• Discuss how nations use expenditure-changing policies.              
• Explain the significance of policy agreement and policy disagreement.

Your response must be 400 words in length.

Answer 1

The purposes and role of the International Monetary Fund are as follows:

1. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
2. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

Tools of IMF

The IMF’s main goal is to ensure the stability of the international monetary and financial system. It helps resolve crises, and works with its member countries to promote growth and alleviate poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical assistance and training, and lending. These functions are underpinned by the IMF’s research and statistics.

Surveillance

The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. To do this, it regularly monitors global, regional, and national economic developments. It also seeks to assess the impact of the policies of individual countries on other economies.

This process of monitoring and discussing countries’ economic and financial policies is known as bilateral surveillance. On a regular basis—usually once each year—the IMF conducts in depth appraisals of each member country’s economic situation. It discusses with the country’s authorities the policies that are most conducive to a stable and prosperous economy, drawing on experience across its membership. Member countries may agree to publish the IMF’s assessment of their economies, with the vast majority of countries opting to do so.

The IMF also carries out extensive analysis of global and regional economic trends, known as multilateral surveillance. Its key outputs are three semiannual publications, the World Economic Outlook, the Global Financial Stability Report, and the Fiscal Monitor. The IMF also publishes a series of regional economic outlooks.

The IMF recently agreed on a series of actions to enhance multilateral, financial, and bilateral surveillance, including to better integrate the three; improve our understanding of spillovers and the assessment of emerging and potential risks; and strengthen IMF policy advice.

For more information on how the IMF monitors economies, go to Surveillance in the Our Work section.

Technical assistance and training

IMF offers technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is offered in several areas, including fiscal policy, monetary and exchange rate policies, banking and financial system supervision and regulation, and statistics.

The IMF provides technical assistance and training mainly in four areas:

monetary and financial policies (monetary policy instruments, banking system supervision and restructuring, foreign management and operations, clearing settlement systems for payments, and structural development of central banks);

fiscal policy and management (tax and customs policies and administration, budget formulation, expenditure management, design of social safety nets, and management of domestic and foreign debt);

compilation, management, dissemination, and improvement of statistical data; and

economic and financial legislation.

For more on technical assistance, go to Technical Assistance in the Our Work section.

Lending

IMF financing provides member countries the breathing room they need to correct balance of payments problems. A policy program supported by financing is designed by the national authorities in close cooperation with the IMF. Continued financial support is conditional on the effective implementation of this program.

In the most recent reforms, IMF lending instruments were improved further to provide flexible crisis prevention tools to a broad range of members with sound fundamentals, policies, and institutional policy frameworks.

In low-income countries, the IMF has doubled loan access limits and is boosting its lending to the world’s poorer countries, with loans at a concessional interest rate.

For more on different types of IMF lending, go to Lending in the Our Work section.