Question

What opportunities might current IMF lending policies to developing nations create for international businesses? What threats might they create? How would you assess the lending policy and practices of the on developing nations? What might need to change and why? Reflecting back on the global financial crisis of 2008-09, did the globalization of capital markets contribute to the crisis? If so, what can be done to stop such global financial contagion in the future?

Answer 1

Answer: IMF stands for international monetary fund formed in 27 december 1945. Main objectives of IMF are to increase global growth and maintain economic stability, providing short and medium term finances to member countries and working with developing nations to help them achieve macroeconomic stability and reduce poverty.

1- following opportunities IMF creates for developing nations through its lending policies for international businesses:

• provide internatinal markets for trade without trade barriers.
• facilitates funds for expension of trade in other countries.
• promotes exchange stabilities between member nations.
• provide lendings to reduce balance of payment disequlibrium faced by developing nations
• helps in promotion and maintenance of high levels of employment through mobility of human resource between countries.
• Increases FDI(foreign direct investment) flow.

2- Following threats can be created by IMF:

• dominance of developed countries in policy making creates problems for developing nations.
• its lack of clear economic rationale leads to uneffective policy making.
• it promotes market- oriented approach which creates sever pronlems for developing nations
• Increases dependence of developing nations on loans.
• Leads to out flow of capital from country.

3- The lending policy and practies of the developing nations- there are many international institutions who provides loan to developing nations such as IMF, World bank etc. developing nations take loans from these institutions to maintain their economic stability and reduce poverty. every year the credit flow to the developing countries is increasing and developing economies are depending on these borrowing heavily. countries take loans from IMF but unable to return that due to high unemployment, poverty etc. They are being trapped on debt burden.  

4- Developing nations need to reduce their dependence on foreign debt because it will increase burden on their government funds and it can lead them towards sever financial crises. developing nations can generate employment from their unused resources and they also have heavy human resource. they need to reduce their balance of payment disequilibrium by increasing their exports and reducing imports. it is important to maintain economic stability.  

5- yes the globalization of capital markets contributed to the global financial crisis of 2008-09 because it lead to market instability which causes inflation and pused economies towards unemployment and reduces demand and rises prices.

6- To stop such global financial contagion in the future economies need to pay more attention towards credit flow in the economy as credit has become an integral part of the economy. it is important to check on market instabilities to avoid situation of high inflation.