Question

1-a) What opportunities might current IMF lending policies to developing nations create for international businesses? What threats might they create?

1-b) Do you think the standard IMF policy prescriptions of tight monetary policy and reduced government spending are always appropriate for developing nations experiencing a currency crisis? How might the IMF change its approach? What would the implications for international businesses?

Answer 1

Answer:

1(a) opportunities might current IMF lending policies to developing nations create for international businesses and threats might they create are:

International Monetary Fund:

It is popularly referred as IMF, an organisation established to stabilize the international monetary system by helping the countries and its citizens to transact with each other.

It helps in ensuring global cooperation and economic growth to reduce poverty around the world.

The standard IMF policy prescription of tight monetary policy and government are highly essential for managing a currency crisis.

However, few critics opinioned that the tight macroeconomic policies recently imposed in A crisis were not justifying due to private sector debt crisis with inflationary undertones.

In short run, the reduction in the government expenses will result in decrease of demand whereas in long run, it creates opportunities for international business through economic growth.

IMF must change is approach in the following ways:

1. By focusing on lending money to countries with currency, foreign debt and banking crisis.

2. It must adapt flexibility and alter policies in the coming years moving forward.

3.It should exempt one size fit approach to macroeconomic policy as it is not favourable to many countries.

The implications for international business are:

1. The managers need to have an idea of international monetary system on its activities in overall.

2. The concept of government invention and its influences on exchange rates.

3. The major impact on exchange rate shift from business operation to competitive advantage stage.

In addition, it can deal with corporate government relations to influence policy making towards IMF.

(b) Is the standard IMF policy prescription of tight monetary policy and reduced government spending are always appropriate for developing nations experiencing a currency crisis.How might the IMF change its approach and the implications be for international businesses is:

Critics argue that the tight macroeconomic policies imposed by the IMF in recent Asian crisis were not well suited to countries that were not suffering from excessive government spending and inflation. but instead from private sector debt crisis with inflationary undertone.

Anti-inflationary monetary policies and reductions in government spending usually result in a sharp contraction of demand, at least in the short run.

In the longer term, the policies can promote economic growth and expansion of demand, which creates opportunities for international business.