Question

3. Write a brief essay on how a typical IMF stand-by program or a typical World Bank structural adjustment loan contradict some or all of the basic objectives of “sustainability.”

Answer 1

ANSWER-

1.The IMF Stand-By Arrangement (SBA) is an economic program of the International Monetary Fund (IMF) involving financial aid to a member state in need of financial assistance, normally arising from a financial crisis. In return for aid, the economic program stipulates needed reforms in the recipient countr

Lending tailored to member countries’ needs

The SBA framework allows the Fund to respond flexibly to countries’ external financing needs-and to support their adjustment policies with short-term financing.

Eligibility. All member countries facing actual or potential external financing needs are eligible for SBAs subject to IMF policies. However, SBAs are more often used by middle income (and, more recently, advanced) member countries, since low-income countries have a range of concessional instruments tailored to their needs.

Duration. The length of a SBA is flexible, and typically covers a period of 12–24 months, but no more than 36 months.

Borrowing terms . Access to IMF financial resources under SBAs is guided by a member country’s need for financing, capacity to repay, and track record with use of IMF resources. Within these guidelines, the SBA provides flexibility in terms of the amounts to lend and timing of disbursement. These include:

• Normal access. Borrowing is subject to an annual limit of 145 percent of quota for any 12‑month period, and a cumulative limit over the life of the arrangement of up to 435 percent of quota, net of repayments.
• Exceptional access. Access above normal limits is decided on a case-by-case basis under the IMF's  Exceptional Access policy.
• Front-loaded access. Funds can be front-loaded when warranted by the strength of the country’s policies and the nature of its financing needs.
• Rapid access . Approval of IMF lending under the SBA can be accelerated under Emergency Financing Mechanism. this mechanism has been used during the global financial crisis.

Precautionary access.

High access precautionary arrangements (HAPAs) are available to countries facing very large potential financing needs that do not intend to draw on approved amounts, but retain the option to do so should they need it.

Fewer conditions, focus on objectives

When a country borrows from the IMF, it agrees to adjust its economic policies to overcome the problems that led it to seek funding. These commitments, including specific conditionality, are described in the country’s letter of intent.

Building on earlier efforts, the IMF has further reformed the conditions of its lending which focus on criteria that are measurable, observable, and subject to regular reviews whose frequency is based on the strength of the country’s policies and the nature of its financing needs:

Quantitative conditions.

Member countries’ progress is monitored using quantitative program targets (quantitative performance criteria and indicative targets). Fund disbursements are conditional on the observance of quantitative performance criteria, unless the Executive Board decides to waive them. Examples include targets for international reserves and government deficits or borrowing, consistent with program goals.

Structural measures. Following the elimination of structural performance criteria, progress in implementing structural measures that are critical to achieving the objectives of the program is assessed in a holistic way, including via benchmarks.

Lending terms

Repayment.

Repayment of borrowed resources under the SBA are due within 3¼-5 years of disbursement, which means each disbursement is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement.

Lending rate.

The lending rate comprises (1) the market-determined Special Drawing Rights (SDR) interest rate—which has a minimum floor of 5 basis points—and a margin (currently 100 basis points), together known as the basic rate of charge, and (2) surcharges, which depend on the amount and time that credit is outstanding. A surcharge of 200 basis points is paid on the amount of credit outstanding above 187.5 percent of quota. If credit remains above 187.5 percent of quota after three years, this surcharge rises to 300 basis points. These surcharges are designed to discourage large and prolonged use of IMF resources.

Commitment fee.

Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12‑month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 115 percent of quota, 30 basis points on committed amounts above 115 percent and up to 575 percent of quota and 60 basis points on amounts exceeding 575 percent of quota). These fees are refunded pro rata if the amounts are drawn during the course of the relevant period. As a result, if the country borrows the entire amount committed under an SBA, the commitment fee is fully refunded. However, no refund is made under a precautionary SBA under which countries do not draw.

Service charge . A service charge of 50 basis points is applied on each amount drawn.

2 All of the basic objectives of “sustainability.”

Human-kind faces many challenges to ensure that all people have the same development and well-being opportunities. In the year 2000, the United Nations adopted eight objectives to meet the main needs of the poorest, the Millennium Development Goals:

1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development

Securing economic development, social equity and justice, and environmental protection is the goal of sustainable development. Although these three factors can work in harmony, they are often found to conflict with one another. During the latter half of the 20^th century economic development for a better standard of living has been instrumental in damaging the environment. We are now in a position whereby we are consuming more resources than ever, and polluting the Earth with waste products. More recently, society has grown to realise that we cannot live in a healthy society or economy with so much poverty and environmental degradation. Economic growth will remain the basis for human development, but it must change and become less environmentally destructive. The challenge of sustainable development is to put this understanding into practice, changing our unsustainable ways into more sustainable ones.

The aim of sustainable development is to balance our economic, environmental and social needs, allowing prosperity for now and future generations. Sustainable development consists of a long-term, integrated approach to developing and achieving a healthy community by jointly addressing economic, environmental, and social issues, whilst avoiding the over consumption of key natural resources.

Sustainable development encourages us to conserve and enhance our resource base, by gradually changing the ways in which we develop and use technologies. Countries must be allowed to meet their basic needs of employment, food, energy, water and sanitation. If this is to be done in a sustainable manner, then there is a definite need for a sustainable level of population. Economic growth should be supported and developing nations should be allowed a growth of equal quality to the developed nations.

The UK Government has recognised four objectives for Sustainable Development. These include social progress and equality, environmental protection, conservation of natural resources and stable economic growth. Everybody has the right to a healthy, clean and safe environment. This can be achieved by reducing pollution, poverty, poor housing and unemployment. No one, in this age, or in the future should be treated unfairly. Global environmental threats, such as climate change and poor air quality must be reduced to protect human and environmental health. The use of non-renewable resources such as fossil fuels should not be stopped overnight, but they must be used efficiently and the development of alternatives should be encouraged to help phase them out. Everybody has the right to a good standard of living, with better job opportunities. Economic prosperity is required if our country is to prosper and our businesses must therefore offer a high standard of products that consumers throughout the world want, at the prices they are prepared to pay. For this, we need a workforce equipped with suitable skills and education within a framework to support them.