Question

a) What type of policies does IMF suggest to developing countries in case of balance of payments problems? Please list the name of these policies in bullets. b) What are the main criticisms toward IMF’s policies? Please list these criticisms in bullets. c) What was the role of IMF in Turkey’s balance of payments crisis in 2001? What were the main policies suggested by the stand-by agreement with IMF?

b) What are the main criticisms toward IMF’s policies? Please list these criticisms in bullets.

c) What was the role of IMF in Turkey’s balance of payments crisis in 2001? What were the main policies suggested by the stand-by agreement with IMF?

Answer 1

a) Policies that IMF suggest for developing countries in case of balance of payments problems:

• Poverty reductiona nd growth facility
• Monetary policy instrument
• Banking system supervision
• Foreign management and operation
• Clearing settlement system for payments

b)Main criticism towards IMF policies are:

• The IMF has been criticised for imposing policy with little or no consultation with the affected countries that shows lack of transparency and involvement.
• There is also criticism of neo-liberal policies such as privatisation, arguably these free market policies were not suitable for the situation of the country.
• The economist joseph stiglitz has criticised the more monetarist approach of the IMF in recent years. He argues it is failing to take the best policy to improve the welfare of developing countries
• There is also a criticism that bailing out countries with large debt creates moral hazards because of the possibility of getting bailed out , it encourages countries to borrow more.

c) IMF role in turkey balance of payment crisis 2001

• The international monetary fund (IMF)team in 1996 warned of an impending financial crisis because of the deficit which soon came into being by turkey's unstable political landscape led many foreign investors to divest from the country.
• In november 2000, the IMF provided Turkey with $11.4 billion in loans and Turkey sold many of its state owned industries in an effort to balance the budget but the loan seems to be insufficient

Policies suggested by the stand by agreement with IMF

• Quantitative conditions: Member countries' progress is monitored using quantitative program targets , fund disbursement are conditional on the observance of quantitative performance criteria unless the executive board decides to waive them.
• Structural benchmark: following the elimination of structural performace criteria , progress in implementing structural measures that are critical to achieving the objectives of the program is assessed in a holistic way, including via benchmark
• Repayment: Repayment of borrowed resources under the SBA are due within years of disbursement which means each disbursement is repaid in eight equal quartely installment beginning years after the date of disbursement.