Question

How Does the IMF Achieve Its Goals?

Why is the IMF considered as being controversial? Do you agree that the IMF hurts developing countries? Why do you think that the governments of developing countries actually hurt their people instead of the IMF?

Beside your original thread, you should also respond to at least two classmates’ posts to satisfy the engagement portion of the discussion.

Answer 1

The IMF has three main activities: surveillance, financial assistance, and technical assistance.

Every year, the IMF sends economists to evaluate the financial condition of the country to each of its member nations. The team reviews fiscal and monetary policies, exchange rates, overall macroeconomic stability, and any associated policies such as employment policies, trade policies, and social policies (such as pension systems). This process is referred to as a consultation under Article IV after the chapter in the Articles of Agreement authorizes it. The aim of such consultation is to provide external monitoring of domestic choices which may have an impact on the global economic system.

On a global level, the IMF also publishes its analysis of the world economic system in its World Economic Outlook twice per year and the Global Financial Stability Report, which focuses specifically on the international capital markets, also twice per year.

The IMF's main activity is economic aid to departments of the national treasury. Member States with balance of payments issues may obtain loans and credits to pay off their commitments and adjust their financial policies to avoid another crisis or near-crisis. However, in order to obtain help, the member-country must agree to enforce modifications in its fiscal and monetary policies, as determined by IMF specialists, by means of a "letter of intent." As described below, these circumstances are the cause of some of the IMF's most vociferous resentment because they often involve very thorough modifications in domestic policies

Among other problems, the IMF offers technical help on fiscal and monetary policy, legislative processes, tax policy, and statistical collection. The aim of these programs is to strengthen the capacity of developing nations to reform and handle their macroeconomic policies appropriately

First, critics claim the terms on loans are too intrusive and jeopardize the receiving countries ' financial and political sovereignty. These conditions, often referred to as' conditionality' as a whole, are not just the typical requirements that anyone who lends money might expect the borrower to fulfill to ensure that the money is returned.

Second, critics claim the IMF imposed the Washington Consensus policies on nations without knowing the separate features of the nations that made it hard, unnecessary or even counter-productive to implement those policies. For example, according to Stiglitz, the IMF economists had a "one-size-fits-all" policy based on their academic training, focusing on economic models with unrealistic assumptions of how real-life economies function.

Some IMF opponents go even further, and globalization in particular. They argue that corrupt and unfair is the entire international financial system. They criticize not only the Washington Consensus ' execution, but its very presence. For example, one group called 50 Years Is Enough argues that the IMF, the World Bank, and the World Trade Organization (WTO) are anti-democratic institutions that are responsible for the impoverishment of the developing world and benefit only rich countries and multinational corporations.

The IMF considers these steps as needed and predetermined–mostly due to the run-up of unsustainable internal or budgetary imbalances by the borrowing nations. In reality, however, the IMF has a lengthy history of enforcing unnecessary and often dangerous circumstances on borrowing nations–dating back decades.

In the first quarter of this year, Latvia's GDP collapsed 18 percent after a 10.3 percent fall in the previous quarter. These are one of the world's worst decreases. This suggests the prescription of the IMF is a severe overkill. IMF assistance is allegedly intended to make any adjustment needed easier, not worse.

In almost all of its standby arrangements negotiated over the last year, the IMF has included conditions that will reduce output and employment in situations where economies are already shrinking.