Question

Discuss IMF loans as important parts of international efforts to address financial crises. Why have these loans been controversial? (Text only please)

Answer 1

IMF loans are very important and help in furthering international efforts for addressing financial crises in a systematic manner. The basic purpose of IMF loans is to ensure the stability of the international financial system. It should be noted that stability of international financial system is disturbed when a country is in severe financial trouble. IMF loans try to maintain the stability of the international financial system by helping countries to pay its international bills. Thus IMF loans leads to systematic tackling of balance of payments problems, stabilization of economies and restoration of sustainable economic growth.

The IMF loans have been controversial because the conditions of the loans granted by IMF are said to be too intrusive in nature and as such often leads to compromising on the economic and political sovereignty of the countries that have opted to receive the loan. Secondly these loans are also used by IMF as a basis for exacting major changes in the form of structural adjustments in the monetary policies of the country that has availed the loan. Thus the IMF loans have been controversial because it is often associated with too harsh lending conditions, often leads to an increase in unemployment rate which happens if all the policies are imposed all at once. When all the policies are imposed all at once then it leads to privatization and this leads to increase in unemployment rate.