Question

Discuss the International Monetary Fund? What are its essential responsibilities? What is the criticism of the Fund?

Answer 1

The International Monetary Fund (IMF) is a multilateral/international institution whose primary purpose is to be a lender of last resort to member governments.If one of its member countries is having a financial, banking or related crisis, or is about to have one, the IMF is there to lend that country's government money to help avert/end the crisis and get it back on its feet.

Responsibilities -

1. It functions as a short-term credit institution.

2. It provides machinery for the orderly adjustments of exchange rates.

3. It is a reservoir of the currencies of all the member countries from which a borrower nation can borrow the currency of other nations.

4. It is a sort of lending institution in foreign exchange. However, it grants loans for financing current transactions only and not capital transactions.

5. It also provides machinery for altering sometimes the par value of the currency of a member country. In this way, it tries to provide for an orderly adjustment of exchange rates, which will improve the long-term balance of payments position of member countries.

6. It also provides machinery for international consultations.

Critism -

1) Devaluations In earlier days, the IMF have been criticised for allowing inflationary devaluations.

2) Neo-Liberal Criticisms There is also criticism of neo-liberal policies such as privatisation. Arguably these free-market policies were not always suitable for the situation of the country. For example, privatisation can create lead to the creation of private monopolies who exploit consumers.

3)Free market criticisms of IMFAs well as being criticised for implementing ‘free-market reforms’ Others criticise the IMF for being too interventionist. Believers in free markets argue that it is better to let capital markets operate without attempts at intervention. They argue attempts to influence exchange rates only make things worse – it is better to allow currencies to reach their market level.