Question

These agreements provide a line of credit to members having trouble staying current in their international obligations. The IMF supports a program of one to two years (in the case of Stand-By Arrangements) or three to four years (regarding Extended Arrangements) to allow it time to reorganize its finances, restructure its economy, and take measures to restore growth. Are standby arrangements necessary in today's Market with access to funds from the world market, from donors such as the World Bank and China?

Answer 1

Standby arrangements are necessary even in today's globalized market. Funds from the IMF come with limited conditions, when a country borrows from the IMF, it agrees to adjust its economic policies to overcome the problems due to which it sought funding in the first place. The IMF is an independent and neutral organisation whose objective is to oversees the international monetary system, hence it's funds are readily available at a competitive rate of interest. Also lending from other donors like China comes with the risk of interference in domestic affairs, the lending country could dictate foreign policy and otherwise interfere in the working of the country utilizing the loan. This interference is not present in borrowings from the IMF as it is a global body made up of many nations working for stability of the international monetary system. Also the world bank is more focused on developing nations and the IMF grants finance to all countries including first world countries as well.