Question

Using the article "Failure of the Fund": Rethinking the IMF Responses and " the IMF Strikes Back", evaluate the different views about the effectiveness of the IMF's

prescription. According to the article, the IMF: Today and Tomorrow, what are the three most important challenges that the IMF needs to meet in order to properly play

its role as a global financial institutions?

Answer 1

The International Monitory Fund, also called the Fund, is an international monitory institution established by 44 nations under the Bretton Agreement of July 1944. The attempts of many countries to return to the old gold system after the First World War failed miserably. The IMF was established to promote economic and financial cooperation among its members in order to facilitate the expansion and balanced growth of world trade.

Objectives:

Main objectives of the Fund are: to provide international monitory cooperation through a permanent institution which provides the machinery for consultation and collaboration in international monitory problems, to facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. to promote exchange stability , to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.and to lend confidence to members by making the Fund's resources available to them under adequate safeguards.

It is the Fund's duty to see that these provisions are observed by member countries. The Fund is regarded "as the guardian of good conduct"in the sphere of balance of payments. It aims at reducing tariffs and other trade restrictions by member countries. It is the function of the Fund to have a surveillance of the policies being adopted by the member countries. The Fund also renders technical advice to its members on monitory and fiscal policies. It provides technical experts to member countries having balance of payment difficulties.

Critical Appraisal:

The IMF has performed well as an international monitory institution. It has been supplying different currencies to different countries for making adjustments in their balance of payments over a long period Both the developed and developing nations have made extensive use of its resources. BUT, it cannot be said that it has been an overall success in fulfilling its objectives.Let's have a look:

a) The Fund has been conservative from the beginning, it has laid down stringent conditions for lending to member countries, it charges high interest rates.

b)The Fund has been playing only a secondary role rather than the central role in international monitory relations. It does not provide facilities for short term credit arrangements. The kind of " swap" arrangement have reduced the importance of the Fund.

c) The Fund also failed in its objective of promoting exchange stability and to maintain orderly exchange arrangements among members. One of the objectives of the Fund has been to eliminate foreign exchange restrictions which hamper the growth in the world trade. The Fund has not been successful in achieving this objective.

d) The Fund has been criticized for its discriminatory policies against the developing countries and in favor of developed countries. It is therefore characterized as" Rich Countries' Club".

For a better tomorrow:

Despite of all these criticisms, the IMF has shown sufficient flexibilities to mold itself in keeping with the changing international economic conditions. The number of member countries have come up to 189. Facing with ever fresh highly challenging environmental problems like waste management and global warming and so on...the IMF is adapting itself or should adapt itself to do the needful. Let us hope!!