IMF Activities
IMF Activities
Introduction
International monetary fund has a global membership of 188 countries. It aims at helping member government to taking advantage of the opportunities posed by globalization and the economic development (Weiss, M 2004). International monetary fund track the global performance and trends, provide a forum for policy development, alert the member countries whenever it sports problems and passes information to government on how to deal with economic difficulties. The aim of IMF is to provide financing and policy advice to members in the economic difficulties. It also works with developing countries to try in reducing poverty and helping them achieve micro economic stability (Weiss, M 2004). The core mission of IMF is to foster economic growth and to increase international trade through supporting the international monetary cooperation, temporary financial assistance, and exchange rate stability to those countries that have balance of payment difficulties.
Review of the situation
The operation and responsibilities of IMF include surveillance, technical assistance, and leading. Surveillance involves monitoring of the financial and economic development and providing member countries with policy advice. Technical assistance includes providing help on improving or designing the effectiveness and quality of domestic policy making. Lending entails providing financial resources under specific conditions, so that to assist a country that is suffering balance of payment difficulties. With the wake on the financial crisis in Mexico, East Asia, turkey, Argentina, and Russia, international monetary fund have been challenged to rethink its mission, lending, and operation activities (Weiss, M 2004). In order to be able to solve this issue, IMF has used numerous reforms to respond to its critics. The reforms that IMF has used can be categorized into three ways; this includes crisis management, crisis prevention, and IMF’s role in economic development.
Analysis of the reforms
Crisis prevention reforms
The changes that focus on crisis prevention include the creation of international standards, IMF institutional reforms, code of excellent financial practices, and active promotion in developing countries. The institutional changes of IMF have been centered on improving accountability and transparency. In the past years, the IMF documents were not made available for public release. With this reform, almost all documents of IMF are available in their websites. This reform also requires IMF to release information on the decisions and votes of the board and other documents that relate to the sensitive discussions between international monetary fund and the member countries (Weiss, M 2004). The proponents on this issue argue that the openness will lead to a better compliance on the loan arrangements. However, there are critics who note that the openness may inhibit frank exchange between the member countries and IMF (Weiss, M 2004). The administration and the congress did play a significant role in pressing for the increased accountability and transparency in IMF. The benefits of information transparency and accounting standards seem to be apparent. However, there are critics who claim that the implementation of these standards might be difficult. The countries are free to meet the standards or not, but for countries seeking to have access to global capital market, they should make progress in standards like, macroeconomic transparency, data accuracy, and timely dissemination.
Crisis management reforms
In order to prevent international financial crisis, there are reforms aimed at improving the method in which IMF uses its resources in management of crisis. The aim of these reforms is to prevent the crisis from spreading from one country to another and to minimize the damage that they might cause. According to economists, they claim that since the financial crisis is unavoidable; the challenge is controlling them instead of elimination. The financial crisis usually occurs differently. In Asia, the banking crisis was because of solvency, in Australia it was debt crisis because of unstable debt levels, and in Turkey it was the exchange rate crisis because of macroeconomic difficulties. IMF has been able to determine that excessive sovereign debt is the main cause of many crises. Government issued debt is the main form of developing country debt.
The bonds are held by many small and large investors and represent a shift in the type of developing the country debt (Weiss, M 2004). In order to solve these problems, policy and institutional reforms have been proposed, and there are some that have been implemented. Two internal groups have been created by IMF to explore issues and conduct research in the international capital markets. These groups are expected to deepen the understanding of Fund of international capital markets. The groups should also have the understanding of the forces that are driving the capital supply and the constraints that the capital flows place on the economic policy makers (Weiss, M 2004). A proposal for sovereign debt reform that has been put in place involves rewriting a loan contract that will include collective action clauses. The aim of the clauses is to resolve the difficulty involved in renegotiating contracts between the large body of bond holders and the issuers.
Role in economic development and relationship to the world bank
The first IMF function is macroeconomic stability. The second function is to support World Bank and its economic development mission. The IMF reforms like the creation in 1999 of PRGF, a concessional loan facility, were implemented to help IMF to be able to deal effectively with the poorest members. Poverty and Growth Facility resulted in a clear mandate for IMF make reduction of poverty its goal (Weiss, M 2004). However, there are critics who claim that this involvement creates an overlap between World Bank and IMF. They claim that these institutions should restrict their operations to the core function that they are meant for. Others assert that the overlap is necessary. They argue that the joint economic development and currency and capital markets integration necessitate significant World Bank and IMF cooperation. The joint effort of these two institutions aims at promoting the creation of sound financial institutions in the member countries. In 2004, IMF was able to create the trade integration mechanism (Weiss, M 2004). This would help the developing countries in resolving the balance of payment difficulties that might arise as countries lose preferential trade access to rich countries.
Response
The above IMF reforms address some principal critiques of IMF activities. However, there are some concerns that need to be addressed. IMF is supposed to devise programs that will meet the needs of its borrowers, while it still retain the support and confidence of the key countries that provide it with the hard currency for funding IMF operations. The gap that exists between the expectations and the goals of the donor countries and the borrower countries is large (Weiss, M 2004). With the reforms in place, there is a number of the public in the developing and developed countries who have negative views of IMF. This hinders and also encourages the process of the reforms by complicating, polarizing, and intensifying official and public discussion of these issues. According to different governments of the member countries, they see the reforms as a good way of improving the IMF function. However, they claim that the challenge that IMF have in the future is to retain the sound economic and financial basis for IMF operations, while it is also responding to the relevant political and social issues. Scholars and politicians are debating whether the policy methods and tools that are used by international monetary fund are appropriate for the current condition in the world (Weiss, M 2004).
Conclusion
At first, the international monetary fund aimed at maintaining monetary and exchange rate stability on the mostly industrialized membership. Most of the Fund members are developing countries that range from large emerging markets to small, poor states. The IMF surveillance of macroeconomic issues has expanded in order to cover topics with little relevance to its mandate. Because of the developments, calls for reforms have been sparked. Because of the many countries facing financial crisis, the international monetary fund have used numerous reforms to solve these issues. The reforms that have been used include international financial crises prevention, international financial crises management, and the role of economic development and the relationship with World Bank. IMF has been able to evolve with the global economy, which has enabled it to retain its central role in the international financial architecture. During the time for crises, IMF has been able to support its member countries.
Reference
Weiss, M (2004). The International Monetary Fundhttp://www.au.af.mil/au/awc/awcgate/crs/rs21330.pdf
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