We are a blog

My photo

I am author of the books Political Internet(Routledge, 2017), Intimate Speakers ( Fingerprint! 2017), has finished the typescript of three books—first, on Internet and sexuality; second, on the negative impacts of social media; and third, a novel—and is presently working on a narrative non-fiction with the working title Lovescape: Why India is afraid of love.

Share this Blog

Friday, November 29, 2013

I M F: A Critique, Lecture points by Biju P R

Role of IMF 
The International Monetary Fund is a global organisation founded in 1944. It aims was to help stabilise exchange rates and provide loans to countries in need. Nearly all members of the United Nations are members of the IMF with a few exceptions such as Cuba, Lichtenstein and Andorra. The IMF is independent of the World Bank although both are United Nations agencies and both are aiming to increase living standards. The World Bank concentrates on long term loans to developing countries.
Functions of IMF
  1. International Monetary Cooperation
  2. Promote exchange Rate stability
  3. To help deal with Balance of Payments adjustment
  4. Help Deal With Economic Crisis by providing international coordination
What the IMF does
1. Economic Surveillance. IMF produces reports on member countries’ economies and suggest areas of weakness / possible danger. The idea is to work on crisis prevention by highlighting areas of economic imbalance.
2. Loans to Country’s with financial crisis. The IMF has $300 billion of loanable funds. This comes from member countries who deposit a certain amount on joining. In times of financial / economic crisis, the IMF may be willing to make available loans as part of a financial readjustment. The IMF has arranged more than $180 billion in bailout packages since 1997.
3. Technical assistance and economic training. The IMF produce many reports and publications. They can also offer support for local economies.
How is IMF Financed?
The IMF is financed by member countries who contribute funds on joining. They can also increase this throughout their membership. The IMF can also ask its member countries for more money. IMF financial resources have risen from about $50 billion in 1950 to nearly $300 billion last year, sourced from contributions from its 183 members. This initial amount depends on the size of the countries economy. E.g. the US deposited the largest amount with the IMF. The US currently has 16% of voting rights at the IMF, a reflection of its quotas deposited with IMF. The UK has 4% of IMF Voting rights. Loans are also available to developing countries to ‘deal with poverty reduction.’
Special Drawing Rights SDR
The IMF use Special drawing rights to provide a unit for the amount of foreign currency member states can draw on. SDRs are defined in terms of a basket of major currencies including: Euro, Pound Sterling, Japanese yen and US Dollar.
Criticism of IMF
Over time, the IMF has been subject to a range of criticisms, generally focused on the conditions of its loans. The IMF has also been criticised for its lack of accountability and willingness to lend to country’s with bad human rights record.Many Criticisms of IMF include:
1. Conditions of Loans
On giving loans to countries, the IMF makes the loan conditional on the implementation of certain economic policies. These policies tend to involve:
1.Reducing government borrowing – Higher taxes and lower spending
2.Higher interest rates to stabilise the currency.
3.Allow failing firms to go bankrupt.
4.Structural adjustment. Privatisation, deregulation, reducing corruption and bureaucracy.
The problem is that these policies of structural adjustment and macroeconomic intervention make the situation worse.
For example, in the Asian crisis of 1997, many countries such as Indonesia, Malaysia and Thailand were required by IMF to pursue tight monetary policy (higher interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However, these policies caused a minor slowdown to turn into a serious recession with mass unemployment.
In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a decline in investment in public services which arguably damaged the economy.
2. Exchange Rate Reforms. When the IMF intervened in Kenya in the 1990s, they made the Central bank remove controls over flows of capital. The consensus was that this decision made it easier for corrupt politicians to transfer money out of the economy (known as the Goldman scandal). Critics argue this is another example of how the IMF failed to understand the dynamics of the country that they were dealing with – insisting on blanket reforms.
The economist Joseph Stiglitz has criticised the more monetarist approach of the IMF in recent years. He argues it is failing to take the best policy to improve the welfare of developing countries saying the IMF "was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community."
3. Devaluations In earlier days, the IMF have been criticised for allowing inflationary devaluations.
4. 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.
5. Free Market Criticisms of IMF
As well as being criticised for implementing ‘free market reforms’ Other critise 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.
There is also a criticism that bailout countries with large debt creates moral hazard. Because of the possibility of getting bailed out it encourages people to borrow more.
6. Lack of Transparency and involvement
The IMF have been criticised for imposing policy with little or no consultation with affected countries.
Jeffrey Sachs, the head of the Harvard Institute for International Development said:
"In Korea the IMF insisted that all presidential candidates immediately "endorse" an agreement which they had no part in drafting or negotiating, and no time to understand. The situation is out of hand…It defies logic to believe the small group of 1,000 economists on 19th Street in Washington should dictate the economic conditions of life to 75 developing countries with around 1.4 billion people."
7. Supporting Military dictatorships.
The IMF have been criticised for supporting military dictatorships in Brazil and Argentina, such as Castello Branco in 1960s received IMF funds denied to other countries.

No comments:

Post a Comment