International Monetary Fund

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  • IMF
    • How does the IMF encourage global financial security?
      • Surveillance - it monitors the economic health and stability of its members and warns against policies that it considers could be damaging to its economy.
        • It advised Mexico that it's too dependent on oil revenue and should diversify to cushion its economy in case of a drop in oil prices.
      • Offers technical advice to countries on how best to maximise their economic potential.
        • In Peru the IMF have been advising the government on improving its methods of tax collection.
      • Acts as a lender of last resort - if a member country is facing a balance of payments crisis it can access emergency loans through requesting special withdrawal rights. This could stabilise its currency and save the country from bankruptcy, so ensuring the contagion doesn't spread elsewhere that could cause a global economic crisis.
        • Loans are generally conditional on the recipient country undergoing free-market SAPs to resolve the problems that caused its economy to nearly collapse.
          • SAPs can include the imposition of reforms, such as cuts in public spending, privatisation, reductions in tariffs and subsidies and devaluation of the currency (to encourage exports).
    • What evidence is there that the IMF is vital in encouraging economic stability and development?
      • Global free trade is encouraged by discouraging nation states from adopting tariffs, so maximising global wealth.
      • By encouraging free-market reforms, nation states are more able to exploit opportunities offered by economic globalisation.
      • Like the World Bank, the IMF has encouraged debt relief for developing countries that are introducing free-market reforms. In 2015, the IMF granted Chad, the 4th poorest country in the world, $1.1 billion in debt relief.
      • As a lender of last resort, the IMF provides the global economy with greater stability, since if a nations tate is facing severe economic problems the international community knows it can access emergency loans.
        • This certainty provides the global economy with a greater sense of confidence, so reducing the risk of a collective panic that could provoke a global depression.
    • By adopting IMF-inspired reforms, which two countries have been able to develop much stronger free-market economies?
      • SAPs in India in the 1990s encouraged the economy to diversify from agriculture into new growth sectors, such as the service industry.
      • SAPs in Africa have encouraged it to diversify from subsistence agriculture into world markets, so significantly boosting growth rates in the continent.
    • What examples show that IMF emergency loans have been vital in maintaining global stability in times of crisis?
      • In 1997 the S. Korean economy was rescued with a $55 billion aid package.
      • During the 2008 global financial crisis, the IMF provided emergency loans to vulnerable economies like Hungary, Romania and Ukraine. Without such loans, they may have faced bankruptcy. The resulting contagion as they defaulted on their global creditors would have exacerbated the financial crash.
      • Since the Euro sovereign debt crisis began in 2009, the IMF and European Central Bank have made extensive loans to Greece to restore confidence in its economy. By doing this, the risk of other vulnerable countries (like Portugal, Italy and Spain) being undermined has been reduced, so averting a pan-European crisis.
      • In total from 2008-16, the IMF committed $700 billion to its member countries to maintain trust in the global economy.
    • What are some criticisms of the IMF?
      • It represents solely the neo-liberal Western-orientated approach to economic development. Economists like Jeffrey Sachs and Joseph Stiglitz criticise the free-market 'one size fits all' mentality of the IMF.
      • SAPs undermine already fragile economies so that free-market 'shock therapy' actually ends up killing the patient. SAPs undermine national sovereignty as desperate states, like Greece, may have no alternative but to accept the conditions of their loans.
      • IMF president is by convention always a European (Christine Lagarde since 2011).
      • The US possesses 16.74 per cent of the votes on the IMF and since an 85 per cent vote is needed to change its constitution, the US has an effective veto over how the IMF does business.
      • Failed in its task of surveillance since it was taken up surprise by both the global financial crisis and the Euro sovereign debt crisis.

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