IMFand Loan Conditions (Question 4)
With more than$842 billion in resources and a base of 187 members, the IMF(International Monetary Fund) is perhaps the most influential globalorganization today. The organization’s mandate and influencestretches among numerous financial abilities comprising- lending,economic exploration and research, institution of macroeconomicstrategies to eliminate poverty, preservation of exchange rateorientation, enlargement of market-based economies, and management offinancial reforms (Caraway, Rickard, and Anner 31). However,criticism on the flexibility of the organization revolves around itsfund policies concerning IFS (International Financial System) anddespite the effect of its programs, it continues to attach conditionsto loans.
Most economistsand researchers dispute the usefulness of conditionalities orconditions as apparatuses of thwarting moral hazard (Caraway,Rickard, and Anner 36 Stokke 16). In fact, the notion of theconditionality is the main aspect of the structure of IMF inadvancing loans especially to third countries. As such, theorganization makes loan provisional on the application of assuredeconomic programs such as reduction of government borrowing (i.e.lesser spending and greater taxes), structural adjustment such asreduction of officialdom, privatization, and deregulation, allowingfirms to go bankrupt and higher interest rates (Caraway, Rickard, andAnner 38 Muchhala 69). In this regards, a conditionality act as asupernumerary for the want of defenses in private loaning and, bycorrespondence, to advantage debtors by making credits moreaccessible. On the other hand, the IMF attaches other conditions toloans such as exchange rate reforms and free market strategies, whichdo not work effectively in third world nations.
Macroeconomicinterventions and structural adjustment have numerous drawbacks toborrowers from developing nations. For example, in 1997, the IMFrequired Indonesia, Thailand, and Malaysia to follow constrictedmonetary and fiscal policy to condense budget deficits and fortifyexchange rates (Dreher and Gassebner 339). However, the plans causedminor slowdowns to turn into a severe recession with mass redundancy.The IMF treated the situation as a failure by the institution to meetbalance of payment, but the problem was heavy dependence onshort-term loans (Dreher and Gassebner 340). Most of the conditionsfail to consider the real dynamics of countries, which often leads toblanket reforms.
As such, the antagonistic issue arises because countries mayencounter deficits in balance of payments from global events ratherthan domestic policies, which harm an economy (Dreher, Sturm, andVreeland 23). The organization fails to understand that developingcountries depend largely on international stability thus, externalfactors and international imbalances result to imbalanced BOP inthose countries. The conditions have borne fruits in some circles inliberalization of markets, improvement of economic development, andsafeguarding of compliance (Dreher and Gassebner 336). Nevertheless,reduction in government spending, foreign borrowing, privatization ofsome enterprises, and increased taxes as aforementioned often hasnegative effects in developing nations.
As a leader of a developing nation, I would not accept loans from IMFthat come with conditions. Today, many developing countries are indebt and paucity partially because of the strategies of IMF and WorldBank. Although the IMF has continued to give out loans to developingoften with conditions and supervisions, those countries continue todepend on developed countries. IMF has imposed neoliberalism,Washington Consensus, and SAPs (Structural Adjustment Policies) toensure that countries repay monies loaned and restructuring ofeconomies (Dreher, Sturm, and Vreeland 21 Muchhala 67). However, theconditions of these loans have required countries to reducegovernment spending on issues such as development, health, andeducation coupled with higher VATs while making debt repayment andthe conditionality the priority. The handling of the Asia Crisis of1997, fiscal restraint in Argentina in 2001, where IMF forced thecountry into a fiscal restraint, which damaged the economy, exchangerate reforms in Kenya in 1990s, where the IMF required the Centralbank to remove controls over flows of capital, and lack of tangiblesuccesses make me apprehensive on the attached conditions.
Caraway, Teri L., Stephanie J. Rickard, and Mark S. Anner."International Negotiations and Domestic Politics: The case ofIMF labor market conditionality." International Organization66.01 (2012): 27-61. Print
Dreher, Axel, Jan-Egbert Sturm, and James Raymond Vreeland. "Politicsand IMF Conditionality." Journal of Conflict Resolution(2013): 0022002713499723. Print
Dreher, Axel, and Martin Gassebner. "Do IMF and World Bankprograms induce government crises? An empirical analysis."International Organization 66.02 (2012): 329-358. Print
Muchhala, Bhumika. The IMF`s Financial Crisis Loans: No change inconditionalities. Third World Network, 2011. Print
Stokke, Olav, ed. Aid and political conditionality. Routledge,2013. Print
sses ws of capital 1990s, where the IMFrequired the Central bank to remove controls over flows of capital h,and