Outline the Main Aims and Functions of the International Monetary Fund | Example Politics Essay
The International Monetary Fund (IMF) was created at the historic UN Conference held in July 1944 at Bretton Woods (www.imf.org, 2016). This seminal meeting sought to address issues that helped cause the Great Depression of the 1930s. Developing a framework for global economic cooperation and a move away from the economic and political nationalism of the 1930s became a chief aim for the UN Conference (Kapur, 1998). The creation of the IMF was integral in helping achieve this objective, becoming the organisation tasked with ensuring the stability of the international monetary system and the expansion of international trade (Kapur, 1998). Since its inception, the IMF has not only retained this fundamental objective but since 2012 expanded its mandate to include all macroeconomic and financial sector issues that threaten global stability (www.imf.org, 2016).
In order to meet its aims, the IMF broadly fulfils three functions. Firstly, it performs a ‘surveillance’ role on the international monetary system and the financial policies of its 189 member countries. As part of this function, the IMF produces important reports such as the World Economic Outlook and collects data in a standardised and systematic manner that provides invaluable information for key decision making organisations (Mussa, 1997). The second main function of the IMF is to provide members who are experiencing balance of payment problems with loans to stabilise their position within the global economic framework (Thacker, 1999). Over the years, this lending has expanded to include the lending of subsidised credit for poorer countries (Bird, 2003). The IMF’s final broad function is to assist member countries implement policies that support stability and growth. This is largely an ‘educational’ or ‘advisory’ function (Bordo and James, 2000).
Evaluate how Effectively the IMF Performs its Functions and Achieves it Aims
There is little doubt that the IMF is an influential global organisation that has played an important role in the global financial system since its inception. However, there is debate regarding the effectiveness with which it performs its designated functions.
The largest proportion of the IMF’s budget is spent on performing its ‘surveilance’ function (Mussa, 1997). It is possible to separate this function into two types: ‘active’ and ‘passive’ surveilance. The latter involves the collection of data, production of reports and proliferation of any other relevant information for use by their stakeholders. It is fair to say that the IMF’s status enables them to gather data with a speed, breadth and accuracy that is beyond most other institutions (Bordo and James, 2000) This element of IMF’s surveillance is an invaluable service for the financial community and beyond. It is executed in a systematic manner that adds genuine value to the dissemination of important information throughout the world. On the other hand, IMF’s more ‘active’ form of surveilance that involves the actual analysis of country’s economic policies has been less successful (Moschella, 2011). The Mexican and Asian Crises of the 1990s only led to slight changes in the level of scrutiny the IMF applied to ‘policing’ countries’ economic policies This lack of rigour along with more nefarious accusations of ‘regulatory capture’ is at least partly responsible for the 2007-2009 financial crisis given the IMF’s global mandate (Moschella, 2011). Since 2012, the IMF’s remit has been expanded to monitor systemic issues (www.imf.org, 2016) and it remains to be seen whether such an expansion will help ensure the avoidance of a financial crisis with the severity of 2007-2009.
Throughout its history the IMF has lent money to member countries at their time of crisis such as to Mexico in 1995, South-East Asian countries in 1997 and more recently to Greece. Often, the IMF is the lender of last resort suggesting that their intervention is crucial to prevent bankruptcy (Bordo and Harold, 2000). This would further imply that their intervention helps ensure the stability of the international monetary system, one of their chief aims. While this is true in the immediate short-term, there is evidence to suggest that the conditional policies these countries must adopt actually impede economic recovery (Danaher, 1994). Indeed their ‘educational’ function has been accused of having a similar sub-optimal impact when deployed by their members. The adherence to an overly ‘market reliant’ form of economics has been found to sometimes stymie the development of poorer countries in particular (Danaher, 1994).
Despite numerous crises, the international monetary system is still functional and while many may disagree with the impact of IMF’s economic philosophy, there is also no denying the valuable role they play in maintaining the global financial order.
Essay On Politics: International Monetary Fund
- Bird, Graham (2003) “IMF Lending to Developing Countries: Issues and Evidence” Routledge
- Bordo, Michaael and James, Harold (2000) “The International Monetary Fund: Its Present Role in Historical Perspective” National Bureau of Economic Research
- Danaher, Kevin (1994) “50 Years is Enough: The Case Against the World Bank and the IMF” South Press
- Kapur, Devesh (1998) “The IMF: A Cure or a Curse?”. Foreign Policy, 111, pp114-129
- Thacker, Strom (2011) “The High Politics of IMF Lending”. World Politics, 52 (1), pp38-75
- Moschella, Mauela (2011) “Lagged Learning and the Response to Equilibrium Shock: The Global Financial Crisis and IMF Surveillance” Journal of Public Policy, 31 (2)
- Mussa, Michael (1997) “IMF Surveillance”. The American Economic Review, 87 (2), pp29-31
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