IMF Flashcards
1
Q
What is the IMF?
A
- The International Monetary Fund works closely with the United Nations Economic and Social Council to ensure global financial security and economic development.
- Monitors the economic health of members, offering support and advice when members are suffering from a balance-of-payment crisis.
2
Q
What was the original aim of the IMF?
A
- 1945 = reconstruct the international payment system.
- Abandoned its system of fixed exchange rates in 1971 - brought stability and prevented unsettling fluctuations in currency value.
3
Q
How many members were there orignally and how did this change?
A
29 in 1945
189 in 2019.
4
Q
How does the IMF get the resources?
A
- Countries contribute funds to a pool through a quota system (reflects members’ relative positions and wealth).
- Increased funds due to the 2008 financial crisis - members asked to pay more in their quotas.
- 2016 = the fund had $668 billion.
- 2019 = approximately $1 trillion at its disposal.
5
Q
Roles in more detail
Surveillance and monitoring
A
- Members’ economic policies must broadly be in tune with the IMF’s classical economic principles.
- Reviews the world economy and the members’ policies and developments - forecasting and commenting on potential threats and weaknesses (e.g commenting on the UK PM Liz Truss’s mini-budget in 2022 and Brexit 2016).
6
Q
Roles in more detail
Lending
A
- Members can request financial assistance if it suffers or is likely to suffer from a debt crisis to help stabilise the currency and restore global confidence in a nation-state.
- In return, they will be expected to carry out SAPS to ensure the underlying problems are resolved.
- Focuses on the developing world, but it has made loans to developed countries.
7
Q
Roles in more detail
Capacity building
A
- IMF experts provide training to member states to help them manage their economy more efficiently.
- E.G = established Regional Training Centres in Africa to help build up expertise in Sub-Saharan African States.
8
Q
What are Structural Adjustment Programmes?
A
- As part of the IMF conditional loans, the state must underego economic reforms to overcome the issues that caused it to request help.
- Sometimes, the IMF works in partnership with the ECB and the European Commission to agree to a joint package (example = Greece) - dubbed Troika.
9
Q
What is typically expected of members underdoing a SAP project.
A
- Cutting wasteful public spending.
- Selling government-owned assets to private ownership (privatisation).
- Increase taxes to pay for its public services and remove budget deficits.
- Reducing public sector wages.
10
Q
Example of SAPs
Pakistan 2009
A
- Increase the amount of taxes the central govt in order to ease govt debt, as it was estimated that 3.2 million Pakistanis who owned multiple properties and bank accounts weren’t registered for paying taxation.
- Privatise the national airline and 67 other state-owned companies that had accumulated losses amounting to billions of dollars.
- BUT UNSUCCESSFUL - removing tax breaks created progress, but the IMF assessed tax revenue collection in 2016 as ‘below Pakistan’s potential’. Received several new loans despite not making progress on privatisation.
11
Q
Criticisms of SAPs
A
- So controversial = renamed ‘poverty reduction strategies’.
- Makes excessive demands on states which could lead to unacceptable human cost - infringes on state sovereignty, imposing a Western-driven idea of economic management.
- HOWEVER = some believe states it’s good as states that got themselves into financial difficulty shouldn’t be given unconditional loans - instead they need an incentive to prevent economic difficulty reoccurring.
12
Q
Successes of the IMF
A
- Emergency loans are vital in restoring confidence in a member facing a balance of payments crisis - reassures other nations that the nation-state will not default on its debts and means the contagion of economic uncertainty doesn’t spread.
- Significant cuts in public spending and free-market reforms are necessary if the cause of the balance-of-payments crisis is to be resolved. Unconditional loans means similar crises could quickly occur again.
- From the financial crisis in 2008 to 2019 - provided $325B in loans to restore confidence in the global economy to stop the financial panic from spreading.
- Developing countries like India, committed to IMF free-market reforms, have best taken advantage of globalisation - economy grew by 7.3% in 2019.
- IMF and the World Bank are committed to the Healthily Indebted Poor Countries Initiative - cutting the debt of the world’s poorest countries so that they can focus their resources on development.
13
Q
Created an immoral system of modern day colonialism that SAPs the poor
Criticisms of the IMF
A
- Placed the global economy on a path of greater inequality and environmental destruction.
- SAPs requires cutting spending on education, basic food subsidies and privatise national assets. Reduces their ability to develop strong domestic economies and allow multinational corporations to exploit workers.
- EXAMPLE = Argentina is tied to cuts in doctors and teachers’ salaries and decreasing social security payments.
- Made Global South elites more accountable to First World elites than their own people, undermining the democratic process.
14
Q
Disproportionate influence in favour of the wealthy countries
Criticism
A
- Rich countries dominate decision-making in the IMF because voting power is determined by contributions into its quota system (one dollar is one vote).
- USA is the largest shareholder with a quota of 18%.
- Disproportionate power held by wealthy countries means that the interests of bankers, investors and corporations from industrialised countries are above the needs of the world’s poor majority.
15
Q
Imposing a fundamentally flawed development model
A
- Unlike the path followed by the industrialised countries, the IMF forced countries from the Global South to prioritise export production over the development of diversified domestic economies.
- Nearly 80% of malnourished children in developing countries live in countries where the farmers have been forced to shift from local food production to export crops for wealthy countries.
- Requires countries to eliminate assistance to the domestic industries while benefiting multinational corporations, lowering labour costs so small businesses and farmers cannot compete.
- DOESN’T end the cycle of poverty as the government’s debt to the IMF grows.
