KK3 - International Organisations - International Monetary Fund Flashcards
IMF facts
-Established in 1944
-Has 190 member states
Aims of the IMF
- Promote international monetary cooperation and exchange rate stability
- Facilitate the expansion and balanced growth of international trade
- Assist in the establishment of a multilateral system of payments
- To make resources available with adequate safeguards to members experiencing balance of payment difficulties
Roles of the IMF
-Surveillance
-Capacity development
-Lending
Roles - Surveillance
->To Give economic health checks to member states (Article IV of consultations)
-Highlighting possible risks to stability
-Advising on policy adjustments
Surveillance case study
Case study: Australia
-Australia received consultation from the IMF in 2022
-Some of the suggested measures were the stage 3 tax cuts and other tax reforms, so that the Australian government could better finance their budget
Roles - capacity development
->Provides technical assistance and training to member states
-Enables member states to design and implement economic policies for stability and growth
-Relevant areas of development include:
-Managing revenues and budgets
-Modernising banking and legal systems
-Improving economic forecasting and modelling
-Reporting of macroeconomic data
Capacity development case study - Georgia
-Since 2014, Georgia has been forced to deal with large and persistent external challenges to its economic stability, including pressure on its currency as well as lower global oil and commodity prices
-In April 2015, Georgia began a “collaborative project” with the IMF to strengthen its central bank’s financial reporting and risk management work.
-The National Bank of Georgia (NBG) has undertaken a number of reforms to deal with these financial challenges.
-The IMF also helped to establish a strong relationship between the dialogue of Georgia’s and the Netherland’s central banks, so the NBG could network with an learn from the advanced European central banking system.
Roles - Lending
-Provides loans to member states that are experiencing actual or potential balance-of-payments problems
-Enables the stabilisation of the economy, and restoration of sustainable economic growth
Roles - Lending - Case study: Bangladesh
-The IMF worked to help Bangladesh with a potential balance of payment problem in November 2022
-Bangladesh reached a preliminary agreement with the International Monetary Fund to secure a $4.5B loan amid mild economic shocks
-Bangladesh’s finance minister, described the loan request as “A precautionary measure to ensure that this instability does not escalate into a crisis.”
Power of the IMF
The IMF is the most powerful when fulfilling its role of lending to member states
-This is as IMF lending is conducted on a conditional basis, meaning that the borrowing state must agree to certain obligations or requirements before the loan is distributed.
-The imposition of these terms enable the IMF to control the manner by which a state resolves its balance of payment difficulties.
Power of the IMF (strength) - Ukraine Loan
Ukraine approves legislation bid for IMF aid
In 2020, Ukraine was required to lift a ban on the sale of farmland and approve a new banking law to receive a US$5 billion loan from the IMF
Power of the IMF (weakness)
The IMF is least powerful when performing its roles of surveillance and capacity development.
- The findings and advice that the IMF makes within these two roles are non-binding
- States can consequently choose to ignore or refuse to implement the IMF’S recommendations. This is particularly the case when a state perceives these recommendations to not be in their national interests or disagreeable with their ideologies
Other criticisms of the IMF
Lending conditions often reflect the dominance of the capitalist, neoliberal policies of the IMF’s largest contributors (e.g., USA)
-“Washington Consensus”: Expenditure cuts (austerity measures), deregulation, privatisation, extraction and exportation of natural resources, tax reform, anti-corruption measures
-This can be considered to show little regard for the distinct characteristics of individual states requiring assistance from the IMF.
Criticisms of the IMF case study: Argentina
-Argentina has received 21 IMF loan arrangements since becoming a member in 1956
-It received a $57 billion loan from the IMF in 2018 - the largest single issues in IMF history
-Argentina has since struggled to pay back regular instalments of this loan and has not unilaterally resolved ongoing economic woes
