International Monetary Fund (IMF): Achievements and Failures

Let us make an in-depth study of the International Monetary Fund (IMF):- 1. Achievements of the IMF 2. Failures of the IMF.

Achievements of the IMF:

From this balance sheet of the working of the IMF, we are now in a position to evaluate its performance over the last 64 years or so.

Firstly, we state the achievements of the Fund.

The IMF acts as both a financing and an adjustment-oriented international institution for the benefit of its members. It has been providing financial assistance to the deficit countries to meet their temporary disequilibrium in BOP.

The Fund aims at promoting exchange rate stability. In its early phase, the Fund made arrangements of avoidance of competitive exchange depreciation. It has made an attempt to solve the problem of international liquidity. To create international liquidity, Special Drawing Rights (SDRs)—an artificial currency—were created in 1969 as foreign exchange reserves to benefit the developing countries in particular. SDR allocations are made to member countries to finance the BOP deficits.

It is an institution through which consultation in monetary affairs takes place in an on-going way. It acts as a forum for discussions of the economic, fiscal and financial policies of member countries keeping the BOP problems in mind.

Previously, the poorest developing countries did not receive adequate treatment from the Fund. But during the 1980s and 1990s—when debt crisis broke out in poor countries—the Fund decided to divert its financial resources to these countries.

In 1980s, centrally planned economies were not hitherto members of the Fund. With the collapse of the Soviet Union in 1991, ex- Communist countries became members of the Fund and the Fund is providing assistance to these countries so as to instil the principles of market economy. It has decided to finance resources to combat terrorism and money-laundering.

Finally, the IMF has assisted its members in the formulation of appropriate monetary, fiscal and trade policies.

Failures of the IMF:

Despite these achievements, its failures are glaring. In other words, its success is, on the whole, limited. There are some serious charges against this institution that cannot escape attention.

These are:

The Fund provides short term finance to its members to tackle BOP disequilibrium. For this purpose, it adopted an adjustable peg system in the first phase of its life. But it failed to establish a stable exchange rate. Its role in controlling the competitive exchange depreciation policies adopted by the members was subject to serious scrutiny, although it was created to avoid devaluation as a BOP measure as much as possible.

Truly speaking, the IMF is incapable of taking independent policy decisions. It complies with the ‘ordes’ of the superpowers. Further, it has minimal influence over the policy decisions of the major industrial powers. In these cases, its mandate to exercise ‘firm surveillance’ over some influential members or superpowers is virtually meaningless —it has no influence over the US deficits or European interest rates.

Secondly, the Fund imposes conditions on the poor countries while sanctioning loans. Now, it is ignoring its central concern—exchange rate management and BOP problems. It is now championing the issue of ‘market principle’. It suggests poor developing countries to cut expenditure-borrowing-subsidy, raise prices of state enterprises, privatisation of state-owned enterprises, etc. If such measures, most popularly known as structural adjustment programmes, are adopted only then IMF credit would follow. Most of these measures are anti-people in character. It is said that third world debt crisis is due to the Fund policies and working.

Thirdly, the Fund has failed to eliminate foreign exchange restrictions imposed by its members that hamper the growth of trade.

We now conclude this discussion in the words of Richard Roberts:

“It also has little moderating influence on the swollen international financial markets. The vast expansion in the scale of international financial flows in the 1980s and 1990s, floating exchange rates, liberalised and integrated capital markets, and the ability of the industrial countries to formulate coordinated policies have together put the international financial markets beyond the IMF’s exhortations, let alone its discipline. Prevention is better than cure, but there is no point in blaming the doctor if the patient does his own thing and medical help is only called in when matters are already out of hand.”