Shortcomings of International Monetary Fund (IMF)

The following points highlight the thirteen major shortcomings of International Monetary fund (IMF).

Shortcoming # 1. Limited Scope:

International Monetary Fund has very limited scope as it strictly deals with the imbalance’s of payments arises out of current trade transactions.

On the other side, it fails to make adjustments in repayments of war loans or of blocked starting or with exports and imports of capital.

Moreover, it lends only financial help to those countries which are facing a temporary deficit in the balance of payments. This right is also almost reserve in favour of developed member countries.

Shortcoming # 2. Indifferent Treatment:

Another shortcomings of the Fund is that the Fund adopts discriminate policy in favour of certain countries in its day-to-day functioning. It is said that IMF is only a “Rich countries Club.” It provides special treatment to western countries while ignores the interests of backward and underdeveloped countries.

All decisions are taken according to the wishes of rich nations. Even if they flout the directives of the Fund, no disciplinary action is taken against them.

Shortcoming # 3. Unscientific Fixation of Quotas:

It is pointed out that the fixation of quotas has been purely on unscientific grounds. There is no second opinion to say that only economic and political considerations are made. Only rich nations like USA and UK have been kept in mind at the time of fixation of quotas.

In other words, the less developed countries are getting step motherly treatment in fixation of quotas for their need of international liquidity. However, it is argued that there must be some link between IMF quotas and the needs of the country.

Shortcoming # 4. Failure to Remove Exchange Controls:

IMF has utterly failed to achieve the objective of eliminating exchange controls and trade restrictions. It has not succeeded to restrictions on foreign trade of member countries. In the present era, even the most developed countries like USA and UK are adopting protective policies in the field of trade. How action is expected on their part on other member countries.

Shortcoming # 5. Fails to Attain Exchange Stability:

The Fund is being criticised to achieve the objective of exchange stability. In other words, it could not maintain complete stability in foreign exchange rates. For instance, exchange rates of different countries have been continuously changing despite the existence of the Fund. France has made the devaluation of her currency against the opposition of Fund. Thus, the failure of exchange stability is the major defect of the IMF.

Shortcoming # 6. No Solution of Liquidity Problem:

The Fund could not make headway in achieving its major objective to promote the international liquidity to its member countries by lending or selling foreign currencies out of its stock. Although the Fund had taken certain steps to improve the liquidity of financial resources but it could not find any solid solution to the problem.

In this direction, scheme of Special Drawing Rights is a step. Still there has been no perceptible improvement in liquidity situation.

Failure # 7. Failure to Tackle the Problem of Dollar System:

Another objection is raised that the IMF failed to tackle the problem of petro dollars. Despite great dollar shortage felt by the sterling countries, the Fund failed to declare the dollar a ‘scarce currency’ and to adopt the necessary measures to make the dollar freely available.

Failure # 8. Dominance of Developing Countries:

It has been rightly observed by some critics that western countries put more pressure to get the trade controls removed so that their trade may flourish. But it is not in favour of underdeveloped countries to remove such controls over trade.

In fact, the Fund is dominated by the economically developed countries while their counter partners, i.e., underdeveloped countries face the problem of instability of export prices that give rise to the fluctuations in their export earnings.

On the other side, imports beyond the available foreign exchange also create the problem of instability in the country. Thus, the success of the Fund depends only on the degree to which developing countries make the implementation of their development plans and maintain financial stability. In this regard, the role of the IMF is quite unsatisfactory.

Shortcoming # 9. No Provision for Automatic Revaluation of Currency:

Another important defect of the Fund is that it provides no appreciation or revaluation of the country’s currency when the country enjoys a chronic favourable balance of payment. The Fund has not succeeded to achieve the measures of financial assistance to deficit countries and of stimulating the level of income and employment.

Consequently the Fund has absolutely failed to solve the problem of the chronic debtor countries.

Shortcoming # 10. Wrong Assumption of Par Values:

The Fund aimed at bringing a system of free convertibility of currencies and to express the part value of their currencies in gold or in term of US Dollars but IMF has failed to achieve this objective. Thus, the choice of the par values of the Fund was ill advised.

Shortcoming # 11. Defective membership of the Executive of the Fund:

Another glaring shortcoming of fund is that the Executive of the Fund has been so organised under the safeguard of the interests of the rich countries like America and UK, Truly, these countries have dominance over the executive only due to defective procedure of selection of members to the executive of the Fund.

Shortcoming # 12. Only Secondary Role:

Some critics have openly criticised the functioning to the Fund saying that the IMF plays not only secondary role in international monetary relations but half-heartedly. It has failed to provide facilities for short- run period. This has reduced the creditability of the Fund.

Shortcoming # 13. Most Unsatisfactory Repurchase System:

The purchase system of the Fund is most unsatisfactory and impracticable to the needs of the developing countries. In fact, it could not control over international transmission of depression and inflation.