Countries That Take On Imf Loans Typically Use The Money To Do Which Of The Following?

Over time, the IMF has been subject to a range of criticisms, by and large focused on the weather of its loans. The Imf has also been criticised for its lack of accountability and willingness to lend to countries with bad man rights records.

Criticisms of the IMF include

1. Conditions of loans

On giving loans to countries, the International monetary fund make the loan conditional on the implementation of certain economic policies. These policies tend to involve:

Reducing authorities borrowing – Higher taxes and lower spending
Higher interest rates to stabilise the currency.
Allow declining firms to go bankrupt.
Structural adjustment. Privatisation, deregulation, reducing corruption and bureaucracy.

The trouble is that these policies of structural adjustment and macroeconomic intervention can make hard economic situations worse.

For example, in the Asian crunch of 1997, many countries such as Indonesia, Malaysia and Thailand were required by International monetary fund to pursue tight monetary policy (college interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. All the same, these policies caused a minor slowdown to turn into a serious recession with very high levels of unemployment.
In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a pass up in investment in public services which arguably damaged the economy.

2. Exchange rate reforms. When the IMF intervened in Kenya in the 1990s, they made the Central banking company remove controls overflows of capital letter. The consensus was that this decision fabricated information technology easier for decadent politicians to transfer coin out of the economy (known as the Goldenberg scandal, BBC link). Critics argue this is another example of how the IMF failed to understand the dynamics of the land that they were dealing with – insisting on blanket reforms.

The economist Joseph Stiglitz has criticised the more monetarist approach of the IMF in contempo years. He argues it is failing to take the best policy to improve the welfare of developing countries saying the IMF "was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community."

3. Devaluations In earlier days, the International monetary fund accept been criticised for allowing inflationary devaluations.

four. Neo-Liberal Criticisms There is also criticism of neo-liberal policies such as privatisation. Arguably these free-marketplace policies were non e'er suitable for the situation of the state. For example, privatisation can create lead to the cosmos of private monopolies who exploit consumers.

5. Free market criticisms of IMF

Likewise as existence criticised for implementing 'free-market reforms' Others criticise the IMF for being besides interventionist. Believers in free markets argue that it is amend to let capital letter markets operate without attempts at intervention. They argue attempts to influence substitution rates merely make things worse – it is amend to allow currencies to achieve their market level. [criticism of Imf]

There is also a criticism that bailing out countries with large debt creates moral adventure. Because of the possibility of getting bailed out, information technology encourages countries to infringe more.

6. Lack of transparency and interest

The International monetary fund has been criticised for imposing policy with little or no consultation with the afflicted countries.

Jeffrey Sachs, the head of the Harvard Institute for International Development said:

"In Korea the International monetary fund insisted that all presidential candidates immediately "endorse" an agreement which they had no role in drafting or negotiating, and no time to understand. The situation is out of manus…It defies logic to believe the small grouping of i,000 economists on 19th Street in Washington should dictate the economic conditions of life to 75 developing countries with around 1.4 billion people." source

vii. Supporting armed services dictatorships

The International monetary fund has been criticised for supporting military dictatorships in Brazil and Argentine republic, such as Castello Branco in 1960s received International monetary fund funds denied to other countries.

Response to criticism of IMF

i. Crisis always pb to some difficulties

Considering the IMF bargain with the economic crisis, whatever policy they offer, at that place are likely to be difficulties. It is not possible to deal with a balance of payments without some painful readjustment.

2. International monetary fund has had some successes

The failures of the Imf tend to exist widely publicised. But, its successes less then. Also, criticism tends to focus on curt-term issues and ignores the longer-term view. IMF loans have helped many countries avoid liquidity crisis, such equally United mexican states in 1982 and more recently, Hellenic republic and Cyprus have received IMF loans.

3. Conviction

The fact there is a lender of last resort provides an important conviction boost for investors. This is of import during the current financial turmoil.

iv. Countries are non obliged to accept an International monetary fund loan

It is countries who arroyo the IMF for a loan. The fact so many take loans propose in that location must exist at least some benefits of the IMF.

5. Imf like shooting fish in a barrel target

Sometimes countries may desire to undertake painful curt term aligning but at that place is a lack of political volition. An Imf intervention enables the government to secure a loan and then pass the blame on to the International monetary fund for the difficulties.

vi. IMF better than previous alternatives.

J.M. Keynes who helped found principles of International monetary fund stated "International monetary fund is the exact opposite of the Aureate Standard. It is an attempt at an improved system of international currency."

External pages

The IMF and World Bank respond to criticisms at the University of Iowa
Common criticisms of the International monetary fund and Latin American Debt Crisis

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