|The IMF, developing countries and Eurocrisis|
2012 06 25
The International Monetary Fund (IMF) came into official existence in December 1945 and began financial operations on 1 March 1947. One of the objectives of the Fund was to make its general resources available to its members experiencing actual or potential balance of payments problems, strengthen cooperation among the states and ensure stability.
Initially the IMF encompassed 29 countries. Later, after the majority of African countries attained their political independence and financial support was necessary for their economies, the Fund has been rapidly developing. The second major development period of the IMF was after the dissolution of the Soviet Union, when the Fund played a central role in assisting transition of the countries of the former Soviet bloc to the market-driven economies.
A core responsibility of the IMF is to provide loans, technical/legal assistance and counseling to national governments and central banks. The IMF is also involved in conducting research, collecting statistical data and forecasting. It should be noted that poor countries have preferential access to the IMF financial assistance compared to the developed states. For the provided loans the IMF requires to cut public budgets and commence social and structural reforms (adjustments). When the IMF provides a loan for a country a due diligence exercise is carried out by releasing the loans in phased installments depending on the success of the former stages.
Recently the IMF is mainly focused on the Eurozone crisis. According to IMF, the global economic recovery of 2012-2013 will be temporary and economic problems in the Eurozone might again reduce the economic growth. At the end of 2011 the IMF was convinced that the EU would manage the Eurozone crisis, yet at the beginning of 2012 the Fund asked its member states to increase their bailout funds to EUR 700 billion. According to IMF representatives, EU Member States must seek more extensive integration and discipline imposing sanctions on countries in case of rule infringement. Besides, the IMF suggests introducing the principle of common responsibility for the EU Member States by attracting Eurobonds, and this could connect the countries via borrowing and lending. The majority of EU Member States opposed the Eurobond proposal.
The Eurozone crisis is mainly managed by the so called troika consisting of the EC, the European Central Bank and the IMF. However, the Eurozone countries cannot reach the agreement concerning the assistance to Spain, Greece,Portugal and Ireland. The IMF cannot be indifferent to the above problem since economic situation of the EU is instrumental to the global economy.
Some states want to contribute to the increase of the IMF loan fund. Japanpromised to invest about EUR 47 billion to the IMF to help fight the EU debt crisis. Russiain exchange for its support wants to increase its influence in the EU and purchases the shares of the impaired strategic objects related to oil, gas, seaports, banks etc. Brazilalso contributes to the rescue of the Eurozone since problems of the Eurozone undermine economic growth of the country. According to the IMF, due to the 2012 recession in the Eurozone the growth of the Chinese economy might also decline.
The International Monetary Fund is an international institution and shall equally represent all the countries, yet Western countries have more sway in the Fund. Recently Brazil,India, China, Russia and other countries have been seeking more influence in the IMF, yet they cannot reach the political and economic compromise and are not able to compete with Western countries.
The IMF has also been criticized, especially by the developing countries. According to some observers, activity of the IMF in this part of the world causes poverty and starvation problems, since the provided loans are not used purposefully, and certain countries are suggested to implement unsuitable economic policies. Besides, the IMF requirements imposed on beneficiaries often worsen their economic situation, and the reforms lack transparency.
In response to the criticism representatives of the IMF say that during the economic downturn problems are inevitable and that the ones who criticize can only see short-term problems and cannot discern long-term perspectives.
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