Aiding the Development of Multilateral System - Essay Example

?International Monetary Fund (IMF) Liberal Theory According to the assumptions of this theory, operates within the premises of jurisdiction. The notion that there is a thing such as limited authority or power for the state is the borderline of sphere of state, and it is inadequate for state to intrude this borderline. There are few principles for the grounds of this theory. 1. First, the other institutions are superior to a state and state, in general, will be inferior to these institutions as the degree of competence differs. 2. State must work on the fault principle that is, the blameworthy must not be rewarded for their blameworthiness and must not inflict or punish the man except of their bad deeds or faults. 3. State holds the authority of law and establishes adequate procedures. 4. The power of state has to be distributed and fragmented among different centers. Power at one center should be minimized. 5. Last, state eradicates the fragmentation of powers by dejecting the system of check and balance. Economic Nationalist Theory This theory focuses on developing, flourishing, and guarding national economies. It is widely used in the cases of world markets. Upsurge in the growth of national economies as a result of increased exports created the reality of national economies. This theory emphasizes that there must be a domestic control on capital formation, labor, and economy even if it requires imposition of quotas and tariffs to restrict the movements of goods, labor, and capital. The notion has been generated from the idea that a country would perform better if its local industries were protected from the international competitions. Some of the measures for implementing on this theory include Import Substitutions, Protectionism, and Mercantilism. Under this theory, the government or the state has extensive control on trade and economic matters. Currency depreciation, tariffs, export subsidies, and quota restrictions are some of the methods utilized by government to pursue economic nationalism. Structuralist Theory According to this theory, the disparities among economies of countries are a result of previously derived power relations. This theory advocates an emphasis on an economy with its interrelations with other elements and its totality rather than segregated elements in isolation. For example, the world economies in essence are intrinsically linked resulting in many economic problems as well. International Monetary Fund (IMF) International Monetary Fund (IMF) was developed in 1945 as an international organization. The primary purposes of this organization are: Promoting global exchange and monetary stability Facilitating the balanced growth and expansion of international trade Aiding the development of multilateral system for prevalent transactions Nelson, (n.d.) stated that during the devaluation of Brazilian Currency, though it looked financially sound but the conditions that IMF provided them to follow were difficult to implement. In order to deal with the issue of inflations, Brazil introduced fixed exchange rate. IMF imposed those conditions for two reasons. First, to keep interest rates high so that foreign investors keep their investment in Brazil. Second, these interest rates would decline the growth of thereby reducing overall demand. If the economic nationalist theory would be implemented then the country would have full control on its economy and would not require any other institutions’ condition. In contrast to that, liberal theory undermines the sovereignty of Brazilian country over its economy and urges to outsource its department to an external, more competent organization. As per structuralism theory, the reason due to which Brazil is compelled to fulfill conditions of IMF is its past relations with this organization. Corning (n.d.) stated that the rescue package provided by IMF were not promising. A week after the IMF bailout, the Korean financial market experienced decline of 27% against dollar. Consumers were in panic as businesses and banks paralyzed. It was also supposed to influence the Korean presidential election however, prior to the request to IMF; the economic situation was not as issue for election campaign. The crises that resulted as a rescue package of IMF put the candidates in an intricate situation. IMF was also in an awkward position after these crises. American firms were also questioning the wisdom of IMF. The decision of Korea seems consistent with liberal theory due to which it had to encounter such issues. If the economic nationalist theory had been applied then Korea would have taken better decisions to save the foreign investments, local firms, and consumers. Stiglitz (2000) offers a judgment of prevalent failure of World Bank. Stiglitz (2000) discussed failure of IMF due to implementation of cultural ignorance and obsolete economic policies. Intervention of IMF in economic crisis of East Asia, Latin America, and Russia deteriorated their situation. Stiglitz (2000) further stated that I made the crisis of East Asia longer, deeper, and harder. Thailand, after following the prescription of IMF performed worse than South Korea and Malaysia, which pursued independent pathways. Again, this situation also calls for economic nationalist theory instead of liberal or structuralism. This scenario is a clear example that nowadays, economies are trusting outside organizations more than themselves. These international organizations worsen their situations. Liberal theory has become more prevalent than economic nationalist has. Eichengreen (2002) reviewed the study of Stiglitz (2000). Eichengreen (2002) stated that Stiglitz (2000) criticized the role of IMF for restoring monetary balance. Eichengreen (2002) stated that no professional consensuses are present for this point and not all skeptics are convinced. The crux of the study of Stiglitz (2000) was that IMF is unaware of the political and social instability as a result of implementation of its policies. Under the light of these theories, IMF is more inclined towards stabilizing the inflation in short term and elimination barriers to market efficiency. Eichengreen (2002) stated that these critics are based on Stiglitz (2000) view that professionals at IMF are trained for financial analysis and macroeconomic policies and not on the politics and sociology of the economic development. Under the light of liberal theory, the state must punish those who are blameworthy but in this case, the state is helpless and cannot punish IMF for recommending adverse policies. Structuralism theory states that despite of such destructive implications, relationship with IMF cannot be deteriorate because it will also affect the relations with other countries as in modern economy, world economies are linked with each other. The article published in The Economist also reviewed the study of Stiglitz (2000). The Economist stated that the book written was Stiglitz (2000) was poorly argued and it was not about globalization that it claimed to be. The tone of the book was self-righteous and the policies discussed were unworkable. Mr. Rogoff the chief economist stated that IMF typically provides financial assistance to governments when they are having tough times and the value of their money is declining. Rogoff further stated that IMF helps a country in managing with fiscal distress that it experiences as inflation rises. The remark of Rogoff did not lack substance. Rogoff has also remained as critics in the past but he has given the organization credit for doing its best during intricate situations. The procedures mentioned in this article are consistent with liberal views. As per structuralism, if governments intend to stabilize their currency and reduce inflation then along with recommendations of IMF, local governments must also participate in order to protect the economy of their country. It can be inferred that large numbers of adverse cases are present which were brought to this position by trusting and implementing international organizations. Nowadays, people, organizations, and economies tend to be liberal but the roots can never be transformed. The best implications can be resulted only by secluding own self from outside prescriptions. Economies need to trust themselves in the times of recession. By taking own responsibility, better decisions can be made. Works Cited Corning, Gregory. MANAGING THE ASIAN MELTDOWN: THE IMF AND SOUTH KOREA. N.d. Case 235. Institute for the Study of Diplomacy. Stiglitz, Joseph. Economics of the Public Sector. Washignton D.C.: W W Norton & Company Incorporated. (2000). Print The Economist. Finance And Economics: The Fund bites back; Economics focus. 364, July (2006). Print. Barry Eichengreen. Globalization, Problems. Foreign Affairs. New York: (Jul/Aug 2002). 81.4, p. 157. Nelson, Roy. Causes and Consequences of Brazil’s 1999 Devaluation of the Real. N.d. Thunderbird School of Global Management Read More