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International Monetary Fund - Article Example

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The International Monetary Fund was founded in an effort to maintain and stabilize the monetary situations in the twenty nine original member countries. As it expanded over the years to include different countries and member state its shape, objectives, and direction changed with the times and in its bid to lend assistance to those in need…
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International Monetary Fund Article
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"International Monetary Fund"

Download file to see previous pages According to the agreements the fund is guaranteed to help the members develop economically as well as socially. Article 1 (ii) states,
"To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy."
Based on this article every member state should enjoy the privileges of economic growth and development. In theory this would be a practical situation but history has show that the Fund itself has several shortcomings and weaknesses.
The preliminary signatories to the International Monetary Fund were mainly countries that subscribed to capitalist policies although France was the first country to benefit from the Fund after its inception in 1947. Under the IMF agreement the countries agreed to keep their currencies convertible to the US dollar and the United States agreed to a peg system where the value of their dollar was in terms of gold. Some saw this system as unable to meet the demand of global trading. Also, speculation caused a decrease in the price of gold. There was also a subsequent devaluation of the US dollar. The par value system was discontinued in 1974 and countries were allowed to choose a system that they think was best for their exchange rate. Some saw this decision by the International Monetary Fund as a sign of weakness. "It appeared that the ability of the IMF to regulate world financial conditions was at least greatly diminished, and perhaps finished" (Devries, 1986). (Peet, Born 68).

After this change of idea regarding the exchange rate the IMF added a new dimension in dealing with its member countries. It became more involved with the economic policies of the countries.

Many countries especially the United States of America and countries in Western Europe had had successive terms of wealth and prosperity so the Fund did not experience a great demand from these countries. The world political situation in the 1970's, however, forced a change on the volume of lending by the Fund. Many countries, especially in the African continent became independent but their new status meant that they needed financial help. Many of these countries lacked the resources and facilities present in the countries in Western Europe. To a large extent a great number was plagued by balance of payment problems. In order to lend assistance to these struggling economies the IMF created the Structural Adjustment Facility in 1986 and replaced by the Enhanced Structural Adjustment Facility in 1987. This consists of concessionary grants drawn up in collaboration with the World Bank. To qualify for these loans a country has to be in the low-income category. There were a total of thirty five countries that benefitted from the Structural Adjustment Facility. The recipients are offered lower interest rates with a chance to repay the loan from between five and ten years. As is common with other assistance of the IMF countries benefitting from these loans are required by the IMF to adhere to certain policies.

These policies are very restrictive and have forced critics to argue if the Structural Adjustment Facility will bring more harm than good. Firstly, there has to be ...Download file to see next pagesRead More
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