International Monetary Fund - Case Study Example

IMF International monetary fund IMF was founded to help in the development of developing countries to the level of fully developed countries. However, this main objective has been hindered by certain challenges brought about by arising of crisis, which needs immediate attention and the IMF often coming in to solving this crisis. Some of these are listed below: Little attention to improvements The IMF gives little attention to improving structures of finance in developing countries and too much attention to expensive rescue operations. According to studies done, IMF often responds with exceptional speed when a disaster needing financial help happens; this was not the main course of founding the IMF. It was founded to help developing countries by lending cash for development of financial structures so that it can reach developed stage (Mody & Saravia, 2008). However, this contradicts the functions of IMF presently. Some of these countries engage in highly risky activities with the notion that IMF will come to their rescue in case of failing of the business or inevitable losses. This has led to increased numbers of financial crises due to the increased responsiveness of the IMF to such crises. As a result of the increased number of crisis, the IMF has faced overloading of tasks. This needs response; hence, its main aim of increasing financial structures of developing countries is often slow to allocate and fund them. They give first priorities to crisis’s hit countries hence these countries tend to drag in developments (Mody & Saravia, 2008). Costly short-term crisis management IMF system of short-term crisis management is too costly, responds too slow, its advice often incorrect to the lending and repayment, and its efforts to influence policy and practice too intrusive. IMF management of crisis is often too expensive due to the process of analyzing the extent of the crisis, and vulnerability and the dangers and also the damage it has caused and it can cause if not addressed. This is done by a set of appointed board members to analyze it for a time and make a decision on the outcome and the necessary measures to solve such a crisis. This process is often somehow expensive as it includes payments to those appointed to analyze within that short period. The steps of this process are often costly and expensive as they include vital decisions that need careful analyzation before coming up with a decision (Collyns & Kincaid, 2003). Slow response to crisis Management of crisis is often a slow process as it includes analyzing the extent of the crisis, and the damage caused, the effect it would cause if not collected and the way to solve such. This whole process takes quite some time as careful analyzation is needed and an effective decision found to cater for the crisis found. The board selected takes some time looking into all factors influencing by looking into each carefully and coming up with a plan to take care of such a situation arising. After that, it comes up with a way to implement the plans it has devised. This often takes long; sometimes it might be too late time to respond and the damage maybe already more than expected. Wrong advice to the lending and repayment of loans Some advice offered by the IMF towards lending and repayments may be offensive and lead to bias to a member country. Some IMF lending policies are against some member countries’ policies; such countries are forced to change their lending policies to match the requirements of IMF. IMF loan repayment policies are often against the interests of some member countries and may affect their economic state. These advices often affect the involved member countries (either positively or negatively) and may have an effect to the financial position of such given countries and their economic status (Collyns & Kincaid, 2003). Intrusive policies IMF efforts to influence policy and practice are often intrusive. The IMF way of enforcing member countries to follow the policies is often so intruding to the policies of such countries; sometimes, it goes to such significant extent in the formation of a country’s policy. Such instances have been experienced in different countries, especially in Africa and also some Asian countries where the effect of IMF influence is being widely felt. This is intrusion to a country’s policy formulating ways, and it often causes a country conflicting with the IMF. Debt rate crisis Debt rate crisis in IMF is a commonly experienced the problem from the debt owing countries to the IMF. They may not be able to meet their debts within the specified time span. The specified time of debt repayment is within three to five years and not later than ten years with interest rates slightly less than ten years. This affects countries, which have been lent financial help by the IMF but afterwards are unable to pay the finances back to the IMF. This leads to reduction of capital owned by the IMF for lending purposes due to the reduced amount of capital to lend (Zhang, 1998). This is brought about by a countries lack of getting the results expected or due to poor management of resources offered by the IMF often from social ills in a country. For example, in Russia, Brazil, Mexico and in some African countries, some of crisis solving funds have not been effective as expected and lead to incurring of high debts, which they are unable to pay. These social evils include corruption, political instability, civil wars or dictatorship in such countries (Ghosh, 2002). Exchange rates crisis Exchange rates crisis are also some main issues that occur to IMF and its member countries and how to maintain them. Difficulties encountered in maintaining a system of fixed exchange rates was what brought the formation of the IMF. One of its main aims was to urge its members to allow their national currencies be exchanged without restrictions for the currencies of other member currencies. To get all members to agree to this is always difficult; other members are opposed to this and do not agree to bring conflicts within member countries. This leads to exchange rates crisis since some countries introduce restrictions on currency exchanged, which are often too harsh or hard to meet by some of the developing nations. IMF should study current economic positions of different currencies and any problems or any changes expected to the currencies and make them aware years before the changes happen. It also provides short and medium-term financial assistance in case of a failing balance of payments to any member with a condition that the government promises to reform the economic policies causing the balance of payments problem in the first place (Zhang, 1998). References Collyns, C. & Kincaid, G. R. (2003). Managing Financial Crises: Recent Experience and Lessons for Latin America. IMF Occassional Paper No. 217 . Washington DC: International Monetary Fund. Ghosh, A. R. (2002). IMF-Supported Programs in Capital Account Crises. Retrieved From: http://www.imf.org/external/pubs/nft/op/210/index.htm Mody, A. & Saravia, D. (2008). From Crisis to IMF-Supported Program: Does Democracy Imepede the Speed Required by Financial Markets? New York: Indiana University Press. Zhang, P. G. (1998). IMF and the Asian Financial Crisis. World Scientific 4 (6).   Read More