The role of the IMF in helping poor and debt-troubled countries - Assignment Example

This role was cemented by the fall of the Soviet Union, where sovereign countries who were under the Soviet umbrella looked up to the IMF to reconstruct their battered economies. In 1999, the IMF remodeled its role from providing financial assistance to countries with low levels of income to reducing the rates of poverty and growing their economies (Bird 2). The IMF has established itself as a balance of payment institution. Many developing countries experience a persistent current account balance of payment deficit.

It is important to note that not all countries with this problem turn to the institution for help. When a county cannot access external financing or private capital market, they turn to the IMF to settle the balance of payment deficit. Low reserve holdings have also been explained as the reason behind the use of IMF resources by low income countries. Poor countries have accounted for the largest proportion of the institution`s assistance between 1991 and 2002. They have additionally been described as having prolonged use of IMF resources (Bird 8).

The institution`s role of lending to poor countries also helps to unlock external financing or rather serving as a catalyst for other institutions to lend to the countries concerned. By lending to a country, the IMF sends a signal indicating that the country has sound economic policies, investor confidence and a conducive environment for investment. With reference to the IMF, the conditions imposed are policies which should be met before a country can receive any funds. These conditions aim to guarantee that the member country will eventually be able to settle its balance of payment problems and at the same time repay the loan.

The fund has two types of conditions with regard to lending to developing countries. It imposes quantitative and structural conditions. Quantitative conditions include macroeconomic goals which must be