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

IMF: Buira (22) de that IMF has played a significant role in helping providing financial assistance to poor countries, that experience higher levels of debts, and which face financial and economic instabilities. However, the aid under consideration comes with fresh and extended loans that the country borrowing the money has to meet certain stringent conditions, and pay back the loan. This paper analyzes the role of the IMF in providing financial assistance to poor countries, and why IMF does so.

This paper further analyzes the conditions that a country has to meet, for purposes of being eligible for a loan, and the ethical foundations of IMF that it uses to help debt ridden countries. This paper further analyzes whether these loans are helpful to the development of poor countries, and whether there are any undisclosed policies relating to the activities of IMF. This paper has a conclusion, which is a summary of the major points indentified in it. One of the major reasons as to why the IMF helps poor and debt ridden countries is to help in promoting monetary cooperation amongst the countries operating in the world.

In providing assistance to debt ridden countries, IMF aims at establishing a multi-lateral trade system, in the world. IMF hopes that through its funds, it will manage to remove all controls and restrictions on foreign exchange that is imposed by the country under consideration. Furthermore, IMF hopes to provide short term financial assistance to these countries, for purposes of helping them to fight poverty, increase employment, and promote a balanced growth of international trade. The conditions established for being eligible for these loans is referred to as structural adjustment policies.

Under these policies, the IMF required countries seeking for loans to liberalize their economies, for purposes of promoting free trade. It is important to understand that the structural adjustment policies began in the 1980s, at this time; most of the third world countries did not have a liberal economy ((Truman, 19). Most of their economies were characterized by a heavy regulation of the government, in almost all the sectors of their economy. The argument by IMF is that a liberal economy would attract foreign investments, and this is useful for the developing countries (Fratianni, 46).

This is because foreign investors would provide revenue for the country in terms of taxes, as well as they would reduce levels of unemployment in the country. On this basis, these nations would have sources of revenue that would help them in financing their budgets. Another condition attached to these policies was democratization of the countries under consideration. IMF insisted on democracy, and this is because chances are high that a democratic institution would manage to have institutions that promote good governance.

For instance, a democratic institution would have a free and independent judiciary, as well as legislature, which have the capability of providing checks and balances to the activities of the executive (Fratianni, 41). On this basis, chances are high that corruption will be minimized, and money that they lend to the poor countries would be correctly used. Another condition that these states had to meet was the privatization of state owned enterprises. The aim of this requirement was to increase efficiency in the provision of the services that were provided by the state.

This was based on the argument that when these services are provided by the private sector, there will be innovation which is an aspect that is useful in increasing the quality of the service as well as the efficiency in the provision of the service under consideration. Another argument is that through privatization, states will have a decreased spending, and hence they will have the capability of using their money in meeting their budget deficits (Truman, 29). Other condition was the enactment of austerity policies.

These policies required governments to reduce their spending, and this included in areas such as employment, education, and other social programs. These programs were aimed at helping the borrowing country to achieve a balanced budget. It is important to understand that IMF also has some ethical considerations in using debts, for purposes of helping poor countries that are heavily in-debted (Fratianni, 27). IMF believes that by issuing debts to these countries, they may use the money under consideration for development purposes, which as a result will spur the growth of these countries, enabling them to fight poverty, and improve the welfare of their people.

IMF believes that through debts, the institution would be able to recover their money; as a result, the institution would have money to lend to other needy and poor countries. However, it is important to denote that the loans provided by IMF are not useful to debt ridden countries (Truman, 33). This is because of the negative effects associated with the structural adjustments policies. These policies ensure that debt ridden countries are able to cut spending on some crucial areas of the economy, which includes education, health, employment, and even agriculture.

This as a result increases poverty, and not development as envisioned by the IMF (Buira, 31). The enactment of structural adjustment policies also allow the entry of multi-national corporations, which are accused of exploiting workers, as well as destroying the environment. Furthermore, these loans advanced only promote the interests of the wealthy states, which provide the major bulk of the loan. These states are France, USA, Britain, Japan, and Germany. IMF further promotes the development of an export-import economy, by insisting that third world countries should give tax breaks, as an incentive to international trade.

This is detrimental to the economies of these nations, mainly because they won’t be able to collect enough revenue to facilitate their budget deficits. This therefore leads scholars to believe that IMF and its policy formulators normally have undisclosed agenda regarding the enactment of certain policies. This is also based on the fact that IMF is a very secretive organization, and this is because it only works with a group of selected bankers and finance secretaries who initiate policies without an input from other departments such agriculture, health, etc.

IMF has also constantly refused calls to make it accountable for its actions and policies. In conclusion, IMF is an institution that does not serve the interests of developing countries, and poor countries. This is because the institution has been unable to make poor countries, despite advancing them loans. The main reason for this failure is the stringent conditions set up by IMF to the developing countries, which on most occasions are not beneficial to their economies. The austerity policies, privatization, and liberalization of their economies are some of the policies that have made developing countries to be unable to achieve development.

Works Cited: Buira, Ariel. Challenges to the World Bank and IMF developing country perspectives. London: Anthem Press, 2003. Print. Buira, Ariel. Reforming the governance of the IMF and the World Bank. Chicago: Anthem Press, 2005. Print. Fratianni, Michele. Sustaining global growth and development G7 and IMF governance. Aldershot, Hants, England: Ashgate, 2003. Print. Truman, Edwin M.. Reforming the IMF for the 21st century. Washington, DC: Institute for International Economics, 2006. Print.