International Finance - Essay Example

27 June Introduction The man International Monetary Fund (the IMF) is to promote global economic stability and growth (Fritz-Krockow and Ramlogan 1). This mandate is clearly exhibiting that the IMF’s every global economic effort and policy must be in cognizance with its fundamental objectives and it must not have anything that is in contradiction with its stated fundamental objectives. However, in this regard, it is important to mention that it is the IMF’s mandate to pursue and recommend those economic short term or long term policy measures which must stabilize economic stability along with growth of respective country.

However, the findings of Stiglitz show something which is in total contradiction with the stated objectives of the IMF. Instead of pursuing the economic objectives of poorer economies, it has assured the global financial community that their financial objectives would decide the fate of poorer nations’ economies and their growth as well. IMF serves the interests of the global financial community by supporting and imposing their agenda in its policy matters towards the targeted poor regions and countries (Stiglitz 195).

Based on this statement, it can be deduced that the IMF is not fulfilling its assumed role in which growth and stability are key factors that are mainly determined and pursued by the IMF through promoting the relevant economic policies and policy guidelines. Moreover, it is also important to mention that IMF may not have a uniform policy to satisfy the expectations and requirements of the global financial community but adopts different economic policies and practices. For example, for Brazil it has and it will pursue different complex economic policy which will be directly or indirectly satisfy the requirements of the financial community whose interest and investment are not currently generating the expected returns or those members of the financial community who are interested to invest in Brazil but the government is reluctant to provide their choice based investment climate only serving their interests at the cost of government interests.

Also, the poorer nations are easy and soft targets for the IMF because they do not have economic power and diplomatic skills to tactfully handle the rude and complex attitude of the IMF representatives. As a result, they find it hard to resist the IMF appropriately and they are forced to accept the unjustified conditions. The IMF spent billions of dollars for trying to destabilize the exchange rates of Russia and Brazil at unsustainable level (Stiglitz 198). This step clearly violates the fundamental objectives of the IMF in which it is unequivocally written that its main objectives include promoting stability along with growth through its policies and practices throughout the world.

Instead of promoting stability in the exchange rate for Brazil and Russia, IMF used its own mechanism to serve the financial and political interests of the opponents of Brazil and Russia. In this regard, it is important to mention that IMF is not a political enterprise but a global economic entity charged to work for global stability and promotion without taking into account the political dimension or political realities in the geopolitics of the world. However, that did not happen and through destabilizing the exchange rates of Russia and Brazil, IMF proved its full loyalty towards those international powers who wanted it to use its economic mechanism for fulfilling their political agenda against Russia and Brazil.

Additionally, the role of IMF also proved that it is not purely pursuing the economic objectives but has strong commitment for pursuing the political agenda as well in which it can go to any extent. At that time when the Brazilin and Russian exchange rates required stability through the economic mechanism, IMF did not act in a way to promote their exchange rate stability which was highly required and essential at that time because the exchange rate system was newly introduced and was required economic and policy support from international members for upholding the smooth functioning of this newly born economic system.

IMF even compromises on its own basic standards of economics (Stiglitz 201). In this regard, it is important to highlight that in standard market economics the consequence of bad loan is to be faced by the lender when the borrower declares bankruptcy; however, the IMF did not follow this mechanism instead it facilitated and provided funds to governments for bailing out some Western creditors; in this situation, when the creditors were aware that they would be bailed out, they did not use stringent screening and scrutiny measures before providing loans to the borrowers; consequently, and this proved to be a major moral hazard in the IMF policy and practice (Stiglitz 201).

In other words, it can be deduced that the IMF did not adopt this policy measure for all types of creditors but they gave special and preferential treatment to the Western creditors. Consequently, it can be extracted that the Fund has separate credit and bail out policy for Western creditors and separate measures are taken for the non-Western creditors; this is a stark and severe example of discrimination. At the same time, it can also be contended that such deviation from its own stated policy raised many questions about the stated and actual intentions and objectives of the IMF and its policies in which discrimination and policy of preferential treatment are obvious, clearly demonstrating that the IMF has a separate agenda that it pursues through its own policies and practices.

IMF always preferred that private sector institutions should always be a part when it bails out any country (Stiglitz 202). It is further explained that the IMF always wanted to include the private sector institutions when it was required to bail out any country in which the IMF always insisted that the private sector lenders must be included; and this major policy change was first time applied to the weaker and powerless countries such as Romania and Ecuador (Stiglitz 202). For new economists, such approaches and policies raise numerous questions.

The questions include that the IMF is not working to protect the private sector entities and why this emphasis is constantly made by the IMF and what connection it has with the overall bail out strategy for any particular country. These are the some of the questions that are very difficult for the IMF supporters to defend and provide a reasonable and strong argument in favor of such policies of the IMF. Moreover, if the IMF really wanted to try to ascertain the subsequent effect and the ramifications of such policy, it should have chosen the stronger economies and powerful countries such as Brazil and Russia (as argued by Stiglitz 202).

As the IMF applied this new policy shift on weaker countries, like Ecuador and Romania, it can be said with a reasonable certainty that the intention behind this policy was something different than the stated objectives mentioned in the overall global economic policy framework of the IMF. More importantly, this practice also proved that the IMF has and practices the policy of discrimination in which the weaker and poorer nations are targeted even for the experimental purposes as well. Conclusion The IMF purely serves the economic interests of the global financial community.

Its policies and practices are more compatible to the financial and economic objectives of the global financial community than its own states objectives. Similarly, instead of promoting and stabilizing the exchange rates of Brazil and Russia, the IMF tried to destabilize them through putting billions of dollars. Also, the findings reveal that the IMF has deviated from its own stated objectives when it showed a preferential treatment toward the private sector institutions in its bail out policies and strategies.

Works Cited Fritz-Krockow, Bernhard., Ramlogan, Parmeshwar. (Eds.) International Monetary Fund Handbook: Its Functions, Policies and Operations. Washington: International Monetary Fund, 2007. Print. Stiglitz, Joseph E. Globalization and Its Discontents. New York: W.W. Norton, 2002. Chp. 8, pp. 195-213. Print.