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The IMFs Approach to Economic Stabilization - Essay Example

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Economic stabilization in developing countries primarily concerns attempts to correct excessive or unsustainable balance-of-payments deficits, reduce the rate of domestic inflation, or both. "Frequently, stabilization efforts also involved exchange rate reform and changes in the systems of import protection and export incentives…
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The IMFs Approach to Economic Stabilization
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"The IMFs Approach to Economic Stabilization"

Download file to see previous pages In order to truly diagnose the situation, and properly understand the IMF and its current position in the world, we must ask the following questions:
Founded in the turbulent era of the 1940s to stabilize the world economy, and based in Washington, D.C., the IMF (International Monetary Fund) is "an organization of 184 countries, working to foster global monetary cooperation, secure financial security, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty." ("IMF", 2006). The IMF's original purpose was "to establish a code of conduct that would enhance economic cooperation, and avoid the 'beggar-thy-neighbor' policies that led to the economic turbulence of the thirties." (Babb & Buira, 2005). In short, the IMF is a multilateral institution that lends money to governments in order to stabilize currencies and maintain order in international markets. Since the IMF was established its purposes have remained unchanged, but its surveillance, financial assistance and technical assistance operations have developed regularly in order to "meet the changing needs of its member countries in an evolving world economy." ("IMF", 2006). The IMF "plays a key role in defining how much governments can spendThe Fund's view of what defines the macro economic stability of a country is the authoritative one for all development partners." ("Eurodad", 2003).
What are the Main Components of the IMF's Approach to Economic Stabilization
Particularly so in recent years, the IMF's quantitative approach to economic stabilization "has been the subject of considerable controversy." ("Survey", 1999). Considered as "the creator of the 'moral hazard'," (Monsod, 1998), the IMF consists of many programs which are often characterized as being "unnecessarily damaging to growth, harmful to the poor, unduly inflexible and unresponsive to the differing needs and circumstances of member countries, and based on rigid application of outmoded and discredited economic principles." (Mussa & Savastano, 1999).
In order to understand the IMF's approach to economic stabilization and how it functions in all aspects, one must first understand the process of an IMF supported program: typically an IMF supported program is not permanent or 'set in stone' at the beginning of operations, but rather begins with the seemingly simple a request of a member. It is only then that the IMF staff prepares a blueprint of a program that is used for the actual basis of negotiations. After this, when an agreement is reached, the arrangement is cleared by IMF management and then approved by the IMF Executive Board. Disbursements proceed immediately after this if all performance ...Download file to see next pagesRead More
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