The Role of IMF in World Economy
The IMF or the International Monetary Fund is a global organization in-charge of overseeing the worldwide financial system. The IMF was established in 1944 with the role to aid countries in rehabilitation specifically in financial transactions. Its establishment in 1944 led to the stability of worldwide exchange rates. This helped various countries establish their economy or slowly recoup their losses from the 2nd World War. The IMF is regarded as one of the most powerful organizations in the world because of their influence in a country’s economy as they can provide the much needed assistance or aid to help a country. The organization’s main headquarters is in Washington DC.
The following are the major roles of the IMF
Stabilize exchange rate
The IMF ensures that the exchange rate between countries are fair and according to their financial standing.
Growth and balance of trading
The IMF is the biggest promoter of international trading. But while they make sure that trading between countries exists, they also have to make sure that trading is fair and no one is exploited.
Providing financial aid
Countries needing financial assistance often go to IMF for additional aid.
Technical aid for payment
Aside from helping poor countries with their financial problems, the IMF also provides them assistance on how to pay for the said loan they got from the IMF.
GDDS and SDDS
The IMF also works to improve data dissemination to profile each country. The data is focused on the financial standing of a specific country. Each member country is required to prepare this data and they are readily available to the public. The IMF has created two types of reporting system: the GDDS (General Data Dissemination System) and the SDDS (Special Data Dissemination System). The GDDS was approved in 1996 and the SDDS was approved the next year.
The role of GDDS and SDDS is primarily aimed for statisticians. This also serves as a framework for countries so that they can easily distribute data to different countries that might need the information. These two types of reporting system of economic and financial standing are also used to enforce transparency and reliability of data. This could then be used by counties who might need some financial assistance. Ultimately, the information provided can be used to determine how the country would cope to their economic challenges or even determine a pattern to determine the causes of some of the economic challenges.
The difference between GDDS and SDDS is on the capital market data. GDDS provides basic information about the economic and financial standing of a country while SDDS extends the report to capital market. Most countries use the SDDS to show their economic standing and attract more investors.
Methods of Assisting Countries
The IMF provides assistance to countries undergoing financial trouble. For the country to receive financial aid, they have to be a member of IMF. As of this writing, there are currently 187 members and everyone can ask for financial aid if their country is economically weak or undergoing some financial troubles. The IMF could provide the needed assistance and the funds come from the contribution from the 187 member-countries.
The assistance given out by the IMF is technically not an aid since it’s given out as a loan which means the country who loaned the amount from the IMF should repay the said loan at some time. This is actually the biggest challenge for the IMF as they have to give out a loan to an economically struggling country. It could be possible that they will end up losing the loaned amount because they will continue their economic practices.
However, IMF ensures that payment will commence in sometime by allowing the loan with some restrictions. They will provide the loan after some agreed policy changes that could reform the country is enforced. The IMF oversees these policy changes to ensure that the policy created could benefit the country where they could slowly repay their debt. Because of their ability to influence policy changes, the IMF is considered a very influential organization. They can easily influence the government to change their policies since member countries know that they will not receive any aid without fulfilling the prerequisites.
Criticisms on IMF
The International Monetary Fund’s ability to influence policy, trade and even political settings in a country is also its biggest source of criticism. Various groups have strongly criticized the existence of IMF. Among the group are the advocates of free trade. IMF is directly influencing economics which is a direct opposite on what the free trade market advocates follow.
But aside from criticisms from the free trade advocates, the IMF was also criticized for its influence on various problems especially in developed countries. One of those problems is the possibility of exploitation of the poorer countries. The IMF always enforces strict economic policies for poorer countries so that they can quickly pay their debt. However, this could lead to exploitation not only in the workforce but also in the environment as raw materials from these countries are used for more products and for import.
Since its establishment in 1944, the IMF is known to enforce balance in world economy. Although they have been criticized for some of their policies, they have also provided the needed assistance for poorer countries. Aside from offering loans to poorer countries, they also make sure that the countries will eventually pay by monitoring their economic reforms.