International Monetary Fund

Introduction by Faiza Aziz

 What is IMF?
The International Monetary Fund (IMF) is the
intergovernmental organization that oversees the
global financial system by following the
macroeconomic policies of its member countries, in
particular those with an impact on exchange rate and
the balance of payments.
It also offers highly leveraged loans, mainly to
poorer countries. Its headquarters are in
Washington, D.C., United States.
Members of the IMF are 186 of the UN members and
Kosovo.
 Background & Facts
It was founded toward the end of World War II. The
founders aimed to build a framework for economic
cooperation that would avoid a repetition of the
disastrous economic policies that had contributed to
the Great Depression of the 1930s and the global
conflict that followed.

The International Monetary Fund was conceived in

July 1944 originally with 45 members and was
formally organized on December 27, 1945, when the
first 29 countries signed its Articles of Agreement.
IMF Activities
Giving policy advice to governments and central banks
based on analysis of economic trends and cross-
country experiences
Providing technical assistance and training to help
countries improve the management of their economies.
Giving concessional loans to help fight poverty in
developing countries; and others to overcome
economic difficulties.
 Original Aims
To provide a forum for cooperation on international
monetary problems
To promote exchange rate stability and an open system of
international payments
To lend countries foreign exchange when needed to
address balance of payments problems.
To facilitate the growth of international trade
 Tools of IMF
Surveillance
It regularly monitors global, regional, and national economic
developments.
Technical assistance and training
To strengthen their capacity to design and implement
effective policies.
Lending
to finance balance of payments, provides funds to facilitate
recovery.
IMF also collaborates with
World Bank
Its loans finance infrastructure projects, the reform of
particular sectors of the economy, and broader structural
reforms.
Other international organizations
World Trade Organization (WTO) , Switzerland-based
Financial Stability Board, United Nations
Think tanks, civil society, and the media
Top Donor and Receiving Countries
Effect of Foreign Aid (Giving and
taking)
Syed Ali Raza
Aids or “AIDS” for countries
Aid is seldom given from motives of pure altruism; it
is often given to support an ally in international
politics.
Aid to underdeveloped countries has sometimes been
criticized as being more in the interest of the donor
than the recipient, or even a form of Neo-Colonialism
“Paisa Bolta Hai?” Kind of…!!!
Effects of IMF “Aids” Policies
Insensitivity to Local issues
Unemployment
High interest rates
High interest payments
Neo liberal economy
Federal Role in minimized
Privatization is encouraged as well as reduced
protection of domestic industries.
Currency devaluation, increased interest rates,
“flexibility” of the labor market, and the elimination of
subsidies such as food subsidies.
Further more… Hepatitis jumps in…
Poor countries must export more in order to raise
enough money to pay off their debts in a timely
manner.
Then, the resources from the poorer regions become
even cheaper, which favors consumers in the West.
Governments therefore must:
spend less
reduce consumption
remove or decrease financial regulations
and so on.
 One of the many things that the powerful nations
(through the IMF, World Bank, etc.) prescribe is that
the developing nation should open up to allow more
imports in and export more of their commodities.
However, this is precisely what contributes to poverty
and dependency.
IMF Policies And Their Effects

By
Raana Kazmi
Over time, the IMF has been subject to a
range of criticisms which include:

1. Conditions of Loans
• Reducing government borrowing

• Higher interest rates

• Structural adjustment
COUNTRIES MOST AFFECTED BY THE ASIAN CRISIS
Argentina - Depositors protest the freezing of their accounts

 
2. Exchange Rate Reforms

GoldenBerg Scandal - Kenya 1990s

• Central bank removed controls over flows of capital

• Easier for corrupt politicians to transfer money out of

the economy
3. Supporting Military dictatorships.

 
 4. Lack of Transparency and involvement

Jeffrey Sachs, the head of the Harvard Institute for

International Development said:
"In Korea the IMF insisted that all presidential candidates immediately
"endorse" an agreement which they had no part in drafting or negotiating,
and no time to understand. The situation is out of hand...It defies logic to
believe the small group of 1,000 economists on 19th Street in Washington
should dictate the economic conditions of life to 75 developing countries with
around 1.4 billion people."
Also...

5. Devaluations 

6. Free Market Criticisms

7.  Neo Liberal Criticisms

Why did successive governments opt for the
IMF programs?
1) Need to obtain financial resources for resolving
balance of payments problem.
2) Secure access of funds from other international
financial institutions and bilateral donors.
3) Get a ‘Seal of approval’ for seeking commercial and
export credit facilities.
4) Shift the blame for some of t he politically unpopular
decisions to external pressures and compulsions.
5) The attempt of reformist economic managers to
restrain and block the pursuit of populist policies by
political leaders.
6) In post 1998 period to get debt relief and rescheduling.
Pakistan and IMF, brief history
Pakistan, unfortunately, shares a long history of
dependence on foreign aid and donor organizations like
IMF.
1950-1980
Joined IMF
Asked for loans in 1958.

1980-1999
Increase in Sales Tax
Prices of Wheat, rice, cotton etc were decreased to match
the prices of International Market.
Cont..
2nd Major agreement singed under the title of Standby
Arrangements for SDR 265 million.

2000- till now:

Pakistan turn to IMF yet again in November 2008 for a
$ 7.6 billion emergency loan has raised.
The loan recently got increased to $ 11.3 billion (6.3
percent of GDP) with the deadline extended till end of
2010.
10 Years of I.M.F Structural Adjustment Program
IMF: Agent of Poverty
or Development?
 Structural Adjustment Programs
Impose Harsh Conditionalities

Require nations to abandon important

domestic programs that serve the population

As IMF forces countries to downsize government agencies,

the ranks of the unemployed grow faster than the private
sector can absorb them
IMF policies raise interest rates, preventing small businesses from obtaining
capital needed to expand or stay afloat, leading to further unemployment

Meanwhile, removing barriers to foreign investment and trade, insisted upon by the
IMF and enforced by the WTO, making it harder for local producers to compete
against bigger, richer foreign businesses

This system leaves countries utterly dependent upon market and pricing systems over
which they have no control
Countries give up the ability to determine their own destinies

DEPENDENCY AND POVERTY CREATION

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Road Forward Without

IMF
 auaisay.com
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• More than half of Pakistan’s Population is below the age of 25

• Its available workforce is 85 million
• It has the all Four-Weather season with huge tracts of fertile land
• Coal reserves among top five in the world. The worth of these reserves in
international market goes into trillion of dollars
• The copper reserves declared by the state amount to more than a trillion
dollars in international markets
• Gold and precious stones available in the region has tremendous potential
amountingSize:
to 700 billion dollars 691 × 455
• Its dairyType:
sector production is fifth in the world
113KB ranking
JPG
• Its tourism sector has a huge potential under explored due to law and order
situation
• The agriculture sector must now be upgraded into process and semi-process
industry
• The value addition for our agricultural produce should go beyond the
dependence on cotton textile. Cooked and semi-cooked food should become the
main engine of growth
• The issue of governance for providing security to the economic zones must run
high on the agenda of the state. The potential for strategic location has been
undermined by disturbances in Balochistan and border areas of Khyber PK. It
has badly affected Gawadar’s potential to serve as the trade gateway from
Central Asia to ASEAN and South African territory
• The state must avoid all foreign influences on running its economic and
political policies
• Pakistani could be workshop of the world provided its workforce properly
trained.
• Pakistan could get rid of IMF and World Bank by building water reservoirs
including Bhasha and Kalabagh dams.
• $ 3 billion could be saved only through the completion of Kalabagh Dam and
up to 40% of oil import bill could be curtailed if this project is given go ahead
by building political consensus.