Role of the IMF in Developing Countries

Role of the IMF in Developing Countries

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Role of the IMF in Developing Countries

The International Monetary Fund (IMF) was formed to promote financial stability and economic growth globally. The organization is supposed to reduce bottlenecks that stifle commerce and encourage international trade. To satisfy its objectives, IMF uses lending, capacity building, and monitoring methods. Currently, the IMF is facing a legitimacy crisis because of its relationship with Third World countries, which assume a significant share of the fund’s services. The criticism against the IMF is based on numerous issues that relate to the approaches implemented in the formulation and execution of financing policies.

One of the areas highlighted by critics of the Fund is the conditions imposed on borrowing countries. The IMF attaches prerequisites on loans based on the terms established by the Washington Consensus (Kentikelenis, Stubbs, & King, 2016). The Accord imposes a strict rule on the liberation of various sectors of the economies of the borrowing countries, specifically trade, financial and investment segments. The fund also pushes for privatization and deregulation of national industries. However, such measures do not contribute to the economic health of the countries in question because their interests are discarded even though the Fund standardizes the conditions for all. Despite the numerous stipulations in place, the economic position of the countries remains unresolved.

The provisions placed by the IMF usually result in a loss of the states’ ability to govern their economies. The national policies are controlled and predetermined by the organization (Cassimon, Verbeke, & Essers, 2017). Therefore, the issue of the countries’ sovereignty arises. States are also governed from Washington in an institution that fails to recognize developing countries. In this respect, the conditions are seen as a modern form of colonialism. States should be accorded the necessary freedom to govern their economies as long as they can repay the loans.

In some instances, the packages offered by the IMF have been linked to adverse outcomes in the public education and health sectors. The countries that take up facilities from the fund are unable to provide their citizenry with the required social amenities (Broome, 2015). The loans are used to fund massive capital projects such as roads, ports, and railways. A significant portion of the budgetary allocation in subsequent years is channeled towards reimbursement of the resource. Therefore, social amenities are underfunded, forcing Third World nations to depend on foreign donors to meet the needs of the rapidly growing population.

The IMF is also criticized for the exchange rate reforms. For instance, in 1990, the Fund intervened to resolve the financial situation in Kenya. The Central Bank of the country was required to remove the controls on the flow of capital (Kentikelenis, Stubbs, & King, 2015). However, the consequences affected the respective state because the Fund failed to reconsider the worthless checks and evaluation systems that comprise Kenya’s financial system. As an outcome, the measure made it convenient for corrupt government officials to siphon funds necessary for achieving economic growth. The insistence on blanket reforms by the organization is the leading cause of such challenges. Changes should be tailor-made for a particular economy based on their present necessities.

The IMF has also been disparaged for lack of involvement and transparency. In certain situations, the Fund has imposed policies without consulting the affected countries (Eichengreen & Woods, 2016). In most cases, the organization designs procedures and guidelines by relying on internal economic expertise. The reliance on such proficiency is detrimental in situations that involve developing countries due to insufficient understanding surrounding their financial systems. The input of professionals and individuals in governance from the borrowing state is also essential. The experts understand their country better, and the political leader represents the aspirations of the people. Imposing policy without consultation illuminates the overbearing character of the institution.

The Fund has also been condemned for supporting the reign of dictators and authoritative leaders. For instance, in Argentina and Brazil, the IMF worked with military dictators (Eichengreen & Woods, 2016). Ironically, the fund pushes for liberalization of the economy, but it does not call for political and civil freedoms. Studies indicate democratic countries that respect the rule of law are more likely to succeed economically (Eichengreen & Woods, 2016). Hence, if the IMF is more concerned about the economic prosperity of the countries, it should encourage democratization. Authoritarian governance muzzles economic growth because investors are not sure about the stability of the country.

Over time, the International Monetary Fund has faced much criticism mainly because of the conditions that guide loan financing. The IMF has also been disparaged for lack of accountability and the willingness to support regimes with a poor record in human rights. The structural adjustment program recommendations and macroeconomic interventions by the Fund worsen the current economic situation of developing countries. In this context, the IMF would achieve its aim effectively if it becomes more accommodative to the specific circumstances faced by each nation. Secondly, the Fund should consult with the governing agencies of these countries when designing economic guidelines since blanket reforms indicate a lack of expertise in poverty reduction and development. Local financial experts are efficiently positioned to devise policies that can influence the lives of the citizenry.

References

Ahmed, S. (2018). A critical evaluation of IMF history and policies. Management and Economics Research Journal4(1), 3270.

Broome, A. (2015). Back to basics: the Great Recession and the narrowing of IMF policy advice. Governance28(2), 147-165.

Cassimon, D., Verbeke, K., & Essers, D. (2017). The IMF-WB Debt Sustainability Framework: Procedures, applications, and criticisms. Development Finance Agenda (DEFA)3(1), 4-6.

Eichengreen, B., & Woods, N. (2016). The IMF’s unmet challenges. Journal of Economic Perspectives30(1), 29-52.

Kentikelenis, A. E., Stubbs, T. H., & King, L. P. (2015). Structural adjustment and public spending on health: Evidence from IMF programs in low-income countries. Social Science & Medicine126, 169-176.

Kentikelenis, A. E., Stubbs, T. H., & King, L. P. (2016). IMF conditionality and development policy space, 1985–2014. Review of International Political Economy23(4), 543-582.

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