Effects of IMF in our economy

MADEBY: NOOR-UL-AIN I.D: 09-2634

About the IMF
The International Monetary Fund (IMF) is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.

Membership:

The IMF has 186 member countries. It is a specialized agency of the United Nations but has its own charter, governing structure, and finances. Through its economic surveillance, the IMF keeps track of the economic health of its member countries, alerting them to risks on the horizon and providing policy advice. It also lends to countries in difficulty, and provides technical assistance and training to help countries improve economic managementThe IMF is helping many emerging market countries tackle the problems brought on by the devastating global economic crisis. Its lending to low-income countries has also been stepped up, as these countries start to feel the effects of the crisis. And it is providing policy advice to advanced countries, for instance on how to address problems in their financing and banking sectors, and how to design effective stimulus packages. As part of its response, the IMF has already more than doubled its financial assistance to low-income countries, with new IMF concessional lending commitments to low-income countries through mid-July 2009 reaching $2.9 billion compared with $1.5 billion for the whole of 2008. As the global economy continues to struggle in 2009, and with both trade and capital flows plummeting, the IMF is foreseeing mounting problems for many countries. The Fund is therefore seeking to add to its resources, and has already negotiated borrowing agreements with a number of countries. The Fund has already made good progress toward its target of $250 billion in bilateral government loans as part of moves to triple the IMF¶s lendable resources to $750 billion. Agreements are already in place with Japan ($100 billion), Canada ($10 billion), and Norway ($4.5 billion), and a number of other countries have committed funds either through Since 2008, the IMF has committed more than $160 billion in lending to a number of countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Poland, Romania, Serbia, Sri Lanka, and Ukraine. It announced a precautionary loan for El Salvador and an IMF team has also been in negotiations with Turkey. loans or the purchase of IMF notes. Since 2008, the IMF has committed more than $160 billion in lending to a number of countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Poland, Romania, Serbia, Sri Lanka, and Ukraine. It announced a precautionary loan for El Salvador and an IMF team has also been in negotiations with Turkey.

In addition, the Fund is closely tracking economic and financial developments worldwide so that it can provide policymakers with the latest forecasts and analysis of developments in financial markets. And it is engaging with the Group of 20 (G-20) leading economies and other stakeholders on issues related to the evolution of the international financial system. Since 2008, the IMF has committed more than $160 billion in lending to a number of countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Poland, Romania, Serbia, Sri Lanka, and Ukraine. It announced a precautionary loan for El Salvador and an IMF team has also been in negotiations with Turkey. Advantages of the IMF.

Advantages of IMF:
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IMF can be seen as lender of last resort. When a country is seeing an exodus of currency due to a balance of payments crisis, the IMF can provide crucial loans to stabilise the economy and prevent a collapse of confidence.e.g. Recent loans to:

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Supporters argue that the IMF can also impose necessary reforms on an economy. Reforms such as privatization, fiscal responsibility, control of Money supply, and attacking corruption. These policies may cause short term pain, but, are essential for preventing future crisis and long term development.

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Provides an external assessment of the economy, which helps the government to implement popular ideas.

Yet, despite the potential benefits of having a monetary fund which can provide an effective counter to financial crisis, the role of the IMF has proved very controversial.

Its critics argue the IMF is dominated by the perspective of the G8 industrialised nations. They argue the IMF insists on blanket policies of structural adjustment which may actually harm the economies.

Yet, whilst it is easy to criticize the doctor which prescribes a bitter pill, there is a consensus that, now more than ever, we need an effective international organization which can deal with the many financial crisis that are occuring around the world.

Tackling current challenges

The IMF is helping many emerging market countries tackle the problems brought on by the devastating global economic crisis. Its lending to low-income countries has also been stepped up, as these countries start to feel the effects of the crisis. And it is providing policy advice to advanced countries, for instance on how to address problems in their financing and banking sectors, and how to design effective stimulus packages. As part of its response, the IMF has already more than doubled its financial assistance to low-income countries, with new IMF concessional lending commitments to low-income countries through mid-July 2009 reaching $2.9 billion compared with $1.5 billion for the whole of 2008. As the global economy continues to struggle in 2009, and with both trade and capital flows plummeting, the IMF is foreseeing mounting problems for many countries. The Fund is therefore seeking to add to its resources, and has already negotiated borrowing agreements with a number of countries. The Fund has already made good progress toward its target of $250 billion in bilateral government loans as part of moves to triple the IMF¶s lendable resources to $750 billion. Agreements are already in place with Japan ($100 billion), Canada ($10 billion), and Norway ($4.5 billion), and a number of other countries have committed funds either through loans or the purchase of IMF notes. In addition, the Fund is closely tracking economic and financial developments worldwide so that it can provide policymakers with and analysis of development in financial market .And it is engaging with the Group of 20 the latest folrecasts (G-20) leading economies and other stakeholders on issues related to the evolution of the international financial system.

Emergency lending to emerging markets
Emerging market countries are facing increasing difficulties around the world because of the spreading global economic crisis, with demand falling for their exports, investment slumping, and cross-border lending drying up. A growing number of emerging economies have found room for policy maneuver becoming increasingly limited, and large-scale official support has been needed from bilateral and multilateral sources. Since 2008, the IMF has committed more than $160 billion in lending to a number of countries affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Poland, Romania, Serbia, Sri Lanka, and Ukraine. It announced a precautionary loan for El Salvador and an IMF team has also been in negotiations with Turkey.The global economic crisis is threatening to undermine recent economic gains and to create a humanitarian crisis in the world¶s poorest countries. In response, the IMF has stepped up lending to low-income countries to combat the impact of the global recession with a new framework for loans to the world¶s poorest nations, including increased resources, a doubling of borrowing limits, zero interest rates until the end of 2011, and new lending instruments that offer more flexible terms. Most low-income countries escaped the early phases of the global crisis, which began in the financial sectors of advanced economies. But it is now hitting them hard, mainly through trade, as financial problems in advanced countries trigger recessions that dampen demand for imports from low-income countries. In addition, more than $18 billion of a planned $250 billion allocation of IMF Special Drawing Rights (SDRs) will go to low-income countries. These countries can benefit by either counting the SDRs as extra assets in their reserves, or selling their SDRs for hard currency to meet balance of payments needs.

Advocating global fiscal stimulus
The IMF is also providing policy advice to advanced countries, for instance on how to address problems in their financing and banking sectors, and how to design effective stimulus packages. Because of the constraints on the effectiveness of monetary policy, fiscal policy must play a central role in supporting demand. The IMF has advised countries that a key feature of a fiscal stimulus program is that it should support demand for a prolonged period of time and be applied broadly across countries with policy space to minimize cross-border leakages.

But countries also need to be mindful of medium-term fiscal sustainability. The cost of fiscal stimulus packages to revive economies battered by the financial crisis, combined with tax revenue losses from output decline and the huge price tag for financial sector restructuring, will be very large.

Reforming the international financial system
The global economic crisis has sparked a rethinking of how the international financial system is structured. The IMF is assisting the G-20 industrialized and emerging economies with recommendations to reshape the system of international regulation and governance. To a large extent, global efforts thus far have been focused on the crisis at hand, but reforms are in progress with a view toward the post-crisis world. As input into the reform process, the IMF published a comprehensive study of the causes of the global financial crisis. The study takes stock of the initial lessons learnt from the crisis and presses for a worldwide rethink of how to handle systemic risk management. Although economic and financial sector policies will remain primarily the business of national governments, ongoing changes to the global financial architecture²including to the IMF²can reduce the frequency and depth of future crises. Additional changes could also include addressing some of the shortcomings of the decision-making structure of the G-20 by allowing greater scope for joint decision making on a wider set of international economic and financial issues, with the IMF in its newly expanded role as a central player.