User:QuincyC/sandbox

Functions
The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. In addition, the IMF negotiates conditions on lending and loans under their policy of conditionality, which was established in the 1950s.

Upon initial IMF formation, its two primary functions were: to oversee the fixed exchange rate arrangements between countries, thus helping national governments manage their exchange rates and allowing these governments to prioritize economic growth. , and to provide short-term capital to aid balance-of-payments. This assistance was meant to prevent the spread of international economic crises. The Fund was also intended to help mend the pieces of the international economy post the Great Depression and WWII.

The IMF’s role was fundamentally altered after the floating exchange rates post 1971. It shifted to examining the economic policies of host countries to determine if a shortage of capital was due to economic fluctuations or policy and what type of policies would ensure economic recovery. The new challenge is to promote and implement policy that reduces the frequency of crises among the emerging market countries, especially the middle-income countries that are open to massive capital outflows. Rather than maintain a position of oversight of exchange rates alone, their function became one of “surveillance” of overall macroeconomic performance of its member countries. Their role became a lot more active because the IMF also manage economic policy rather than just exchange rates.

Low-income countries can borrow on concessional terms, which means there is a period of time with no interest rates, through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF). Nonconcessional loans, which include interest rates, are provided mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance via the newly-introduced Rapid Financing Instrument (RFI) to all its members facing urgent balance of payments needs.

Surveillance of the Global Economy
The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its 187 member countries. This activity is known as surveillance and facilitates international cooperation. Since the demise of the Bretton Woods system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of new obligations. The responsibilities of the Fund changed from those of guardian to thouse of overseer of members’ policies.

The Fund typically analyzes the appropriateness of each member country’s economic and financial policies for achieving orderly economic growth, and assesses the consequences of these policies for other countries and for the global economy.

Conditionality of loans
IMF conditionality is a set of policies or “conditions” that the IMF requires in exchange for financial resources. The IMF does not require collateral from countries for loans but rather requires the government seeking assistance to correct its macroeconomic imbalances in the form of policy reform. If the conditions are not met, the funds are withheld. Conditionality is perhaps the most controversial aspect of IMF policies. The concept of conditionality was introduced in an Executive Board decision in 1952 and later incorporated in the Articles of Agreement.

Conditionality is associated with economic theory as well as an enforcement mechanism for repayment. Stemming primarily from the work of Jacques Polak in the Fund’s research department, the theoretical underpinning of conditionality was the “monetary approach to the balance of payments."

Benefits
These loan conditions ensure that the borrowing country will be able to repay the Fund and that the country won’t attempt to solve their balance of payment problems in a way that would negatively impact the international economy. The incentive problem of moral hazard, which is the actions of economic agents maximizing their own utility to the detriment of others in situations where they do not bear the full consequences of their actions, is mitigated through conditions rather than providing collateral; countries in need of IMF loans do not generally possess internationally valuable collateral anyway. Conditionality also reassures the IMF that the funds lent to them will be used for the purpose defined by the Articles of Agreement and provides safeguards that country will be able to rectify its macroeconomic and structural imbalances. In the judgment of the Fund, the adoption by the member of certain corrective measures or policies will allow it to repay the Fund, thereby ensuring that the same resources will be available to support other members.

Criticisms
The IMF is generally unfamiliar with local economic conditions, cultures, and environments in the countries they are requiring policy reform. The Fund knows very little about what public spending on programs like public health and education actually means, especially in African countries; they have no feel for the impact that their proposed national budget will have on people. The economic advice the IMF gives might not always take into consideration the difference between what spending means on paper and how its felt by citizens. For example, Jeffrey Sach's work shows that "the Fund’s usual prescription is 'budgetary belt tightening to countries who are much too poor to own belts' ." The IMF’s role as a generalist institution specializing in macroeconomic issues needs reform. Conditionality has also been criticized because a country can pledge collateral of “acceptable assets” in order to obtain waivers on certain conditions. However, that assumes that all countries have the capability and choice to provide acceptable collateral.

The recipient governments are sacrificing policy autonomy in exchange for funds, which can lead to public resentment of the local leadership for accepting and enforcing the IMF conditions. Political instability can result from more leadership turnover as political leaders are replaced in electoral backlashes. . IMF conditions are often criticized for their bias against economic growth and reduce government services, thus increasing unemployment. Another criticism is that IMF programs are only designed to address poor governance, excessive government spending, excessive government intervention in markets, and too much state ownership. This assumes that this narrow range of issues represents the only possible problems; everything is standardized and differing contexts are ignored. A country may also be compelled to accept conditions it would not normally accept had they not been in a financial crisis in need of assistance.

Reform
The IMF is one of many international organizations and it only specializes on macroeconomic issues. However, the IMF has little to no communication with other international organizations. Close partnership with other specialist agencies is needed in order to better productivity

Use
A recent study reveals that the average overall use of IMF credit per decade increased, in real terms, by 21% between the 1970s and 1980s, and increased again by just over 22% percent from the 1980s to the 1991–2005 period. Another study has suggested that since 1950 the continent of Africa alone has received more than a staggering $300 billion from the IMF, the World Bank and affiliate institutions

Developing democratic countries benefit more than developing autocratic countries because policy-making, and the process of deciding where loaned money is used, is more transparent within a democracy.

IMF and Globalization
Globalization encompasses 3 institutions: global financial markets and transnational companies, national governments that resemble business-oriented regimes linked to each other in economic and military alliances led by the US, and rising “global governments” such as World Trade Organization, IMF, and World Bank led by the White House. These interacting institutions create a new global power system where sovereignty is globalized, taking power and constitutional authority away from nations and giving it to global markets and international bodies.

The establishment of globalized economic institutions has been both a symptom of and a stimulus for globalization. The development of the World Bank, the International Monetary Fund (IMF), regional development banks such as the European Bank for Reconstruction and Development (EBRD), and, more recently, multilateral trade institutions such as the World Trade Organization (WTO) indicates the trend away from the dominance of the state as the exclusive unit of analysis in international affairs. Globalization has thus been transformative in terms of a reconceptualizing of state sovereignty within both international relations and international law.

Following the Clinton administration’s aggressive financial deregulation campaign in the 1990s, globalization leaders overturned long-standing restrictions by governments that limited foreign ownership of their banks, deregulated currency exchange, and eliminated restrictions on how quickly money could be withdrawn by foreign investors. The United States’ economic ideology has a higher likelihood of spreading because of their involvement and influence international organizations such as the IMF and World Bank.