IMF: Shaping Global Monetary System for 60 Years - Essay Sample

Introduction

Reviewed literature reveals that the IMF has transformed in very many ways as it continues to shape the global monetary system for the last sixty years. After its creation in 1945, the IMF began to execute its mandate of controlling the Bretton Woods system as it also champions for the postwar global economic development. Many economists believed that a chain of competitive currency devaluation led to the global economic scenario, commonly called the Great Depression. IMF also drove the role of the global lender of the last option for its affiliate countries with an unstable payment crisis to obtain support (Karabaic $ Kincaid, 2013). The countries in question could seek a loan to help repay its sovereign debt within a given time frame. The borrowed money came from contributions from member states. IMF needs robust reforms due to its many operational flaws courtesy of self-centered decision-making.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Evolution of IMF

IMF has influenced the global monetary systems in very many ways. First, in the 1970s, the Vietnam War contributed to rapid inflation in the U.S hence causing unstable standards of gold (Karabaic & Kincaid, 2013). This situation made the supply dollar outstrip the national government reserve's capability to continue the adequate gold assert to support them (Baunach, 2019). The combination of a rapid increase in dollar supply and the ceasing of dollar-gold conversion facilitated the abolishment of the former approach by B. Woods. This body remained a system that serves global crediting unions as it also engaged in researches and international economic cooperation.

Secondly, IMF funding terms have been traditionally centered on the conditionality, which refers to the specific requirements for the borrower to qualify for credit. These conditions aim at improving the borrowing standards within the macroeconomic context hence resolving the fundamental distress which led to the prevailing standoff. In recent days, IMF's borrowing requirements have also expanded to supersede the macro policy as it now addresses structural matters, namely individualizing national firms and rivalry within the monopoly-dominated areas.

Impact of IMF on Global Financial System

Many negotiations and consultations influenced the formulation of a plan to address the 1970-1980 loan crisis involving Bonds with Latin Americans. The scenario emerged courtesy of the collapse in commodity price, a spike in oil prices, and tightened fiscal policy in the U.S. The plan to mitigate this situation had to get to many sections and organizational board before making it to implementation (Baunach, 2019). Generally, the U.S Treasury helped to negotiate and collaborate the plan as other international development agencies back the financial matters.

The IMF contributed to the scenario by providing loanable finances, technical and economic back up as well as assisting the Treasury to monitor actual utilization of money. There were some conditions imposed on the said nations as related to the plan. For instance, there was a review of tax policy, management to increase revenue, stabilizing the autonomy of central authority, and improving statistic-based accounting infrastructure (Karabaic & Kincaid, 2013). Other situations demanded unorthodox of some elements of the plan. In fact, after IMF misgivings, Brazil drove its wage and price control before breaking a hyperinflationary cycle via the implementation of new money, ingeniously pegging it to the actual-purchasing power index.

In another case, IMF also influenced the mitigation of the Asian crisis of the 1990s, during which it recommended that the affected parties drive a greater exchange rate flexibility response. This crisis brought together Asian nations such as Korea, Thailand, and other Southeast Asian nations (Baunach, 2019). The advice focused on a point that a devalued money has a rewarding effect on buffer and exports the unexpected decline in output. IMF also gives a firm suggestion that required the implementation of the said phases, slow expansion of the band in which money moved as well as lowering the measure of the U.S currency in the pegging basket (Kramer, 2019). However, the organization provided a significant amount of funds to champion for economic stability in the region.

In recent days, IMF is participating in the Euro crisis as exemplified by the recent pledge of more than EUR103 billion rescue package for Ireland, Greece, and Portugal to develop the Eurozone. Either, the organization has also promised to bail out Greece with EUR40 billion, the amount that equals to the recent loan to Brazil of EUR30 billion. Researchers have observed that the IMF's main objective has been to locate and convince wealthy nations to provide rescue funds for countries with financial hurdles with the majority of the cash coming from developed nations. However, the organization has begun obtaining funds from other sources such as China and others. IMF has the pledge to spend more than 10% of its lending to Spain, Greece, and Ireland (Kramer, 2019). IMF has also influenced the negotiation to mitigate the Euro catastrophe by seeking a partnership with the European Commission as well as the Central Bank.

The Need to Reform IMF

Empirical studies show that the changing world and flaws within the IMF operations have called for reformation of the IMF to restructure its approach towards issues. The fact that IMF formation aimed at preventing economic crises such as the postwar situation makes this organization outdated in its mandate. More so, the organization began focusing more on issues of transnational capital and supply-side economics (Baunach, 2019). During the 20th Century, IMF championed financial liberation and structural review initiative with an evangelical push in Asia, which resulted in massive flows of speculative capital that caused the region's financial crisis of 1997. IMF emphasized on harsh budget cuts even when there was no issue with spending because many governments had preserved budget reservoir (Karabaic & Kincaid, 2013). The approach made the economic situation worse in the region

In 2002, IMF made the sister mistake it made in East Asia hence leading to robust economic, political, and social collapse. This situation emerged when the institution pushed extremely contradictory fiscal regulations on the nation's recession (Ewing, 2012). It later claimed that Argentina only remains to it long enough, and it would eventually bounce back. In the latest scenario, IMF emerged with the largest-ever loan stating that it had evolved in the role, and the money would eradicate poverty and protect social spending and the vulnerable (Kramer, 2019). Within 15 months, the initiative seems to present a severe impact on the country in the form of rising rates of unemployment, poverty, and reduced consumer spending muscles.

Elements to Reform in IMF

Elements that need reform in the IMF includes changing the distribution of votes to influence decision-making as the organizational executive board. Both IM and World Bank represent 186 nations, each under the minority but economically influential nations. When they choose leadership, their decisions dominate funding issues (IMF, 2010). The act of reforming the voting structure would create space for developing nations such as Brazil, China. South Korea India and Mexico (Baunach, 2019). Finally, the IMF should reform its approach of selecting its affiliates to allow collaboration with non-government and government affiliates to help improve governance structure.

Conclusion

Evidence shows that since the establishment of the IMF, it has faced successes and flaws in equal measures. Although its primary objective was to support economic development, the influential minority leaders hijacked and have been using it to drive their interests. As a result, there is a need for reforms to offer up-to-date interventions for all member states instead of focusing benefiting a handful of European nations as other nations struggle to develop.

References

Baunach Leo & Merling Lara (2019). Why we must reform the IMF - before it's too late. Open Democracy, 3 October. Retrieved from https://www.opendemocracy.net/en/oureconomy/why-we-must-reform-the-imf-before-its-too-late/

IMF (2010). IMF Survey: G-20 Ministers Agree, "Historic Reforms in IMF Governance. International Monetary Funds, 23 October. Web, Retrieved from https://www.imf.org/en/News/Articles/2015/09/28/04/53/sonew102310a

Ewing, Jack (2012). Stirrings of resentment over I.M.F. help for Europe. The New York Times, 27 October.57 (13)21-23

Karabaic Lillian & Kincaid (2013). Background Briefing: International Monetary Fund. Reed, 5 September. Retrieved from https://www.reed.edu/economics/parker/f12/341/Sim/rpts/IMF.pdf

Kramer E. Andrew (2019). I.M.F., Endorsing Zelensky, Approves Loan for Ukraine. New York Times, 3 December. Retrieved from https://www.nytimes.com/2019/12/08/world/europe/ukraine-imf-loan-zelensky.html