Imf's Member Countries For Discussion example essay topic

The IMF is the world's central organization for international monetary cooperation. It is an organization in which almost all countries in the world work together to promote the common good. The IMF's primary purpose is to ensure the stability of the international monetary system-the system of exchange rates and international payments that enables countries (and their citizens) to buy goods and services from each other. This is essential for sustainable economic growth and rising living standards. To maintain stability and prevent crises in the international monetary system, the IMF reviews national, regional, and global economic and financial developments. It provides advice to its 184 member countries, encouraging them to adopt policies that foster economic stability, reduce their vulnerability to economic and financial crises, and raise living standards, and serves as a forum where they can discuss the national, regional, and global consequences of their policies.

The IMF also makes financing temporarily available to member countries to help them address balance of payments problems-that is, when they find themselves short of foreign exchange because their payments to other countries exceed their foreign exchange earnings. And it provides technical assistance and training to help countries build the expertise and institutions they need for economic stability and growth. Why was it created The IMF was conceived in July 1944, when representatives of 45 governments meeting in the town of Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for international economic cooperation. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930's.

During that decade, attempts by countries to shore up their failing economies-by limiting imports devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to buy goods abroad and to hold foreign exchange-proved to be self-defeating. World trade declined sharply, and employment and living standards plummeted in many countries. Seeking to restore order to international monetary relations, the IMF's founders charged the new institution with overseeing the international monetary system to ensure exchange rate stability and encouraging member countries to eliminate exchange restrictions that hindered trade. The IMF came into existence in December 1945, when its first 29 member countries signed its Articles of Agreement. Since then, the IMF has adapted itself as often as needed to keep up with the expansion of its membership-184 countries as of June 2006-and changes in the world economy. The IMF's membership jumped sharply in the 1960's, when a large number of former colonial territories joined after gaining their independence, and again in the 1990's, when the IMF welcomed as members the countries of the former Soviet bloc upon the latter's dissolution.

The needs of the new developing and transition country members were different from those of the IMF's founding members, calling for the IMF to adapt its instruments. Other major challenges to which it has adapted include the end of the par value system and emergence of generalized floating exchange rates among the major currencies following the United States' abandonment in 1971 of the convertibility of U.S. dollars to gold; the oil price shocks of the 1970's; the Latin American debt crisis of the 1980's; the crises in emerging financial markets, in Mexico and Asia, in the 1990's; and the Argentine debt default of 2001. Despite the crises and challenges of the postwar years, real incomes have grown at an unprecedented rate worldwide, thanks in part to better economic policies that have spurred the growth of international trade-which has increased from about 8 percent of world GDP in 1948 to about 25 percent today-and smoothed boom-and bust cycles. But the benefits have not flowed equally to all countries or to all individuals within countries. Poverty has declined dramatically in many countries but remains entrenched in others, especially in Africa. The IMF works both independently and in collaboration with the World Bank to help its poorest member countries build the institutions and develop the policies they need to achieve sustainable economic growth and raise living standards.

The IMF has continued to develop new initiatives and to reform its policies and operations to help member countries meet new challenges and to enable them to benefit from globalization and to manage and mitigate the risks associated with it. Cross-border financial flows have increased sharply in recent decades, deepening the economic integration and interdependence of countries, which has been beneficial overall although it has increased the risk of financial crisis. The emerging market countries-countries whose financial markets are in an early stage of development and international integration-of Asia and Latin America are particularly vulnerable to volatile capital flows. And crises in emerging market countries can spill over to other countries, even the richest.

Particularly since the mid-1990's, the IMF has made major efforts to help countries prevent crises and to manage and resolve those that occur. In 2004, the year the IMF marked its 60th anniversary, its Managing Director initiated a broad strategic review of the organization's operations in light of the new macroeconomic challenges posed by 21st century globalization. The emergence of new economic powers, integrated financial markets, unprecedented capital flows, and new ideas to promote economic development required an updated interpretation of the mandate of the Fund as the steward of international financial cooperation and stability. Globalization, poverty, the inevitability of occasional crises in a dynamic world economy-and, no doubt, future problems impossible to foresee-make it likely that the IMF will continue to play an important role in helping countries work together for their mutual benefit for many years to come. How does the IMF serve its member countries The IMF performs three main activities: monitoring national, global, and regional economic and financial developments and advising member countries on their economic policies ("surveillance"); lending members hard currencies to support policy programs designed to correct balance of payments problems; and offering technical assistance in its areas of expertise, as well as training for government and central bank officials.

When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. And it makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy. The IMF's regular monitoring of economies and associated provision of policy advice-known as surveillance-is intended to identify weaknesses that are causing or could lead to trouble. Country surveillance takes the form of regular (usually annual) comprehensive consultations with individual member countries, with interim discussions as needed. The consultations are referred to as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to collect economic and financial data and to discuss the country's economic policies with government and central bank officials.

IMF staff missions also often reach out beyond their official interlocutors for discussions with parliamentarians and representatives of business, labor unions, and civil society. The team reports its findings to IMF management and then presents them to the IMF's Executive Board, which represents all of the IMF's member countries, for discussion. A summary of the Board's views is transmitted to the country's government. In this way, the views of the global community and the lessons of international experience are brought to bear on national policies. Summaries of most discussions are released in Public Information Notices and are posted on the IMF's Web site, as are most of the country reports prepared by the staff.

Global surveillance entails reviews by the IMF's Executive Board of global economic trends and developments. The main reviews are based on World Economic Outlook reports and the Global Financial Stability Report, which covers developments, prospects, and policy issues in international financial markets; both reports are normally published twice a year. In addition, the Executive Board holds more frequent informal discussions on world economic and market developments. In 2006, the IMF introduced a new tool, multilateral consultations, designed to bring small groups of countries together to discuss a specific international economic or financial problem that directly involves them and to settle on a course of action to address it. Regional surveillance involves examination by the IMF of policies pursued under regional arrangements such as currency unions-for example, the euro area, the West African Economic and Monetary Union, the Central African Economic and Monetary Community, and the Eastern Caribbean Currency Union. The growing interdependence of national economies, and the potential impact of national economic policies on the world economy and vice versa, have prompted the IMF increasingly to integrate the three levels of surveillance.

Through its Article IV consultations, the IMF pays close attention to the impact of the larger economies' policies on smaller economies. It also studies the impact of global economic and financial conditions on the economic performance of individual countries and the repercussions of national policies at the regional level. Lending to countries in difficulty Any member country-rich or poor-can turn to the IMF for financing if it has a balance of payments need-that is, if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain an appropriate level of reserves. The IMF is not an aid agency or a development bank.

Its loans are intended to help its members tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. Unlike the World Bank and other development agencies, the IMF does not finance projects. In the first two decades of the IMF's existence, over half of its lending went to the industrial countries, but, since the late 1970's, these countries have been able to meet their financing needs in the capital markets. At present, all IMF borrowers are developing countries, countries in transition from central planning to market-based systems, or emerging market countries. Many of these countries have only limited access to international capital markets, partly because of their economic difficulties. In most cases, IMF loans provide only a small portion of what a country needs to finance its balance of payments.

But, because IMF lending signals that a country's economic policies are on the right track, it reassures investors and the official community and helps generate additional financing. Thus, IMF financing can act as a catalyst for attracting funds from other sources. What is an IMF-supported program When a country approaches the IMF for financing, it may be in or near a state of economic crisis, with its currency under attack in foreign exchange markets and its international reserves depleted, economic activity stagnant or falling, and a large number of firms and households going bankrupt. The IMF provides the country with advice on the economic policies that may be expected to address its problems most effectively. The IMF and the government agree on a program of policies aimed at achieving specific, quantified goals. For example, the country may be expected to reduce its fiscal deficit or build up its international reserves.

Loans are disbursed in a number of installments over the life of the program, with each installment conditional on targets' being met. A program may range from 6 months to 10 years, depending on the nature of the country's problems. Program details are spelled out in "letters of intent" from the governments to the Managing Director of the IMF, which can be revised if circumstances change. Instruments of IMF lending The IMF provides loans under a variety of "facilities" that have evolved over the years to meet the needs of its membership.

The duration, repayment terms, and lending conditions attached to these facilities vary, reflecting the type of balance of payments problem and circumstances they address. Countries that borrow from the IMF's regular, non concessional lending windows-all but the low-income developing countries-pay market-related interest rates and service charges, plus a refundable commitment fee. A surcharge can be levied above a certain threshold to discourage countries from borrowing large amounts ("exceptional access", as it is called in the IMF). Surcharges also apply to drawings under the Supplemental Reserve Facility. Low-income countries borrowing under the Poverty Reduction and Growth Facility pay a concessional fixed interest rate of 0.5 percent a year.

The foreign exchange provided by the IMF is subject to limits determined partly by a member's quota in the IMF and is deposited with the country's central bank to supplement its international reserves. To strengthen safeguards on members' use of IMF resources, in March 2000 the IMF began requiring assessments of central banks' compliance with desirable practices for internal control procedures, financial reporting, and audit mechanisms. At the same time, the Executive Board decided to broaden the application, and make more systematic use, of the tools available to deal with countries that borrow from the IMF on the basis of erroneous information. Technical assistance and training The IMF is probably best known for its policy advice and its loans to countries in times of economic crisis. But the IMF also shares its expertise with member countries by providing technical assistance and training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax policy and administration, and official statistics. The objective is to help improve the design and implementation of members' economic policies, including by strengthening skills in institutions such as finance ministries and central banks.

The IMF began providing technical assistance in the mid-1960's, when many newly independent countries sought help setting up their central banks and finance ministries. Another surge in technical assistance occurred in the early 1990's, when countries in Central and Eastern Europe and the former Soviet Union began shifting from centrally planned to market-based economic systems. More recently, the IMF has stepped up its provision of technical assistance as part of the effort to strengthen the architecture of the international financial system. Specifically, it has been helping countries bolster their financial systems, improve the collection and dissemination of economic and financial data, strengthen their tax and legal systems, and improve banking regulation and supervision. It has also given considerable advice to countries that have had to reestablish government institutions following severe civil unrest or war and has stepped up trade-related technical assistance since the launch of the Doha Round of trade negotiations in 2004. More than 75 percent of the IMF's technical assistance goes to low-income and lower-middle-income countries, particularly in sub-Saharan Africa and Asia.

Post conflict countries are major beneficiaries, with Timor-Leste, the Democratic Republic of the Congo, Iraq, and Afghanistan among the top recipients in the early 2000's. Technical assistance is delivered in a variety of ways. IMF staff may visit member countries to advise government and central bank officials on specific issues, or the IMF may provide resident specialists on a short- or a long-term basis. Since 1993, the IMF has provided a small but increasing part of its technical assistance through regional centers-AFRITAC, serving eight countries in central Africa and based in Libreville, Gabon; West AFRITAC, serving western Africa and based in Bamako, Mali; East AFRITAC, serving eastern Africa and based in Dar es Salaam, Tanzania; CARTA C, serving 20 Caribbean islands and territories and based in Barbados; METAL, serving the Middle East and based in Beirut, Lebanon; and PFT AC, serving the Pacific region and based in Fiji. The IMF offers training courses for government and central bank officials of member countries at its headquarters in Washington, D.C., and at regional training centers in Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates. Supplementary financing for IMF technical assistance and training is provided by several countries, of which Japan is the biggest donor, and international agencies such as the African Development Bank, the Arab Monetary Fund, the Asian Development Bank, the European Commission, the Inter-American Development Bank, the United Nations, the United Nations Development Program, and the World Bank.

How does the IMF help poor countries Most of the IMF's loans to low-income countries are made on concessional terms, under the Poverty Reduction and Growth Facility. They are intended to ease the pain of the adjustments these countries need to make to bring their spending into line with their income and to promote reforms that foster stronger, sustainable growth and poverty reduction. An IMF loan also encourages other lenders and donors to provide additional financing, by signaling that a country's policies are appropriate. The IMF is not a development institution. It does not-and, under its Articles of Agreement, it cannot-provide loans to help poor countries build their physical infrastructure, diversify their export or other sectors, or develop better education and health care systems.

This is the job of the World Bank and the regional development banks. Some low-income countries neither want nor need financial assistance from the IMF, but they do want to be able to borrow on affordable terms in international capital markets or from other lenders. The IMF's endorsement of their policies can make this easier. Under a mechanism introduced by the IMF in 2005-the Policy Support Instrument-countries can request that the IMF regularly and frequently review their economic programs to ensure that they are on track. The success of a country's program is assessed against the goals set forth in the country's poverty reduction strategy, and the IMF's assessment can be made public if the country wishes. The IMF also participates in debt relief efforts for poor countries that are unable to reduce their debt to a sustainable level even after benefiting from aid, concessional loans, and the pursuit of sound policies.

(A country's debt is considered sustainable if the country can easily pay the interest due using export earnings, aid, and capital inflows, without sacrificing needed imports.) In 1996, the IMF and the World Bank unveiled the Heavily Indebted Poor Countries (HIPC) Initiative. The initiative was enhanced in 1999 to provide broader, deeper, and faster debt relief, to free up resources for investment in infrastructure and spending on social programs that contribute to poverty reduction. Part of the IMF's job is to help ensure that the resources provided by debt reduction are not wasted: debt reduction alone, without the right policies, might bring no benefit in terms of poverty reduction. In 2005, the finance ministers and heads of government of the G-8 countries (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States) launched the Multilateral Debt Relief Initiative (MDRI), which called for the cancellation of the debts owed to the IMF, the International Development Association of the World Bank Group, and the African Development Fund by all HIPC countries that qualify for debt reduction under the HIPC Initiative. The IMF implemented the MDRI in January 2006 by cancelling the debt owed to it by 19 countries. Most of the cost is being borne by the IMF itself, with additional funds coming from rich member countries to ensure that the IMF's lending capacity is not compromised -, , , (, , , .

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