Essay: Criticize International Monetary Fund

Pages: 7 (2745 words)  ·  Bibliography Sources: 3  ·  Level: Master's  ·  Topic: Economics  ·  Buy This Paper

IMF and Globalization, V

Globalization has had a remarkable effect on both the technological developments and the cultural attributes of a number of companies. Instant global communication is now possible, and individuals know they can instantly communicate with almost anywhere in the world -- and at an affordable cost. The more technology improves, the more this global economy, culture, and society develops. Of course, globalization continues to break down societal barriers, and one of the key elements to this is communication (Trening and Estabrooks).

Globalization, or world-trade magnified, is the process in which local ideas and activities are translated into global ones. For example, the term "Think Global, Act Local," refers to saving energy so that other countries in the world will have appropriate levels. In terms of trade, globalization refers to the idea of unifying all countries and cultures through economic, technological, political, social, and ideological manners. The theory is that if a country is actively trading with another country, sharing economic development, etc. then it will be more likely that those nations will act in harmony politically as well. If economies are then tied together, war is unlikely since it would harm all economies to some degree (See the various articles in: globalization101.org). One of the large changes that has occurred because of the process of globalization -- which really became a part of world trends after World War II, is the International Monetary Fund. This organization became necessary due to a strong relationship between world output and world trade -- the more globalization occurs, the more countries that have certain industries, be it special foodstuffs, minerals, gems, human resources, etc., and the more those countries want to increase their economic standard of living, the more world trade will remain vital to the global economy. Similarly, the idea of a global economic system is a check-and-balance to recession or inflation, if one major power has drastic problems; it affects most of the world (Crochuer). One European country, for instance France, seems to be moving rapidly towards the idea that globalization is a reality. Franco-America trade, for instance, has increased over 90% since 1990. France has become part of the EU, adopting the Euro, and partnering with the rest of Europe in its view of increasing trade and economic traffic worldwide

We are starting to see the need for a banking and/or funding organization that will help manage some of this disparate growth. Let us imagine a world in which the United States was unable to import any goods from abroad, including Canada and Mexico. There are several consequences to this scenario: automobile ownership would change, since a good percentage of American's own a foreign car; international travel and business would slow, affecting our economy; foodstuffs, especially those only available from topical countries would cease with the exception of materials brought in from Hawaii; numerous electronic parts would be unavailable, much of America's clothing industry has been outdated for decades, and would need retooled, and of the most serious nature, America would not have the gasoline/oil to continue utilizing energy without importing product -- and in reality, rather than the United States leading the world in service organizations, the entire U.S. economy would need to be retooled to more of a manufacturing paradigm, and wages/costs reaffirmed to a new level. Similarly, countries that are landlocked, like Japan, import a great deal from the United States and abroad. Oil, for instance, much timber, precious metals and minerals, as well as certain technologies that are U.S. propriety (Microsoft and Intel for example). Yet, there still remains a disconnect between the economies of the developed and undeveloped world -- and money, or the IMF, is not the only way to solve economic disparity (Payer).

Clearly, without globalization and an aggressive world trade policy, the economic health of the entire world would suffer. And, in fact, the idea of globalization might just be the way the world will unite and become the next "Age" of thinking globally as a citizen of the world (Bhagwati). To fight the quiet crisis of a flattening world, the developed world's workforce should keep updating its work skills. Making the workforce more adaptable will keep it more employable. This should also translate into greater global inspiration for youth to be scientists, engineers, and mathematicians so that there will be more individuals in the developing world that can cogently make decisions, manage the economy, and even participate in global lending and banking (Friedman).

The IMF (International Monetary Fund) is an international organization system that acts as an overseer of the global economic system by following the macroeconomic policies of its member nations. It concentrates on those members who have the largest impact on the exchange rate, balance of payments, and economic viability. The stated objective of the IMF was to act as an entity designed to stabilize international exchange rates and facilitate global development through education and liberalization of economic policies (Davis). Additionally, the IMF offers highly leveraged loans to developing nations, and has been in recent years, asked to allow many of these to default out of humanitarian compassion (Francis).

The IMF grew out of the global political situation of World War II and the United Nations Financial Conference of 1944. It was formally organized in 1945 with 29 initial countries, but the statutory purposes are identical to the outset (Information and History). The IMF's influence in the global economic paradigm steadily increased as a combination of events occurred. These included the rise of Asia economically, the Cold War, the collapse of the Soviet Bloc, and the technological and cultural factors that engendered the increase of globalization. Due to the heavier borrowing, debt relief, and economic downturn, however, by 2008 the IMF was faced with a shortfall in revenues. Because of this, the IMF has sold some of its gold reserves, and put into place a 5-year plan that will also result in over 300 staff cuts. Still, as of 2009, world leaders continued to pledge more incoming funds to the IMF to use its low-interest loans as a way to tackle the global financial crisis (G20 Leaders seal $1trillion Global Deal).

The effectiveness and impact of the IMF are certainly debatable and may be analyzed by looking at several economnic and social indicators. Often, the IMF binds its financial aid to certain contingencies that may or may not be appropriate for the individual countries. Sometimes, too, it insists on telling the country how to raise appropriate revenues in order to repay the loans (e.g. tax increases) that simply do not work. For example, the former Romanian Prime Minister stated that, "Since 2005, the IMF is constantly making mistakes when it appreciates the country's economic performances"(Cited in:Paul).

Impact on Access to Food -- The IMF is so large, so cumbersome that, at times, despite it wishing to impact the world's population in a positive way, has the opposite effect. Former President Clinton summed this up by saying, "We need the World Bank, the IMF….. But we were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture" (Clinton).

Impact on Public Health -- A 2008 study from Cambridge and Yale universities concluded that strict conditions on the international loans from the IMF resulted in thousands of deaths in Eastern Europe as public health care had to be cut. This is part of the unintended consequence of moving economic policy into social policy (Stuckler, King and Basu).

Impact on the Global Environment -- Again, there is the problem of developing countries being forced into rapid industrialization and eco-unfriendly positions in order to support their financial obligations to the IMF. Instead of working with the country to find sustainable methods, the IMF pushes for quick economic recovery and growth. However, in recent years, the IMF has tackled the global warming crisis, and has developed a Green Fund, also pushing for more environmental awareness (Green)

Impact on the free-market -- The IMF, typically, supports a monetarist approach to global economic development. This view holds that within the economic variation of a country, the money supply has the major impact on the stability of said country. Supply-side economists, however, see global economic growth more effectively created by lowering basic barries to entry (supply) and allow a freer access of goods and services, even if that means adjusting typical fiscal programs that fund the government. In this case, it may be that the original charter of the IMF is in need of drastic revision; certainly the world in 2010 is not at all like the world of 1945 (Caballero).

Similarly though, both scholars and governmental officials agree that the IMF is facing a serious crisis of legitimacy. The credibility of the organization and its policies are sometimes weakened by a lack of acumen, and even insiders in the IMF are not always sure of the overall strategic plan of the agency. Rarely would anyone… [END OF PREVIEW]

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