Origins, History of the IMF Term Paper

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SAMPLE EXCERPT . . .
SRF: Supplemental Reserve Facility loans are to be repaid within a year and a half, and there is a substantial surcharge of 3-5 percentage points.

CCL: This is under the same repayment criteria as SRF, but the surcharge is less (1.5 to 3.5 percentage points).

CFF: This type of loan was designed to help a country experiencing a very sudden "shortfall" in export earnings (caused by world commodity fluctuations), and the financial terms match those of the SBA (except CCF loans have no surcharge).

In the event of a nation suffering a natural disaster like an earthquake, flood, typhoon, or other calamities, or for a country just emerging from war, the IMF provides "Emergency Assistance" loans. They are subject to the basic rate of charge, and must be repaid within 3 1/4 to 5 years.

It should be pointed out the IMF lending is usually dependent upon that nation borrowing funds adopting and putting in place a program of economic reforms. Those reforms must be approved prior to the loan being approved, and the reforms must address the country's exchange rate, money and credit, and the fiscal deficit. The IMF is always reminding any country applying for funds, that their loans are only temporary, to be repaid in full when the "imbalances" of that country's finances are straightened out. Then, the money is available for other countries to use, playing out the motto of the IMF as an "international credit union."

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There are two basic kinds of safeguards put in place by the IMF, to protect their resources. One form of safeguards aims at protecting "currently available or outstanding credit" and the second form focuses on "limiting the duration of, and clearing, overdue obligations" (IMF, 2002).

Term Paper on Origins, History of the IMF Assignment

The safeguards which protect current credit include: limits on access combined with incentives to avoid long usage of the money; program design conditions; post program analysis and central bank safeguards; way to deal with misreporting of information from the borrower; and technical assistance / statistical standards. In cases where there are overdue obligations, the IMF has policies (safeguards) to cooperatively prevent arrears, clear arrears, and conduct remedial measures to sanction those nations in arrears that have not been responsive.

Technical Assistance

While most of the attention is paid to the loans themselves, and to the countries that are struggling to extract themselves from debt and receiving the loans, the IMF also provides technical assistance (TA). This TA is designed to help countries help their "human and institutional capacity" (IMF, 2002), so that policy-making decisions are based on solid information and input. This assistance is free to the nation that has received a loan. About 75% of the IMF TA goes to the countries with the most abject poverty. Indeed, Sub-Saharan Africa at this time receives the largest share of TA from the IMF. It just makes good business sense to not only loan money to poor nations who deserve, but to give them the training and business support to make sure they not only pay it back, but that they grow and prosper thanks to the financial lift. "Give me a fish, and I eat for a day," the saying goes. "But teach me to fish, and I eat for a lifetime." That certainly is an appropriate philosophy when dealing with millions of dollars being poured into poverty-stricken nations with poor management structures in place at the top.

There is a much greater demand for TA then there are resources to provide the TA within the IMF. So, the IMF has set up a list of priorities for the issuance of TA. The main policy areas that receive priority TA are crisis prevention, debt relief and poverty reduction, and capacity building. It comes as no surprise, in this time of terrorists blowing themselves up in crowded public places, and crashing jetliners into buildings, that TA resources from IMF are also devoted to countries to help them combat money laundering and terrorism-financing within their nation. The IMF has 2 regional TA centers (Pacific and Caribbean), and 4 regional training centers (Brazil, Cote d'Ivoire, Singapore, and Austria).

Answers to Fiscal / Political Questions about the IMF

Having covered the aforementioned factual issues surrounding IMF's history and the nuts and bolts of how the IMF works and why - and before launching into the workings of the World Bank - a look at present realities vis-a-vis the IMF seems appropriate. As to the question of who really runs the IMF and World Bank: when it comes to voting on whether to issue a loan to this or that country, members of the IMF vote based upon the amount of money they pay into the organizations (MacEwan, 1999).

The U.S. government has by far the largest share of votes in the IMF and World Bank (WB), and, along with its closest allies, effectively controls their operations," says Arthur MacEwan (Dollars & Sense). In 1998, the U.S. held 18% of the votes in the IMF and 15% in the World Bank. Around 40% of the shares in both the IMF and the WB are controlled by a community of nations that include the U.S., Germany, Japan, the U.K., and France. The remaining shares are spread among 175 other member governments. But the bottom line is that the United States is effectively in charge of the IMF. And since WWII, when the IMF was established, the president of the IMF has always been a European, and the president of the World Bank has always been a U.S. citizen.

And, if one wonders why international economic conferences draw thousands of angry protesters from around the globe - some violent - to the streets, part of the reason the U.S. attracts the vitriol because of how much power America wields. Though America is always the lightning rod for protests in money matters, deserving or not, yet it's important to remember that in effect, the IMF and WB are, quite literally, extensions of U.S. government's foreign policy (MacEwan, 1999). Both the IMF and WB are "...well insulated from democratic accountability, because Congress, to say nothing of the U.S. populace in general, has no role in overseeing their operations, and they [both] operate largely outside the public eye" (MacEwan, 1999).

Many of the protesters demonstrating in the streets at recent economic summits are demanding that the IMF and World Bank "forgive" loans to financially strapped Third World countries.)

The above-mentioned protests "...are merely the tip of a vast iceberg of transnational networks tying together people from all parts of the world who share grievances about the current rules government global economic integration," according to Ann Florini (OECD Observer, 2001).

Her argument is echoed by many journalists and activists in just about every corner of the world, and that is that "globalization" through loans by the IMF and WB does not necessarily work well for many developing nations for a potpourri of reasons. "Those grievances are often voiced by the rapidly growing number of civil society groups working locally or nationally who find that the roots of their problems lie at the global level," she explained.

The intensity of the protests - in the streets and elsewhere in more low-key settings - is moved to an even higher level by seeming arrogance and smugness on the part of IMF and WB officials. Florini sites "The egregious case of the Quebec City trade negotiations, when citizens were denied access to the negotiating text that was nonetheless granted to hundreds of corporate leaders, exemplifies the most objectionable biases of global economic decision-making." Amnesty International "have reported many cases of extreme police brutality directed against non-violent demonstrators, or even uninvolved bystanders," Florini adds. "Many protestors are convinced that violence is often permitted or even deliberately provoked by police forces seeking excuses to round everyone up." line for dissention from IMF and WB policies: "The protest movement has become to large to ignore, and will not go away [so]...international organizations...will have to seek out ways to grant a meaningful voice to these [protest] groups," Florini states. "[Groups] are raising important substantive points about real flaws in the current rules for governing the world."

Adding to the tremendous financial and political power exerted by the IMF and WB, is the fact that if a poor nation cannot obtain a loan from either, that poor nation will definitely not receive a loan from an international bank. And, when that poor nation does receive monetary help from the IMF or WB, along with that loan comes the red tape: reform your government's policies or else you won't get all the funds.

How does the U.S. play the IMF and WB "political card" when it comes to America's friends and America's foes? MacEwan of Dollars & Sense responds thusly: "The IMF and WB make sure that U.S. allies get the financial support they need to stay in power, abuses of human rights, labor, and the environment notwithstanding; that big banks get paid back, no matter how irresponsible their loans may have… [END OF PREVIEW] . . . READ MORE

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