Is the International Monetary Fund Still Relevant Today?
The international monetary fund was established in 1945 after the Bretton woods agreement of 1944 to fulfill three obligations. It was intended to serve as a common forum for multilateral economic cooperation; this was to create a level playing ground as well as cushion other countries from an individual country’s economic practices that might create unfair economic imbalances. The other purpose was to foster the adoption of macroeconomic policies that were to help in the creation of employment as well as generate income. The third purpose was to offer financial support for member countries in times of difficulties instead of letting the country slip into a situation that could compromise a country’s domestic or international economic status. For the last six decades, the International monetary fund has been in existence, the world has experienced tremendous changes in the political and economic spheres, situations that have made this institution face challenges that have eroded its relevance in the world today.
There were several areas where the IMF handled delicate situations and recorded a degree of success.
One of the major challenges faced was in the emergence of newly independent nations in Africa; these nations needed major financial and technological support to build their new economies. The IMF had to change its policies on lending since the existing regulations could not apply to these nations. Even after borrowing most of these nations were still unable to service their debts. The IMF together with the World Bank had to micromanage economic undertakings to save the situation and even canceled debts for these poor countries to help alleviate poverty. (Rato2005).
End of Cold War
Another challenge well tackled was at the end of the cold war with the emergence of new nations formed after the break up of the Soviet Union and the former Yugoslavia. This posed a delicate economic and political situation that had a direct impact on the whole world. There were rolled-out policies that cushioned these new economies from any harm as they got assimilated into the global scene. Most of these countries adopted well and they made big strides in development.
The IMF goofed in handling some economic situations especially in the third world where it was used for selfish gains and this has had serious repercussions that are even felt to date.
During and immediately after independence and even to date the hand of the former colonial masters looms large in the internal affairs of these countries. They seek to safeguard their interests and they come up with unfair economic policies that are channeled through the IMF while compromising the interests of these poor nations. In the 90s a huge chunk of sub-Saharan Africa was disfranchised when it was subjected to massive compulsory privatization of public assets and this made it very difficult to set development agenda (Riza, 2010). For these nations to access the funding they are subjected to conditions and conditionality which always work against developing countries. This has seen a tremendous rise in debts owed by these countries and they are not in a position to repay. There are lots of economic malpractices all happening under the IMF’s nose. Since one of its roles was to create a level playing ground for all countries, there has been lacking goodwill to implement the same, since the top brass of IMF are the biggest beneficiaries and they reap more at the expense of some other poor countries.
In recent years the IMF’s relevance has been watered down by increased economic fortunes amongst some member countries while it is a complete reverse for some other countries which get oppressed. The first batch that has seen economic prosperity is the industrialized nations that stopped borrowing from this fund in the late 80s. With no financial obligations towards the IMF, these countries were able to formulate their economic policies without referring to the set IMF conditions (Frankel& Jin wei 1995). This also saw the emergence of economic blocks outside the IMF like the G8, these blocks assumed the roles that were played by this body. There are other economic blocks formed all over the world that assumed the role of regional and global economic control for member countries, a responsibility previously held by this body. The proliferation of these groups and blocks has completely edged out the IMF rendering it irrelevant. Regional trade blocks which are the fad across the world can foster economic prosperity in the regions while at the same time negotiating in setting up trade tariffs and partnerships in the quest to protect the block’s commerce interests. One thing the regional trading blocks do is opening of regional economic frontiers by reducing tariffs and barriers and this elevates member country’s prosperities. (Tumbarello 2007). With the discrepancies in patterns on trade and commerce in different world zones; it was impractical that the IMF could have possibly come up with trade policies that would have been termed as fair to countries in the world. The emergence of the notion of development partners whereby countries get financial aid from friendly recently developed countries like china has locked out the IMF since development partners do not attach conditions and conditionalities.
Another factor that compromised the relevance of this body is the nature of its formation whereby it is divided between the rich nations which fund its activities and calls the shots and the poor countries. The current mode of representation favors the rich nations, while some nations are not represented and yet they are bound by the decisions about their country made without their opinion. These poor countries are subjected to grants from the fund but have limited say in the running of the fund, and a big portion of funding goes back to the donors as wages and proceeds of gains of a scheme that leave poor countries laden with debts. For the debtors to access this fund there are usual terms and conditions set by the lending nations. Mostly these conditions and conditionality were aimed at full filling the whims of the powerful countries which includes plunder. In Africa for example, in the 70s and 80s, some of the world’s cruelest dictator Mobutu Seseseko of Zaire was a huge beneficiary of IMF funding and in return, he facilitated plunder in to the country’s rich natural resources by some powerful countries in Europe. Despite that the IMF was vocal in rising concerns on the rampant corruption that involved foreign exchange manipulation and rampant smuggling of precious gems; it just remained at that since the biggest beneficiaries were the rich nations that controlled the IMF. President Mobutu and his cronies had stashed the booty in banks in those same European countries that headed the IMF, which was supposed to fight such mal practices. As the pillage continued, the IMF pumped more money, at one point the country’s debt stood at $9 billion while Mobutu’s fortune was above $6 billion (P.I, 2009) The consequences of IMF’s failure to reign in on economic crimes in Zaire are evident even today in what is now The Democratic republic of Congo since the plunder and the struggle for control of the natural resources escalated in to a civil war which has bedeviled the country since independence in the early 60s.Millions of lives have been lost, others maimed, others displaced and there are so many other countries with the same situation.
There was a time when the world needed the IMF; however the abuse of powers by the rich nations facilitated plunder into the poor nations. In most cases especially in Africa the habit was to keep a dictator and pamper him, and in return he would facilitate pillage. That way hundreds of millions of Africans live in abject poverty. In other situations there were stage run civil wars like in Angola and the DRC which facilitated looting of minerals. The roles that were once played by the IMF like lending are now being played better by development partners who come with friendly terms and no conditions. So the International monetary fund has lost relevance since there are better ways to solving problems than the approach they take.
Frankel, Jeffrey and Jin Wei, Shang. “Regionalization of World Trade and Currencies: Economics and Politics,” Conference on New Regionalism, 1995, Woodstock, Vermont.
Probe international. “Deposits on the Dole” 2009. Web.
Tumbarello, Patrizia. “Are Regional Trading Blocks in Asia Stumbling or Building blocks?” IMF working Paper. 2007.
Rato, Rodrigo. “Is the IMF mandate still relevant?” 2005.
Riza, Fadil. “Excluded Countries should stand up to IMF”. Economic Review. 2010. Web.