IMF is supposedly meant to institute mitigation measures to resuscitate failing economies in the global arena. The institution of IMF was based on the need to have a harmonised and balanced economic growth in the globe. However, certain policy decisions regarding world economies have been put into sharp criticism. Whether these decisions are advertently meant to “demolish” certain economies or not, is debatable. The fact, nonetheless, is that certain policy decisions of IMF have incessantly generated many doubts concerning the role of the body in achieving the perceived mandate.
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A case study is the financial crisis in East Asia in the 1990s. Several analysts have doubts regarding the commitment of the institution in establishing a strong pillar for economic growth in the global political economy. Many pundits concur that other than its “superficial” role in the maturation of the global financial systems; the institution has several covert intentions that inherently undermine the cardinal roles for which it was instituted (Love 32). This paper will try to explain the role of IMF in the East Asia crisis of 1990s; in addition, the discourse will elucidate these other clandestine agendas in the context of global economies.
IMF and the East Asia crisis: “interventional catastrophe or negligence?”
Liberalization of the market is very noble in modern economies; a liberal market is dependent on market forces to insulate itself against the inclement of economic forces. However, the decision to liberalize a market when the economy is under “duress” is suicidal. The IMF proposed very elaborate structural changes so that the markets of most of the economies in the East Asia block remain “laissez-faire.”
The need to regulate the economic climate is very splendid during hard times. Interest rates must be tamed; government borrowing both in the domestic and external market strata must be regulated. Trade vagaries too must be synchronized during these epochs of economic pressures (Truman 118). The government has a responsibility of instituting the necessary fiscal and monetary policies to manage both the macroeconomic and the microeconomic climates during the economic constraints.
However, the IMF ordered for the liberalization of the East Asian economy with the hope of the market stabilizing by itself; the result of this decision was adverse; it worsened the already volatile situation. The writer asserts that the simplistic solution that the IMF proposed was due to the ignorance on the economic issues in the region. Initially, the severity of the economic slump was not anticipated to last for long, no wonder the IMF proposed to make the financial market more “broad-minded” (Stiglitz 111).
The writer asserts that the bailout programme by the IMF was rather reactionary and did not offer any long-term framework for the regional economies to stabilize. The effects of the bailout plan were not intended to resuscitate the microeconomic ambience, but rather an avenue of lifting out the international banks and huge multinational institutions out of the crises. IMF proposed the “injection” of more currencies into these economies to sustain exchange rates.
The idea was to “hoodwink” the market into believing that the public reserve was still saturated with currency and restore the public confidence in the financial markets. The outcome of this was the “bail out” of the multinationals that exchanged their money into dollars, courtesy of the favourable exchange rates and consequently stashed it abroad; the region was staring at collapsing economies after these misjudgments by the IMF (Stiglitz 97).
IMF and the economic “development” agenda in the third world countries
The obvious misapprehension of the economic vagaries in the globe leaves many questions unanswered regarding the role of IMF in the globalisation process. Stiglitz asserts that the faux pas that the institution has committed in the global economic “environment” contradicts the very basic tenets it claims to defend.
Coupled with other activities in management of the global economy, Stiglitz affirms that the institution is focused on advancing other agendas other than the promotion of the economic independence as enshrined in its memoranda. The administration of the global economy demands a very dynamic approach, the rigidity in which IMF operates is a clear indication that its interests are far from what it claims to do (115). This paper will briefly shift its focus to corroborate the assertion by Stiglitz that indeed, IMF is serving private interests. The primary focus of IMF, according to Stiglitz, is not the elevation of the global economy.
IMF and the pernicious advocacy for capitalism
The role of the institution in the propagation of capitalistic ideology has come into focus lately. IMF seeks to institute capitalistic financial models and “maxims” in most of the economies of developing countries, albeit subtly. Most opponents of the institution assert that the superficial goal of the institution may seem very noble to the developing countries since they have very good policies of alleviating poverty in the third world economies. However, the execution gap between the policies that IMF claims to propagate and the actual “mitigation” measures that the institution uses contradict (Stiglitz 211).
Stiglitz avers that the IMF is greatly intertwined with the financial community whose capitalistic tendencies are aimed at amassing exorbitant profits from the lending activities of IMF. The focus of the IMF on the domestic economy may be very little. Their main aim is to get the foreign creditors repaid with very inflated rates of interest.
The connection between the IMF and the group of seven countries, G-7, corroborates its irrational decisions in the event of economic declines, especially in cases of least developed countries (202). The conditional credit facilities that IMF offers are strategic in the solicitation of huge returns on investments while leaving these economies sapped to the kernel.
A critical analysis of the operational strategies of the IMF affirms its disregard to basic canons of economics. It is, therefore, understandable that the institution deliberately ignores these elementary economic revival principles and explores very retrogressive models to exploit the local economies. The writer admits that the mandate of IMF is not to reconstruct the global economy but rather to seek for avenues of enriching the lenders, most of whom are capitalistic oligarchs with varied interests around the globe (Stiglitz 211).
The institution has a penchant of advocating “good governance.” However, the real under dealings in these “advocacy” issues is aimed at instituting regimes that are friendly to them. The fact that IMF is a private entity affirms this. IMF ignores the “social contract” between governments and their citizens, a recipe for chaos and demands for social change. Providently, this clamour for change in these countries is perfectly used to institute regime change to advance its agenda especially in the least developed countries where economic leverage is little (Love 32).
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Love, Maryann C.. “Global Problems Global Solutions.” Beyond Sovereignty: Issues for a Global Agenda. 4th ed. New York: Gale Cengage Learning, 2010. 1-43. Print.
Stiglitz, Joseph E.. Globalization and Its Discontents. New York: W.W. Norton & Co., 2003. Print.
Truman, Edwin M.. “Internal Governance and IMF Performance.” Reforming the IMF for the 21st Century. Washington, DC: Peterson Institute, 2007. 257-270. Print.