The International Monetary Fund or IMF is an international organization that has strongly influenced and affected the economics and financial movement and development of many countries. The IMF, through its proponents, has lobbied for the support for IMF through different ways. On paper, the IMF was created so that an entity exists that can help different countries especially with their financial and economic problems. But it seems that IMF isn’t as simple as that.
Part of its complexity is understood in the negative context. While there are countries and government who voice support for and dependence to the IMF, many analysts believe that there is also the presence of a significant number of countries and governments which are not very pleased with the IMF and its actions. Their claims do not come as unfounded especially in consideration of the fact that those who are displeased with the IMF are countries, which, according to political analysts have prior experience with the IMF.
The poor appraisal of IMF actions in the country is the primary source of the dissatisfaction of the countries, which makes IMF considered as an institution that does more harm than good. “The perception of the International Monetary Fund (IMF) and the World Bank is generally negative among many people in the Two-Thirds World, who have firsthand experiences with these institutions.”
Because of these ideas, the focus of the paper is the discussion of the argument about how the IMF is actually doing more harm than good. The proof of this argument is the fact that international relations deteriorate because of how IMF and its actions fail to contribute towards the creation of a harmonious international relations because of how IMF actions, projects and interventions fail or reflect gains limited to a select few and not for the greater interest of the both countries involved.
The role of the IMF was seen by different people in many different ways. Some believe that it was created so that “the 1930s financial problem, The Great Depression would not haunt the US and the rest of the world again”. This is odd and ironic because even with an IMF institution present today, the global economy still went into a slump, which, despite what others say is far from being similar from the Great Depression, is in fact akin to Great Depression or even worse, depending on how one looks at it.
A New African feature article described the creation of the IMF as merely a product of the political movement and economic concerns existing during the 1940s. Some believed that the IMF was a result of the thinking that the world can have a “central bank” that is shared by the world, globally and not just centered on one specific country alone.
Engdahl’s assessment of what the IMF truly is more scathing, as the author pointed to the IMF as a vehicle for collecting resources to empower the dollar and this self interest is veiled under a complex disguise involving theories on market and the presence of self serving pseudo-leaders. Some simply believe that the IMF was designed to help countries which struggle with economic and financial problems.
Granted that the IMF was created to help countries and their economies; but even if this is 100 percent true, the organization will have a difficult time accomplishing this task if the IMF on its own has its own problems.
If the IMF can be proven operating and functioning under the stress of internal problems, then it can be expected that the IMF cannot be a hundred percent helpful and if the IMF is not functioning 100 percent, especially with problematic leadership, then they cannot fully serve the best interest of the countries they promised to serve. A machine that is not functioning properly cannot be expected to work properly and the desired results cannot be achieved.
Because of this, it is important to look at the problems of the IMF before exploring the problems caused by IMF to countries, their relationship with each other and to their economies. One of the important problems in IMF is leadership. Because of problematic leadership, they cannot serve the best interest of the countries. Entous pointed the IMF leadership problems in a news article, noting politician Trent Lott’s observation about the state of IMF and the problems found in there – leadership as well as in policy.
How is IMF Doing More Harm than Good?
Those who claim that they do not approve of the IMF and that IMF is doing more harm than good points to the several characteristics of IMF and its actions and policies which are considered by countries as counter productive to the target development and instead leads to more economic and financial problems for the country. One of the characteristics of the IMF that is considered by some countries as unproductive or counter productive is its SAP or Structural Adjustment Program. The SAP is a set of guidelines or conditions that countries who want to borrow from IMF should agree to first.
Governments see this as problematic because the SAP involves actions on government spending, as well as national enterprise privatization and the shift in foreign policies to make the country amenable to foreign trade. Imposing these changes is often considered akin to breaching independence and sovereignty of the country. Countries are made to choose between two polar options, like being pushed against the wall in a take-it-or-leave-it option that the IMF provides which is far from being helpful.
On the contrary, it is viewed as restrictive and undesirable in the long term because of its effect. “Critics maintain that such policies have led to deepening poverty throughout the world and increases in income inequality and wealth inequality within and among nations.”
Another IMF policy that is considered not just by countries and governments but also by independent researchers as problematic and against the overall welfare of the country is its imposing of countries to open up to capital inflows. The IMF has constantly sold the idea of opening up for capital inflows to different countries, with the idea that this move can lead to development economically for the participating countries; an idea challenged by the results of competent researches. “The IMF’s reasoning that economies that open up to capital inflows have better prospects for development has been challenged by empirical studies.”
This points out that the IMF maybe guilty of prescribing actions to countries which maybe detrimental to the economic state of the country. This only strengthens the belief that the IMF serves the interests of the few. “Many globalization critics accuse the IMF of having acted in the interest of globally engaged banks and international speculators rather than that of developing countries.”
Two countries, particularly the promising Asian countries of China and South East Asian economic rising star Malaysia, illustrated that there are better options compared to what the IMF considers as ideal. Both countries, China and Malaysia, went against the IMF and refused IMF’s idea. The two countries went along with their own economic policy and managed their own capital inflow in the manner they consider as beneficial for their countries’ welfare. It turned out that they were right and IMF was wrong as the country enjoyed the gains from this particular move. “In the end, both countries were better off sans the idea of IMF and its intervention on this matter.”
IMF and the Negative Impact on International Relations
The negative impact of IMF, its actions and its intervention often has serious impacts not just on the economic and financial status of the country, but more importantly in the state of international relations existing between countries. Because of the extent of impact of IMF and how pro IMF countries are lobbying for it, countries which have the natural disposition to be anti-IMF, in some aspects, can be expected to display changes in their relationship with other countries, especially if alliance or non alliance to IMF is a factor in defining the political friendship between countries. Everytime analysts conclude that the IMF is doing more harm than good, it often means that IMF is harming not just the economic and financial state of the country, but it is also harming the relationship of one country to another.
A very good case in point for this argument is how the relationship of countries from the different parts of the world (especially those with deep seated sense of anti-Americanism) with the United States deteriorated and did not improve.
This is because of the entry of IMF and because of the fact that IMF was considered more of a source of a bigger problem than a solution as how it was packaged during its inception. Prior to the creation of the IMF, history already reflected how the United States has poor or deteriorating relations with other countries. Because of many reasons like militarism, neo-colonialism and capitalism, and sometimes the US’ consistent ties with the IMF and how the countries view the US and IMF as inseparable entities contribute to the complexion of the relationship of US with other countries and the relationship of countries with each other.
With the creation of the IMF and how it was very disappointing to some countries, the US’ relationship with other countries did not improve and became even worsen. This is largely because of the fact that the IMF has always been associated with the US, with countries thinking that the US controls the IMF. Every time IMF fails, the expectations of countries or disappoints countries, these countries believe that the US has a hand in how things transpired leading to their predicament.
“People perceive the IMF and the World Bank to be controlled by the West in general, and the United States in particular, the attitudes towards and grievances against them are associated with the overall perception of the United States.” There fears are not unfounded, considering the fact that US acts as a global economic hegemon and the role of the US in the creation of the IMF in the first place, “to which the US contributed the largest amount, 25 percent of an initial $8800 million in capital.”