Imf Essays - International Development, World Bank, Gold Standard

Imf Introduction: We are all aware of the enormous difficulty that the Asian countries have been having in regard to their economies having large trade deficits and the devaluation of their currencies. Asias crisis was classified as The Great Asian Slump that is for the record books (Saving Asia its time to get radical, 75) making the Latin Americas crisis of 1995 look like a minor wobble. Hong Kong announced that its economy shrank 2.8% in the first quarter of 1998. Economist forecast Indonesias GDP to fall an overwhelming 15.1% this year. Comparing that to Americas worst post war recession when the economy shrank 2.1% (Saving Asia, Its time to get radical, 75). This record-breaking crisis has had an enormous effect on our economy as well, and had to be handled as quickly and as painlessly as possible. Therefore, the IMF had to step in and advise the nations on stabilizing their economies by restoring confidence in the currencies. As well as making their currencies look more attractive, which demanded increased interest rates, among many other actions that the IMF implemented. However, there are always individuals who are for and against any actions taken in an attempt to resolve a certain predicament. As anywhere else, here we also find that there are some who feel that IMF did a very poor job at providing the right treatment for the wound, and yet others who content that IMF did the best that it could and in fact helped the ailing tigers. A Brief History of the IMF In July 1944 the United Nations Monetary and Financial Conference met at Bretton Woods, New Hampshire, to find a way to rebuild and stabilize a world economy that had been severely devastated by World War II. One result of the conference was the founding of the International Monetary Fund (IMF) through the signing of its Articles of Agreement by 29 countries. The stated purposes of the IMF were to create international monetary cooperation, to stabilize currency exchange rates, to facilitate the expansion and balanced growth of international trade, and to make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards. There were 143 member nations in the IMF in the early 1980s. Most of the Communist countries, including the Soviet Union, did not join; and, of the Western nations, Switzerland has not participated (Comptons Interactive Encyclopedia, 1996). However there are now 182 members (www.imf.com, last updated August 98). (www.imf.org) On joining the IMF, each member country contributes a certain sum of money called a quota subscription, as a sort of credit union deposit. (www.imf.org) IMF appraises its members' exchange rate policies within the framework of a comprehensive analysis of the general economic situation and the policy strategy of each member. The IMF fulfills its surveillance responsibilities through: annual bilateral Article IV consultations with individual countries; multilateral surveillance twice a year in the context of its World Economic Outlook (WEO) exercise; and precautionary arrangements, enhanced surveillance, and program monitoring, which provide a member with close monitoring from the IMF in the absence of the use of IMF resources (www.imf.org). Total Fund Credit and Outstanding (SDR billions; end of August 1998) ------------------------------------------------------------------------ World62.8 Africa7.1 Asia22.6 Europe19.8 Middle East0.5 Western Hemisphere12.8 (www.imf.org) Furthermore, to achieve its goals, the Bretton Woods Conference stated a number of conditions with which member nations were required to comply. Each nation agreed to establish a par value for its currency; that is, the value of a unit of its currency would be fixed in relation to the dollar or to gold. This would prevent great fluctuations of national currencies in relation to each other. This part of the agreement was abandoned in 1971, when the United States removed the dollar from the gold standard. Currencies have since been allowed to float in value in relation to each other and in relation to the conditions of the world economy. Member nations also agreed upon the principle of currency convertibility. Thus, if one nation owned the currency of another, it would be able to sell it back at par value. (www.imf.org) A third agreement was that member governments would contribute to the operating funds of the IMF according to the volume of their international trade, national income, and their international reserve holdings. Part of