What are the main objectives of IMF and to what extent are these objectives being achieved

What are the main objectives of IMF and to what extent are these objectives being achieved

“After the First World War, most of the countries of the world were of the opinion that monetary cooperation was necessary to get the economic stability at international level. But the world wide depression in 1930 and the fall of gold standard system in 1931 gave rise to a number of problems in exchange rates; The second world war also became the reason of cancellation of a trade pact among powerful countries (America, England and France). Due to the multiple exchange rate practices, difficulties arose in international trade and it was felt that without monetary cooperation, economic development was not possible, A well known British Economist, John Maynard Keynes and the American expert Harry D. White prepared their separate plans for International Clearing Union and ‘United and Associated Nations Stabilization Fund’ respectively. “(International Monetary Fund-Objectives, Functions and Role.  http://www.bestarticleworld.com/2009/11/international-monetary-fund-objectives.html, retrieved 13 April, 2011.)”

The International Monetary Fund (IMF) was initiated in July 1944 with 45 members and was put to action in December 1945 when 29 countries signed the agreement.  The goal of the IMF is to stabilize exchange rates and assist the reconstruction of the world’s international payment system.  The IMF also works to help improve the economies of its member nations.  The headquarters of the IMF is located in Washington DC, USA.

“The primary mission of the IMF is to provide financial assistance to countries that experience serious financial and economic difficulties using funds deposited with the IMF from the institution’s 187 member countries. Member states with balance of payments problems, which often arise from these difficulties, may request loans to help fill gaps between what countries earn and/or are able to borrow from other official lenders and what countries must spend to operate, including covering the cost of importing basic goods and services. In return, countries are usually required to launch certain reforms, which have often been dubbed the “Washington Consensus“. These reforms are thought to be beneficial to countries with fixed exchange rate policies that may engage in fiscal, monetary, and political practices which may lead to the crisis itself. For example, nations with severe budget deficits, rampant inflation, strict price controls, or significantly over-valued or under-valued currencies run the risk of facing balance of payment crises. Thus, the structural adjustment programs are at least ostensibly intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness.” (International Monetary Fund.  http://en.wikipedia.org/wiki/International_Monetary_Fund, retrieved 13 April, 2011.)

To achieve its objectives, the IMF depends largely on its interactions with its member nations.  These interactions include exchanges of information, analysis, and views between IMF officials and country authorities, or other people or entities in member countries. 

In December 14, 2009, the IMF released the minutes of their Executive Board Meeting 09/124.  The IMF Directors cited that their member nations rated the Fund’s overall effectiveness positively.  “However, they expressed concerns about the indications of a lack of agreement between the Fund and the large advanced and large emerging countries respectively on the scope of interactions, and of widely varying effectiveness in the areas where the Fund was supposed to excel.  Directors observed that the report covers principally the pre-crisis period, and significant progress has been made on several fronts since then.  Nonetheless, several of the report’s key findings remain a source of concern.  If the Fund is to effectively respond to the new opportunities and challenges it confronts, careful consideration needs to be given to the IEO’s findings and recommendations, together with other possible areas for enhancement, acknowledging the complexity of interactions with Fund members.  (The Acting Chair’s Summing Up IEO Evaluation of IMF Interactions with Member Countries Executive Board Meeting 09/123 December 14, 2009.  https://docs.google.com/viewer?url=http%3A%2F%2Fwww.ieo-imf.org%2Feval%2Fcomplete%2Fpdf%2F01202010%2FIMC_Acting_Chairs_Summing_Up.pdf, retrieved 13 April, 2011.)”

In the IEO’s Press Release for 9 February 2011, “The IEO found that the IMF’s ability to identify the mounting risks was hindered by a number of factors, including a high degree of groupthink; intellectual capture; and a general mindset that a major financial crisis in large advanced economies was unlikely.  Weak internal governance and an institutional culture that discourages contrarian views also played an important role.

The IMF has already taken some steps to enhance surveillance.  However additional changes are needed to reform the IMF’s culture, governance and practices, so that the IMF is better prepared to confront future challenges.  While the IEO report focuses on financial sector issues because of the nature of the recent crisis, most of the recommendations deal with institutional changes that would improve the IMF’s capacity to detect other types of risks and vulnerabilities that could be at the center of a future crisis.  The IMF must clarify the roles and responsibilities of the Executive Board, Management, and senior staff and establish a clear accountability framework as well as cultivate a culture which is proactive in crisis prevention.  The IEO also stressed the need to modify institutional structures and incentives to foster better assessment of risks, internal collaboration, candor and clarity in messages, and the ability to “speak truth to power.” (IEO Releases Evaluation of IMF Performance in the Run-Up to the Financial and Economic Crisis:  IMF Surveillance in 2004-2007.  https://docs.google.com/viewer?url=http%3A%2F%2Fwww.ieo-imf.org%2Feval%2Fcomplete%2Fpdf%2F01102011%2FCrisis_PRESS_RELEASE.PDF, retrieved 13 April, 2011.)”

 

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