International Monetary Fund

Category: Bank, Inflation, Tax
Last Updated: 28 Jan 2021
Pages: 4 Views: 18

The IMF in many ways is like a medieval doctor where no matter what the ailment, you apply leeches and bleed the patient. My experience is that they are very successful in steering countries' resources toward paying debts to commercial banks, but they are disastrous in terms of the long-term economic health of these countries." Thesis proposed above concerns the effects of IMF policies in attempting to achieve economic growth and development.

This study will attempt to justify the above statement. But first of all it might be appropriate to briefly describe what IMF is and its role in the world. As the official web site describes it, the role of International Monetary Fund is to 'foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment'. This is achieved through economic policies. We shall firstly look at what these policies are and then, whether they have been successful in long-term economic health of these countries.

Created in 1944 along with World Bank (part of Bretton Woods), IMF has been successfully lending money to mainly developing counties so that they could pay the interest on the already outstanding debts to commercial banks and ironically the IMF itself. In response, the commercial banks increased the loans, in confidence that the indebted countries will pay back by getting into more debt with IMF.

Order custom essay International Monetary Fund with free plagiarism report

feat icon 450+ experts on 30 subjects feat icon Starting from 3 hours delivery
Get Essay Help

As the indebted countries got into even more debt, the IMF's 'right' was to intervene into their economies, making structural adjustments with the purpose of actually helping to repay debts. Tragically, very often the effects on the economies have been devastating. 'Ill' economies have been treated with IMF's 3-step help1 and very often made even more ill, by IMF's technical assistance policies. Generally, the countries are required to:These are part of technical assistance policies, which were used in Poland during post-communism crisis and actually brought about healing to the economy.

'Shock Therapy' is said to have helped the Polish economy. But Poland already had a market price mechanism unlike the other post-communist countries. So whether IMF actually helped Poland still remains a highly controversial issue. But does the fact that policies were successful once mean that they are always successful? As we shall see with the examples of South Korea, Thailand and Indonesia this is not so. We shall now discuss the possible reasons of these policies' failure.

Firstly, as said before, IMF encourages countries to increase exports and reduce imports. Generally this is achieved by devaluing their currencies. As might be expected, inflation occurs and the economy as a whole suffers - for example, businesses become under pressure and at risk of collapse. To decrease aggregate demand (which increased after devaluation and resulted in inflation) banks increase interest rates (also, adjusting to an increase in inflation by trying to balance out interest rates and the rate of inflation). Increase in inflation means increase in living costs.

Therefore, wages should be adjusted, now that the purchasing power has decreased - i.e. an increase in poverty and inequality. Thus, taxes are cut in an attempt to increase salaries. Businesses collapse. Government runs a budget deficit, since it spends more that it receives through taxation. It might solve the problem by increasing taxation - but this would only get rid of firms and increase cheaper imports. In any case the economy suffers.

Trade liberalisation involves the reduction of government control on the labour market and regressive taxation. This, again, aims to increase exports by promoting international trade. However, multinational corporations enter the economy and in the long run completely overtake them. This dark scenario may seem rather theoretical, but in actual fact, this is what is happening today. For example, in Korea, the IMF caused the government to reduce the money supply in order to reduce inflation.

However, the interest rates have been greatly increased as well. Speculation of uncertainty surrounding the subject has created instability and panic among the national Korean banks and economy as a whole. IMF, like a medieval doctor, failed to recognise the true needs of the economy and treated it with its usual policies. Critics recognise the failure of IMF as of ignoring Korea's depreciation and fiscal tightening.

In Thailand, the situation is little different. IMF's only aim seems to concern balance of payments. This is, again, cured by increasing interest rates, and other fiscal/monetary policies. The main finacial crisis has, as in Korea, been ignored. Investment has decreased and as a result, economy suffers even more. Also, while the baht might have got stronger as a result of increase in interest rates, national corporations and financial structures have been affected since less capital is available. IMF's cure for Indonesia, was again, to increase interest rates. This created instability in financial markets. In response, IMF recommended to close 16 banks. As a result, a lot of capital left Indonesia. Businesses suffered as a result of high interest rates and now weakened currency.

In conclusion, it is possible to say that IMF truly is an inexperienced medieval doctor, who treats everything by same policies, creating instability. Although it may have been successful in some past cases, it only worsens the situation. In short run, the economies seem to benefit as they repay commercial debts, but in the long run they end up in more and more debt. Several critics have said that IMF creates instability on purpose, so that during these periods the countries open themselves up to mainly american-owned international corporations and end up enslaved. This is a very controversial issue and my opinion only reflects my views.

Cite this Page

International Monetary Fund. (2018, May 19). Retrieved from

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

plagiarism ruin image

We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

Save time and let our verified experts help you.

Hire writer