Site MapHelpFeedbackThe IMF and the International Political Economy
The IMF and the International Political Economy
(See related pages)

International organizations (IGOs) play numerous roles in the international system, particularly when it comes to the global economy. As you learn from this chapter, the IMF is one such organization and is important in stabilizing the international monetary system. But similar to other IGOs, the IMF also plays a crucial role in disseminating information and raising awareness about the state of the world’s economy. The following excerpt examines a recent report published by the IMF as well as some of the controversy surrounding this prominent IGO. Read the following excerpt and web links to learn more about this important actor in IPE.



1

The International Monetary Fund (IMF) recently released its annual progress report - the World Economic Outlook - making predictions and forecasts about national and global economic growth for the coming year. Somewhat surprisingly, the IMF report indicated that Africa may be poised for the strongest economic growth that the continent has seen in three decades.

The IMF reported, "Growth is now projected to pick up strongly to 4-1/4 percent in 2004 and 5-3/4 percent in 2005" throughout Africa. This significant gain in the rate of economic expansion indicates some resilience in the African economy, particularly given the overall downturn in the global economy as well as the regional conflicts and mismanagement of natural resources that continue to undermine development throughout the region. The IMF credited this pattern of economic expansion to better macroeconomic policies, rising commodity prices, the reduction of fiscal deficits, control over inflation rates, and debt relief under the Heavily Indebted Poor Countries Initiative (HIPC).

The IMF, however, was quick to curb its optimistic projections and noted that Africa's economic growth was still highly dependent upon "improvement in weather conditions and a marked improvement in the security situation." In other words, the report highlighted the region's susceptibility to natural disasters, political instability, and violent conflict, making any economic outcome far from certain. Africa's economy also continues to face threats from the HIV/AIDs epidemic that continues to kill economically active adults and leave many children orphaned. This health crisis is far from under control and has the potential to destroy the region's economic future unless checked. Nonetheless, the IMF maintained its optimistic outlook on the economic future of Africa.

The IMF was established by the Bretton Woods System following World War II and was created by Western countries to establish a new monetary system that would promote and regulate the world economy. The IMFs primary function is to "help maintain exchange-rate stability by making short term loans to countries with international balance-of-payment problems because of trade deficits, heavy loan payments, or other factors" (Rourke and Boyer 2004: 348). Typically, the IMF lends countries money to either support their currency and/or to stabilize their national finances by refinancing their debts. Over 70 developing countries currently receive some sort of financial support from the IMF. The IMF is an international organization in the sense that its membership is made up of countries, but it is by no means a democratic system. Voting within the IMF system is based on a wealth-weighted formula where the more a country contributes to the fund's resources the more "say" that particular country has. Currently, five countries (the U.S., Japan, Germany, France, and Great Britain) are responsible for about 40 percent of the fund's resources; therefore, these five countries control close to half of the votes on the board.

Many criticize the IMF voting system because it allows developed countries to control the IMF lending policies and to determine the conditions attached to the loans that go to developing countries. In this sense, it gives developed countries power and authority to dictate the economic development programs of poor countries, and thus is an infringement on their national sovereignty. On the other hand, it is the wealthier countries that make the loans available and some argue that they have a right to determine how those resources are allocated.

More controversial is the stringent conditions that the IMF places on its loan policies. The IMFs conditionality presses developing countries to pursue a capitalistic economy based on principles of free trade and liberal reforms. This requires the recipient countries to privatize state-run enterprises, reduce trade barriers, cut government spending, end domestic subsidies, and to devalue currencies. With cuts in social spending, loss in government jobs, decrease in real wages and overall economic hardships, these liberal reforms imposed by the IMF often lead to political instability and harmful conditions particularly for the most vulnerable in society. Furthermore, developing countries often see the IMF conditionality as a violation of their national sovereignty and the imposition of neocolonialism. It's is no secret that the IMF's policies create a stronger export market and a more stable financial market for wealthy countries. This has led many developing countries to see the IMF as merely a tool for the developed countries to continue to dominate the global economy and to keep the developing countries dependent on them and their institutions.

Despite these criticisms, the IMF has seen a number of successes, and developing countries continue to seek help from the organization. While other organizations also provide loans to poor countries, such as the World Band, the majority of these adhere to the same liberal, capitalistic principles that we see with the IMF. Thus, there is currently no alternative available for developing countries. And so long as the international community continues to define economic development in terms of growth in national income and increased size in domestic economies, the IMF will continue to be a major player in the global economy.

IMF Report - World Economic Outlook: Growth and Institutions (April 2003)

Center for Economic and Policy Research (CEPR) was established to promote democratic debate on the most important economic and social issues that affect people's lives. Toward this end, CEPR conducts both professional research and public education.

Rethinking the IMF and the World Bank: More Reform or Complete Redesign?Report from the World Economic Forum Annual Meeting (2002)








International PoliticsOnline Learning Center with Powerweb

Home > Chapter 12 > Analyze the Issue 2