Benefits of IMF
Economic problems are the bane of most governments. Geopolitical tensions, increased poverty rate, labor shortages, inflation in energy, food, and commodity prices, account imbalances, and supply disruptions. All of these can be overwhelming for a government to handle without help.
Thanks to the International Monetary Fund (IMF), 190 countries in the world can easily access much-needed financial and economic support.
This article highlights the benefits of the IMF. It also addresses other key questions relating to the IMF.
What is the IMF?
The International Monetary Fund (IMF), is a specialized agency founded by the United Nations (UN) in 1944 to promote international monetary cooperation, increase international liquidity and stabilize currency exchange rates.
It is an organization of 190 countries of the world working collaboratively with one another and with other international bodies, to facilitate global economic cooperation, ensure financial stability, promote multinational trade, foster sustainable economic advancement, and alleviate poverty in the world.
The International Monetary Fund was founded at the United Nations Bretton Woods Conference in July 1944, with 44 countries in attendance. The agency was created in response to the need for a framework for international economic cooperation and a system to monitor the world’s currencies.
What are the benefits of the IMF?
The main goal of the IMF is to maintain the stability of the international payments and exchange system, which allows nations and their residents to conduct business with one another. It achieves this by monitoring the global economy as well as the economies of its constituent nations, providing loans to those having trouble with their balance of payments, and offering members useful financial assistance.
To maintain global financial stability, the IMF has three crucial missions:
- Promoting international financial cooperation
- Supporting the expansion of trade and economic development
- Combating policies that would not favor the financial prosperity of nations
What are the 5 purposes of the IMF?
The IMF serves a lot of purposes in providing economic aid to nations. Five of these are outlined below.
Creation and Management of Global Monetary System
The IMF shoulders the responsibility of establishing and maintaining the international financial system, the mechanism by which payments between nations are made internationally. To encourage investment and advance balanced international commerce, the IMF offers a structured framework for currency exchange activities.
Advice and Appraisal of the Finances of nations
The IMF offers financial guidance to countries based on macroeconomic policies focusing on currency rates, governmental budgets, money management, and credit. The IMF also assesses the financial sector, regulatory policies, as well as macroeconomic structural policies that affect the labor market and employment of its member countries.
The IMF also provides support to countries through annual surveillance of the global economy as a whole, as well as the economies of individual nations, regions, and other geographic units. Based on findings from its surveillance, the IMF implements several initiatives and IMF programs to help nurture economic development and maintain a high level of employment in countries.
As a fund, the IMF offers financial support to its member countries to help them correct discrepancies in the balance of payment. Also, in situations where a nation experiences an economic crisis or any form of a crisis affecting the nation’s economy, the IMF may offer financial aid.
Expansion of International Trade
The IMF fosters the expansion and growth of global trade. It also contributes to the advancement and maintenance of high levels of employment in its member countries. It encourages the sustenance of real income to sustain a multilateral system of payments for transactions among its members. These measures help to eliminate foreign exchange restrictions that hinder world trade.
How does the IMF help developing countries?
The International Monetary Fund promotes global economic stability in three major ways which include:
- Offering financial policy advice to nations
- Financial assistance to member countries
- Capacity development
The IMF’s surveillance program involves monitoring the economic policies of its member countries and providing them with recommendations on how to improve their economies and financial systems. This is one of the IMF’s key responsibilities.
As part of its advisory role, the IMF also assesses possible risks and suggests necessary policy changes to maintain economic growth and advance financial stability. This occurs both at the global and regional levels.
The IMF offers financial assistance to crisis-affected nations to allow them some buffer time as they implement adjustment measures to restore economic balance and development. In addition, the agency offers preemptive funding to aid with crisis prevention and insurance. The IMF regularly improves its lending toolbox to accommodate the changing demands of its member nations.
To assist nations in establishing strong economic institutions that can execute the right policies, the IMF offers its members technical assistance and training. These capacity-building initiatives significantly advance the progress of nations toward achieving their Sustainable Development Goals (SDGs). As one of the IMF’s three main responsibilities, capacity development consumes around a third of its budget.
What are the benefits received by India from the IMF?
Since India joined the IMF along with the U.S and Canada on the 27th of December 1945, she has enjoyed a lot of benefits from the organization. Until 1970, India was one of the top five countries with the highest IMF quota 1970. As a result of this, she was awarded a permanent seat on the Executive Board of Directors.
India has borrowed money severally from the IMF in foreign currencies to reduce its payment imbalances. Also, to address her internal economic issues, India has hired technological consultants from the IMF. The IMF’s expert teams have made many trips to India.
Furthermore, India has enjoyed the following advantages by joining the IMF:
- Independence of the Indian Rupee
- Membership of the World Bank
- Availability of Foreign Currency
- Reputation in International Circle
- Guidance and Advice
- Freedom from Sterling
- Sale and Purchase of Foreign Exchange
- Economic Consultation
- Emergency aid
Where did the IMF fail?
Over the years, critics have identified several shortcomings of the IMF. A crucial one is the dominance of developed countries. Some critics have noted, quite correctly, that western nations have exerted greater control to have trade restrictions lifted to help their commerce to grow. However, removing these trade restrictions is not in the interests of developing nations.
In reality, the Fund is controlled by economically developed nations, while their counterparts struggle with the issue of unstable export prices, which results in volatility in their export revenues.
Other failures of the IMF include:
- Failure to remove exchange controls
- Lack of lasting solution to the liquidity problem
- Defective leadership of the fund, and many more.
Since its inception in 1944 till date, the IMF has influenced the economies of its 190 member countries positively.
During the COVID-19 pandemic, the IMF, through its general special drawing right (SDR), allocated a sum of $650 billion. The sum was to help with the development of vaccines and other monetary, fiscal, and financial support.
With the prevailing downturn in the economies of the world, the IMF’s intervention is a huge relief.