Positive views of the International Monetary Fund Essay

Is there any harder job than regulating all of the international markets money? Probably not, the topic being discussed throughout this essay will be the international monetary fund and its involvement in the international market. Much has been said about the I. M. F whether it is positive or negative, neo-Marxist Che Guevara said â€Å"The interests of the IMF represent the big international interests that seem to be established and concentrated in Wall Street. Here he criticizes how the IMF is considered to be run by the United States which occupies a veto power in the decision making at the IMF, this is important to see because it brings up the other side to the IMF, the side that is not so positive and the one that people feel very critical of. Even though people like Che and Stieglitz bring up the negative characteristics of the IMF it is not the only qualities that the fund has. The IMF has also has many positive qualities, this essay will go over these qualities by looking at the IMF’s debt restructuring cases, looking at how the decisions are made in the fund and finally the long term positive effect that the IMF has on promoting democracy. As mentioned before the IMF has gone through much criticism in past years, yet the work they have done on debt relief has done much to boost up their reputation. Cases like Argentina, the Dominican Republic and much more show that the IMF is very capable of improving conditions within a country by debt restructuring programs. In 2005 the IMF started debt reconstruction in Argentina, the process was held back more that they would have liked due to court proceedings in New York. After this delay the IMF was able to do some real work in debt exchange with Argentina. The country participated 76% in the debt exchange and since then they have seen much improvements in their debt structure and debt-profile. In early may the Argentinean authorities regained market access for the first time since the year 2001. Also as a result of rebalancing of the countries credit rating, spreads of Argentina’s external debt fell tremendously from 6000 basis points to 462 basis points. ( ) The Dominican Republic is another country which was aided by the IMF for debt reconstruction, which ended in success. The Dominican Republic started on an economic recovery route by utilizing stand-by arrangements, which are†¦. The plan of this program was to eliminate the financial needs during 2005-06 through a debt exchange process and more, all of which being supported by IDB and the World Bank. The debt exchange ended on May 15th 2005, and had a very high participation rate by the Dominican Republic and this allowed for a large relief of overall cash flow (576 million US) for the government, an increase in the maturity profile of the debt and a decline in over 130 basis points which clearly outperformed the rest of the market ( ). These are great examples to how the IMF can have a positive influence on the economic conditions of a certain country. Apart from these cases there are many people who still oppose the IMF and its ways of intervening, like Joseph Stieglitz wrote in his book that the IMF set the bar so high for debt relief that few qualified (Stieglitz, 227), yet cases like Argentina and the Dominican do prove their potential for aid. Decisions can be crucial to one’s life, drawing the line between failures or success, same goes for the International monetary fund except their decisions could be the difference between saving a country and having that country’s economic system fail. When a person invests into a company or corporation and holds the majority of shares in it, that person can pretty much make all the decisions he wants. It is very similar in the IMF; the country becoming member attains a certain number of votes and then receives more voting power when that country invests more money. This is stated in further detail in the Funds article XII, section 5 â€Å" Each member shall have two hundred fifty vote plus one additional vote for each part of its quota equivalent to one hundred thousand U.  S dollars† (Gold, 18). The two hundred fifty basic votes were meant to give a chance to the countries who have just became members or were not largely developed, it was also intended so that countries were not entirely able to buy their voting power, as do most people perceive the United States did to gain its so-called Veto power. Gold (1972) brings a quote from an unstated source that brings up the argument of why all countries do not have the same amount of voting power. It is said that it would be unwise to have small countries have the same voting power as the larger ones, since it is for sure that there will be more small country members than there are large. Contrary to that point, he says that it would be unfair to give voting power on the solemn basis of how much money they put in. Although the exact figures of recent years are unavailable, the effect of the basic votes were quite visible in the 70’s, where 37 countries of the 137 members of the fund had basic votes that accounted for half or more of their total voting power (Gold, 19). The counter argument this type of voting formula could be that it resembles to much a private corporation, yet evidence shows that it has help the small countries to at least attain a sufficient amount of votes. People are very likely to pre-judge the outcome of a certain event, even without waiting to see what will happen in the end. This can also be the case for views against the IMF, judging its intervention or programs on the basis of the results produced in the first year. A study was done by Nelson and Wallace to see what type of influence the IMF lending plans had on democracy inside the country obtaining the loan. What they found in their study was that the impact of the IMF loans did not have very much effect on democracy within the given country in the time frame of one year, but the impact of IMF lending only took place between three and five years ( Nelson & Wallace, 24-25). Again this hints to the fact that anti-IMF people may be quick to judge the impact that the Fund has on whatever country being helped. Other results from the Nelson and Wallace research was that the impact of the IMF’s lending could vary from one region to another such as in Eastern Europe where one could see a 3. increase in polity[1] score over a period of 5-years and then in East-Asia there was a negative change of 1. 5 in the polity score (Nelson & Wallace, 27-28). Again these results presented shows that the IMF’s implication can have many different levels of influence depending on the region that is being lent the money. One thing is for sure, it is that there are more cases of improved polity 3:1 and having two regions that were not significant results (Nelson & Wallace, 27-28). Yet, anti-IMF people may say that it is unfair that that one country has a negative outcome and the IMF is unfair and bias towards the other countries. In conclusion, the IMF shows many positive characteristics to their involvement in the world. Their positive ranges from helping developing countries to reconstruct and eliminate their debt by means of a debt exchange with the IMF to the IMF having a positive influence on democracy when loaning money to a country. Also, the way that the IMF voting power is distributed shows a fair way to doing it by awarding all members of the fund with a start up amount of basis points to be able to have some power.