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Why are the activities of the World Bank and the IMF so controversial?
The purpose of this essay is to examine why are the activities of the IMF and to a lesser extent of the World Bank so controversial? ... Furthermore, the essay will show some criticisms regarding the activities of the IMF and the World Bank which would emphasize the controversy of those institutions. ... The World Bank and the IMF would prefer to lend the money to a country which they sure will be able to pay the loan back and the developing countries are pushed aside. ...
The Role of the IMF
The IMF is an important member and plays a significant role in the international monetary system. Governments sometimes ask a multinational institution like the IMF for loans, in order to defend the value of their currency when they do not have enough foreign exchange reserves. The IMF does not just lend money, in exchange it demands from the country to adopt special policies designed to fix the problems which caused the depreciation in the currency. ...
To avoid the repetition of financial collapse, trade wars and high unemployment was the main aim of the Bretton Woods agreement, of which the IMF was the main nominee. ...
The IMF is providing the countries with short term currency loans and by doing that IMF’s funds give the countries time to bring down their inflation rate and reduce their balance of payments deficits. ... In addition, IMF had the power to devaluate a country’s currency by more then 10 percent, if this country suffered permanent adverse shifts in the demand of its products; this in order to avoid unemployment and sturdy trade deficit. ... 340-341)
IMF’s task was to maintain order in the international monetary system, whereas, the World’s Bank role was to promote development. ... The creditors require guarantee, that this plan of action would generate currency liquidity in the near future from the IMF. ... , pp244-245)
The critics and the controversies regarding the IMF
IMF is a very controversial institution, its actions are occasionally being referred to as damning, and however, some opinions do defend its actions and policies. ...
One of the criticisms is that the IMF’s “one size fits all” approach is not suitable for many countries (International Business, Competing in the Global marketplace/ Fourth Edition, Charles W. ... Critics argue that IMF imposes macroeconomic policies on the countries, although, some of them suffer from a private sector debt crisis and not inflation. ... Despite this, the IMF insists on applying on South Korea the same rules it applies on countries with high inflation rate. ... 5 to 21 percent; which means that IMF’s policy may actually increase the defaults instead of reducing them.
Second criticism is talking about the IMF worsening reckless behaviour by its rescue efforts. ... By supporting those countries the IMF bailing out the banks who were actually the reason for the situation. However, the critics admit that there were a big risk in forcing Western and Japanese banks to write off their loans and that is the reason why the IMF stepped in with financial support.
Approximate Word count = 2558
Approximate Pages = 10.2
(250 words per page double spaced)
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