Thesis statement
The IMF plays a critical role in ensuring financial stability globally. It has been instrumental in resolving various economic crises such as the 2008 financial crisis and the debt crises in Greece and Portugal.
The role of IMF
The fund plays a crucial role in providing advice and technical assistance to member countries to foster good governance. It promotes public sector accountability and transparency (O'Brien and Williams). Its technical assistance helps member states in enhancing the management of their economies by correcting macroeconomic imbalances, implementing economic reforms relating to international trade, exchange rate policies, among other reforms.
The IMF also offer loans to countries in economic crises. The Fund makes loans available to members in times of financial crises (O'Brien and Williams). It has about $300 billion of loanable funds. It has arranged several financial bailouts. It is the international lender of last resort and also provide concessional loans for poverty reduction in member states.
It also does economic surveillance on produces reports on the state of economies of member states (O'Brien and Williams). The reports highlight areas of weaknesses and recommendations to avoid an economic crisis. The surveillance role is meant to prevent economic crises by highlighting and advising on the correction of economic imbalances that may cause a crisis.
The fund promotes exchange rate stability by advocating for exchange rate policy reforms to avoid competitive currency devaluations (O'Brien and Williams 167). It also promotes international trade by facilitating the expansion and balanced growth of international trade. In conducting this role, the IMF promotes free trade by pushing for reforms to eliminate barriers to international trade. The IMF requires member states to open up their markets to international trade as a precondition for loans and other financial assistance.
The role of the US in relation to the IMF
The US plays a critical role in relation to the IMF. It is the biggest financier of the IMF with over 16% of the total contribution by member states. It holds 16.7% of the voting share, more than the 15% threshold required to veto any decision of the IMF. There have been recommendations on overhauling the IMF to give more powers to emerging countries like India, Brazil, China, among others. The IMF deal was reached by the US and its allies in 2010 but the US Congress only approved the changes in 2015 (Calmes).
The changes, spearheaded by the Obama administration, were meant to revise members’ quota and voting powers to reflect the current economic conditions. There were fears that the US was losing its leadership role in the global economy. Its credibility and leadership were at stake especially after the establishment of Asian Infrastructure Investment Bank by China. The Congress finally approved the changes to the IMF, which will see the combined quota of the 188 IMF members double to SDR 477 billion. The changes will also see the US voting share fall from the current 16.7% to 16.5% (Calmes). The US veto power implies that it plays a significant role in the activities and decisions of the IMF.
The role of the IMF in providing financial stability
The IMF has successfully played its role in ensuring global financial stability in many cases. The IMF joined the Eurozone in bailout out Greece from the debt crisis. It has approved two bailout programmes totalling €30 billion since 2010. This has drawn criticisms since the bailout has exceeded the limit of 600% of the member’s quota. The limit can only be exceeded if the IMF proves that the member’s debt is sustainable. Several Greek governments have failed to implement economic and structural reforms and have rejected austerity measures (Financial Times). These actions made the IMF chief uncomfortable and sceptical (Financial Times). The IMF also bailed out Ukraine during the economic crisis although civil wars have hampered the path to its recovery.
The IMF also played a critical role during the recession in Argentina between 1998 and 2002. The fund bailed out Argentina and was again instrumental in the country’s debt restructuring after Argentina defaulted on its foreign debt in 2001. The fund also bailout out Portugal during its crisis in 2011. This assisted the country to recover from the crisis and the country exited the EU/IMF programme in 2014 after implementing most of the economic reforms.
The IMF also not played the role of enhancing financial stability through bailouts during economic crises but also promoting economic soundness in member states. It has promoted a neo-liberal view of globalisation to ensure integration and macroeconomic stability. The Washington consensus outlined ten policies that member states should adopt ("WHO | Washington Consensus"). These include fiscal discipline to limit budget deficit, reducing barriers to international trade to enhance the flow of foreign direct investment (FDI), trade liberalisation, deregulation, tax reforms, among other reforms.
These reforms enhance financial stability and expand international trade. The IMF has forced countries facing crisis to implement these economic reforms as a condition for bailouts. It has also encouraged international trade by enhancing cooperation among member states. One of the recent key achievements has been the inclusion of the Yuan in the IMF SDR, recognising the significance of China to the global economy. This, among other successes, prompted China’s support for Christine Lagarde’s second term.
Works cited
"IMF’s Christine Lagarde Shows Tough Love To Greece Over Bailout - FT.Com". Financial Times. N.p., 2016. Web. 24 Mar. 2016.
"WHO | Washington Consensus". Who.int. N.p., 2016. Web. 24 Mar. 2016.
Calmes, Jackie. "I.M.F. Breakthrough Is Seen To Bolster U.S. On World Stage". Nytimes.com. N.p., 2016. Web. 24 Mar. 2016.
O'Brien, Robert, and Marc Williams. Global Political Economy: Evolution And Dynamics. 4th ed. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan, 2013. Print.
