Explain the role of the International Monetary Fund. Discuss the criticisms leveled against this agency in the wake of economic crises of the 1990s.

Question

What will be an ideal response?

Answer 1

The International Monetary Fund (IMF) examines the economies of all its member nations on a regular basis. When a country runs into serious financial difficulties, it may turn to the Fund for financial assistance. The IMF typically provides loans, but with many strings attached. During the 1990s, the IMF found itself at the epicenter of a series of very visible economic crises: in Mexico in 1995, in Southeast Asia in 1997, in Russia in 1998, in Brazil in 1999, in Turkey and Argentina in 2001. Some critics complained that the Fund set excessively strict conditions on its client states, requiring them, for example, to cut their government budgets and raise interest rates during recessions, which made bad economic situations even worse. Other critics worried that the Fund was serving as a bill collector for banks and other financial institutions from the United States and other rich countries. Because the banks loaned money irresponsibly, these critics argued, they deserved to lose some of it. By bailing them out of their losses, the IMF simply encouraged more reckless behavior in the future. Numerous suggestions for reform were offered, and some minor changes in the IMF’s policies and procedures were made.