essay 3_Essay - International Monetary Fund Conceived in...

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International Monetary Fund Conceived in 1944 at Bretton Woods, New Hampshire, US to help establish a framework for international economic cooperation. Post Cold War The IMF is an international organization that oversees the global financial system by observing exchange rate and balance of payments, as well as offering financial and technical assistance. IMF says economic stability is a precursor to democracy IMF advocates a Keynesian approach. IMF frequently advocates currency devaluation , criticized by proponents of supply-side economics as inflationary . Secondly they link higher taxes under " austerity programmes" with economic contraction . Critics That said, the IMF sometimes advocates "austerity programmes," increasing taxes even when the economy is weak, in order to generate government revenue and balance budget deficits , which is the opposite of Keynesian policy. These policies were criticised by Joseph E. Stiglitz , former chief economist and Senior Vice President at the World Bank, in his book Globalization and Its Discontents . [8] He argued that by converting to a more Monetarist approach, the fund no longer had a valid purpose, as it was designed to provide funds for countries to carry out Keynesian reflations. One of the IMF policies harshly criticized by Stiglitz is the forcing of developing economies to open up their markets to foreign competition before they are ready to do so. Even the most advanced industrial societies, such as the United States , built up their economies by selectively protecting certain industries deemed unfit to compete with foreign markets. Only when these industries became strong enough were they opened up. The IMF seems to completely ignore this fact when they provide funds contingent upon rapid trade and capital market liberalization. Doing so destroys jobs rather than creating them, especially in agriculture where poor farmers simply can’t compete with highly subsidized goods from Europe and America. There are no safety nets set up in these developing countries to deal with a market economy . They have no minimum wage or working condition standards, and they certainly do not have welfare and unemployment systems. In summary Stiglitz writes, “Small developing countries are like small boats. Rapid capital market liberalization, in the manner pushed by the IMF, amounted to setting them off on a voyage on a rough sea, before the holes in their hulls have been repaired, before the captain has received training, before life vests have been put on board. Even in the best of circumstances, there was a high likelihood that they would be overturned when they were hit broadside by a big wave (p. 17).”
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Stiglitz argues a large part of the problem with the IMF is the amount of power they wield. Many of the nations that come to them for help know the policies they will surely recommend are not well suited to their country. They simply have no other place to turn. They must adhere to IMF policies or risk losing much needed funds. Exacerbating this
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This essay was uploaded on 02/20/2009 for the course ILRIC 3330 taught by Professor Turner during the Spring '08 term at Cornell University (Engineering School).

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essay 3_Essay - International Monetary Fund Conceived in...

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