Sunday, April 23, 2006

Do we still need IMF?

Today After reading this news article in washingtonpost about changes that are proposed in IMF. The first question that popped up in my mind was is IMF still relevant in today’s world and not how it should be reformed. Though I am not an expert on IMF and its policy or for that matter neither have any concrete formal background in economics my view is purely based on views that I have read on the subject over a period of time due to my personal interest .

There are various books and articles written against IMF and which sights lots of data to prove their point .I am not going to sight them to prove my point as most of these are written by people who are anti Globalization proponents for whom IMF is symbol and heart of it. and also they are generally strong believers of socialism .so in away you can say they might be biased in their opinions though they have some data which are facts to prove their point .So this posting instead of relying on their opinion tries to give links and pointers that are written by eminent economists who are pro globalization but think IMF in present form is totally ineffective in today’s world.

If you want to get some good overall background information about IMF check out this link in wikipedia IMF .IMF first came into practical existence in 1947 and the chief architect was an economist by name john Maynard Keynes with the basic idea that IMF would give financial assistance to countries that experience serious financial difficulties. At the core of IMF and its policy is Keynes economics (i.e. john Maynard Keynes economic theory) which is considered to be the foundation for modern Macroeconomics .He belived strongly and advocated that governments should use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms. So this became part of IMF policy as well i.e. IMF lends loan to troubled countries with condition attached that those governments agree to implement policy dictated by IMF. It sounds reasonable from outside but the problem is in details how it is implemented. IMF generally tends to dictate policies that are global(same kind of policy for all countries ) in nature and theoretical based policy which has proven not only ineffective but counterproductive in many countries example: in some of east Asian countries in 1990s .These issues are discussed in depth by Joesh stiglitz Noble prize winner in economics and former chief economist at World bank in his book Globalization and Discontent .I would say this book not only present about deficiencies in IMF Policy directives but also argues quite logically about IMF existence .Now coming back to Keynes economics though it is accepted economic models it has fair number of critics you can find about them by searching in Google but one article I would say worth reading is Wanted: A New Macroeconomics because it argues not on principles but on its relevance for todays world .

Now before closing I would recommend one final article to read which really captures the different options in front of IMF .IMF: Reform, Downsize or abolish
and of course my opinion is in the title of this posting.

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