P.N.Anudeep

14251008

The International Monetary Fund (IMF) is anorganization of 186 countries, working to fosterglobal monetary cooperation, secure financialstability, facilitate international trade, promotehigh employment and sustainable economicgrowth, and reduce poverty around the world.

The IMF works to foster global growth andeconomic stability. It provides policy advice andfinancing to members in economic difficultiesand also works with developing nations to helpthem achieve macroeconomic stability andreduce poverty.

The IMF supports its membership by providing:

I. policy advice to governments and central banksbased on analysis of economic trends and cross-country experiences;

II. research, statistics, forecasts, and analysis based ontracking of global, regional, and individual economiesand markets;

III. loans to help countries overcome economicdifficulties;

IV. concessional loans to help fight poverty in developingcountries; and

V. technical assistance and training to help countriesimprove the management of their economies.

The International Monetary Fund (IMF or Fund) hasan important role in triggering private capitalflows to countries that participate in an adjustmentprogramme. Fund-supported programmes areintended to pave the way towards a return tobalance of payments viability and sustainablegrowth.

Our findings shed new light on this empiricalrejection of Fund catalysis of private capitalflows. In line with theory, we show that IMFprogrammes do stimulate private capitalflows to countries that do not restructuretheir debt. Thus, our main contribution is toshow empirically the importance of focusingon non-defaulting countries when examiningthe catalytic effect of IMF programmes

Effective catalysis of Fund programmes hinges on IMF lending being a complement to private lending and on the ability of the IMF to induce the debtor country to implement the necessary adjustment policies.

Crucially, IMF intervention must not weakena government’s incentive to implementdesirable but costly policies. The literaturesuggests that the extent to which such debtormoral hazard can be avoided depends on thecountry’s economic fundamentals.

This section briefly reviews the recentempirical literature on the catalytic effect ofIMF programmes

IMF programmes reduce bond spreads whena country’s reserves cover between 4 and 12months of imports or the debt-to-GNP ratiois between 36 per cent and 54 per cent

Fund presence raises the frequency of bondissuance in a comparable ‘intermediate’range of debt or reserves.

In this article

Due to the lack of overseas financialregulation and inappropriate actions byinternational organizations, such as the IMFand World Bank there was a crisis

The first story was inspired by the LatinAmerican currency crisis in the late 1960sand early 1970s- it is so-called “firstgeneration models”.

Since market agents start doubting the abilityof the central bank to control the fixedexchange rates system.The reserves fall to acritical threshold, the rational agentsinitiatespeculative attacks on the foreign exchangeleading to the collapse of the exchange rate

The last story about crisis, the so-called thirdgeneration model of currency crisis, hasbeen developed rapidly soon after the Asiancrisis. This crisis could not be explained byprevious theoretical models and movedattentions to micro fundamentals of aneconomy and Velasco. The third generationmodels consider three micro fundamentals ofan economy as reasons of the currency crisis,fragility of banking system

Generally, there are two main lines amongsecond generation models: the self-fulfillingcurrency crisis models and the purespeculative models. The main differencebetween these two lines of models is thatself- fulfilling models effects a crisis as aresult of rational market respond topersistently conflicting internal and externalmacroeconomic targets.

The contagion and hedging effects is considered as the part of the second generation models instead of being the special category of third generation models such as financial market in efficiencies

The twin banking-currency crisis model relies onthe Diamond and Dybvig‘s dilemma . There aretwo possible outcomes of the market agents:first, agents have confidence in the solvency offinancial intermediaries, and second there is alack of confidence which leads to a run. Bothequilibrium involve selffulfilling expectationsbecause banks fail.

The activities of the IMF on the issue ofenvironmental protection can be divided intothree periods. The IMF’s turn to theenvironment has started at the beginning ofthe 1990s, after its executive board haddecided that the Fund should pay greaterattention to environmental issues

The staff started to integrate environmentalaspects in the policy dialogue with the membercountries and also incorporated environmentalmeasures in the IMF’s structural adjustmentprograms. Nevertheless, the staff tried to keepthe environmental requirement at arm’s lengthand was only willing to consider environmentalaspects when they were consistent with theFund’s basic tasks. It was conducive forintegrating the environment when a win-winsituation seemed to be in reach as it was the casewith the IMF’s request to cut subsidies forchemicals that harm the environment

That the executive board got active on the issueof environmental protection can be partlyexplained with the raising public concern. Butmost of all, an IMF review from 1990 had shownthat national environmental problems could“erode trade and budget balances and retardeconomic growth” Hence, the executive boardwanted to ensure that the IMF promotessustainable development and avoidsrecommending policies that could have negativeconsequences for the environment.

In 2001, the IMF set up an environmentalteam composed of staff from its fiscal affairsdepartment—to “act as a resource for theIMF’s area departments”. The task of theenvironmental team is to track the issues thatarise in IMF consultations with the memberstates. Thus, it develops countryenvironmental fact sheets to identify the linksbetween the macro economy and theenvironment in these countries.

Therewith, the environmental team wants to makesure that the IMF country desks understand thelinks between IMF programs and the environmentalsituation in the particular countries .

The environmental team also addresses how theIMF seeks to promote sustainable development inits fiscal policy advice. For example, theenvironmental team argues that “in relation to theenvironment and natural resources, tax andspending policies have a role incorrecting whatwould otherwise be inappropriate incentives foroverconsumption” .

Thus, the environmental team looks formechanisms to avoid that the IMF-supportedreform programs intensify resource degradation inthe member countries.

However, both the World Bank and the IMF did not resist theexternal demands and did not claim that, e.g., their economicorientations and activities should remain untouched, becausethey are convinced of the relevance of their theories of actionand because they regard environmental integration as anobstacle for their organizational goals.

We assume that non-compliant learning could be observedin particular in the beginning of a policy implementationprocess if external pressure is rather low or if principals areunable to force international organizations to implementexternal demands. In our case studies we might find non-compliant learning if we further differentiate theadministration into units and analyze organizational learningat the unit level.

Final conclusionRegardless of the policies pursued by the IMF and

World Bank. While it is true that they have often been too driven byU.S. foreign policy concerns, in the end the influence of bothinstitutions has been widely overstated. And despite their mistakesduring the past half century, they have rarely been given credit formany of the little things they do well.

While neither the IMF nor the World Bank has met thelofty goals of their founders or wielded the nefarious influencecharged by their critics, they have and should continue to play asmall but important role in promoting prosperity and economic

stability worldwide.