Abstract
IMF describes itself as "an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty".(IMF website)
The International Monetary Fund has been created in 1945 during the Bretton Woods conference and was signed by 29 countries in order to design a new international monetary system with full employment and price stability and allowing countries to attain external balance without imposing restrictions on international trade (Krugman and Obstfeld, 2006) The IMF was created in order to avoid the repetition of financial crises that took place during the interwar years. The abusive printing of money and the reduction of labor had created an increase in price levels so that countries faced with inflation. The reconstruction process had also contributed to print more money so as a result money supplies and prices levels increased.
As a doctor who prescribes medicines to afflicted countries, the IMF tries to help countries facing financial issues. Member states with balance of payment problems request loans and/or organizational management of their economies. In return, the countries are required to launch certain reforms. These reforms are generally made because countries with fixed exchange rate policies can engage in fiscal, monetary, and political practices which may lead to crises. For example, nations with budget deficits, inflation, or strict price controls run the risk of facing balance of payment crises in their future.
In order to "cure" these countries, the IMF has adopted a strategy summarized in its structural adjustment program. This program has different objectives and has been adopted in many IMF's interventions. First the IMF's goal is to reduce the size of government budget by reducing government's expenditures. It also requires the privatization of the state-owned enterprises, financial liberalization by removing interest rates ceiling on banks, the depreciation of exchange rate to improve the balance of payment's position and finally to remove price control on fuel, commodities and utilities. The effects on such decisions will be discussed more in details but we first have to understand IMF's role in order to discuss its actions.
