International Monetary Fund and its Impact on Member Nations: Focus on Nigeria.

Filed under: Global Issues |

The International Financial System has been very outstanding in the pivot of the development of the world economy. With the integration of the world economy through trade and Foreign Direct Investment (FDI), among other ways the tendency to ‘interfere’ in the activities of one economy by one or other economies has become imperative.

Over time, the idea of the richer economies taking the initiative of aiding the poorer economies to grow and develop necessitated the formation of a number of International Financial Systems. Though, the economies within some regions started their own grouping for the reasons of protecting and improving their economic and strengths in their sovereign state.

The International Monetary Fund (IMF) is one among other International Financial Institutions. The decision to establish the IMF was made during a United Nations Conference that held in Bretton Woods New Hampshire, (USA).

These world and regional groupings have had different interpretation and analysis by different scholars and world observers. To some, these groups formations exist for the purpose of aiding world development; while to others, it is for the purpose of the richer and more advanced economies ruling over the poorer and less developed or developing ones, in the form of neo-colonialism and imperialism.

The circumstances in the world economy then necessitated its formation. It was founded towards the end of World War II in order to pioneer a multilateral financial Institutions’ framework for trade and finance that would help countries avoid the failings that has characterized the interwar period of 1920s and 1930s. Government had drifted toward autarchy (economic independence as a national policy) and had implemented ‘beggar thy neighbour’ policies in effort to gain a competitive edge over other countries. There was also present a proliferation PF preferential bilateral and regional trading arrangements, which undermined multilateral trade many countries had also restricted the international convertibility of their currencies as a means of stabilizing and limiting capital movement.

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Purpose for which IMF was established:

International Monetary Fund was formed to promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problem. Also to facilitate the expansion and balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives to economic policy. Lastly, IMF gives confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, this providing them with opportunity to correct Mal-adjustments in their balance of payments without resorting to measures destructive of natural or international prosperity, among others.

How does the IMF derive its financial resources, you may want to ask? The Fund derives its financial resources from members’ quotas, borrowings, its operations in gold, and its own income. But the members’ quotas are the main sources of its resources. Hence, it is your contributions that come back to you as financial bailout or loans. Members’ quotas are the financial obligations that countries make to the IMF when they join the IMF.  Each member is assigned a quota when it joins the IMF. It is determined according to the “Bretton Woods” formula that takes into account the relative size and importance of the country’s economy to the global economy.

 

IMF basic functions:

International Monetary Fund performs three basic functions of advising member states on policies and global surveillance, rendering financial assistants and providing training and technical assistance.

IMF also promotes global liquidity in the level and composition of its members’ foreign exchange reserves and their access to capital accounts for the members meeting their trade and international payments requirement. The members draw from the General Arrangement Borrow (GAB) and New Arrangement to Borrow (NAB) facilities under this functions.

The Fund also promotes capital account convertibility of member countries by ensuring orderly liberalization of capital movements due to their benefit to their world economy. From the performance of its functions, the IMF has made quite giant strides in resolving its member countries’ economic, financial system growth and poverty problems, among others. Most notably:

  • Poverty Reduction Strategy Programme; this has been widely spread across the developing economies and those economies in transition.
  • Heavily Indebted Poor Countries (HIPCs) Initiative: the IMF, in collaboration with the World Bank, has adopted the HIPCs Initiative by forgiving and canceling the external debts of a member of countries that are categorized as heavily indebted poor countries. The amount so forgiven was to be redirected into the internal economic development of the concerned economies.
  • New Partnership for Africa’s Development (NEPAD) Support and Sponsorship, among other Regional Integrations. The IMF has encouraged and sponsored the African leader’s initiative to take their developmental destiny into their hands. This is, in a sense, promoting good governance within the African Sub-Region economies.
  • Regional Training and Technical Assistance: The IMF has trained a number of the citizens of member countries in order to contribute more effectively to poor and development issues of their home countries. A number of centers across the world have been established by IMF to foster this assistance.

 

Problems faced by developing nations.

Aside insufficient funds, aspect of conditionality, the basic problem that member countries are most concerned with are the International Power Politics: the whole activities of IMF points that the advanced economies, especially USA, dominated the decision-making positions of the IMF. This makes the developing economies like Nigeria to be marginalized and they are made to take the decisions of their developed economies. Evidence abounds in the Structural Adjustment Programmes (SAPs) that have been adopted by the various concerned countries in the world. Also, the loan facilities of the IMF are majorly tailored towards the developing countries, hence making them more of debtor countries.

The IMF approves the loan facilities to Nigeria, but does not take responsibility of monitoring the utilization of the phased installments. It only wants for results of the utilized funds to decide on whether it will disburse the subsequent installments or not. However, experiences have shown that the leaders of the economies that take these loans do not spend them as planned, but embezzle them, hence making the economies debtor nations who are unable to pay back their loans. This lack of monitoring has made a member of these countries impoverished by paying back non-economic returns loans.

Economic observers and analyst have analysed this action of the IMF as a means of tying the developing economies to the apron string of developed economies. My opinion right now on this issue is that the IMF policies, nature of operations and deceptive agenda should be dropped and the true goal for which it was created be once more, lifted up for the betterment of countries attached to it.

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