The International Monetary Fund

Both the IMF and World Bank were created by the United States and British governments at the end of the Second World War (Danaher, 2005). "The IMF was established to smooth world commerce by reducing foreign exchange restrictions and using its reserve of funds to lend to countries experiencing temporary balance of payments problems so they could continue trading without interruption" (Danaher, 2005). The IMF was created in order to benefit all trading nations. The goal of the IMF and World Bank was to combine all the countries into a system of rewards and penalties (Danaher, 2005).

When the World Bank and IMF loan to countries, the loans come with a policy that normally calls for some type of restructuring (Danaher, 2005). This policy is known as the austerity programs. The requirements of most austerity programs include limited government spending, limited domestic consumption, and limited amounts of imports (Colorado Technical University Online, 2006). The main problem with the austerity programs is that the poorer people of that country are hurt in many ways (Rossiter, 1983). The countries that are the being loaned the money are told that they need to be able to pay back the loaned money in a certain period of time, so there are cut backs that need to be made. Instead of cutting military expenses, "the components of the federal budget that attend to the needs of the poor, such as food subsidies and expenditures for clean water, health care and education, are reduced" (Rossiter, 1983).

An example of the success of the IMF can be seen in Turkey. Turkey experienced a major economic crash in 2001, and their economy decreased by nearly ten percent (Gorvett, 2004). In 2003, Turkey began to show improvement when the GDP grew by 5.9% and in the last quarter of the year grew even more to 7.2% (Gorvett, 2004). Inflation also fell from three digits to single digits, and "industrial production jumped 6.5% in January this year" Gorvett stated in 2004. One major improvement for Turkey was caused by the privatization of many companies, in which one was sold for $1.3 billion (Gorvett, 2004).

An example of the failure of the IMF can be seen in Africa. The WDM (World Development Movement) says that the problems in Africa are related to the World Bank and IMF's focus on export growth ("How IMF, World Bank Failed Africa," 2007). This export growth is particularly based on agricultural products that have a low export value ("How IMF, World Bank Failed Africa," 2007). WDM blames the problems on "encouraging or forcing poor countries, especially in Africa, to pursue just such a strategy with disastrous results" ("How IMF, World Bank Failed Africa," 2007). "In 1993, for example, the World Bank funded an agricultural rehabilitation project with an aim of diversifying export income through the expansion of coffee and rubber exports" ("How IMF, World Bank Failed Africa," 2007). During this same period the IMF required countries in Africa that produced coffee to liberalize and export more coffee, but at a much lower price than before ("How IMF, World Bank Failed Africa," 2007).

These are two examples of how the IMF can either soar or fall. There are many things that the IMF needs to consider before they require countries to restructure before they loan them monetary funds. They need to understand that country's needs and history. If the IMF wants to help keep these companies afloat, then they should better consider what the country needs. The IMF has actually failed more times then it has succeeded. Therefore it is imperative that they restructure themselves.

References

Colorado Technical University Online. (2006). Task list: Eco305-0701a-04: Global managerial economics. Retrieved February, 2, 2007, from CTU Online Web site: https://campus.ctuonline.edu/MainFrame.aspx?ContentFrame=/Default.aspx

Danaher, K. (2005, April 1). The origins of the imf and world bank. Retrieved February 2, 2007, from Global Exchange Web site: http://www.globalexchange.org/campaigns/wbimf/origins.html

Rossiter, C. (1983, July). The international monetary fund: A primer. Multinational Monitor, 4(7). Retrieved February 2, 2007, from Multinational Monitor Web site: http://multinationalmonitor.org/hyper/issues/1983/07/rossiter.html

Gorvett, J. (2004, May). Turkey turns a corner. Middle East, (345), 54-55. Retrieved February 2, 2007, from Business Source Elite.

How imf, world bank failed Africa. (2007, January). New African, (458), 12-16. Retrieved February 2, 2007, from Business Source Elite.