International Monetary Fund Essay
International Monetary Fund
The International Monetary Fund (IMF) is a central organization in the world whose mandate of establishment in 1945 revolves around world economic and monetary cooperation (imf. org, 2006). By following microeconomic policies of the member countries, this intergovernmental organization manages or oversees the global financial system. In this organization, almost all the countries in the world work together in cooperation for the common good.
The primary purpose of IMF is to propagate and stabilize international monetary system which is key in ensuring and maintaining stable international payments and exchange rates that are critical in promoting trade between countries. In its efforts to ensure stability of the international monetary system, IMF has the responsibility of reviewing the financial developments in the national, regional, and global arena. The major purpose for which International Monetary Fund was established can be explained in three points.
First is to promote stable exchange rates while at the same time ensuring that order is maintained in the exchange arrangements between its member countries and to prevent competitive exchange from depreciating. Secondly, IMF was established to enhance the expansion of international trade in a balanced manner so that all the member countries can benefit from increased levels of employment and real income in addition to better development and utilization of economic resources of these member countries.
Thirdly, IMF has the mandate to contribute in the establishment of a new system of payment which is multilateral in nature and which functions to eliminate the many restrictions imposed by foreign exchange and which impedes the blossoming of world trade (munfw. org, n. d). The 184 member countries are required to adopt policies which protect them from financial and economic crises, promote economic stability and policies which have the capacity to raise the living standards of the citizens (imf. rg, 2006).
In any given organization, the mission and the set goals are very important since they form the basis for the strategies and management of different affairs in the organization including the critical area of decision making which determines whether the goals will be achieved or not. It is therefore the objective of this paper to describe the mission and the goals of International Monetary Fund and also analyse the process of decision making in the orgaization so as to achieve these goals.
One of the mission of IMF is to offer financial assistance to various countries which have faced crises of balance-of-payments as a result of domestic policies. The governments of such countries do not have a choice other than to borrow from the IMF so as to propagate various economic activities in their countries. On the part of IMF, it has to safeguard the interest of the shareholders and therefore it requires that the countries borrowing the funds put in place stringent policy adjustments which will facilitate repayment. Another mission of the IMF is to function as a reserve pool for global economies.
This is in light of the fact that various countries especially in the developed world have accumulated colosal amounts of resources and money which act to insure them against shocks. On the other hand, many countries especially in the developing world lack the capacity to accumulate resources for insurance purposes but rather would use them for consumption and investments. The IMF therefore in this case acts as reserve pool which can manage these reserves so that even poor countries can access financial assistance in times of economic crises (Eichengreen, 2009).
The third mission of the IMF is to act as a supervisor with regard to macroeconomic activities and trends. This means that it has to be very prudent in keeping an eye on the prevaling financial conditions or trends in the whole globe and in case of any signs of financial instability, provide warnings on the same so that appropriate actions can be taken. However, it has only played a supporting role since most of these activities have been undertaken by the Financial Stability Board (FSB) following the suggestions by the G-20.
The goals of the International Monetary Fund are in line with the goals set by the international community in 2000 popularly known as the UN Millennium Development Goals. These goals focus on fundamental aspects of human existence and are geared toward ensuring improved living standards by curbing poverty and improving the health of world populations. The time frame for the achievement of these goals is set to be by the year 2015 and therefore decision making and actions taken are done systematically and resources managed carefully to meet the set deadline.
The areas of focus of the first seven goals are on eradication of extreme hunger and poverty, ensuring that primary education is accessible by all children, empowerment of women and promotion of gender equality, improvement of maternal health and reduction of child mortality. The sixth goal is with regard to HIV/AIDS, malaria and other diseases which have been wrecking havoc in many developing countries. The seventh goal focus on issues of environment in that IMF intends to achieve environmental sustainability by the year 2015 (imf. org, 2010).
The last goal requires that a global partnership for development be formed to address issues of debt relief, aid and trade. Decisions made by the IMF are meant to ensure that the resources available are managed carefully so that the organization can meet its goals without having problems caused by lack good management of available resources in many organizations. From the goals described, it is clear that IMF targets to offer assistance to poor countries in order to overcome some of the most common challenges facing them such as disease, poverty and illiteracy.
However, the organization is not a development institution like the World Bank and regional development banks. This implies that it has no mandate to provide funds for building physical infrastructure in the poor countries rather it only offers loans to the low-income countries on concessional terms in an effort to ease the pain which these countries have to endure when making critical adjustments in terms of their spending (imf. org, 2006). The purpose for making these adjustments is to bring the levels of spending to the right levels which are commensurate with their income.
Consequently, this promotes important reforms which enhance much stronger and sustainable economic growth which results in poverty eradication in the affected. In addition, following streamlining of a country’s economic policies, the IMF loan given to a particular country may attract other donors who are encouraged to provide more financial support. Therefore, this organization has well elucidated approaches which are used to fight poverty and achieve the rest of the goals which it has set to accomplish by the year 2015.
Decision making at the IMF revolves around two major aspects one of them being on membership of countries which may want to join the organization and on the other hand on the internal operations of the organization. Both of these areas are quite important in ensuring the sustainability of the operations within IMF. For instance, bearing in mind that the major source of money of the organization is the quotas which are contributed by different countries upon joining the organization, decision making at this stage is critical since it impacts directly on the financial stability of this organization.
Quotas are basically a reflection of the size of the economies of the member countries so that a country with a broad economy in terms of variability of trade, national income, monetary reserves and output is required to deposit more into the IMF kit than a country whose size of the economy is small and whose trade variability is not great. The decisions made on the amount of quota a particular country is required to deposit also affect the voting power of that country as a member of the IMF. This means that, the larger the quota of a member country, the more decision making power or voting power it possesses.
For instance, the US contributes the largest quota into the IMF kit and therefore has the highest decision-making power at nearly 18%. On the other hand the whole African continent due to its small quota in the IMF possesses only a 5% decision-making power (munfw. org, n. d). The Board of Governors can review these quotas periodically and increase them when deemed necessary. The IMF staff and management comprise of different bodies which govern and manage the affairs of the organization to facilitate the realization of the laid down goals by 2015.
These include the Board of Governors, International monetary and financial committee, the Executive board, and the standing committees. However, the important decisions are made by the Board of governors. The whole IMF staff and the management are accountable to the managing director of this organization who is appointed by the executive board to whom he is also accountable. The supreme decision-making body of the IMF is the Board of governors which is made of one governor and one alternate governor from each member country who is appointed to represent the interests of the country at the organization.
The alternate governor of each member country is usually the governor of the central bank or the minister of finance. The board of governors is bestowed with the responsibility of making decisions concerning membership and also internal operational activities of the organization such as changes that might be required to the Fund’s structure. Decision making process requires ample time and therefore the Board of governors usually meets twice every year to deliberate on critical issues.
The Executive board has the responsibility of carrying out the day-to-day activities of the organization. The board is chaired by the managing director who is assisted by three deputy managing directors. The member countries or groups of countries elect or appoint 24 executive directors make the bulk of the board. To ease the decision making process at the board level, most member countries are grouped into constituencies but the largest shareholders that is US, Germany, Japan, UK, France are not grouped but instead each has one chair.
The decision making with regard to appointment of executive directors is in some countries based on the number of votes that a particular country has so that a country with the highest number of votes appoints the executive director. Good decision making process is characterized by consensus and this is adequately embraced in the organization whereby the board relies on consensus in making decisions. The nature of this consensus is determined by the number of executive directors who agree or disagree with a certain issue.
In the light of the principle that a good decision making process gives room for opinions and views from all members involved, IMF is keen to allow for a voting exercise to take place in case different opinions crop up in the initial stages of the decision making process. In this voting approach, a needed majority is established in order to give a direction on decision making. However, the percentage majority required will be determined by the nature of the decision which is being made so that a 51%, 66% or 85% majority may be required (brettonwoodsproject. rg, 2005).
During this process, the managing director of the IMF who chairs the executive board is required to advice the board to consider matters arising and be patient until that time when a broad majority has made a clear decision on the issue under discussion. Decision making process is characterized by the presence of options or alternatives so that if one fails, the other alternative can be employed to see whether the anticipated results will be achieved. This is exactly what happens at IMF when the majority still fails to precipitate consensus.
The alternative is to go by the simple majority of the voting power in which a decision can be quickly made through a collective agreement involving G-7 chairs and a few directors (brettonwoodsproject. org, 2005). The IMF as a firmly rooted organization is therefore a good example of an organization whose excellent management strategy is reflected by its ability to facilitate many poor countries especially in Africa overcome common challenges such as poverty and disease.
The mission and the goals set by this organization go hand in hand with the Millennium Development Goals and therefore consistent management of all the resources available to the organization is critical to meet the 2015 time target. The decision making process employed by the IMF also points to one of the key reasons for successful operations since it offers alternatives, democracy and dialogue in addition to the well organized management staff.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 30 September 2016
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