What In The World Economy? Essay Example

members to choose their preferred exchange arrangement, except for tying their currency to gold. Options included allowing free currency floatation, pegging it to another currency or basket of currencies, adopting another country's currency, or joining a currency bloc. Nowadays, exchange rate surveillance is highly prioritized by the IMF.

The International Monetary Fund (IMF) conducts exchange rate surveillance to assess a member country's policies and their impact on external stability and the international exchange rate system. This includes evaluating exchange rate policies and other policies against commitments as an IMF member. The goal is to encourage policies that benefit both the member country and promote positive outcomes for other nations through collaboration.

The mid-to-late 1990s crises in Mexico and Asia demonstrated how one country's policies can significantly impact other nations. To prevent financial crises, the International Monetary Fund (IMF) has implemented measures that include encouraging members to adopt policies with "shock absorbers." These policies consist of maintaining sufficient reserves, establishing diverse and efficient financial systems, implementing better social safety nets, and adopting fiscal policies that allow for greater deficits during hard times. Furthermore, the IMF has partnered with the World Bank to launch initiatives aimed at making countries less vulnerable to crises.

The IMF conducts extensive assessments of member countries' financial sectors through the Financial Sector Assessment Program (FSAP). The aim of FSAP is to improve efforts focused on strengthening the stability of financial systems in member nations. In addition, the IMF has developed standards and codes for economic policymaking, regulation and supervision of the financial sector, statistics collection and dissemination, among other areas, as part of its Data Dissemination systems initiative (IMF 2006). The IMF encourages its

members to provide comprehensive, timely, and precise statistics to the public through their data standards programs.

The introduction of the Special Data Dissemination System (SDDS) by the International Monetary Fund (IMF) in 1996 empowered inventors to make informed decisions, resulting in improved financial market performance and reduced likelihood of crises.

The IMF has two data dissemination systems to aid member countries in gaining access to global capital markets. The first is the SDDS, which offers guidance on data dissemination. The second is the GDDS, created in 1997 for nations that need statistical system upgrades but cannot afford the SDDS subscription. The GDDS encourages IMF member countries to improve their data quality and statistical capacity building. Participation in either system is voluntary.

The IMF receives statistical data contributions from non-members such as Hong Kong who use GDDS and the European Union who use SDDS. The IMF has also created vulnerability indicators and early warning system (EWS) models to improve identifying at-risk countries. These indicators consist of external and domestic debt, reserves adequacy, financial soundness indicators, and corporate sector indicators. EWS models are utilized by international financial institutions, central banks, and private sector forecasters to predict the likelihood of currency crises. The models rely on country-specific data, global economic developments, and political risk. Additionally, the IMF increased efforts to promote good governance in the public and financial sectors and participated in international endeavors to counteract money laundering and terrorism financing. (Peter Goff 2003)

Private flows hold a significant role in stopping and solving financial crises due to being the larger component of international financial flow. The prevention of crises can be achieved by enhancing risk assessment and establishing frequent

communication between nations and private investors. This interaction also promotes private sector participation in the resolution of crises like the restructuring of private debt.

The establishment of the Capital Markets Consultative Group (CMCG) by the IMF in 2000 marks a significant step in strengthening its dialogue with market participants (IMF 2007). The group, initiated by the Managing Director of the IMF, serves as a platform for informal discussions between players in international capital markets and the IMF. Its periodic meetings aim to deliberate on common concerns and align with the IMF’s broader strategy of productive engagement with the private sector. At times, private creditors require coordinated debt restructuring during crises. To facilitate this process, the inclusion of Collective Action Clauses in international bond issues has been actively promoted by the IMF.

The purpose of using these clauses is to prevent a small group of creditors from stopping a restructuring agreement that the majority of creditors have already agreed upon. The IMF also endorses the Principles for Stable Capital Flows and Fair Debt. Structural adjustment policies were created by two Bretton Woods institutions, the IMF and World Bank. These policies were formed from conditions that these institutions have been attaching to their loans since the 1950s, with a focus on a country's macroeconomic policy. The goal of a structural adjustment policy is to increase market participation in order to stimulate development.

Conditionalities for loans from the IMF and World Bank emerged after the Latin American debt crisis in the early 1980s. These Structural Adjustment Policies stemmed from various global economic disasters during the late 1970s, such as the oil crisis, debt crisis, economic depressions, and stagflation. Such disasters prompted

policymakers to conclude that deeper intervention was needed to improve a country's welfare. While both institutions lend to developing nations, they target different challenges. The IMF primarily provides loans to countries experiencing balance of payment issues, while the World Bank offers financing for specific development projects. IMF loans aim to address broader issues facing countries in the short term.

In the past, IMF loans had to be paid back within 2.5 to 4 years, but now there are longer options up to 7 years and crisis lending for natural disasters or conflicts. Meanwhile, World Bank's SAPs or SALs give loans and grants for projects in countries.

A potential solution for infrastructure improvement in a developing country is through funding from the World Bank, either as a loan or grant. The World Bank consists of two entities: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). IBRD primarily targets middle-income and creditworthy poor countries, while IDA focuses on the lowest-income and least creditworthy nations. IMF's adjustment policies offer numerous advantages such as reduced public spending, higher interest rates, tight monetary policy, deregulation of protected sectors, privatization of state-owned services, improved bank financial reporting, and specific measures. Ultimately, IMF's adjustment policies aim to implement free-market programs and policies that involve internal and external changes with an emphasis on lowering trade barriers.

Countries that do not implement these programs may face harsh fiscal measures. Opponents claim this financial coercion against underprivileged nations constitutes blackmail, giving them no alternative but to comply. The key features of structural adjustment policies comprise actions aimed at creating a more robust economy, coupled with policies designed to modify the

structure of the economic system to make it more suited to the global market conditions. Consequently, the main expense arises from stabilizing the economy, with associated expenses such as economic reform and inflation resulting from currency devaluation, import surcharges, and other costs.

Social and political costs arise as a result of the rise in unemployment. Kenya's situation worsened due to the IMF Structural Adjustment Programmes. The country's central bank regulated currency movements before IMF's involvement, however, IMF mandated allowing easier currency movement.

In summary, the implementation of IMF adjustment policies resulted in minimal foreign investment, while allowing the chairman of Goldenberg International Ltd to embezzle billions of Kenyan shillings with the assistance of corrupt government officials. This infamous scandal ultimately left the country worse off than it was prior to the reforms. Nonetheless, the IMF performs three key activities, namely monitoring economic and financial developments and advising member countries on economic policies, lending hard currencies to support balance of payments programs, and providing technical assistance and training to government and central bank officials. The primary benefit of IMF adjustment policies is the promotion of "free market" programs and policies.

IMF adjustment policies can benefit most member countries but also have the potential for loss, as seen in the Kenyan economy. The main cost of stabilization is generated by these policies. (1908 words) Reference: Advameg Inc 2007, "Kenya Economy", [Online] Available from: http://www.

The source "nationsencyclopedia.com/Africa/Kenya-ECONOMY.html" was accessed on September 13, 2007. An online article by Anup Shah from 2007 titled "Structural Adjustment - a Major Cause of Poverty", can be found at globalissues.org/TradeRelated/SAP. Both resources retain their respective and contents.

On September 13, 2007, the International Monetary

Fund provided information on vulnerability indicators and their website "www.imf.org/external/np/exr/facts/vul.htm" was accessed. The same organization also explained what the IMF is and their website "www.imf.org" was likely accessed on the same date.

Accessed on 13 Sept 2007, the International Monetary Fund published "IMF Exchange Rate Advice In Spotlight?" in an online publication located at http://www.imf.org/external/pubs/ft/survey/so/2007/POL0517B.htm. Additionally, the IMF also provided information on the "Capital Markets Consultative Group (CMCG)" through an online resource available at http://www.imf.org/external/pubs/ft/exrp/what.htm.

Accessed on September 13th, 2007, the website org/external/np/cmcg/index.HTM presents an article by Peter Goff from 2003 titled "Structural Adjustment Policies". The article can be found online at http://www.edexcel.org.uk/VirtualContent/48298/5c_4_Structural_Adjustment_Policies_16_01_03.

The UC Atlas website has an article titled "Cost of adjustment" that includes a PDF document. This resource was accessed on September 13th, 2007 through the online link http://ucatlas.ucsc.edu/sap/cost.php.