Europeans have eight seats on the board. Details of a loan agreement are first worked out between IMF staff, management and the country seeking assistance before it goes to the board. Documents outlining an agreement are circulated to board members before they meet to finalize a loan. Most board decisions are by concensus. If a country does not agree with a proposal, it will abstain from the decision. However, the need for SDRs lessened when major economies dropped the fixed exchange rate and opted for floating rates instead.
The value of the SDR is adjusted daily against a basket of currencies, which includes the U. The larger the country, the larger its contribution. Thus the U. If called upon by the IMF, a country can pay the rest of its quota in its local currency. So far, SDR The IMF offers its assistance in the form of surveillance, which it conducts on a yearly basis for individual countries, regions, and the global economy as a whole.
However, a country may ask for financial assistance if it finds itself in an economic crisis, whether caused by a sudden shock to its economy or poor macroeconomic planning. A financial crisis will result in severe devaluation of the country's currency or a major depletion of the nation's foreign reserves.
There are three more widely implemented facilities by which the IMF can lend its money. A Stand-By Arrangement SBA offers financing of a short-term balance of payments, usually between 12 to 24 months, but no more than 36 months.
The Extended Fund Facility EFF is a medium-term arrangement by which countries can borrow a certain amount of money, typically over four to 10 years. The EFF aims to address structural problems within the macroeconomy that are causing chronic balance of payment inequities. The structural problems are addressed through financial and tax sector reform and the privatization of public enterprises. As the name implies, it aims to reduce poverty in the poorest of member countries while laying the foundations for economic development.
Loans are administered with especially low interest rates. The IMF offers technical assistance to transitional economies in the changeover from centrally planned to market-run economies. The IMF also offers emergency funds to collapsed economies, as it did for South Korea during the financial crisis in Asia, which allowed it to avoid sovereign default. Emergency funds can also be loaned to countries that have faced an economic crisis as a result of a natural disaster.
All facilities of the IMF aim to create sustainable development within a country and try to create policies that will be accepted by the local population. However, the IMF is not an aid agency, so all loans are given on the condition that the country implements the SAPs and makes it a priority to pay back what it has borrowed.
Countries that are under IMF programs are typically developing, transitional, and emerging market countries countries that have faced financial crises. Because the IMF lends its money with "strings attached" in the form of its SAPs, many people and organizations are vehemently opposed to its activities.
Opposition groups claim that structural adjustment is an undemocratic and inhumane means of loaning funds to countries facing economic failure. Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones. Thus, by being required to open up their economies to foreign investment , privatize public enterprises, and cut government spending, these countries suffer an inability to properly fund their education and health programs.
Moreover, foreign corporations often exploit the situation by taking advantage of local cheap labor while showing no regard for the environment. The oppositional groups say that locally cultivated programs, with a more grassroots approach towards development, would provide greater relief to these economies. Critics of the IMF say that, as it stands now, the IMF is only deepening the rift between the wealthy and the poor nations of the world. And they timidly suggested that commercial creditors should follow suit.
They did not — instead suggesting that countries taking up the G20 offer would see a hit to their credit ratings. There was no serious effort to address the global inequities in public health and vaccine distribution, much less to tackle the systemic financial crises faced by many economies in Africa, Asia and Latin America.
Much of the international machinery is still in retreat; the rest is decidedly creaky. Now the bigger questions are political: who gets the money and what should they do with it? To those that have, more shall be given has been the abiding rule in the international system. Some 70 low-income countries with a total population of 1. The high-income countries could reallocate their share of the SDR reserves, which they do not need, to those countries whose economies have been strafed by the pandemic.
Much of this windfall for the richest could be transferred to the hardest-hit countries via a bundle of debt relief, low-interest loans and grants. It would not be starry-eyed philanthropy but a constructive bid to reboot the global economy. Over time, its focus has switched to the developing world. The World Bank's predecessor - the International Bank for Reconstruction and Development - was set up to drive post-war recovery.
Now, it is the world's leading development organisation, working for growth and poverty reduction. Owned by the governments of its member states, the Bank channels loans and grants and advises low and middle-income countries.
The IMF is funded by a charge - known as a "quota" - paid by member nations. The quota is based on a country's wealth and it determines voting power within the organisation; those making higher contributions have greater voting rights.
The IMF acts as a lender of last resort, disbursing its foreign exchange reserves for short periods to any member in difficulties. The IMF and the Bank have served as a rallying point for disparate causes - from environmentalists to anarchists - and meetings have occasionally been accompanied by violent street protests.
Protesters and critics cite the exploitation of the poor and the environment and argue that freer trade threatens the livelihoods of millions of people.
The IMF has admitted that forcing developing countries to open their markets to foreign investors can increase the risk of financial crises. Its former managing director Horst Koehler said in that the benefits of globalisation had not been equally shared.
But he added that "the objective should not be less globalisation but more and better globalisation.
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