STRUCTURAL ADJUSTMENT PROGRAM OF INTERNATIONAL MONETARY FUND.   Term Paper ID:25228 Click to get this paper

Essay Subject: Describes & assesses IMF loan program, stabilization, privatization, objectives, impact of U.S. on IMF policy in developing nations.... More...

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Paper Abstract: Describes & assesses IMF loan program, stabilization, privatization, objectives, impact of U.S. on IMF policy in developing nations. Paper Introduction: AN ASSESSMENT OF THE STRUCTURAL ADJUSTMENT PROGRAM OF THE INTERNATIONAL MONETARY FUND Introduction This research assesses the structural adjustment program of the International Monetary Fund (IMF). The structural adjustment program is implemented by the IMF through the Structural Adjustment Facility (SAF) and the Enhanced Structural Adjustment Facility (ESAF) within the context of the concept of conditionality. Structural Adjustment and Conditionality Perhaps the most controversial of all of the concepts and criteria applied by the IMF is the concept of conditionality, which refers to policies that nations are expected to agree to implement and observe, as a requirement, before a balance of pa Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Keohane himself, however, stated that through sucha regime "U.S. Thedeveloping countries, in their quest for capital, will find it necessary todevelop partnerships with both private sector and governmental entitieswithin the developed economies. Williamson, The Progress of Policy Reform in Latin America(Washington: Brookings Institution, 199 ), 71. BibliographyBello, W., and Cunningham, S. leaders hoped that the establishment of multilateral rulesfor the world economy ... Gilpin, War and Change in World Politics (Cambridge, England:Cambridge University Press, 1981), 156-158. For many other countries whose performance has not been so strong, trade liberalization and structural reform need to be speeded up to enhance resource allocation, while fiscal and monetary policies should consolidate progress toward greater macroeconomic stability. The fear is that conditions associatedwith the extension of investment capital, whether from private sectorentities, governmental entities, or some combination of the two, will besuch that the countries receiving the capital inflows will becomeeffectively vassal states to a developed country, to a major globalcorporation, or to some governmental-corporate partnership based in adeveloped country. Moreoften than not, conditions established emphasize measures which affectbalance of payments through the level and composition of demand within theborrowing nation's domestic economy. [3]Schadler, 15. Toronto: McCleland & Stewart, 1995."Experience Under the IMF's Enhanced Structural Adjustment Facility." Finance & Development 34 (September 1997): 32-35.International Monetary Fund. Modifying economicpolicies will not of necessity mandate the modification of social andpolitical polices, as long as major global corporations perceive theeconomic environment within the country as one in which competitiveadvantages may be either developed or strengthened. Thus, the mutually shared interests of the Western Allied Nationsprovided the basis for the creation of an international regime in the formof the IMF. The Mexican financial crisis and its repercussions on other economies have clouded the short-term outlook for some countries, but longer-term prospects remain promising. system."[16] Conclusion Development, both in the contemporary period and in the 21st century,is and will continue to be increasingly a localized phenomenon. [13]R. New York: McGraw-Hill, 1993.Schadler, S. O. [11]"Experience Under the IMF's Enhanced Structural AdjustmentFacility," 32. One critical question that will be troubling to many developingcountries within such an environment is the extent to which they can remainautonomous in their own countries. Broadly, Keohane held that "incentives to form international regimesdepend most fundamentally on the existence of shared interests."[15]Gilpin said that states "create international arrangements ... [6]Ibid. The implications of American control of the IMF cannot beoveremphasized. [16]Gilpin, 25-35. While such a concern is real and meaningful, it maydiffer from past periods more in form than in outcome. [17]A. The Bretton Woods Agreement charged the IMF withresponsibilities to (1) encourage international monetary cooperation, (2)encourage the removal of foreign exchange restrictions, (3) stabilizecurrency exchange rates, and (4) facilitate multilateral payments betweenmember nations. [5]J. Washington: Woodrow Wilson International Center for Scholars, 1991.Escobar, A. Escobar, Political Economy (Toronto: McCleland & Stewart,1995), 1 -1 1. The Progress of Policy Reform in Latin America. "Building A Market Economy in Poland." Scientific American 266 (March 1992): 34-4 .Sachs, J., and Larrain, F. The structural adjustment program isimplemented by the IMF through the Structural Adjustment Facility (SAF) andthe Enhanced Structural Adjustment Facility (ESAF) within the context ofthe concept of conditionality. Structural Adjustment in Latin America, The Latin American Program, No. 191. Arturo Escobar contends that IMF policies should be modified toincorporate the models for development devised by the developing countriesthemselves, as not only a politically correct approach, but also as aphilosophical sound approach.[17] The developing countries that likely will be best placed to developeffective partnerships in the future will be those countries that modifytheir economic policies to attract capital investments. to advanceparticular sets of interests," but, although interstate behavior is "tovarying degrees based on consensus and mutual interest, the primaryfoundation is ... A third approach to privatization isto allow private companies to compete with governmental departments inbidding to deliver specified public services that remain funded bygovernment.[1 ] In many of the developed economies, privatization is employed as ameans of converting traditional functions of government to private sectoroperations. Initially, member nations were required to adhere to anagreed exchange rate regime, in which fluctuations in foreign exchangevalues were to be confined within a range of +/- 1. Major global corporations, while seekingadvantages, likely will not be as politically motivated as has been theIMF. states ina ... Because the United States contribution share hastraditionally been 5 percent or more of the total contributions, IMFpolicy has been largely American policy. "How Successful Are IMF-Supported Adjustment Programs?" Finance & Development 33 (June 1996): 14-17.Williamson, J. Most successful stabilizations have been characterized by reduced budgetdeficits, pegged exchange rates, high money supply growth, and very highreal interest rates. In many instances, success may depend uponpartnerships that involve some combination of private sector andgovernmental entities in the developed economies. "Policy Challenges Facing Developing Countries." World Economic Outlook (May 1995): 35-51.Sachs, J. The par values of currencies were stated in termsof the United States dollar, which, in turn, was linked to a specified goldvalue. Bello and Cunningham statedthat: Over the past 15 years, it is not just countries of the South which have been structurally adjusted as part of the US administration's agenda to discipline the Third World and roll back the influence of the state. Keohane, After Hegemony: Cooperation and Discord in theWorld Political Economy (Princeton, New Jersey: Princeton University Press,1984), 142. The result of global adjustment is greater insecurity in peoples' living and working conditions worldwide.[12] The major problem with both the IMF and the organization's structuraladjustment program is the single-country domination of IMF policies andtheir applications. Progress in these areas would strengthen domestic saving, investment, and long-term growth. The concept ofconditionality applied by the International Monetary Fund (IMF) through thestructural adjustment program, to a great extent, created effective vassalstates of the recipients of funding. [12]W. All loans aredistributed in increments so the IMF may monitor the borrowing nation'sadherence to the conditions established.[1] The nature of the conditions imposed vary from case to case. Conditions also often supportexchange rate adjustments, where over valuation prevails.[3] The central issues involved in economic stabilization programs are thegovernmental budget, exchange rate, money supply growth, and interest rate. Sachs, "Building A Market Economy in Poland." ScientificAmerican 266 (March 1992): 35. Bello and S. [8]R. Many contemporary politiciansalso embrace this perception of privatization. The primaryobjectives sought by the United States through the IMF appear to be thecreation of opportunities for American business organizations. Privatizationtransfers existing state property, such as factories, to the privatesector.[6] Sachs and Larrain contend that the solution to the debt crisisshould include a permanent reduction of the debt burden, a correlationbetween the size of this reduction with actual ability to pay, and thegranting of debt relief only to those debtors who are prepared to engage insignificant policy reform under international supervision.[7] Dornbusch stated that structural adjustment involves seven aspects:macroeconomic stability, deregulation, privatization, openness to trade,financial efficiency, a poverty program, and solid institutions.[8]Williamson divides policy reform into ten areas: fiscal discipline, publicexpenditure priorities, tax reform, financial liberalization, exchangerates, trade liberalization, foreign direct investment, privatization,deregulation, and property rights.[9] Privatization to most members of the general public means the sellingof public operations to private investors. [7]J. The United States routinely blocks IMF actions that runcounter to American foreign and financial policies and goals. [15]Keohane, 79. [14]R. would make it unnecessary for the United Statesto provide large and continuing aid, and to intervene frequently tomaintain financial equilibrium."[13] This American objective supportsGilpin's thesis that the interests of the most powerful state within agroup of states tends to shape both the creation and the form ofinternational regimes. The Asian Newly-Industrialized Countries and the US economy itself have also been targeted with economic and trade measures which advantage transnational corporate interests. Structural Adjustment and Conditionality Perhaps the most controversial of all of the concepts and criteriaapplied by the IMF is the concept of conditionality, which refers topolicies that nations are expected to agree to implement and observe, as arequirement, before a balance of payments loan or development loan isextended from any of the special financing facilities. In acontracting out process, government retains responsibility for theprovision and funding of public services, but hires private sectorcompanies to perform the actual work. "Dark Victory: The Global Impact of Structural Adjustment." Ecologist 24 (May-June 1994): 87-93.Dornbusch, R. [4]Ibid. An Assessment of the Structural Adjustment Program of the International Monetary Fund Introduction This research assesses the structural adjustment program of theInternational Monetary Fund (IMF). Public services also may beprivatized, however, through the contracting out of services. In many developing economies, however, privatization isemployed as a means of converting industrial enterprises from stateownership and control to the private sector at virtually no costs to therecipients. Within the IMF, voting power is determined on thebasis of individual state contributions.[14] This rule was insisted uponby the United States. Stabilization involves limiting budget deficits, reducing thegrowth of the money supply, and establishing a realistic, uniform currencyexchange rate to promote stable prices and foreign trade. [2]Ibid. [9]J. Conditions may also emphasize supplyfactors.[2] In recent years, conditions have also often emphasized the creation,within a borrowing nation's domestic economy, of positive interest rates,and the establishment of rational pricing for public services. Washington: Brookings Institution, 199 .----------------------- [1]S. Economicliberalization, according to Sachs, means introducing market competitionand creating a legal framework for private property and privately ownedbusinesses.[5] Stabilization fosters a climate in which enterprise of any kind cansurvive. Cunningham, "Dark Victory: The Global Impact ofStructural Adjustment," Ecologist 24 (May-June 1994): 87. Macroeconomics in the Global Economy. [1 ]"Experience Under the IMF's Enhanced Structural AdjustmentFacility," Finance & Development 34 (September 1997): 32-35. Sachs and F. Although most stabilization programs address each ofthe four factors-budget, exchange rate, money supply growth, and interestrates, the relative emphasis placed on each of them tends to vary,depending upon the theoretical orientation of the program developed andimplemented for a specific nation.[4] According to Harvard economist Jeffrey Sachs, three major kinds ofmeasures dominate the policy initiatives of the IMF's structural adjustmentprogram-liberalization, stabilization, and privatization. Larrain, Macroeconomics in the Global Economy (NewYork: McGraw-Hill, 1993), 74. Assessing the Structural Adjustment Program The IMF, in a role comparable to God looking over her or his handiworkon the seventh day, assessed the organization's structural adjustmentprogram in 1995, and pronounced itself as very satisfied with its efforts.The IMF report stated that: The substantial progress made by many developing countries in fostering macroeconomic stability and in their pursuit of structural reform is expected to sustain robust growth in the period ahead. Schadler, "How Successful Are IMF-Supported AdjustmentPrograms?" Finance & Development 33 (June 1996): 14. All developing countries, however, will have to respond both to the challenges posed by large and potentially reversible capital flows and to many other policy challenges. Rationalpricing, in the jargon of economics, refers to realistic, market valuepricing. This basis for the creation of the IMF is consistent withKeohane's contentions. Dornbusch, Structural Adjustment in Latin America, The LatinAmerican Program, No. Stronger domestic adjustment and reform efforts in the poorest countries will need to be supported by the international community through timely financial assistance and external debt restructuring on appropriate terms.[11] The perceptions of other observers of the IMF's structural adjustmentprogram, however, have been less generous. in the power and interests of the dominant ... To most developing nation's, however, rational pricing is aeuphemistic phrase meaning higher prices. percent of the parvalue of the currencies. Theconditions to which developing countries likely will be required to adherein the evolving global environment well may not be as offensive as havebeen those imposed by the IMF. 191 (Washington: Woodrow Wilson International Centerfor Scholars, 1991), 41. For the strongest performers, these challenges include the need to avoid overheating and to strengthen efforts in the areas of deregulation and privatization. Political Economy. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.