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Paper Abstract: Overview of the IMF. How it is organized and how it works. Its purpose as the central institution of the international monetary system. Its economic aims. Its monitoring of world financial issues. Its structure and chain of command. IMF functions. Effectiveness of the IMF; handling of financial crisis; Economic bailouts. Paper Introduction: The International Monetary Fund Membership Created on December 27, 1945, when 29 countries signed its Articles of Agreement at a conference held at Bretton Woods, New Hampshire, the International Monetary Fund (IMF) commenced financial operations on March 1, 1947. Currently, there are 183 nation-states that are members of IMF. Unlike the United Nations (UN), where each member nation has an equal vote, voting power at the IMF and its sister organization, the World Bank, is determined by the level of a nation’s financial contribution (World Bank/IMF Fact…, 2001). Over time, sovereign nations not initially involved in the formation of IMF have sought and secured membership, resulting in the present force of 183 members. Purpose 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. Am editorial in Business Week (Give the IMF..., 1998) during theAsian financial crisis of the late 199 s pointed out thatOne area in which IMF was most successful is spreading the gospel of marketcapitalism. Memon (1999) argues that the surveillance activities of the IMF areperhaps the most significant non-lending activities of the organization.Surveillance is the process by which the IMF appraises its members'exchange rates and policies within the framework of a comprehensiveanalysis of the general economic situation as well as the policy strategyof each member. Progress in strengthening the Architecture of theInternational Monetary System. The IMF'sstatutory purposes include promoting the balanced expansion of world trade,the stability of exchange rates, the avoidance of competitive currencydevaluations, and the orderly correction of a country's balance of paymentsproblems (What is the IMF, 2 1). EuropeanPlanning Studies, 7(2), 127-144. (1999). Debate overthe increasingly aggressive role of the IMF and, by extension, the WorldBank, in financial crises such as those occurring in South Korea isfrequently described in the literature (Min, 1999). (1997). Parrish, D. New Statesman,129 (443 ), 2 -21. Further, Parrish (1999)contends that the G-7 nations may very well have too much influence overthe IMF and its activities. (2 ). Multinational Business Review, 7(2), 68-73. World Bank/IMF Fact Sheet. These are the building blocks of a marketeconomy. Rather, it relieson the formation of consensus among its members. Dean (1999) notes thatsince the 198 s, several waves of international debt crises beginning inMexico and spreading quickly throughout Latin America to parts of Asia andEastern Europe, have led to the increased involvement of both the IMF andthe World Bank in the economic activities of affected countries. Critics ofthe IMF charge that it often misses obvious signposts on the road toeconomic crises and fails to objectively assess macroeconomic conditions.Pyun (1999), for example, believes that economic austerity programs tend toimpose excessive tax increases, overly high interest rates, and call forslow or no economic growth. The ongoing restructuring activities mandated by the IMF and the WorldBank have not been fully operationalized, but early results in South Koreaof restructuring indicate that IMF was successful. (1999). The largestmember of the IMF is the United States, with an SDR of $149.3 million; thesmallest member of Palau, with a quota of SDR $3.1 million (IMF quotas...,2 1). At present, 8 Executive Directors onthe Board represent individual countries, with the 16 others representinggroupings of the remaining members.Functions The main functions of the IMF include surveillance of members'exchange rate policies and financial condition as well as balance ofpayments and loans. Available atwww.imf.org/external/pubs/ft/exrp/what/htm. Duncan Parrish (1999) has suggestedthat since the fall of the exchange rate system, the IMF has been at looseends. World Bank/IMF Questions and Answers. Because this is the case,there remains a pressing need for an organization such as the IMF. The two most important and difficult challenges revolvearound strengthening the global financial system so that it becomes lessprone to financial crises and better able to cope with crises when theyoccur and advancing the fight against poverty in low-income countries (Whatis the IMF, 2 1). Journal of Asian Economics, 1 (2), 263-278. Review the minimum capital requirements for banks and financial institutions . South Korea's financial crisis in 1997.ASEAN Economic Bulletin, 16(2), 175-19 . Kang, B.H. IMF itself has taken steps in recent years to build a stronger, morestable international financial system (Progress in strengthening..., 2 ). The quota that defines a member's voting power in IMF decisionsaccords each member 25 basic votes plus one additional vote for each SDR$1 , of quota. The SouthKorean government neglected the urgent need to strengthen supervision amidthe process of deregulation. Article IV consultations -through which the IMF and its members assess domestic economic needs - arebeing disseminated and published in order to meet this goal. Kang (1998) argues that the South Korean government was not wellprepared the time of the crisis to curb indiscreet corporate inroads intoforeign markets and excessive borrowing from overseas sources. Memon, Z. A factsheet. Loans provided by the IMF have had at times theeffect of fostering a "dependence culture" which has not brought aboutmeaningful development in the Third World. A variety of economic factors is considered in determining a member'squota, including Gross Domestic Product, current account transactions, andofficial reserves. The IMF has an enormous amount ofcapital - in addition to the private capital that flows into the developingnations - that it can use effectively. Available atwww.bwarchive.busine. Who rules the world? The IMF at a glance. (2 1). BrookingsReview, 16 (3), 36-37. Give IMF its due. (2 1). Notable accomplishments to date include a gradual increase in the qualityand candor of economic and financial information being made available bymembers, the creation of Contingent Lines of Credit (CLC) that permits IMFto pre-empt a crisis, and enhanced and more sophisticated surveillancetechniques of members' economies. Continuedunemployment at excessively high levels, on the other hand, has beenbalanced by high interest rates and an at times brutal credit crunchnegatively impacting on smaller firms. Matthews (1997) claims that IMF austerity policies are often viewedby analysts as demanding too much, too soon, from borrowers. A Board of Governors, one from each member and an equal number ofalternate members links members to IMF. The IMF hasalso become more aggressive in involving the private sector in crisisprevention and resolution and actively collaborating with otherinstitutions in the fight against financial instability and poverty (Whatis the IMF, 2 1). and Paisley, E. D. At the same time, the IMF itself has worked todevelop new mechanisms and strategies that are designed to enhance itsactivities in concert with those of the World Bank and the World TradeOrganization (WTO). The IMF has also been instrumental in assisting Mexicoand Chile in resolving their financial problems and moving towardmeaningful development and economic stability. (1999). Finally, IMF offerstechnical assistance (i.e., expertise and support) in terms of fiscal andmonetary policy, institution-building, and other activities (The IMF at aglance, 2 1; World Bank/IMF..., 2 1).Effectiveness of IMF IMF has been both praised and criticized over the course of itshistory. TheIMF's initial 1997 bailout appeared to be in the process of derailment asruns on several banks and investment trust companies took place. IMF's surveillance activities, for example, have at timesalerted policy makers and financial planners to the dangers building up ina specific economic system; though Binder (199) believes that the demise offixed foreign exchange rates in the 197 s robbed the IMF of its initialraison d'etre, the fund has changed its mission to accommodate emergingneeds and address emerging concerns.When the fixed foreign exchange rates were in effect, the IMF's functionwas, to a degree, more clear-cut that it has become over time (Binder,1999). Efforts are also underway to enhance theparticipation of member nations in IMF decision-making. The Economist (1999) says thatSouth Korea recovered very quickly from the 1997 financial crisis in largemeasure because of the IMF's austerity policies - regardless of the factthat those policies did have some negative effects on specific businesses. (2 1). It is important to recognize that the IMF has,since the Asian financial crisis erupted in 1997, come under increasedattack. (1997). Restructuring of financial institutionsand the corporate sector in Korea. Certainly, ascritics of the IMF have suggested, this tends to place a great deal ofpower and influence in the hands of a small number of IMF members who alsohave a great deal of influence over IMF departments, including its countrysurveillance activities, its development programs, lending and loanvehicles, and Contingency Credit Lines. Dean (1999)takes the position that the IMF austerity program reflected an effectiveresponse to the South Korean debt crisis and, more significantly, that theresponse reflected a perception of illiquidity rather than insolvency.Dean (1999) has argued that South Korea and all of East Asia are more proneto illiquidity and less to insolvency than Latin America some 15 years ago. The IMF maintains that the Executive Boardrarely makes its decision on the basis of formal voting. An executive board of 24 directorsmeets three times a week, and a Managing Director oversees a staff of about2,5 (The IMF at a glance, 2 1). H. (1998). References Binder, A. 13 percent (IMF quotas..., 2 1). The circumstances that existed at the time of the 1947 Bretton WoodsConference when the IMF was created, no longer prevail. Kang (1998)states that the external factors leading to the crisis included the growingturbulence in the global financial market, especially in Southeast Asia andthe absence of an effective international cooperative system to counterspeculative attacks on currency and markets. Pyun (1999) also maintains that with tightmonetary and fiscal policies, the IMF tends to place too much emphasis ondemand and money flow and not enough on supply and capital formation.Conversely, Dean (1999) suggests that in the case of South Korea, the IMF'swas justified and effective. Lowell, A. Similarly, Lowell and Paisley (1997)have pointed out that the IMF often finds a high level of resistance to itsausterity policies on the part of the governments and financialinstitutions that it assists. TheG-7 countries are well represented on the Executive Board in the presenceof France, Germany, Japan, Great Britain, and the United States. Parrish (1999) claims that much of this criticism is based on thefact that economists still know very little about what it takes to truly"develop" a country. Factors contributing to the financialcrisis in South Korea. Develop a core set of international accounting standards . However, there isstill a very real and very important role for the IMF in the new globalizedeconomic order. Thus, the IMF monitors world financialissues, gives policy advice, lends funds to members, and provides technicalassistance (What is the IMF, 2 1).Structure Chain of command at IMF runs from governments of member countries toIMF. (1999). A lack of international competitiveness stemming from highcost and low efficiency business problems, moral hazard problems, and thefailure of government to cope with the opening of the economy to the worldconstituted internal factors leading to the financial crisis. Available at www.imforg/External/no/ext/facts/arcguide.htm. Among the criticisms leveled at the IMF is the attribution that theseven largest economic powers that are IMF members - the so-called G-7nations, consisting of the United States, Great Britain, Japan, Germany,France, Canada, and Italy - which do control over 4 percent of the voteson the Board have been largely responsible for imposing economic austerityprograms in the countries of the Third World (World Bank/IMF Fact Sheet,2 1). If anything, globalization has highlighted the differencesbetween the most affluent and the poorest countries. Korean financial crisisduring 1997-1998. In Russia, Indonesia, Korea, and elsewhere it has beeninvolved, IMF has introduced (even demanded) policy shifts and initiativesfrom government that require the end of monopolies, transparency inbanking, accountability within corporations, and foreign investment inreturn for emergency loans. Available at www.imf.org/externalnp/exr/facts/quotas.htm. Robert D. He argues that internal and external factors both contributed tothe crisis. Critics have been particularlyscornful of structural adjustment and austerity policies that the IMF hasrequired in severely debt-burdened countries. Pyun, C.S. InternationalMonetary Fund. There are thoseorganizations and individuals who see in the IMF little more than an effortby the affluent nations of the economically advanced First World tomaintain economic hegemony at the expense of the developing world (WorldBank/IMF questions and answers, 2 1). Matthews, G. Yoo, J.H. With approximately one-half of the world still making a difficulttransition from communism and a closed market system with central stateownership and control of market sectors and industries to a more open freemarket and trade regime, IMF has been invaluable. The IMF will continue to makeits support available to governments in the development of theirstrategies, but will take a less assertive role in directing the outcome(What is the IMF, 2 1). Was East Asia illiquid or insolvent?Multinational Business Review, 7(2), 6 -68. International Monetary Fund (IMF). The International Monetary FundMembership Created on December 27, 1945, when 29 countries signed its Articlesof Agreement at a conference held at Bretton Woods, New Hampshire, theInternational Monetary Fund (IMF) commenced financial operations on March1, 1947. Further, IMF has often been calledin during a national or regional financial crisis (e.g., the Mexican "pesocrisis" and the Asian crisis of the late 199 s) to assist in stabilizingfinancial institutions, markets and even governments in times of economiccrisis. The question of which departments of the IMF are most influential canbe answered by pointing out the enormous authority given to the ExecutiveBoard. Available atwww.globalexchange.org/wbimf/faq.html. In Asia, for example, IMF's initial demands for tightmonetary policy and fiscal restraint helped turn a serious crisis into aneconomic nightmare. IMF staffcontinues to work with national governments and other internationalinstitutions to achieve the following objectives: . The economic impetusof globalization has proven to be very powerful. At times, it was noted, the austerity andrestructuring policies of IMF have worked against economic recovery forselected countries. The IMF and the World Bank have been empowered by membergovernments to impose austerity conditions on countries that have exceededtheir capacity to manage a debt burden. Strengthen the legal, regulatory, and supervisory framework for banks . Available at www.imf.org/External/npexrfacts/glance.htm. Hormats (1998)contends that the IMF remains essential in the global financial system.This is, according to Hormats (1998), because IMF has the expertise and theclout (because of its ability to provide financial assistance to debt-burdened countries) to restore currency and market stability and to alsorally support from other financial actors in its support. Consequently, the IMF adjusted its activities and agreements withmembers and monitored economic policy to ensure that there was no balanceof payments. On balance, the IMF appears to have responded to the criticisms thathave been leveled against it and its activities. (2 1). Hassink, R. That role, as the case of South Koreademonstrates, is to literally "bail out" faltering governments. Finalize core principles for good corporate governance . Over time, sovereign nations not initiallyinvolved in the formation of IMF have sought and secured membership,resulting in the present force of 183 members.Purpose The IMF is a multipurpose organization charged by its members withfunctioning as the central institution of the international monetarysystem, or the system of international payments and exchange rates amongnational currencies that enables business to take place between countries(What is the IMF, 2 1). (1999). Memon (1999) believes that these various lending mechanismsand regular facilities are only the front line of IMF activities.Summary This final section of the report will examine the main strengths andweaknesses of the IMF. As more and more balance of payments deficit emerged, the IMFhas a new role to play. Binder (1999) believes that on balance, IMF's activities in suchsituations have been largely positive and, in some instances, absolutelynecessary. However, as the discussionin this report has demonstrated, these policies have proven effective inthe case of South Korea, whose economy was badly damaged during the Asianfinancial crisis. That review covered the period from the mid-196 s through 1999, some two years after the 1997 crisis. Further, Hormats(1998) believes that as a lender of last resort, IMF is a necessaryinstitution in a world in which far too many nations remain under- orundeveloped and in seemingly constant need of assistance. Finally, with respect to the opening of thecapital market, the government did not establish an appropriate tracking ofcapital movements that led to excessive overseas borrowing and excessiveshort-term borrowing by both corporations and financial institutions. (1998). The IMF at a glance. China,Russia, and Saudi Arabia have current individual slots on the ExecutiveBoard, with the 16 remaining Executive Directors representing groupings ofthe remaining member nations. (2 1). The IMF responds to these criticisms by claiming that in settingout the obligations and the prerogatives of individual members to the IMF,the organization acts not on its own, but as an intermediary between thewill of the majority of the membership and the individual country (The IMFat a glance, 2 1). American Banker, 162(234), 33-35. Available atwww.globalexchange.org/wbimf/facts.html. Given that IMF borrowers are alleither developing countries, countries in transition from central planningto market-based systems, or emerging market countries recovering fromfinancial crisis, recipient nations tend to have less influence over IMFactivities than others (What is the IMF, 2 1). Currently, there are 183 nation-states that are members of IMF.Unlike the United Nations (UN), where each member nation has an equal vote,voting power at the IMF and its sister organization, the World Bank, isdetermined by the level of a nation's financial contribution (WorldBank/IMF Fact..., 2 1). However, at the 1999 joint annual meeting of theIMF and the World Bank, ministers from member countries decided to makecountry generated poverty reduction strategies the basis of all IMF andWorld Bank concessional lending and debt relief. Taken together,these accomplishments indicate that IMF is aware of the criticisms thathave, at times legitimately, been leveled against its operations and isresponding to those criticisms.Impact of IMF To analyze the impact of IMF in staving off financial crises or, asis more often the case, helping to resolve those crises or reduce theireffects, this report will consider the case of South Korea. The new plan will help tofocus poverty reduction strategies to ensure that the needs of the poor getfirst priority in the public policy debate. Hormats, R. Dean (1999), who presented a statistically-based narrativeexamination of South Korea's economic situation, argued that the IMFbailout was an essential ingredient in the mix that set South Korea back onthe path to economic recovery. To build a stronger global financial system, the IMFjoined with the World Bank in 1999 to assess member countries financialsectors to help identify potential and actual weaknesses. It must be remembered that the IMF is a monetary and not adevelopment institution. This gives the United States 371,743 or 17.16 percentof the total votes possible and gives the least affluent member of the IMF,Palau, 281 votes or . When a country joins the IMF, it is assigned an initialquota that reflects these parameters which is also compatible to that ofother members similar in economic size and characteristics. ForeignAffairs, 78 (5), 5 -63. Kwack, S.Y. Surveillance is the mechanism that determines when and iftechnical assistance will be forthcoming from the IMF. and Moon, C.W. Theseassessments are then made available to the country as a guide to themeasures needed to achieve or restore financial stability. The IMF: Not perfect, but essential. South Korea's economic miracle andcrisis: Explanations and regional consequences. IMF also makes available loans and other forms offinancial assistance to members in need via the Special Drawing Rights(SDR) fund provided by members, including concessionary assistance under aPoverty Reduction and Growth Facility (PRGF) and debt relief under itsHeavily Indebted Poor Country Initiative (HIPC). Journal of Asian Economics,9(4), 653-671. It is also amechanism used to determine when IMF facilities and financial policies willbe deployed. Eight steps to a new financial order. Generally, when these agencies participate in an economic bailout,strenuous conditions are attached. IMF quotas and quota reviews. Available at www.imf.org/External/npexrfacts/glance.htm. The IMF recognizes that globalization has created new challenges forthe organization. Equally significant is the fact that the IMF is achieving greaterinternal transparency and accountability. The IMF aims to prevent crises by encouragingcountries to adopt sound economic policies and serves as a fund that can betapped by members to address temporary financial needs. South Korea bailout calms immediatefears. (1999). Nevertheless, IMF has enjoyed notable successes - inMexico, as well as elsewhere in Latin America. It didthis successfully first in the 1976 sterling crisis, and seems to have beensuccessful in the case of South Korea as well (Parrish, 1999).Most Influential Members As noted above, the IMF, unlike the United Nations, does not followthe one-member-one vote formula. Hormats (1998) also agrees that IMF has in many instances played animportant role in resolving the national and regional financial crises thatit has been called in to ameliorate. (1998). Proud Seoul.Institutional Investor, 22(12), 67-7 . Still, even the editors of Business Week (Give the IMF..., 1998) werenot uncritical of IMF. Kang (1998) explored the causes of the South Korean financial crisisof 1997. Journal of Asian Economics, 9(4), 611-666. Macroeconomic as well as microeconomicpolicies, some demanding austerity measures, are often imposed upon acountry participating in a bailout. EconomicReview, 3 (11), 2 -24. Avoid exchange rate regimes that are vulnerable to attack . Min, B.S. Dean, J.W. This is a practice thatthe IMF sees as minimizing confrontation on sensitive issues and promotingthe acceptance of decisions (The IMF at a glance, 2 1). Business Week. (1999). Ensure a freer flow of timely financial data to markets (What is the IMF, 2 1). Roles of the IMF in the Asian financialturmoil. The formula for voting rights andinfluence is based on a member's quota, which is broadly determined by thatnation's economic position relative to other members (IMF quotas..., 2 1). Organizationally, the Executive Board which meets three times a weekin formal session, is charged with supervising the implementation ofpolicies set by the member governments through the Board of Governors. (2 1). (1999). What is the International Monetary Fund? (1998). 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.

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