INTERNATIONAL MONETARY FUNDSo far IMF has reduced corruption in developing countries and helped them reduce in public spending NILUFER YASMIN TAHIA ASAD FACULTY-SHAHID HOSSIAN
IntroductionAn organization set up in 1944 of 187 countries to• Lower trade barriers between countries• To stabilize currencies• Promote high employment and sustainable economic growth• And lend money to developing nations
History Established under Bretton Woods System to prevent Technical Assistance in Prevent Crisis administrating Unstable in International monetaryexchange rates Monetary exchange System rate, taxation policies, central bank operations
How IMF affected HISTORY During great depression countries tried to • Devaluate their currencies to compete against each other • Restrict their citizens’ freedom to hold foreign exchange • Raise barriers to foreign trade
This breakdown led the IMFs founders to plan aninstitution charged with overseeing theinternational monetary. The new global entitywould ensure exchange rate stability and encourageits member countries to eliminate exchangerestrictions that hindered trade.
Public finance should be a means whereby governments in low-incomecountries are able to increase economic growth and end poverty.Corruption, however, reduces tax revenue and makes public expenditurepolicies ineffective for achieving social objectives.CORRUPTION AND PUBLICFINANCE: AN IMFPERSPECTIVE
IMF officials will regard it as their duty to press for anticorruption reforms incountries seeking to borrow money whilst World Bank characterizedcorruption as a “cancer” on the global economy and emphasized that it wastime for them to take some actions against it.In August, IMF took the step of suspending the second tranche of anEnhanced Structural Adjustment Facility when one of its member countriesfailed to demonstrate that it was pursuing adequate measures to reduce theproblem of corruption. The World Bank has strongly supported IMF’s moveand warned that its own lending will be “substantially reduced”. IMF AND WORLD BANK FIGHTING FOR ANTICORRUPTION
Corruptionimpact of poor governance (and the resulting corruption) on economic efficiency and growth, led the IMF turn its attention to a broader range of institutional reforms and governance issues in the reform programs it supports advocating policies and Increasing its Pursuing a more developing institutions collaboration with other comprehensive and administrative multilateral treatment, in both the systems that eliminate organizations, inIMFs regular oversight opportunities for particular the World of national economies bribery, corruption, and Bank, to make better use and IMF-supported fraud in the of complementary areas programs management of public of expertise resources
CorruptionIn future, the IMF will continue helping to curtailopportunities for corruption in member countriesby supporting reforms in economic policies andinstitutions, while intensifying efforts to promotetransparency and accountability
Reducing Corruption in Indonesia• On October 1997, the IMF and the Indonesian government reached agreement on a package of economic reforms designed to assist Indonesia overcome its current economic difficulties.• The economic reforms are designed to remove institutionalized corruption within governments and their bureaucracies in economy.
Reducing Corruption in Indonesia• The new Indonesian government pledged to create a more efficient, honest and fair economic system in the nation.• The IMF package will provide the resources for this important transition to be made. In reducing corruption, it is hoped that confidence in the Indonesian economy will be improved, and investment (especially foreign investment) will increase
HELPING DEVELOPING COUNTRIES FIGHT THECRISIS AND THUS REDUCING CORRUPTION The IMF has Increased resources opened a new framework for loans to the A doubling of borrowing limits world’s poorest nations which the Zero interest rates until global economic the end of 2011 crisis is threatening to New lending instruments that offer more flexible undermine terms
• The International Monetary Fund recently persuaded the European Union to put up more cash and give Greece time to push through spending cuts, thus reducing corruption.• Low-income countries will receive exceptional forgiveness through end-2011 on all interest payments due to the IMF under its concessional lending instruments.
The global economic meltdown of late 2008 madeIMF provide rescue packages for countries likePakistan, Iceland, Hungary and Ukraine thatwere swamped by the financial collapse.IMF countries:India, Iran, Pakistan, Jamaica, Nepal, Nigeria
Success of IMF in developing countries to reduce corruptionTo make its financial support more flexible to thedeveloping countries, the IMF has alsoestablished a new Poverty Reduction and GrowthTrust, which has three new lending windows.
The extended The credit standby facility credit facility The rapid credit facilityPOVERTY REDUCTION AND GROWTH TRUST
IMF and BangladeshIt has reached an Under IMF-supportedagreement with program, theBangladesh on a 3-year authorities aim to putprogram arrangement Bangladesh on a higherto be supported by the growth trajectory, asIMF’s Extended Credit necessary to accelerateFacility in the amount poverty reduction andof SDR 639.96 million achieve middle income status by the next decade.
JORDAN:SUCCESS STORY OF IMF in reducing corruptionEconomic reforms were initiated as part of anagreement between Jordan and the IMF. Thekey objectives of the reforms were on• reduction of public debts,• reduction of the budget deficits,• controlling of inflation,• tax reforms,• credit policy reforms,• investment incentives,• privatization and• easier trade policies.
India and the IMFIndia’s growth is among the highest in the world.Since mid-2009, IMF has helped the pace ofIndia’s recovery—led by domesticdemand, especially infrastructure investment tobe strong. Monetary and fiscal policies remainaccommodative: real interest rates are low and the fiscal deficit remains high.
KENYA ECONOMYDuring 2003-2007, there was some movementto reduce corruption in Kenya but thegovernment did not sustain that movementHowever in 2009, IMF approved adisbursement of around $200 million under itsExogenous Shock Facility (ESF), which isdesigned to provide policy support andfinancial assistance to low-income countries.
Kenya Economy• The ESF resources were meant to help Kenya recover from the negative impact of higher food and international fuel and fertilizer costs, and the slowdown in external demand associated with the global financial crisis.
For a long time, IMF are undergoing actions tostrengthen the tracking of Poverty-Reducing PublicSpending in heavily indebted poor countries REDUCING PUBLIC SPENDING
Reducing Public spendingThe IMF responded to the challenges created bythe oil price shocks of the 1970s by helping oilimporters deal with anticipated current accountdeficits and inflation in the face of higher oilprices, it set up the first of two oil facilities. OIL SHOCKS
Reducing Public SpendingFrom the mid-1970s, the IMF sought to respondto the balance of payments difficultiesconfronting many of the worlds poorest countriesby providing concessional financing through whatwas known as the Trust FundHELPING POOR COUNTRIES
ROMANIACrisis-hit Romania in May 2009, obtained a 20-billion-euro loan from the IMF and the EU inexchange for a drastic reduction in publicexpenditure.
Uruguay and Trinidad and Tobago: IMF advised cutting public expenditure• IMF attempts to discipline the government of Uruguay with recommendations to reduce public expenditure and lower fiscal deficit.• Trinidad- and Tobago-the IMF has called for reduced spending and the for State to better administer tax collection.
IMF’s support for healthThe IMF is part of a broadinternational effort to improve healthand living standards, particularly in the worlds poorest countriesThrough its policy advice andtechnical assistance, the IMF aims tomake a contribution to strengtheninghealth services—an essential step inraising income and standards of living
IMF warns Mongolia of dangers of public spending IMF warned that large government spending result in higher inflation and surging imports. Such high inflation will have an especially hard impact on the poor by pushing the staple food items prices even higher.
CONCLUSION• So far it has been proved that IMF provides loans to countries in financial distress at a relatively low interest rate.• In other words, IMF is a source of Finance which is given to help the developing countries to improve their position in the world.• It has been concluded that the fund is potentially of great significance to developing countries, and particularly in the current world economic environment, and that its activities should be extended.•