This document provides an overview and critique of the International Monetary Fund's (IMF) policy involvement in developing countries over the last few decades. It argues that IMF lending has led to mismanaged debt and debt crises in developing nations. Additionally, it asserts that the IMF lacks transparency and democratic representation in its administration, with developing countries having little influence over decision-making. The document explores these deficiencies and argues that IMF policies have failed to adequately consider their negative impacts on developing world economies and populations.

1. IMF & Developing Countries - an
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Published by Maas Riyaz Malik
During the last two decades, the focus of IMF involvement in the developing world, and
especially in the low income countries, has shifted. IMF involvement became more long
term, but also oriented toward policy reform, rather only assisting with a macroeconomic
crisis. This paper explores the deficiencies in IMF policy prescription and implementation in
the developing...
During the last two decades, the focus of IMF involvement in the developing world, and
especially in the low income countries, has shifted. IMF involvement became more long
term, but also oriented toward policy reform, rather only assisting with a macroeconomic
crisis. This paper explores the deficiencies in IMF policy prescription and implementation in
the developing countries.
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IMF’s Policy InvolvementRunning head: IMF POLICY INVOLVEMENT IN
THE DEVELOPING COUNTRIESInternational Monetary Fund’s (IMF) Policy
Involvement in the Developing Countries Should beImmediately Revised.Maas
Riyaz Malik International Islamic UniversityMalaysia1
IMF’s Policy Involvement
Abstract
During the last two decades, the focus of IMF involvement in
the developing world, and especially in the low income countries,
has shifted. IMF involvement became more long term, but also oriented
toward policy reform, rather only assisting with a macroeconomic crisis.
This paper explores the deficiencies in IMF policy prescription and
implementation in the developingcountries. The information were collected
using a library research where books, journals, articlesand online resources

2. were used. The paper further clarifies reasons behind the
failure of structural adjustment programs and the danger of neo
liberal based economic policies imposedonlow-income countries. The
research concludes IMF’s enormous financial and political power should be
used in the betterment of people in the developing nations.2
IMF’s Policy Involvement
Contents
1 .
T i
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5 5 . A r g u m e n t a t i o n 5 . 1 . M i s m a n a
g e d l e n d i n g a n d d e b t c r i s i s i n t h e

3. d e v e l o p i n g c o u n t r i e s 6 - 7 5 . 2 . U n d e m o c r a t i c
b u r e a u c r a c y a n d l a c k o f t r a n s p a r e n c y i n t h e
a d m i n i s t r a t i o n 8 -
1 0 5 . 3 . C o u n t e
r A r g u m e n t
a n d
R e f u t a t i o n
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1 3 5 . 4 . V i o l a t i
o n o f I s l a m i c
e c o n o m i c
p r i n c i p l e s 1 4
6 . C
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1 6 7
. R e
f e r
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7 -
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IMF’s Policy Involvement
4 . I n t r o d u c t i o n
Capitalism has been international in scopesince the man went out to discover
the world500 years ago. Since then, this economic system has gained
the confidence of people and roseupon suppressingother economic models.
The latest model of capitalism subscribes to the notionof globalism enabling
long distance interchange among economies. What is this thing
calledglobalization? Definition of the term is still being contested.
Scholars have given number of definitions to the globalization and yet
a common explanation is to be reached. Writer Peet(2003) outlines two
consistently related themes of globalization “global space is
effectivelygetting smaller (‘compressed’) in terms, for instance, of the
time taken for people, objects andimages to traverse physical distance; as a
result, social interactions are increasing across spacesthatonceconfined
economies and cultures”(p.1).However, behind this optimistic statement lurks

4. the possibility of something different. Itis basically a manipulated process that
forced on the countries around the globe. The perpetratorsor engineers of
the globalization have dominated and ultimately manipulated a
world of consumers (Peet, 2003). Allegedly, International Monetary Fund
(IMF) and World Bank are thetwo dominant governance institutions and
prominent advocates of globalization. The activities of these organizations
around the world, particularly in the developing world should be
closelymonitored in order to comprehend the adverse effects of their
policies.The history of these organizations runs back to the postworld war era
where the UnitedStates (U.S) and United Kingdom (U.K) met to discuss
the economic plans for the post war peace (Tabb & William, 2005).
At the Bretton Woods Conference in New Hampshire in 1944,U.S and
U.K along with other countries successfully created the IMF
and World Bank. As 4
IMF’s Policy Involvementdecided in Bretton Woods IMF was assigned two
tasks: it would assist the countries with balanceof payment difficulties and
reduce foreign currency restrictions. Although its mission statementremains
s ame, IMF has und ergo ne majo r c hanges in the p as t few
d ec ad es to b ec o me a powerhouse in the global economy. According to
Peet (2003):T o d ay IMF p o lic ies d irec tly affec t the
ec o no mies o f 184 c o untries and influenc e, sometimes
drastically and often disastrously, the lives of the vast majority of the
worlds people. Today the IMF is probably the single most
powerful non-state (governance)institution in the world. Publicly,
governments have to praise the IMF, while complaining p rivately ab o ut
the p o lic ies imp o s ed o n them. By c o ntras t, wo rkers and
s tud ents demonstrate against the IMF, in many cases losing their lives in the
process (p.56).Many claim that IMF economic policies produce
poverty, hardship and starvation in theDeveloping World. Policy
prescriptions to the Third World are attached as the “conditions” for lending
(IMF, 2007). Loan conditionality, together with economic policies imposed is a
way for the IMF to regulate the country’s entire economic policy.
Therefore, IMF as one of the largestinternational financial institutions
should be revised because of decades of mismanagedlending,
undemocratic bureaucracy in administration and failed structural
adjustmentprograms.
5

5. IMF’s Policy Involvement5.1
Mismanagedlending and debt crisis in the developing countries
Over the past five decades, IMF and the World Bank have steadily gained the
power andinfluence, becoming the key players determining which
countries will receive the big chunk of loan. Most importantly, these loans
are attached to IMF’s so called conditionality which binds thelending country
on a number of policies. Conditionality is viewed as a central feature
of IMFlending, which is essential to IMF’s success:Conditionality is seen as
central to IMF lending, meant to assure a borrowing country thatif it takes
certain well-specified actions, continued financing will be forthcoming. It is
thusseen as following the country to invest in longer term policy adjustment by
assuring themthat if they do so, IMF financing will not cut off. (Ranis et al.,
2006, p. 53)Conditionality is essentially a US policy for the
operation of IMF, opposed to the position of Developing World (Peet,
2003). In the view of other member states, these conditionsinfringe with
country’s national sovereignty to use loans independently.Since the creation
of both the IMF and the World Bank over 63 years ago, both
have provided trillions of dollars in loans to poor countries. The Third
World sits on debts of over $1.3 trillion, which has seriously hindered
the third worlds abilities to provide for the basicneeds of their citizens
(IMF, 2007). In addition, third world debthas long been recognized as amajor
obstacle to human development. Rising debts in the third world has led many
economiesto a crisis, where they have no salvation. The debtcrisis in early 1990
is a reflection of massivelending and failure to service these debts.Debt crisis
was first triggered in August 1982 when Mexico announced that it
could nolonger make loan payments (Peet 2003). The latest crisis in
Latin America has attracted the6
IMF’s Policy Involvementcriticism on IMF lending arrangements for
Developing World. It is important to examine thefactors that have
been contributed towards the recent debt crisis around the world. One
of themajor reasons that triggered the debt crisis is increasing
odious debt, where debt has beenincurred without the informed
consent of the people. In detail, “Odious debt is an established legal
principle. Legally, odious debt is debt that resulted from loan s
to an illegitimate or dictatorial government that used the money to
oppress the people or for personal purposes”(Shah, 2003, p.1)IMF has

6. engaged in numerous odious debts lending where it financed
dictatorialgovernments with a hidden agenda. South Africa as an example,
has found it now has to pay for its own past oppression (Shah, 2003).
These loans are to be repaid by new generation of SouthAfrica which
had nothing to do with racial discrimination in the past. As one
of the reportoutlines problem has a far more reaching impact on the
region as a whole. According to hisreport, Albeit (1998):Apartheid -caused
debt at £28 billion [about $46 billion at the time the report was written].That is
the £11 billion [$18 billion] that South Africa borrowed to maintain apartheid,
andthe £17 billion [$28 billion] that the neighbouring states borrowed
because of apartheiddestabilization and aggression. This is 74% of the
present regional debt of £38 billion[$62.5 billion] (p.1).Amo ng o ther
c o untries T anzania, Ind o nes ia and Argentina have b een
rep ayingillegitimate debts that accumulated over the years. In responseto
rising criticism, IMF in 1996introduced Highly Indebted Poor Countries
(HIPC) initiative, another prototype for existingagenda. In reality, the
HIPC process is aimed not at canceling debts, but at ensuring that they can7
IMF’s Policy Involvement be repaid (Transfer, 2000, p.4). The program
has not been designed in a way that reduces the burden of Third World
but steady cash flows to the rich nations in the west.
5.2Undemocratic bureaucracyand lack of transparency in the
administration
The IMF’s transformation has been rapid since the 1970s when it turned the
attention toLatin American debt problems. Today in the poorest
regions, it is engaged in establishingmac ro ec o no mic
p o lic ies . Ho wever, s inc e the c lient b as e has c hanged
c o ns id erab ly, the mechanisms by which decisions are taken have not
revised accordingly (Carin & Wood, 2005).Heavy criticism has directed
towards IMF’s accountability and transparency in operations as it isstrictly
closed to outside scrutiny.One of the central problems of the IMF
operations is that developing nations aremarginally represented in
the administration level. Today, the IMF’s programs are
entirelyexecuted in the developing countries, making them the largest
stakeholders of IMF’s client base(Carin & Wood, 2005). However, little
opportunity is provided for the developing countries to put their concerns on the
board’s agenda. In other words, priorities of the IMF do not necessarilyreflect

7. the view of those developing nations.In the administration level these countries
ability to participate in the policy making has been severely obstructed. Many of
the poorestcountries, which are most regularly in discussionwith the IMF about
debt relief and structural adjustments programs, are barely represented in
theIMF’s decision making structures (Carin & Wood, 2005). A larger part of
board seats are held bydeveloped countries than developing countries. In order
to reduce poverty it is highly essential toenhance the representation of
developing countries, where poor are concentrated (Carin
&Wood, 2005; Ranis et al., 2006).8
IMF’s Policy InvolvementThe representation in executive board and IMF
finance committees is decided on thecountry’s strength in the global
economy. The structure at IMF is naturally designed to favor therich nations
who act as the lenders to the fund. The fact that 24 African nations are
represented b y o n ly t w o B o a r d m e m b e r s in t h e I M F a n d
W o r ld B a n k r e f le c t s t h e u n d e m o c r a t ic administration in
these multilateral organizations (Ranis et al., 2006). This
means that thedeveloped countries can naturally dominate board decisions
and it is virtually impossible for thedeveloping countries to put their
priorities on the agenda (Carin & Wood, 2005). It is largelyagreed that
policies made without adequate reference to developing nations are less than
optimal.These policies have failed to recognize the microscopic issues of a
particular country that needto be addressed with careful attention.A go o d
glo b al go vernanc e s ys tem is es s ential to red uc e p o verty
and ineq uality worldwide, based on a just market economic
system (Ranis et al., 2006). Power without responsibility proves to
be inadequate, where the living conditions in some countries are
badlydeteriorating. Calls for IMF accountability have amplified
in recent years; it has failed to consider negative consequences of
its policy prescription on the developing world (Carin &Wood,2005).
As the former World Bank director sitgtliz (2002) outlines:One of the
important distinctions between ideology and science is that science
recognizesthe limitations on what one knows. There is always uncertainty. By,
contrast, the IMF never likes to discuss the uncertainties associated with the
policies that it recommends, but rather,likes to project an image of being
infallible. This postureand mind-set makes it difficult for it to learn from past
mistakes – how can it learn from those mistakes if it can’t admit them(p.67).9