Is IMF Conditionality A Product Of American Power Or Economic Ideas? (Sample) - AC Development Group
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Is IMF Conditionality A Product Of American Power Or Economic Ideas? (Sample)

Is IMF Conditionality A Product Of American Power Or Economic Ideas?

The international monetary (IMF) is considered as the most important international institution in the in the modern international system. IMF’s ability to control financial resources, design economic policies allows it to become more influential compared to other international organizations (Yackee and Oatley 415). Nonetheless, economists argue that America power plays an integral role in shaping the International Monetary Fund’s policy goals. Some of the IMF’s policies emphasizes on macroeconomics stability as well as structural adjustments. These policies are examples of the America determination to expand market-based economies to the developing nations. Therefore, America plays a crucial role in the creation of International Monetary Fund conditionality agreements.

In the past few years, the IMF has received a lot of criticism, which are based on the fact that its terms and conditions attached to its credits are politically determined. It has been occasionally accused of being an agent of the United States economic liberalization in the developing nations. Nonetheless, the IMF argues that their decisions are determined by the internal staff’s suggestions. Ideally, the procedure used to determine the conditionality of IMF should be technocratic. In reality, the IMF member’s shares are determined by their international economy strength such as Gross Domestic Product a current account transactions (Momani, 881). Thus, the quotas determine the amount of the financial assistance member country is likely to get in times of need. Further, a country’s share is equivalent to the amount contributed to IMF’s liquidity (Momani, 882). The voting right in the IMF is determined by capital contributed to the Fund. Provided that the US has the largest contribution in the organization, it has the greatest voting right influencing all conditionality agreements of the Fund. Therefore, critics of the fund argues that unequal distribution of voting rights allows the United States to act as the sole decision maker when it comes to the conditionality agreements that apply to loan.

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Conditionality agreements refer primary policy instrument that applies to all nations who are members of the IMF. According the agreement, the Fund provides financial assistance to the member countries in exchange for economic reform. Besides collecting collaterals from countries seeking loans, it requires government to correct their macroeconomic imbalance. If the country in need of financial assistance fails to meet this condition, its funds are withheld by the organization (Dreher and Jensen 105). Nonetheless, it is plausible to question whether the American policymakers determine which governments to receive or not receive conditionality agreements. In the past few years, there have been numerous case studies that suggests that the United States has a lot of influence over the conditionality agreements (Grabel 820).  For instance, the US pressured the organization to extend credit to Argentina in the 1980s. Moreover, the Reagan government forced the IMF to give a loan of $3.9 billion to Mexico. Further, politicians plays an integral role in formulating the conditionality agreements. To illustrate, the American Congress has passed over 60 legislative directives requiring the United States representative to attain certain American goals.

Further, various studies indicates that the IMF gives fewer loan conditions for nations that allies with the United States. Countries that support the United States foreign policies are said to access larger loans compared to those criticize it. Countries are more likely to vote with the US in the United Nations General assembly. Thus, America uses its influence in the International Monetary Fund to attain its political agendas. Notably, INMF conditionality agreements materialize from bargaining between governments applying for loans, IMF departments, and high-level officials working in the IMF’s executive board. Consequently, such bargaining permits individual governments to influence the decisions of IMF giving the United States more powers than any other country. Additionally, U.S through the Executive Board’s mandate has an authority to veto many the of IMF decisions. In this regard, no member of the Executive Board can make decisions without the a formal approval from the United States. This authority allows the United States to have a full influence on the bargaining process of the conditionality agreement. Particularly, the US Executive Director exercises this influence by working in the US Treasury Department to display the American position regarding specific conditionality agreements (Hennlng 6). Later, the director meets other IMF staff among other members of the executive board during the program design phase.

Notably, the United States ability to influence the decisions of the IMF may lean towards attaining specific goals. In most cases, the U.S uses its influence to attain its financial and foreign policies. It can use conditionality agreements to enable it attains financial goals since IMF loans allows developing states to service their debts through the American commercial banks. Hence, there is a direct association between commercial bank debt service and IMF credits (Yackee and Oatley 42). For instance, the recent financial commitment between the U.S government and IMF shows an increase in the market capitalization of the American banks that are active in international lending. As a result, because the Fund loans allow continued debt services, the American commercial banks will exert influence on the IMF’s representative to represents their interest in the organization.

In conclusion, the International Monetary Fund is the most powerful organization compared to others. It aims at providing financial assistance to both developing and developed nations at the time of crisis. Before lending loans, the IMF follows the policies and guideline that are provided in the conditionality agreements. In the past few years, the IMF has criticized for having biased conditionality agreements. The U.S through its voting rights is said to influence the conditionality agreements to those that suit it.  

Works Cited

  • Dreher, Axel and Nathan Jensen. “Independent Actor or Agent? An Empirical Analysis of the Impact of U.S. Interests on International Monetary Fund Conditions.” Journal of Law and Economics (2007): 105-124.
  • Grabel, Ilene. “Not your grandfather’s IMF: Global Crisis, ‘Productive Incoherence’, and Developmental Policy Space.” Cambridge Journal of Economics (2011): 805-830.
  • Hennlng, Randall. “US Interests and the International Monetary Fund.” Policy Brief (2009): 9-12.
  • Momani, Bessma. “American politicization of the International Monetary Fund.” Review of International Political Economy (2004): 880-904.
  • Yackee, Jason and Thomas Oatley. “American Interests and IMF Lending.” International Politics (2004): 415-492.
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