The International Monetary Fund (IMF) was originally established in order to encourage international co-operation to cope with recession and protectionism on a world scale and to discourage individual countries from pursuing policies that would beggar their neighbors and eventually themselves. The desire to improve on the international chaos of the 1930s led to the Bretton Woods Conference in 1944, and an attempt to devise a financial system which would provide a more permanent and acceptable framework for international transactions. It was intended that the emerging Bretton Woods system would generate benefits for international trade in the form of stable (though not necessarily fixed) exchange rates, while at the same time, avoiding the deflationary rigidities of the gold standard mechanism. The system was designed to ensure a world of full employment and economic growth. This paper will examine a few of the negative and positive aspects the IMF has had since its inception, and how it has evolved over time to answer the question, is the IMF a sinner or saint? If the general purpose of the IMF at its inception was to oversee the operation of the infant Bretton Woods system, its more specific purposes were spelled out in Article 1 of its Articles of Agreement as follows:
| (i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
| (ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive
| resources of all members as primary objectives of economic policy.
| (iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
| (iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
| (v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
| (vi) In accordance with the above, to shorten the duration, and lessen the degree of disequilibrium in the international balances of payments of members.
| Within the framework set by these terms of reference, the IMF operated first, as a balance of payments adjustment institution, encouraging payments correction by means other than the use of exchange rates (except in cases of fundamental disequilibrium) or protectionist trade measures; second, as a balance of payments financing institution, providing temporary finance designed to support adjustment measures to cushion self-reversing payments instabilities; and third, as a focus for a system of rule-based international macroeconomic policy coordination, based essentially on the defense of established currency par values. The IMF thereby provided a linchpin for the centralized management of the international monetary system. By the 1970s, continued internal problems in Britain forced the British Government to go to the IMF as a lender of last resort. This happened in late 1976. This was a turning point in the way the IMF operated. The loan to Britain was made conditional on Britain making internal policy changes according to the dictates of the IMF. This was a world changing event! The IMF had been converted into a political machine that could impose policy onto an independent country in exchange for a loan. The terminology used to describe this process is called “international cooperation”. In the case of Britain, the...
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