IMF and its role in International Political Economy
Political economy is not a new word for us because of the close relationships between politics and the economy. The development in politics is due to the development in society and the development in society is mostly driven by the economy. The parallel existence and mutual interaction of ‘state’ and ‘market’ in the modern world creates ‘political economy’; without both state and market there could be no political economy (Gilpin, 2003, P9). Market allocates resources to a particular group, class or region where conditions are most favorable. As a consequence, market economies result in the uneven development both domestically and internationally. As our issue is about international political economy, the connection is the uneven development in different economic systems of nations lead to the uneven status of countries around the world. The struggle among groups and states over the distribution of benefits and costs has become a major feature of international relations in the modern world (Gilpin, 2003, P21, par.2). It is sure that market or economy has a big influence on sovereign states. The changing market is very likely to change states. So the economy is crucial for a country, in a globalizing world with vast of interactivities among countries, to get a place. As a part of globalization, the globalization of finance, arguing that it has fundamentally altered the traditional monetary relationship between states and markets, ultimately undermines national monetary sovereignty (Cohen, 2003, P215). Because of the importance of finance in globalization and in the world political economy, organizations are needed to be a ‘middle man’ among the financial interactivities of countries. The International Monetary Funds (IMF) is a very good example. In July1944, the IMF, a multilateral institution, was created at the Bretton Woods conference. This institution was designed to provide stability to trade and monetary relations and oppose the ever-present potential for a rise of system-threatening economic nationalism (Goddard, 2003, P241). In the modern world, the basic functions of the IMF consist of surveillance of the stability of international financial market, lending money to countries temporarily loans to low-income countries. Under these objectives, this organization has been existed over 60 years and is irreplaceable part both in the post-world-war years and in the latest decades. After World WarⅡ the immediate postwar objective, restoring and fixing exchange rate, was done well by all member countries and staff of the IMF. However, from 1973 to 1974, a new challenge came to the IMF which is known as the price shock. In 1972, the foundation of the Organization of Petroleum Exporting Countries (OPEC) became an influential factor in setting the price for crude oil. In 1973, the Arab Oil Embargo which was triggered by the Yom Kippur War quadrupled the oil price from $3 to $12 per barrel. This dramatic rise in price had a big effect on both oil exporting countries and oil importing countries. For countries in the Middle East, whose oil resources had long been dominated by industrial countries, were sitting on huge gains. The wealth of those Middle East countries accumulated rapidly since then. In contrast, the industrialized countries experienced high inflation and economic recession which then caused unemployment, large number of poverty groups and production-cut in factories. At the same time, developing countries, who were troubled with the rise of importing prices and the fall in exporting prices and demands, had balance of payment deficits. In responses to these situations, the IMF took the method of ‘recycling’ of petrodollars to provide loans to countries with currency difficulties. The Oil Facility was created in1974 to aid member countries with balance of payment deficits. Through this special facility, 45 countries borrowed $2.4 billion from the IMF from 1974 to...
References: 1. Barro, Robert J. (June 2001). Economic Growth in East Asia Before and After the Financial Crisis. National Bureau of Economic Research. Retrieved April 19 ,2008 from,
3. Dash, Kishore C. (2003). International Political Economy. Part2, International Monetary Relations. Lynne Rienner Publishers, Inc. Colorado.
4. Gilpin, Robert. (2003). International Political Economy. Part1, Contending views of International Political Economy. Lynne Rienner Publishers, Inc. Colorado.
5. Goddard, C. Roe. (2003). International Political Economy. Part2, International Monetary Relations. Lynne Rienner Publishers, Inc. Colorado.
6. International Monetary Fund: The Role of the IMF and IMF History. Cool Fire Technology. Retrieved April 26, 2008 from,
7. IMF staff. (June 2000). Recovery from the Asian Crisis and the Role of the IMF. International Monetary Funds. Retrieved April 27, 2008 from,
< http://www.imf.org/external/np/exr/ib/2000/062300.htm#III >
8. Krueger, Anne. (June3 2004). Promoting International Financial Stability: the IMF at 60. Retrieved April 12, 2008 from,
Please join StudyMode to read the full document