GHANA AND THE INTERNATIONAL MONETARY FUND

By now it is no news that Ghana is seeking a financial bailout from the International Monetary Fund. This will not be the first time the nation has being at the doorsteps of the IMF for a financial bailout. However how much do we really know about the IMF and its bailout programmes that are designed specifically for its members? In this first of many to come writing on Ghana and the IMF bailout, I seek to find answers. 

The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the reconstruction of the world's international payment system post–World War II. Countries contribute funds to a pool through a quota system from which countries with payment imbalances temporarily can borrow money and other resources. As of the 14th General Review of Quotas in late 2010 the fund stood at SDR476.8bn, or about US$755.7bn at then-current exchange rates. Through this fund, and other activities such as surveillance of its members' economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries.

Member states of the IMF

  IMF member states

  IMF member states not accepting the obligations of Article VIII, Sections 2, 3, and 4

The IMF is a self-described "organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” The organization's objectives are stated in the Articles of Agreement and can be summarized as: to promote international economic co-operation, international trade, employment, and exchange-rate stability, including by making financial resources available to member countries to meet balance of payments needs. Its headquarters are in Washington, D.C., United States.

Aside these the IMF perform some functions. These are surveillance of the global economy, conditionality of loans which comes with structural adjustments and benefits.

Surveillance of the global economy

The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its 188 member countries. This activity is known as surveillance and facilitates international co-operation. The responsibilities of the Fund changed from those of guardian to those of overseer of members’ policies.

The Fund typically analyses the appropriateness of each member country’s economic and financial policies for achieving orderly economic growth, and assesses the consequences of these policies for other countries and for the global economy.

Conditionality of loans

IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources.  The IMF does not require collateral from countries for loans but rather requires the government seeking assistance to correct its macroeconomic imbalances in the form of policy reform. If the conditions are not met, the funds are withheld.  Conditionality is perhaps the most controversial aspect of IMF policies. The concept of conditionality was introduced in an Executive Board decision in 1952 and later incorporated in the Articles of Agreement.

Conditionality is associated with economic theory as well as an enforcement mechanism for repayment. Stemming primarily from the work of Jacques Polak in the Fund's research department, the theoretical underpinning of conditionality was the "monetary approach to the balance of payments."

Structural adjustment

Some of the conditions for structural adjustment can include:

• Cutting expenditures, also known as austerity.
• Focusing economic output on direct export and resource extraction,
• Devaluation of currencies,
• Trade liberalization, or lifting import and export restrictions,
• Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),
• Balancing budgets and not overspending,
• Removing price controls and state subsidies,
• Privatization, or divestiture of all or part of state-owned enterprises,
• Enhancing the rights of foreign investors vis-a-vis national laws,
• Improving governance and fighting corruption.

These conditions have also been sometimes labeled as the Washington Consensus

The IMF is led by a managing director, who is head of the staff and serves as Chairman of the Executive Board. The managing director is assisted by a First Deputy managing director and three other Deputy Managing Directors. Historically the IMF's managing director has been European and the president of the World Bank has been from the United States. However, this standard is increasingly being questioned and competition for these two posts may soon open up to include other qualified candidates from any part of the world. The current head of the IMF is Christine Largarde, who was voted on 28 June 2011, replacing Dominique Strauss-Kahn

In the next part of Ghana and the IMF Bailout, I seek to find out criticisms of countries against the IMF and its bailout programmes and its likely impact on the country.

REFERENCING

1.      IMF Publications page

2.      World Economic Outlook - quarterly staff periodical

3.      "http://en.wikipedia.org/w/index.php?title=International_Monetary_Fund&oldid=625821595"

Categories:

·         International Monetary Fund

·         International finance institutions

·         United Nations specialized agencies

·         Global policy organizations

·         International development

·         United Nations Development Group

·         United Nations Economic and Social Council

·         Organizations established in 1945

·         Organizations based in Washington, D.C.