INTERNATIONAL MONETARY FUND

So far IMF has reduced corruption in developing countries and helped them reduce in public

spending

NILUFER YASMIN TAHIA ASAD

FACULTY-SHAHID HOSSIAN

IntroductionAn organization set up in 1944 of 187 countries to• Lower trade barriers between countries• To stabilize currencies• Promote high employment and sustainable

economic growth• And lend money to developing nations

IMF World Map

History

Established under Bretton Woods System to prevent

Unstable exchange rates

Prevent Crisis in International

Monetary System

Technical Assistance in

administrating monetary

exchange rate, taxation

policies, central bank operations

How IMF affected HISTORY

During great depression countries tried to• Devaluate their currencies to

compete against each other• Restrict their citizens’ freedom

to hold foreign exchange• Raise barriers to foreign trade

This breakdown led the IMF's founders to plan an institution charged with overseeing the international monetary. The new global entity would ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade.

CORRUPTION AND PUBLIC FINANCE: AN IMF PERSPECTIVE

Public finance should be a means whereby governments in low-income countries are able to increase economic growth and end poverty. Corruption, however, reduces tax revenue and makes public expenditure policies ineffective for achieving social objectives. 

IMF AND WORLD BANK FIGHTING FOR ANTICORRUPTION

IMF officials will regard it as their duty to press for anticorruption reforms in countries seeking to borrow money whilst World Bank characterized corruption as a “cancer” on the global economy and emphasized that it was time for them to take some actions against it.

In August, IMF took the step of suspending the second tranche of an Enhanced Structural Adjustment Facility when one of its member countries failed to demonstrate that it was pursuing adequate measures to reduce the problem of corruption. The World Bank has strongly supported IMF’s move and warned that its own lending will be “substantially reduced”.

Corruption impact of poor governance (and the resulting corruption) on

economic efficiency and growth, led the IMF turn its attention to a broader range of institutional reforms and governance issues in the reform programs it supports

Pursuing a more comprehensive

treatment, in both the IMF's regular

oversight of national economies and IMF-supported programs

advocating policies and developing institutions and administrative systems that

eliminate opportunities for

bribery, corruption, and fraud in the management of public resources

Increasing its collaboration with other multilateral organizations, in

particular the World Bank, to make better

use of complementary areas

of expertise

Corruption In future, the IMF will continue helping to curtail opportunities for corruption in member countries by supporting reforms in economic policies and institutions, while intensifying efforts to promote transparency and accountability

Reducing Corruption in Indonesia

• On October 1997, the IMF and the Indonesian government reached agreement on a package of economic reforms designed to assist Indonesia overcome its current economic difficulties. 

• The economic reforms are designed to remove institutionalized corruption within governments and their bureaucracies in economy.

Reducing Corruption in Indonesia

• The new Indonesian government pledged to create a more efficient, honest and fair economic system in the nation.

• The IMF package will provide the resources for this important transition to be made. In reducing corruption, it is hoped that confidence in the Indonesian economy will be improved, and investment (especially foreign investment) will increase

HELPING DEVELOPING COUNTRIES FIGHT THE CRISIS AND THUS REDUCING CORRUPTION

The IMF has opened a new framework for

loans to the world’s poorest

nations which the global economic

crisis is threatening to

undermine

Increased resources

A doubling of borrowing limits

Zero interest rates until the end of 2011

New lending instruments that offer more flexible

terms

• The International Monetary Fund recently persuaded the European Union to put up more cash and give Greece time to push through spending cuts, thus reducing corruption.

• Low-income countries will receive exceptional forgiveness through end-2011 on all interest payments due to the IMF under its concessional lending instruments.

The global economic meltdown of late 2008 made IMF provide rescue packages for countries like Pakistan, Iceland, Hungary and Ukraine that were swamped by the financial collapse.

IMF countries:

India, Iran, Pakistan, Jamaica, Nepal, Nigeria

Success of IMF in developing countries to reduce corruption

To make its financial support more flexible to the developing countries, the IMF has also established a new Poverty Reduction and Growth Trust, which has three new lending windows.

POVERTY REDUCTION AND GROWTH TRUST

The rapid credit

facility

The standby credit

facility

The extended

credit facility

IMF and Bangladesh

It has reached an agreement with Bangladesh on a 3-year program arrangement to be supported by the IMF’s Extended Credit Facility in the amount of SDR 639.96 million

Under IMF-supported program, the authorities aim to put Bangladesh on a higher growth trajectory, as necessary to accelerate poverty reduction and achieve middle income status by the next decade. 

JORDAN:SUCCESS STORY OF IMF in reducing corruption

Economic reforms were initiated as part of an agreement between Jordan and the IMF. The key objectives of the reforms were on

• reduction of public debts, • reduction of the budget deficits,• controlling of inflation,• tax reforms, • credit policy reforms, • investment incentives,• privatization and • easier trade policies.

India and the IMFIndia’s growth is among the highest in the world. Since mid-2009, IMF has helped the pace of India’s recovery—led by domestic demand, especially infrastructure investment to be strong. Monetary and fiscal policies remain accommodative: real interest rates are low

and the fiscal deficit remains high. 

KENYA ECONOMY

During 2003-2007, there was some movement to reduce corruption in Kenya but the government did not sustain that movement

However in 2009, IMF approved a disbursement of around $200 million under its Exogenous Shock Facility (ESF), which is designed to provide policy support and financial assistance to low-income countries.

Kenya Economy

• The ESF resources were meant to help Kenya recover from the negative impact of higher food and international fuel and fertilizer costs, and the slowdown in external demand associated with the global financial crisis.

REDUCING PUBLIC SPENDING

For a long time, IMF are undergoing actions to strengthen the tracking of Poverty-Reducing Public Spending in heavily indebted poor countries

OIL SHOCKS

Reducing Public spending

The IMF responded to the challenges created by the oil price shocks of the 1970s by helping oil importers deal with anticipated current account deficits and inflation in the face of higher oil prices, it set up the first of two oil facilities.

 

HELPING POOR COUNTRIES

From the mid-1970s, the IMF sought to respond to the balance of payments difficulties confronting many of the world's poorest countries by providing concessional financing through what was known as the Trust Fund

Reducing Public Spending

ROMANIACrisis-hit Romania in May 2009, obtained a 20-billion-euro loan from the IMF and the EU in exchange for a drastic reduction in public expenditure.

Uruguay and Trinidad and Tobago: IMF advised cutting public expenditure

• IMF attempts to discipline the government of Uruguay with recommendations to reduce public expenditure and lower fiscal deficit.

• Trinidad- and Tobago-the IMF has called for reduced spending and the for State to better administer tax collection. 

IMF’s support for health

The IMF is part of a broad international effort to improve health and living standards, particularly in

the world's poorest countries

Through its policy advice and

technical assistance, the IMF aims to make a contribution to strengthening health services—an essential step in raising income and standards of living

IMF warns Mongolia of dangers of public spending

IMF warned that large government spending result in higher inflation and surging imports.

Such high inflation will have an especially hard impact on the poor by pushing the staple food items' prices even higher.

CONCLUSION

• So far it has been proved that IMF provides loans to countries in financial distress at a relatively low interest rate.

• In other words, IMF is a source of Finance which is given to help the developing countries to improve their position in the world.

• It has been concluded that the fund is potentially of great significance to developing countries, and particularly in the current world economic environment, and that its activities should be extended.

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