Thursday, April 18, 2013

IMF A Overrated Institution

The pool of money the IMF loans and redistributes around the world helps to stabilize countries if they are failing or economically unstable.  But many people do not understand who, and how they are funded. While the IMF exerts a fair amount of influence, it is political in nature and pushes the way the wind blows. This bring up the issue and questions as to how muddled this system is. With a loud voice the IMF is overrated, it often uses only a small amount of money to make the very desperate march in line, at times this means not solving problems but helping to kick the can down the road.

Who and what is the IMF? We all know IMF stands for, the International Monetary Fund (IMF) is an 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. It is a way for rich nations like the United States to manipulate, redistribute or loan money to troubled nations without putting the issue out in the open. As an institution the IMF acts as a mechanism to stabilize the world economy, it is merely an expensive mouthpiece for the worlds economic powers seeking stability, its goal to shore up the weak, thus protecting loans about to default.

The mechanisms of economic stabilizers, can be used to move, support or break currency trends, some more quietly then others. Currency swaps, both reported, and "unreported" can lead to games, abuses, and the false illusion of stability. For example, Goldman Sachs helped Greece raise over a billion dollars of off- balance-sheet funding in 2002 through a currency swap. This allowed the government to hide debt. Greece had previously succeeded in getting approval to join the euro on 1 January 2001, in time for the physical launch in 2002, looking back we now see this was done by faking its deficit figures.

When the IMF weighs in it adds validity to the message rich countries want to promote, this is often the  message of  "be responsible". The amounts of loans and monies promised often do not appear large to many of us. Why do these numbers seem so small? You might think that it is because these countries are so very small, another possibility is America is just 'crazy stupid" in the way they spend and treat money. With the dollar being the reserve currency of the World we have become  a bit warped, it is hard to internalize how large a store of value a billion dollars represents.

The International Monetary Fund (IMF) says there is no "single bullet" that will fix many of the worlds economic ills. For example what recipe will allow Caribbean countries to deal with their various problems such as high debt, low growth, mitigation of vulnerabilities and strengthening financial system. The IMF notes that growth in the Caribbean has stagnated in the last two decades, except in commodity exporters. The IMF is currently involved in Cyprus, Tunisia, Argentina, Ireland, Greece,and many more countries, guiding and tweaking their economic policies.

In Egypt, after two years of political upheaval, foreign currency reserves have fallen to critically low levels, limiting their ability to buy wheat, and fuel. Foreign reserves dipped further to $13.4 billion at end-March, the central bank reported, down from $13.5 billion a month earlier, equivalent to less than three months' imports. Cairo must convince the global lender it is serious about reforms aimed at boosting growth and curbing an unaffordable budget deficit. That implies tax hikes and politically risky cuts in state subsidies for fuel and food, including bread. The government reached a preliminary agreement with the IMF on the loan last November but went back on implementing the economic conditions.

For the advanced economies as a group, the IMF is now expecting a slightly slower recovery than it was in January, with growth of 1.2% in 2013 and 2.2% in 2014.  One major problem is that of late the International Monetary Fund has been putting out conflicting statements. Often their positions appear to be "all over the board" this leads me to believe that while the IMF tries to plug holes and put out fires, they are behind the curve. While managing director Christine Lagarde is popular the agency lacks answers for the worlds cash-strapped. Several years ago Lagarde while on the Jon Stewart Daily Show bragged and conceded how bad thing were at the depth of the crisis and how they were forced to lie about it, this does wonders for my confidence in the system. Bottom line the IMF is behind the curve in a fast changing world and simply a tool for rich countries to promote their agenda, the IMF does not have all the answers.

Footnote; While pushing and putting pressure on Europe from the bully pulpit, the IMF lacks the ability to solve really big problems like those facing the euro.

No comments:

Post a Comment