IMF Structural Adjustment Programmes

Project submitted to:

Hasham Tariq
Instructor Pakistan Economy
 BS c Economics 6th Semester

Zain Arshad

Junaid Younas

Zubair Ali
Shah
 INTERNATIONAL MONETARY FUND (IMF)

• The IMF is an international organization which

lends money to countries which need to borrow it.
Its headquarters are in Washington DC, USA

• The IMF was set up at a conference in 1944.

• Representatives of 45 countries met to discuss how

to avoid the problems caused by the economic
depression of the 1930s.
 HOW IT WORKS
• The IMF exists primarily to
assist countries in economic
difficulties.

• Provides loan to the needy

country after verification and
imposing hard and stiff
conditions, such as:
1. Liberation of
2. Barriers in free trade
3. High tariffs and quotas
4. Remove a portion of subsidies
 DISADVANTAGES OF
ADVANTAGES OF IMF
IMF
Promotes international monetary Mostly power is in the hand of rich
cooperation. countries

Helps the countries to improve IMF imposes hard conditions to

balance of payments. provide loans

It encourages economic growth. Conditions imposed results in

increase in poverty and low per
It gives financial advice to countries capita income
about how to run their economies.
 ROLE OF IMF

• Help to stabilize exchange rates

• IMF has the same members as United

States except Cuba, Lichtenstein and Andorra

• IMF is independent of the World Bank

•Its am is to increase living standards

 HOW IS IMF FINANCED?

• The IMF is financed by member countries who

contribute funds on joining or from existing members

• IMF stands at $300 billion financed from its 183

member countries

• The U.S deposited the largest amount with the IMF

and it has 16% voting rate as well

• IMF has some special rights to withdraw the

approved amount of loan
WHAT DOES THE IMF ACTUALLY DO?
• In particular the IMF was to play a role in
stabilizing exchange rates and balance of
payments

• These days they are also doing:

Compiling statistics and evaluation of its member

countries economies .

overriding in Financial crisis to avoid future crisis

• In recent months this has involved

 $2.1 billion to Iceland
 $15 billion to Hungary
 $16 billion to Ukraine
 ARGUMENTS IN FAVOR OF IMF

• IMF can be seen as lender of last resort.

• IMF can also impose necessary reforms on

an economy.

• Provides an external assessment of the

economy
 Positive effects
 The IMF offers financial assistance:
Three implemented facilities:
• 􀂃 Stand-by Agreement
• 􀂃 EFF (Extended Fund Facility)
• 􀂃 PRGF (Poverty reduction and Growth Facility)
 The IMF offers technical assistance to transitional
economies:
• 􀂃 The former Soviet Republics
• 􀂃 South Korea in the 1997 financial crisis
 Negative effects
 The structural adjustment is undemocratic and
inhumane:
• 􀂃 Causing social problems
• 􀂃 Foreign corporations and investors take
advantage of local cheap labor, but have no
regard for the environment
 The gap between the rich and the poor is
getting
bigger?
 Example of Argentina
 The IMF has become a tool of the USA?
 IMF A SAINT OR SINNER
???

• The reality is something in between

• At times they have appeared rather inflexible

insisting on fiscal responsibility and privatization
at a time

• This does not mean that the IMF are blameless,

far from it

• They have made many mistakes and errors of

policy
WHY HAS IMF NOT REDUCED POVERTY?

• Often they are to meet government deficits and / or

lack of foreign exchange. Therefore, may not be
used for development .

• AID improved economic development most when it is

targeted in certain ways .

• Loans from IMF can have the same effect as

domestic savings in stimulating investment. The key
is how the loans are used.
• IMF impose economic conditions e.g. privatization
and deregulation.
 Operations
• Monitoring economic and financial
developments and policies, in member
countries and at the global level, giving policy
advice to its members based on its more than
fifty years of experience.
• Lending to member countries with balance of
payments problems, supporting adjustment
and reform policies aimed at correcting the
underlying problems.
• Providing the governments and central banks
of its member countries with technical
assistance and training in its areas of
expertise.
 Operations….. continued
• IMF looks at the performance of the economy as a whole
(macroeconomic performance)
• Focuses also on the financial sector policies Ex: regulation
and supervision of banks and other financial institutions.

• Pays attention to structural policies

that affect macroeconomic
performance. Ex: labor market
policies (affect employment and
• Ex: labor market policies (affect
employment and
 Purposes
• Promote international monetary
cooperation, exchange stability, and
orderly exchange arrangements

• Foster economic growth and high

levels of employment

• Temporary financial assistance to

countries to help the balance of
payments adjustment
The IMF In Short
• IMF is a forum of national economic policies, international
monetary and financial systems, which involves active dialogue
with each member country
• Total quotas of $312 billion outstanding loans of $71 billion to 82
countries (According to the report of August 31, 2005)

• Five largest shareholders United

States, Japan, Germany, France,
United Kingdom
• China, Russia, and Saudi Arabia
have their own seats on the Board.
 Indirect effects of policies
• Strengthening the International Monetary and
Financial System

• Globalization has increased the risk of financial

crises. These crises exposed flaws in the
international financial system.

• To reduce the risk of future financial crises and

to promote the speedy resolution of those that
do occur, the IMF has been working with its
member governments, and with other
international organizations, regulatory bodies,
and the private sector, to strengthen the
international monetary and financial system.
 Criticisms
 For years, the Fund has set severe loan
conditions that in many cases have led to the
deepening the crises.

 There is widespread belief regarding the Asian

and Latin American crises that the IMF went too
far on imposing policies such as:
• 􀂃 Control on government spending
• 􀂃 Higher taxes
• 􀂃 Higher interest rates
• 􀂃 Liberalized markets
• 􀂃 Fewer state controls
Speculations about the IMF

“Debt is an efficient tool. It ensures

access
to other peoples’ raw materials and
infrastructure on the cheapest possible
terms.”
 MEASURES TO BE TAKEN FOR
IMPROVEMENT

• Hire competent and trained workforce

• Make sure there are nurses and doctors at each

school

• Pay every graduate twice what they would make

• Teach the kids their native languages

• It's time for Pakistan to start spending its money

on people servicing, instead of debt servicing
ANY QUESTION(S) ??