Finance

International Monetary Fund (IMF) is an international organization that is mainly concerned with the financial systems of the whole world with regard to the macroeconomic policies of the member countries (Takagi  Hicklin 2007 89). It is an organization that was formed by many different states with different economic systems with the main objective of making the international exchange rates stable. The other core objective of the IMF was to facilitate development by enforcing the existing liberal economic policies. It has its headquarters in Washington D.C. in the United States. It was created in July 1944 with only 45 member countries. From the time of its creation, it was purposely meant to help member countries with loans to correct their payment imbalances. As of present, the IMF has a total membership of 182 states who work together to promote cooperation of monetary policies between member countries and to promote trade (International Monetary Fund 2006). All the member states are represented by 24-member Executive Board where five directors are appointed by five member countries with the largest quotas (Cftech.com 2004). The other 19 executive directors are appointed by the remaining member countries (International Monetary Fund 2006). Further still, each member country appoints a governor who represents the state in the board of governors in the IMF.

   The IMF was created during the United Nations Monetary and Financial Conference where 45 representatives of different states met in Mount Washington Hotel in New Hampshire, United States (International Monetary Fund 2006). The delegates came to an agreement for an international economic framework. There were only 29 member countries that first signed the articles of agreement (International Monetary Fund 2006). The real purposes of the IMF are still the same as they were outlined during its formation. Despite the challenges the IMF faces in conducting its services to the member countries, it has still managed to function as it was stipulated to do during its formation. There are clearly outlined terms of conditions that a country must fulfill in order to be a full member of the IMF. The state willing to be a member must take the necessary legal steps that are required in its own law to enable it into signing the Articles of Agreement. The IMF has a staff of approximately 2,600 from 110 states (International Monetary Fund 2006). The current managing director is Michel Camdessus who was appointed in 1987. Generally, the IMF is managed and governed by its interim committee, the Board of Governors and the Executive Board.

    The IMF shares in common a number of features with the Bretton Woods institution that was formed mainly to prevent the re-occurrence of confusion that happened in the events of world war period. These events were marked by inflation, high speculations in the market of foreign exchange, restrictions on trade and payments that were international, too much fluctuating rates of exchange and sharp drops in economic activities among others. The founders of the IMF wanted a global financial system to be stable and a good gold exchange standard (Cftech.com 2004). The gold-standard exchange was meant to be automatic in its operations and to maintain economic stability. It is evident that it failed to do so. One of the reasons that led to the creation of the IMF is the fact that during the world war period, many states all over the globe invented economic policies that later led to international economic war. The only way the world could evade this was to create an organization that would manage the worldwide economic system.

    Another reason that led to the formation of the IMF was the debts that existed in the whole world. It is evident that at the end of the world war, many of the countries  infrastructures were damaged and the economic systems of many states were ruined due to far-fetched economic policies stipulated by the particular states (Cftech.com 2004). These countries went ahead and started borrowing immensely from the rich countries. Further still, these poor countries were not able to repay these debts and most of these rich countries cancelled these debts. To curb this incapacitation of debt repayment, there was a dire need for a creation of an organization that would manage and supervise how governments use their funds. In this regard, the IMF mainly became a duo-role institution playing important parts both as a financier and supervisor (International Monetary Fund 2006).IMF as a Financier

    One of the roles of the IMF has been the establishment of Par Values that are adjustable to the currencies of member countries (Takagi  Hicklin 2007 89). The charter of the IMF during its formation set up a system of exchange rates that were fixed with the intention of curbing the challenges brought by the inter-war period to member states. To deter the same from happening again, the IMF set up fixed exchange rates of the entire world to enable different states exchange their rates on fair deals. It was evident that most people would migrate, travel, trade or do any other activity that would need an exchange of currency from one state to another (International Monetary Fund 1997). The IMF managed to create a fixed currency exchange between member countries in relation to the cost of the dollar. However, there was a challenge to this in the 1960s as there was a financial and economic turbulence that was seen in the whole world. This significantly led to the collapse of  the fixed exchange rate. The IMF further outlined a system where the exchange rates are floating and governed by the market forces of demand and supply (International Monetary Fund 1997).

    While another important role of the IMF is the lending function, there was an increasing need for the IMF to manage how the finances were used in member states. It is a fact that a country cannot really manage its internal finances on its own, at one point or another it needs an external help from an organization or another country (Cftech.com 2004). It happened that at the end of the world war, many countries needed financial help from the rich super powers that were there by then. It also happened that most of the countries that borrowed money were unable to pay back. These rich super powers were forced to call off the debts. To deter this from happening again, the IMF was created and it has been able to provide the lending function to all member states as they can now borrow money from the IMF and return it when they are capable (International Monetary Fund 1997). One of the uses of this money borrowed from the IMF is meant to clear balances of payments of the member states. One may ask where the IMF gets its money from. The primary source of money of the IMF is through the member s quota subscriptions. Every member of the IMF is required to submit some money during its entry into the membership. Quota subscription is given in terms of the size of the economy of the member country. The larger the size of the economy, the greater amount of subscription quota a state is to give to the IMF during its entry into the organization. Further still, the stronger the currency of an economy, the less the subscription quota (International Monetary Fund 1997). Quotas are very important when it comes to some aspects in the IMF. The voting power, for instance, is controlled by the amount of quotas a member has in the IMF. Therefore, it is clear that a wealthy member of the IMF will always have the first priority when it comes to voting. Quotas also determine the allocation of Special Drawing Rights and each country s access to the resources of the IMF. Special Drawing Rights is more like an international asset created by the IMF that belongs to each member state but is held by the IMF (International Monetary Fund 1997).

    Many tend to think that when a country gets help from the IMF, it has taken a loan or just borrowed. The actual thing that happens is purchase of Special Drawings Rights (SDRs) or even other currencies from the IMF in exchange for its own currency which it agrees to sell back or repurchase later in the future (International Monetary Fund 1997). Since each member is often charged for this transaction, the purchase can now look like a loan to the member state which is merely a transaction. All the money of the member states that is obtained from the IMF lies within the powers of the financial system of the member country. Therefore, the country can decide to do with it any purpose that most likely relates to the support of balance of payments, for instance, restoring the reserves in the central bank of each state. This can be done by selling the acquired currency in the foreign exchange markets with the aim of stabilizing its own exchange rates. Something the IMF takes into account is to limit the borrowing procedures of the member countries. Without this, the member countries can go ahead and borrow without considering their capacity to pay back (International Monetary Fund 1997). Therefore, the IMF has safeguarded its resources and developments in the liquidity fund.IMF and Supervisory Roles    Supervising is another role the IMF does over the exchange rates of member countries. With the collapse of the system of fixed exchange rates of Britton Woods, the charter of the IMF was amended in that all the member countries could choose an exchange rate of their own. In order to promote a stable exchange system, there was a need for all the member countries to come together and ensure orderly exchange arrangements. Article IV of the IMF charter gives it powers to supervise the policies of the exchange rates of member countries. The same article gives the IMF authority to implement principles that will control the exchange rate system with regard to those principles. The IMF supervision can be of two ways, bilateral and multilateral. Bilateral supervision includes the activities that the IMF watches in the member states, for instance, governance issues, social, environmental, industrial and labor market among others, that all have an impact on the economic management of the state (International Monetary Fund 2006). All the IMF representatives of the member states take time to follow up the activities that the IMF funds do in their member countries. On the other hand, multilateral supervision focuses on the policy and economic spillovers between states. The IMF has taken time to supervise policies that are regional based, for instance, on the Central African Monetary and Economic Union or any other national policies that have regional impacts (International Monetary Fund 2006).    The role of the IMF in the financial sector and the supervision sector has been seen through its encouragement of the member countries to make their currencies more exchangeable for foreign currency (Bordo, Mody  Oomes 2004 6). This is to say that each member state is advised to make its currency more convertible with other member states. One of the main purposes of the IMF is to promote and foster the expansion of trade and its growth among the member states. The only way it does this is by the establishment of a multilateral system of payments through trade and transactions. Currency convertibility is very necessary in a successful international trade. In the pre-colonial period, all international trade transactions were done in dollars and all exporters and importers had dollar accounts mainly for the purposes of trade. The IMF has well-outlined regulations on the currencies of member states, for instance, a state should have only one agreed currency that is convertible (International Monetary Fund 2006).

     The IMF as an organization has its own means and ways of ensuring all the member countries comply with the rules and regulations that have been set out. In doing this, the IMF has managed to supervise the implementation of its objectives and purposes. To assure compliance to its policies and regulations, the IMF has several ways to punish the members if they cannot keep up with the policies of the organization. Many have always thought that the IMF has no real power over the member states  compliance with the policies (International Monetary Fund 2006). However, the IMF has the authority to command leverage among the member states. States that fail to act as per the guidelines of the IMF policies will not be sued by the IMF or any other person, but will be in one way or another punished. One of the ways the IMF can deal with a state that violates its policies is by shutting it out of the capital markets that are known internationally (Bordo, Mody  Oomes 2004 6). It can also withhold the funds of that country and stop any further lending to that particular member state. Further still, the IMF can stop the state from ever using the General Resource Account however needy it may seen to be. But from the look of things, many nations who are member states of the IMF have been seen violating the IMF policies.

    The IMF as an organization has always offered financial technical assistance to all its member states. Immediately after the Second World War, most ex-colonies needed help in terms of setting up financial institutions and finance ministries. The IMF has always supported the member states in institution building, fiscal policies, and financial legislation among others. Even though the help might not be financially oriented, the IMF has often helped in the development of infrastructures and any other form of technical support. This is evidently seen as many banks or central banks are being set up in every member state of the IMF to help in the supervision of its policies all over the member states (International Monetary Fund 2006). Different infrastructures and facilities have been set up not necessarily in the economic sector, but the facility has always been linked to the economic sector (Bordo, Mody  Oomes 2004 6). These investments remain to be an asset of the member state s economy.

    The roles of the IMF have been linked with good governance in the member states. All along, as the membership of the IMF keeps on increasing each year, the governance in the member states improves each day. Good governance is really concerned with the approaches to the macroeconomic problems of a particular country. These include the transparency of the accounts of the government, the efficiency of the public resources and their management, the stability and transparency of the economic and regulatory scenario for sectors that are private. With proper handling of these sections in any government, there are great chances of that government running smoothly as required (International Monetary Fund 2006).

     The IMF has all along been providing technical assistance and advice to its member states, helping improve the governance of the member states and fostering accountability and transparency in the public sectors of the member countries. During its formation, the main purpose of the IMF was to give encouragement to the member states in the correction of  imbalances in the macroeconomic sectors, reduce inflation rates, ensure fair and free trade and stabilize its exchange rate. Among other things, the IMF was to improve efficiency through supporting the states in sustaining their economic growth. It is a fact that the IMF has kept its word in ensuring its objectives up to date (International Monetary Fund 2006).

     Further still, the IMF has realized a wider range of reforms in the institutions that are wanted to purposely maintain and establish confidence in the private sector which is the foundation of a growth that is sustained. For most economies to prosper, they must win the confidence of the public sectors within their boundaries and tolerate zero corruption levels. Among other things, the states are to improve accountability and efficiency as elements that are essential in the prosperity of their economies.

     The IMF has outlined guidelines to mainly help in the government issues of fostering a stable economy. It is evident that in the recent years most of the IMF staff has really supported the activities of the IMF in promoting good governance among the member states. Most of the guidelines that were outlined are purposely meant to foster more concentration to the issues of governance by the IMF. A treatment that is more compressive in the situation of the IMF supported programs and the Article IV consultations of those issues of governance that are within the mandate of the IMF and its expertise are some of the guidelines that were outlined by the IMF in promoting good governance among the member states (Cftech.com 2004).

     The IMF plays a role in the good governance of member states in several ways. In one way, it has helped its member states a great deal by creating systems that in all possible ways try to limit the objectives of all economic decision making. The IMF further plays a role in promoting preferential treatment of organization and even individuals by the government. In most countries, all companies are controlled by the government, even the private sector companies governments played a great role in their success. But with the IMF, it has played a vital role in giving such companies a dependent lifestyle which they have adopted and they have always ensured success in all they do with the encouragement of the IMF for a liberal currency exchange, price systems, and even the elimination of credit allocations that are direct (Cftech.com 2004). Further still, the IMF has played a role in enhancing the capacity of member states in implementing and designing their economic policies, taking their public sector and accountability to a higher level and creating policy making institutions that are effective within the boundaries of the member countries. With these provisions, the role of the IMF in promoting development in member countries is clearly seen and its efforts of achieving its objective in the creation of good governance have been met. The technical assistance provided by the organization has helped reduce so many wrangles in many states as who should do what responsibility and who should not do (Cftech.com 2004).

     The IMF has enhanced transparency in all the financial and economic decisions that are made in the member states. It has been seen to have supervised and taken a keen look at the budgets of all governments of the member states to ensure that there is transparency and proper financial transactions as outlined in the budget. It does this through the state representatives of all the member states. The IMF staff in all the member states focuses on the commitment and willingness of the national authorities in addressing the issues of the governments (Cftech.com 2004). The IMF statistical, auditing and accounting systems in all the member states have greatly improved the governance of the member states by exposing the faults of poor governance and limiting corruption opportunities. With the help of its staff and the support of some government officials willing to improve the governance, the efforts of the IMF have always been successful in many states. Wherever there is a need for correction in the government, the IMF staff representatives in member states always help in giving the correct decisions in the government.

In summary, the IMF as an organization has really achieved a lot since its creation. It has brought a lot of positive changes to the member states and as the number of the member states increases, the roles and objectives of the IMF are seen to be achieved even more. The IMF organization was purposely created to help the member countries to ensure balanced financial and economic governments in all the member states. Moreover, the IMF has gone further and adopted other responsibilities that in all ways seem beneficial to the member states. Some of the reasons that led to the creation of the IMF include the focus on all the technical issues related to the affairs of international monetary. There was also a need to deter some of the financial and economic activities of member countries from happening again as was seen after the world war. The IMF has taken the financial roles and the supervision roles in the member states. One financial role that it has provided is the establishment of Par Values of currencies of the member states that are adjustable. This has greatly enabled the member states have a currency that has a value equivalent to that of the dollar. As the fixed exchange rate in the Bretton Woods institution collapsed, the IMF introduced exchange rates that are floating and governed by the forces of demand and supply. Another important role the IMF has assumed is the lending function. The IMF has really helped in the creation of  good government in all its member states.