The Role Of The Imf In Financial Crisis Finance Essay

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The International Monetary Fund came into formation in July 1944 when representatives of 45 countries met together in the town of Bretton Woods, New Hampshire in north-east of United States. They agreed to establish a framework for the international economic cooperation after the Second World War. It was believed that such a framework for the economic cooperation was necessary to avoid the recurrence of the disastrous economic policies which lead to the great depression for the countries [1] . In December 1945 International Monetary Fund formally came into existence when 29 member states signed the articles of agreement and on 1st March 1947 IMF began its operations. The main purpose of IMF was to guarantee stability of economic growth and the maintenance of living standards and therefore to accomplish this purpose it was very important for the countries to exchange goods and services from each other. The IMF if also known as a social institution, whose central role is to provide primary social goods: access to currency reserves, cost to such access, exhaustible social resource and trade currencies. [2]


In 1970’s the banks lent billion of dollars to the poorer nations specifically to Latin America and Asia but this process of lending of money lead to crisis. In 1982 Mexico announced that it could no longer pay the money owed until a special arrangement had been made that allowed it to postpone the payment and borrow back part of its interest. Following Mexico, Brazil, Argentina and other small countries also found themselves self caught in the same problem. If we see the position from a broader perspective it could be observed that the developments on the international economic in 1970s exposed the economic difficulties which were being faced by developing world. Both the internal and external problems of the developing countries were exposed; the internal problems of the developing countries manifested themselves in growing economic deficits and rising in external current account deficits. External factors included sharp increase in the real prices of the energy products, fluctuations in the world market prices of primary products produced by the non oil developing countries and slow growth in the industrial countries. [3] In this situation the Bretton Woods institutions, World Bank and International Monetary Fund (IMF) argued that the problems were being caused mainly by mismanagement in the developing countries. As a result of this sufferance of economic instability by the developing countries the institutions launched stabilization and structural programs to overcome the problems of macroeconomic distortions and to strengthen the economic structure in these countries. The role of IMF has been transforming vigorously since 1970s, when the gold standard fixed rate system was changed to a flexible exchange rate the original purpose of IMF to maintain the exchange rate alignment was departed.

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