The other side of International Monetary Fund
IMF (International Monetary Fund) was formed in the aftermath of the Second World War, with an intension of helping the countries collect their fallen pieces and ensure financial stability after a prolonged duration of wars and financial turmoil. Some countries were financially paralyzed by the war and others were undergoing critical financial recession. IMF came to restore the financial stability, promote global stability, and help the developing countries in transition to achieve not only stability but also growth. However, a world renowned economist Joseph Stiglitz had a different angle of viewing the influence and the impact created by IMF. It was rather unfamiliar ideology when Joseph Stiglitz argues that IMF intervention worsened the East Asian financial crisis of the late 1990s. Most regions of Asia including; Malaysia, Indonesia, South Korea, Thailand and Philippine were faced with worst financial crises which compelled them to fall preys to the IMF. IMF materialized on their crises, and compelled the countries to relay on short term loans from foreign philanthropist and funds. This lead to fall of currency markets in worst levels after the private enterprises failed to supply their payment obligations. It was not a wise decision to make according to Stiglitz who criticized the move and termed it as ‘poor economics venture’.
The dilemma, as per Stiglitz idea, came as a result of globalization which was not been pushed carefully, or fairly. On the opposite, liberalization policies were made to work too fast, in the incorrect manner, and often making insufficient economic analysis. As a consequence, he argued that terrible results faced by the Asian countries, including increases in destitution and communal conflict, and widespread frustration were caused by poor guidance form IMF. Stiglitz believed that in the early 1990s, the IMF, the World Bank and the US Treasury launched a conspiracy of sorts to run worldwide economic reform with totally a different agenda from raising the falling nations but instead initiate poor systems that would paralyze the economy of those nations in what was termed as ‘‘Washington Consensus.’’ It was a malicious move according to Stiglitz which was intended for no good implication but was a scheme by an individual to rein in other nations crises. The IMF idea was resisted by Malaysia which opted to use capital control instead; an approached that was criticized by the Fund but later bore reasonable results. This made Malaysia to suffer fewer consequences of economical fall than other Asian countries which stood by the advice given by the Fund. There were increased unemployment rates to those countries which opted to work with the policies made by IMF. In some countries poverty levels raised with more than 50%, and the effect of the fall was felt in all sectors of the economy.
The Asian nations went on with overinvestment in real estate as per the advice given by the IMF which resulted to be disastrous and unnecessary venture engineered by poor speculations. IMF assumed that the Asian countries could not meet their obligation of balance of payment and arranged for loans on conditions of enforcing policies that the countries were required to honor. This led to further economical recession and financial disaster that Asian’s turn into rich beggars. The paradox of the whole idea was that Asian nations were not getting budget deficits, however the Fund required them to cut or reduce their spending as per their policy. This policy was considered to have been improvised by the IMF and the United States to impose heavy recession that could worsen the economical status of these nations. Later, the Fund acknowledged that they made a mistake in giving a wrong direction to the Asian countries but it was too late to redeem the situation.
Economics demands accurate application of workable policies by the government, otherwise a nation can result to economical recession like what happened to the Asian nation. These nations had received wrong economical advice that made their countries have Economical recession comes along with fall in the value of currency of a nation and finally results to closure of financial markets. Consequences of fallen economy were characterized by high levels of unemployment, increased poverty rates, increased death cases due to malnutrition; fall in currency value, failing market processes and decline in Gross Domestic Product of a nation. The exports and the imports of a country are also affected by recession in a manner that the country incurs further financial crisis in every deal it may try to make. This kind of a situation can make a country to be unable to pay its debts and be forced to dependent on international aids. The idea of IMF imposing policies on other countries without letting the countries participate on decision making was rather unrealistic. The economies of the Asians had collapsed as a result of short term loans that destroyed their exporting potential. The criticism of the IMF policies by Joseph Stiglitz was justifiable by the manner that the policies resulted into negative economic impacts.