An Assessment of the Working of the International Monetary Fund (I.M.F.)

An Assessment of the Working of the I.M.F. It has been observed that the Fund has not been successful in its fundamental objectives, viz., freeing world trade from quantitative restrictions, restoration of multilateral convertibility, abolition o

An Assessment of the Working of the International Monetary Fund (I.M.F.)

 

It has been observed that the  International Monetary Fund (I.M.F.) has not been successful in its fundamental objectives, viz., freeing world trade from quantitative restrictions, restoration of multilateral convertibility, abolition of exchange control, prevent­ing crises in the balance of payments. Whatever progress it has made towards its objectives has been mostly on a regional basis. Even this has been more due to the efforts of agencies other than the International MOnetary Fund, viz., European Payments Union, Sterling Area, etc.

The fundamental obstacle in the Fund's way of achieving its objectives is the inflation in the underdeveloped countries. So long as inflation continues, these countries will continue suffering from disequilibrium in their balance of payments. As long as they suffer from a deficit in their balance of payments, they cannot afford to remove exchange restrictions and to restore convertibility of their currencies.

The International Monetary Fund (I.M.F.), however, has no control over the domestic affairs of any country. It can only persuade the countries to control inflation. Inflation in most of the countries is not accidental but planned. Because, these countries consider inflation to be in their national interest, it is doubtful if the Fund can make them control inflation simply by persuasion.

In spite of the various limitations under which the Fund has had to work, it cannot be denied that it has contributed towards a reduction of bilateral agreements, diminished discrimination in payments, and increased the converti­bility of many currencies.

Of late, the world trade had been growing at a rate much faster than could be adequately financed through its resources of gold and reserve currencies, viz., dollar and sterling. The quotas of member-countries were increased thrice (in 1959 and 1966 and again in 1970), but a serious shortage of international liquidity has continued. The fund has sought to meet the problem by the creation of Special Drawing Rights (referred to above in Capital Resources). This ingenious scheme of paper gold is another feather in the cap of the International Monetary Fund (I.M.F.).

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