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International Business

notes other developed countries dominated the Fund, although the majority of its members are
the developing countries. Generally, a rigid attitude regarding grant of loans to developing
countries is adopted by the developed countries, especially by United States.
It is evident from the above account that International Monetary Fund has largely failed to
achieve its objectives. No wonder, many countries are insisting on its re-organization.

10.3.7 future Directions

Prof. Anna Schwartz and Friedman have criticized IMF for global financial crisis and pleaded for
abolishing it. Prof. Samuelson, on the other hand, praised the working and achievements of IMF
in his article “Three Cheers” for the IMF published in 1997. Horst Kohler, The former Managing
Director of the Fund himself admitted: “IMF is not a God that knows everything”. It means that
there is a need to improve its policies by the Fund. The following measures for this purpose have
been suggested at different economic forums:

1. Contagion Effect: The IMF should make provision for giving financial help on concessional
terms to those countries which have a fear of contagion effect of the financial crisis of other
countries.

2. Safety net: The Fund should formulate a plan which acts as a safety net for countries during
economic crisis.
3. Justifiable Global Trading System: The Fund should also establish a free global trading
system which is proper and justifiable towards developing countries.
4. Equitable Distribution of Voting Right: The voting rights should be equally distributed
among participating countries. For this purpose, the quota may be refixed.

5. Transparency: The loan practices should be changed by the Fund to increase transparency.
For getting back the amount quickly, the Fund should reduce the maturity period and in
case of default, a penal interest rate should be charged.

6. Conditional Loans: The Fund should provide loans on such terms and conditions which
make them able to increase their internal resources and do self-financing for their economic
programmes in the long run.
7. Macro-economic Policies for Developed Countries: The IMF should formulate such macro-
economic policies for developed countries that provide safety to the growth of world
output and trade. They should act as highly effective safety net for the global economy.

self assessment

State whether the following statements are true or false:
6. The voting rights should be equally distributed among participating countries.
7. The IMF should not make provision for giving financial help on concessional terms to those
countries which have a fear of contagion effect of the financial crisis of other countries.
8. The loan practices should be changed by the Fund to increase transparency.
9. The IMF should not formulate such macro-economic policies for developed countries that
provide safety to the growth of world output and trade.

10.4 international finance cooperation (ifc)

The IFC was established in 1956. There are 133 countries that are members of the IFC and it is
legally and financially separate from the IBRD, although IBRD provides some administrative

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