The Bretton Woods institution is a system of monetary management that established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The agreement reached in Bretton Woods was not supported by the USSR or Russia. The International Monetary Fund (IMF) as a body of the Bretton Woods, is an international organization consisting of 189 countries. The IMF working to address balance of payments problems among member countries. The institution promotes global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world. It also relies on the World Bank assistance. However, it has encountered the need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies. The IMF has been a dominant leader in financial management of many underdeveloped economies of the world (Kindleberger, 2000). Nigeria, Ghana, Sierra Leone have benefited from IMF loans since its inception. Also, many countries from South America and Asia have benefited as well. As part of its responsibility, the IMF implicitly provides political protection for its members by its virtue of universality. This is because the institution represents nearly every country in the international system, and therefore, can pursue international financial rescues without implicating specific creditor governments. It often uses conditionality to prevent moral hazard associated with loans to correct adverse balance payments (Stone, 2008). Apart from poverty alleviation policy paper, the IMF also demands and evaluates country‘s reserves before giving financial assistance.
3.1.1. Functional Objectives of the IMF
According to the IMF itself, it works to foster global growth and economic stability by providing policy advice and financing the members by working with developing nations helps them achieve macroeconomic stability and reduce poverty. Other objectives are as follow:
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Ensure the stability of the international monetary system.
Oversee the fixed exchange rate arrangements between countries
Keeping global watch of economic systems to prevent global economic crises.
Maintain the stability of exchange rates and international payments system.
Maintaining stability of all macroeconomic and financial sector issues that bear on global stability.
It facilitates international trade, promotes employment and sustainable economic growth, and reducing global poverty.
Collection of sensible data such as available reserves and macroeconomic trends.
Give advisory counselling to member nations on balance of payments.
Carry out research on types of government policy that would ensure economic recovery (https://www.imf.org/external/index.htm)
Although the IMF might have achieved a great deal of economic recovery for its members, nevertheless, the institution has come under strong criticism. Critics regard IMF as agent of the ―West‖ to exploit less-developed or underdeveloped countries. It has been observed that the huge interest charged on loan, as well as loan servicing demanded on loan obtained, are burden on the poor countries often worsening their balance of payments problem. Some of the challenges encountered by the IMF include:
Insufficient data to capture the real activities of member nations
Lack of effective cooperation by members.
Inadequate fund availability to poor countries.
Credit facilities not accessible by extremely poor countries
Induce structural adjustment of poor nations
Strict loan conditionality often disadvantageous to poor countries
Although, when the IMF was established as an institution for monetary cooperation in 1944, there was no reference to conditionality. Indeed, the concept of conditionality did not appear in the original Articles of Agreement. This concept was later
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introduced in an executive board decision in 1952 and much later incorporated in the Articles, as part of the First Amendment. Although, strict conditions give the IMF institution leverage advantage, but with respect to development planning, conditionalities is disadvantageous. This is because conditions, in the long run, impose debt burden which may impact negatively on planning set targets. The need to pay high interest rate on loan and servicing debt (out of reserves or dwindling government revenue) will definitely reduce the amount that might be earmarked for planning projects. With regard to development planning, some of the structural conditionalities given by the Bretton Woods Institutions are:
i. A member‘s use of the resources of the Fund shall be in accordance with the purposes of the Fund. The Fund shall adopt policies on the use of its resources that will assist members to solve their balance of payments problems in a manner consistent with the purposes of the Fund and that will establish adequate safeguards for the temporary use of its resources.
ii. Under Article V Section 3(c) of the Agreement, the Fund must examine the member‘s representation to determine that the requested repurchase would be consistent with the Articles of Agreement and the policies on the use of Fund resources.
The broader structural conditions also known as, Washington Consensus, are highlighted below:
Cutting expenditures, also known as austerity.
Focusing economic output on direct export and resource extraction.
Devaluation of currencies.
Trade liberalization, or lifting import and export restrictions,
Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),
Balance budget and prudential financial management.
Removing price controls and state subsidies,
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Privatization, or divestiture of all or part of state-owned enterprises,
Enhancing the rights of foreign investors vis-a-vis national laws,
Improving governance and fighting corruption.
Draw up Poverty Reduction Strategy Paper (PRSP) (Clemens and Kremer, 2016; https://www.imf.org/external/index.htm).
The IMF conditions, which also include high interest on loan (Hardstaff, 2003) have been criticized to be counter development. For instance, focusing economic output on direct export and resource extraction and evaluation of currencies have resulted into long term underdevelopment of poor countries. The IMF does not encourage industrialization for underdeveloped countries. Industrialization stands as a critical employment generation and should be hallmark of development planning.
According to Moore-Sieray, (1997), ―the (IMF) has caused more harm to the underdeveloped and developing countries than the good. In Africa, in particular, IMF and the World Bank have destroyed Africa's capacity and prospects for development through misguided policies and conditions which are based on some universal standard criteria rather than situation-specific needs of individual countries‖. This might not be true in all ramifications because often, corruption and mismanagement of public fund in Africa, especially, in the Sub-Saharan Africa, prevent the efficient utilization of IMF fund to the extent that fund allocated to African countries usually finds its way back to foreign countries of the world.