Globalisation:International Monetary Fund:Case Studies

The Following are case studies of financial situations in the world market, the IMF involvement and responses of the organisation.

The east asian crisis

The crisis

The global economic crisis began on July 2, 1997 in Thailand. Previous decades had seen the countries of East Asia improve dramatically, incomes had soared, health had enhanced and poverty had decreased rapidly. Some of the countries had not experienced a single year of recession in almost 30 years.

Towards the beginning of the 1990s, East Asian countries had liberalized their financial and capital markets because of increased national pressure form the U.S Treasury Department. This pressure stimulated a flood of short term capital. This short-term capital helped speed up an unsustainable real estate boom, but every real estate bubble has to burst at some point, frequently with catastophic consequences. This is exactly what happened in Thailand and caused an extensive economic problem.

When the Thai baht derpriciated, it not only seriously affected the currency market of Thailand but also the rest of East Asia- South Korea, Singapore, Malaysia, Indonsesia, the Phillipines, Hong Kong and even over into Russia, Brazil and the United States.

IMF policy and advice

Stiglitz claims the most influential contributing matter to the East Asian crisis was when capital account liberalization restrictions were taken away for the flow of capital, in the Asian case this was currency.Western countries encouraged Eastern Asia to allow foreign investors greater access to their markets. Money began to flow through the markets but there were no policies in place to stop investors pulling their money out without forfeiture. As the markets reputation fell money was pulled out as fast as it was put in. "... capital flows [are] pro-cyclical.... capital flows out of a country in a recession, precisely when the country needs it most, and flows in during a boom, exacerbating inflationary pressures." (Stiglitz, 100)as cited in The IMF contributed in many ways to prolong the East Asian crisis, such as they would not provide finance the countries unless they ucommitted to particular economic reforms, these included:

1. A high increase in interest rates 2. Decreased Government expenditure 3. Countries were told to shut down unsatisfactory performing banks 4. South Korea had to grant international organisations access to its domestic markets 5. A very large proportion people lost their job 6. Mandatory political reforms were implemented Stiglitz commentted on how "some of the conditions [demanded by the IMF] had nothing to do with the problem at hand." (96)as cited in

IMF involvement In Mexico

One of the regions where the IMF has attracted most criticism is for their heavy and unbalanced involvement state and financial structure of Mexico. In recent history, the IMF has granted over $5 billon (USD) to mexico in an attempt to give mexico less poverty, stability, economic gain and financial protection from declining oil revenues

IMF policy and advice

However many of the programmes undertaken as a result of IMF Stuctural Adjustment Policies (see policies section) have been subject to criticism. In fact the IMF could be considered liable as a large instigator of Mexico's financial crisis in 1994. The IMF advised that mexico should devalue the Peso; also by encouraging the privatisation of many state run banks and other industries the country built up a massive debt burden . In other cases the Mexican Government was advised to steer away from the public funding of improvements to the systems of water provision in their traditional agricultural areas during times of drought. Instead the IMF advised to focus on the "Maquilladora regions" (The northern region where manufacturing of parts for American firms for export is the prevalent industry) .

Results

The result of IMF advice and structural adjustment was the decimation of land use, ensuing poverty, a depressed economy and unemployment in the agricultural sector. Is this true nature of the "success" the IMF claims to be Having in the Region? Only when the mexican government reverted away from the IMF programs (by revaluing the peso and beggining to move away from IMF aid) did their economic status improve.

Essentially in this case; promotion of capitalist interests through structural adjustment polices led to the economic failure of a large state, with wide reaching affects. These effects included the furthering of destitution and poverty, malnutrition, an inability to fund the most basic of human needs. However according to an IMF statement "Mexico enjoys sustained growth and stability thanks to sound economic policies" Based on this case study it would seem that this is undoubtedly a contentious claim.

A Wider Problem

It must be noted that even though the two case studies cited are god examples of the influence and problems relating to the IMF involvement in world financial markets, the issue in increadibly diffuse and problematic. A multinational monitor investigation explains the case of Argentina and tied Loans and assistance from the IMF. . In this case the Argentinian government accepted IMF funding to aviod defaults on other foreign debt, of course the acceptance of the loans was subject to policy conditions. By examining the loan documentation agreements between the IMF and 26 other countries, it is shown that that several conditions were replicated throughout, and in more cases than not these conditions were deemed to undermine the rights and living standards of vast numbers of working citizens. These measures include the downsizing of public service work, less worker protection from dismissal, reductions in minimum wage levels and less social security/pension benifits. Concurrent with the plethora of examples available, we can see the promotion of the farcical notion that the "free hand" of the market will dictate best circumstance for all environments, can drive entire economies into dissaray. Even A US Congressional committe indentified problematic issues with the support policies and adjustments of the IMF, Stating that:

"The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations. Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect, and its efforts to influence policy and practice too intrusive."

In fact, the IMF receives an increadible level of criticism for it's neoliberal, reformist policies. It is widely accepted that private capitalist investment will always locate were the lowest wages and most liberal market conditions exist. This is also known as "The race to the bottom" . "Coincidentally" , in these conditions the low level workers within this market are subjected to abject poverty, low standards of living, malnutrition and a host of other physical and social ailments that the IMF claims to cure...