Also there is a perception in the mind of the under developed nations that in order to sustain in this world or in order to develop economically they have to take loan from IMF but this is not the case in real. Some very good examples of nations which did not accepted IMF’s conditions today are the world’s greatest emerging markets with the likes of China, Malaysia and South Korea (Sparr, 2006). The reason why we have given example of these nations is because some years back they were also in the same condition that is economically not very sound. They refused to accept any money from the IMF and with that they have proved to the rest of the developing countries that growth can be achieved without the help of IMF. As a matter of fact they have done pretty well as compared to their counterparts who choose to accept the IMF conditions (Sparr, 2006).
Apart from that another factor which has become the reason of criticism for IMF is the imposing of the free flow of capital without the institutionalization and regulation of the financial sector. This watered down the whole developing nation’s scenario by large inflows of short term investment capital, and when the inflation raised the conditions of the IMF’s loans changed dramatically with rising interest rate. The result of which came in the shape of massive unemployment, bankruptcy; the few luck ones who survived had very little left to reestablish their business (Gaburro & Boyle, 2000).
If we analyze closely the detail of these policies it would become evident that these policies are designed in a way which comprises of neoclassical, neoliberal and free market concepts. The principle of these policies seeks that the government should not interfere in commercial affairs, hence minimizing the role of government (Stiglitz, 2002). What happens next is that because of the free market the local social, political and economic conditions are ignored. Privatization is promoted which in other words means the government loses control on its assets as the policies of these loans put pressure on the borrowing country to privatize their local industry as they are not in a state of running them effectively. Also when privatization is promoted without land reform and monitoring policies, it results in a capitalist economy, a feudalistic social structure which ignores the middle and poor class. Its effects could also be seen in the American economy with high level of unemployment, people losing their houses etc (Stiglitz, 2002). Furthermore what IMF needs to do is to create an agenda in which job creation land reforms, health and educational sector should be on priority list that is the true spirit of such an institution to help nations develop (Woods & Narliker, 2001).
The only way to get out of this crisis and to improve their image is by introducing reforms with proper check and balance. Institutions should be strong and policies should be designed for proper privatization, land reform, and capital market liberalization. The debt policies should be relaxed which would help the financially troubled firms restructure themselves and they would be more viable to pay off their loans on time (Stiglitz, 2002).
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