https://www.imf.org/external/pubs/ft/scr/2016/cr1694.

pdf
http://www.finance.gov.pk/mefp/MEFP_201314_201516.
pdf
http://www.slideshare.net/hjhabib/internationalmonetary-fund-imf-33325666
With economies around the world on the verge of collapsing. Some are pointing to the IMF as a potential
saviour of the world economy. They argue that the IMF can play a key role in avoiding financial crisis and
restoring confidence to a battered international economy. Yet, at the same time many view the IMF with
disdain, arguing that their intervention causes more problems than it solves
International monitory Fund has supports Pakistan in restructuring its economy structural reforms suggested by IMF
and implemented by the Pakistani governments. IMF always pushes government to make good living standard of
peoples of Pakistan. It provides the technical as well as material support to carry out different reforms in Pakistan. In
this research paper attempt has been made to see that how the institution of IMF helps to increase the assistance to
see Pakistan as a developed state of the world, because, IMF play a vittles role to stabilize the Pakistani economy
but on its own conditions. It maintains a high level merits while giving the aid. An attempt has also been made to see
that how and in which condition IMF support Pakistan to improve the Pakistan s Balance of Payments deficits.

International Monetary Fund

The International Monetary Fund (IMF) is an international organization that
was initiated in 1944 at the Bretton Woods Conference and formally created
in 1945 by 29 member countries. The IMF's stated goal was to assist in the
reconstruction of the world's international payment system postWorld War
II. The IMF currently has a near-global membership of 188 countries. To
become a member, a country must apply and then be accepted by a
majority of the existing members. Upon joining, each member country of the
IMF is assigned a quota, based broadly on its relative size in the world
economy. The IMF provides policy advice and financing to members in
economic difficulties and also works with developing nations to help them
achieve macroeconomic stability and reduce poverty.
The external current account deficit was somewhat higher than expected
over the past two quarters, with lower goods exports and higher imports
partially compensated by strong remittances performance. Above quote is from this article
should have been enough for any bank in UK to refuse loan to an individual. Alas Pakistan
is issued loans without applying any affordability criteria and people of Pakistan and their
grandchildren will also pay the price whilst few in power today enjoy the benefit in the name
of commission or as it is known in Pakistan corruption and kick backs. Why isn't people in
media & power talking about it?

Background
Macroeconomic imbalances and longstanding structural impediments to growth have
prevented full realization of Pakistans potential. Problems in the energy sector, security

concerns, and a difficult investment climate have combined with adverse shocks to
undermine economic performance in the past decade. As a result, GDP growth has only
averaged 3 percent over the past few years, well below what is needed to provide jobs for
the rising labor force and to reduce poverty. With the population still increasing rapidly, per
capita income growth has lagged behind many emerging economies.
Prior to the onset of the current IMF-supported program, the fiscal deficit widened, driven
by weak tax collections, energy sector subsidies, and increased provincial government
spending. Domestic deficit financing crowded out private sector borrowing and contributed
to inflation. The external position weakened significantly, and, reinforced by an absence of
access to external market financing, central bank reserves declined to critical levels.

Role of the IMF

The current government took office with a strong mandate to implement ambitious
economic reforms to stabilize the economy and put Pakistan on the path to growth and
prosperity. The governments plan focuses on strengthening macroeconomic and structural
policies to shore up confidence, reduce economic imbalances, foster sustained inclusive
growth, and provide employment opportunities.
Since September 2013, the IMF has been supporting the governments economic program
by means of a 36-month extended arrangement under the Extended Fund Facility (EFF).
The EFF arrangement, together with other multilateral and bilateral program support,
provides needed external financing for Pakistan, and signals the authorities determination
to implement sound policies, thereby bolstering market confidence and catalyzing private
investment and other inflows. That way, the EFF provides a framework in helping Pakistan
to retain macroeconomic stability, and therefore to promote growth and protect the most
vulnerable part of the population.

The Challenges Ahead

Much has been accomplished in the first half of the program. The fiscal deficit has been
reduced, international reserves have increased substantially, and the threat of a crisis has
greatly receded. Macroeconomic prospects are favorable. However, more remains to be
done to consolidate and reinforce the gains in economic stability and strengthen reforms
for higher growth and job creation. Pakistans aspiration is to catch up over time with
other emerging market countries in key macroeconomic and business climate indicators.
The key challenges facing the authorities are to:
Continue to build external buffers and maintain price stability. Central Bank
reserves reached over 2.5 months of imports and inflation is under 4 percent. The central
bank should continue to rebuild its foreign exchange reserves, making use of Fund
disbursements, financial support from other donors, foreign exchange interventions, and
exchange rate flexibility. A continued focus on price stability will also be important.
Continue with prudent fiscal policy to ensure medium-term fiscal sustainability.
The reduction in the headline deficit from 8.8 percent of GDP in 2012/13 to 5.5 percent of
GDP in 2013/14 (an improvement of about 1.5 percent of GDP after accounting for one-off
factors), and further to 4.9 percent of GDP in 2014/15 are important achievements.
Building on these, further efforts will be needed in the coming years to strengthen
Pakistans resilience to shocks.
Facilitating higher investment. Despite recent successes in reinforcing economic
stability, investment as a share of GDP has remained too low to generate the desirable
high rates of sustainable economic growth. Over time, public investment needs to increase
significantly. To generate the necessary resources for this and other priority spending such
as health, education, and social safety nets, the tax-to-GDP ratio must be raised

considerably by broadening the tax base and improving significantly on taxpayer

compliance.
Implement structural reforms to achieve inclusive growth. To facilitate higher
private investment and remove obstacles to private sector-led growth, there is a need to
address longstanding problems in the energy sector (especially dealing with the circular
debt on a sustainable basis), continue reforms of the trade regime, restructure or privatize
public sector enterprises, and strengthen the business climate.
Protect the most vulnerable. Since the outset of the arrangement, the number of
beneficiaries of the targeted income support program increased by 10 percent, and
stipends were raised by 50 percent. Throughout the program, it is a top priority of the
government to protect the poor from direct and indirect impacts of fiscal consolidation and
price adjustments by means of targeted income support.

1. The IMF dictated the content of the program.

The government mostly produced the policies supported in this program, which respond to
key challenges facing Pakistan today.
The economic section of the PML-N party manifesto shows that most of the policies agreed with
the IMF were actually those proposed by Prime Minister Sharif and his team before the elections,
such as: fiscal consolidation, tax reform, measures to tackle the energy crisis, restructuring and
privatizations of public sector enterprises, trade policy reforms, and steps to boost the investment
climate.
2. The program doesnt address some important problems.
The program cant do everything, but it tackles Pakistans biggest economic issues as
quickly as possible.
Many have questioned particular parts of the program. Some feel the program should do more to
improve tax collections, or to cut corruption, or to reform the civil service, or to boost provincial
tax revenues. These are certainly important issues but given time and capacity constraints we
cant focus on everything immediately.

The government and the IMF agreed the most important issues were: (1) the very large fiscal
deficit, which could no longer be financed; (2) the critically low level of international reserves;
and (3) the need for structural reformsparticularly in the energy sectorto get the economy
out of the low-growth trap it has been mired in for years. The program aggressively tackles all
threethe deficit will come down from 8 percent of GDP to around 3 percent of GDP over 3
years, international reserves will be rebuilt to sustainable levels, and structural bottlenecks will
be significantly eased.
Once the government addresses these core issues they can tackle other important challenges, but
without stabilization first, the economy will be too unstable to support the other efforts.
3. The program may address the right issues, but in the wrong order.
With the economy in serious trouble, Pakistan didnt have the luxury of postponing key
stabilization measures.
Some have argued the program errs in focusing first on economic stabilization and then on
growth. Others wanted to focus on improved tax collections before increases in tax rates.
Likewise, some feel that energy supply should have been increased first, with tariff increases
later. Lets take these in turn.
If Pakistan wanted to postpone its stabilization efforts to focus on growth stimulus, how would
the government pay for the postponement? And how would it finance the stimulus? Unlike the
United States, which can sustain very large deficits because the world is willing to buy U.S.
government bonds, Pakistan doesnt have this luxury. Moreover, even if you could finance it,
how effective will temporary stimulus be if investors know the government has not yet addressed
underlying imbalances?
On improving tax collections and energy supply improvements, these reforms take years to bear
fruit. Tax administration reforms will take 2-3 years to generate significant improvements in
revenues. Energy supply enhancements can take even longer. So while it was essential to start
those at the beginning of the program, the government made the wise decision to include quick
wins early on to address the vulnerabilities while the reforms with longer gestation periods are
ramping up.
4. IMF policies will hurt the poor, who will pay the brunt of the adjustment.
The program will broaden the tax base, and cut subsidies for the rich, while maintaining
low energy prices for the lowest consumers and increasing public spending on the poorest.
In this program, deficit reduction will come not from cutting education and health programs, but
mostly from raising revenues. This involves bringing people into the tax net by eliminating
loopholes and special privileges, and by improving tax administration and enforcement. In
Pakistan, a country of 180 million people, only 1.2 million individuals and firms file income tax
returns, of which about half are corporate filers. That must change so that more of the burden
falls on those who can most afford to pay.

Energy subsidies mostly benefit a small proportion of the population. The wealthiest are those
who consume the most energy, so an across-the-board subsidy helps them most. The rest of the
population has to endure 8-10 hours a day of load shedding during the summer months without
being able to afford the private generators of the rich. Under the program, the lowest
consumption levels will continue to be subsidized, while prices will go up to fully cover costs for
the wealthiest. Energy supply will be better and load-shedding will fall.
The program also includes higher social spending. The 2013/14 budget includes a significant rise
in education spending. The program also entails a large increase in targeted transfers to the
poorest, through the expansion of the Benazir Income Support Program (BISP), a national cashtransfer scheme. The government will expand the program with the help of donors, which
currently reaches 4.9 million households, to reach 6.6 million families. The stipend has increased
by about 20 percent, and it will be adjusted for inflation in the future.
5. The program will generate recession; hurt the economy and the business sector.
Growth will initially fall, but will be much higher over time.
In the short-run it is true that fiscal adjustment will reduce growth. But continued instability
would hurt growth much more by pushing the economy into crisis. The government has geared
its structural reforms to enhance growth in the medium- and long-term. These reforms include
measures to ease the energy bottlenecks that strangle economic activity, and steps to promote
trade, improve the business climate and the competitiveness of Pakistani industry. More
efficiency and competition will help generate more investment and millions of new domestic
jobs.
6. This program is doomed to fail as did previous programs.
While success is by no mean guaranteed, this is an historic chance to fix long-standing
economic problems and put the country on a higher growth path.
The governments program aims to overhaul some of the structural deficiencies that have
plagued the countrys economic prospects, while pursuing, at the same time sound
macroeconomic policies and protecting the most vulnerable from the effects of fiscal
consolidation, through the expansion of social safety nets. Program design has been adjusted to
take into consideration the lessons of past failures and the IMF is willing to be flexible to adapt
to unexpected developments. Support from other institutions is being mobilized to help.
Prospects for success are enhanced by a democratically elected government firmly committed to

doing what it needs to do to fix these long-standing problems and achieve its objective of making
life better for 180 million Pakistanis.

https://blog-imfdirect.imf.org/2013/12/19/pakistan-the-realities-of-economic-reform/

Top Ten Reasons to Oppose the IMF

What is the IMF?

The International Monetary Fund and the World Bank were created in 1944 at a conference in
Bretton Woods, New Hampshire, and are now based in Washington, DC. The IMF was originally
designed to promote international economic cooperation and provide its member countries with short
term loans so they could trade with other countries (achieve balance of payments). Since the debt
crisis of the 1980's, the IMF has assumed the role of bailing out countries during financial crises
(caused in large part by currency speculation in the global casino economy) with emergency loan
packages tied to certain conditions, often referred to as structural adjustment policies (SAPs). The
IMF now acts like a global loan shark, exerting enormous leverage over the economies of more than
60 countries. These countries have to follow the IMF's policies to get loans, international assistance,
and even debt relief. Thus, the IMF decides how much debtor countries can spend on education,
health care, and environmental protection. The IMF is one of the most powerful institutions on Earth
-- yet few know how it works.

1.

The IMF has created an immoral system of modern day colonialism that SAPs the poor
The IMF -- along with the WTO and the World Bank -- has put the global economy on a path of
greater inequality and environmental destruction. The IMF's and World Bank's structural
adjustment policies (SAPs) ensure debt repayment by requiring countries to cut spending on
education and health; eliminate basic food and transportation subsidies; devalue national
currencies to make exports cheaper; privatize national assets; and freeze wages. Such belttightening measures increase poverty, reduce countries' ability to develop strong domestic
economies and allow multinational corporations to exploit workers and the environment A recent

IMF loan package for Argentina, for example, is tied to cuts in doctors' and teachers' salaries
and decreases in social security payments.. The IMF has made elites from the Global South
more accountable to First World elites than their own people, thus undermining the democratic
process.
2.

The IMF serves wealthy countries and Wall Street

Unlike a democratic system in which each member country would have an equal vote, rich
countries dominate decision-making in the IMF because voting power is determined by the
amount of money that each country pays into the IMF's quota system. It's a system of one
dollar, one vote. The U.S. is the largest shareholder with a quota of 18 percent. Germany,
Japan, France, Great Britain, and the US combined control about 38 percent. The
disproportionate amount of power held by wealthy countries means that the interests of
bankers, investors and corporations from industrialized countries are put above the needs of the
world's poor majority.

3.

The IMF is imposing a fundamentally flawed development model

Unlike the path historically followed by the industrialized countries, the IMF forces countries
from the Global South to prioritize export production over the development of diversified
domestic economies. Nearly 80 percent of all malnourished children in the developing world live
in countries where farmers have been forced to shift from food production for local consumption
to the production of export crops destined for wealthy countries. The IMF also requires countries
to eliminate assistance to domestic industries while providing benefits for multinational
corporations -- such as forcibly lowering labor costs. Small businesses and farmers can't
compete. Sweatshop workers in free trade zones set up by the IMF and World Bank earn
starvation wages, live in deplorable conditions, and are unable to provide for their families. The
cycle of poverty is perpetuated, not eliminated, as governments' debt to the IMF grows.

4.

The IMF is a secretive institution with no accountability

The IMF is funded with taxpayer money, yet it operates behind a veil of secrecy. Members of
affected communities do not participate in designing loan packages. The IMF works with a
select group of central bankers and finance ministers to make polices without input from other
government agencies such as health, education and environment departments. The institution
has resisted calls for public scrutiny and independent evaluation.

5.

IMF policies promote corporate welfare

To increase exports, countries are encouraged to give tax breaks and subsidies to export
industries. Public assets such as forestland and government utilities (phone, water and
electricity companies) are sold off to foreign investors at rock bottom prices. In Guyana, an

Asian owned timber company called Barama received a logging concession that was 1.5 times
the total amount of land all the indigenous communities were granted. Barama also received a
five-year tax holiday. The IMF forced Haiti to open its market to imported, highly subsidized US
rice at the same time it prohibited Haiti from subsidizing its own farmers. A US corporation
called Early Rice now sells nearly 50 percent of the rice consumed in Haiti.
6.

The IMF hurts workers

The IMF and World Bank frequently advise countries to attract foreign investors by weakening
their labor laws -- eliminating collective bargaining laws and suppressing wages, for example.
The IMF's mantra of "labor flexibility" permits corporations to fire at whim and move where
wages are cheapest. According to the 1995 UN Trade and Development Report, employers are
using this extra "flexibility" in labor laws to shed workers rather than create jobs. In Haiti, the
government was told to eliminate a statute in their labor code that mandated increases in the
minimum wage when inflation exceeded 10 percent. By the end of 1997, Haiti's minimum wage
was only $2.40 a day. Workers in the U.S. are also hurt by IMF policies because they have to
compete with cheap, exploited labor. The IMF's mismanagement of the Asian financial crisis
plunged South Korea, Indonesia, Thailand and other countries into deep depression that
created 200 million "newly poor." The IMF advised countries to "export their way out of the
crisis." Consequently, more than US 12,000 steelworkers were laid off when Asian steel was
dumped in the US.

7.

The IMF's policies hurt women the most

SAPs make it much more difficult for women to meet their families' basic needs. When
education costs rise due to IMF-imposed fees for the use of public services (so-called "user
fees") girls are the first to be withdrawn from schools. User fees at public clinics and hospitals
make healthcare unaffordable to those who need it most. The shift to export agriculture also
makes it harder for women to feed their families. Women have become more exploited as
government workplace regulations are rolled back and sweatshops abuses increase.

8.

IMF Policies hurt the environment

IMF loans and bailout packages are paving the way for natural resource exploitation on a
staggering scale. The IMF does not consider the environmental impacts of lending policies, and
environmental ministries and groups are not included in policy making. The focus on export
growth to earn hard currency to pay back loans has led to an unsustainable liquidation of
natural resources. For example, the Ivory Coast's increased reliance on cocoa exports has led
to a loss of two-thirds of the country's forests.

9.

The IMF bails out rich bankers, creating a moral hazard and greater instability in the
global economy
The IMF routinely pushes countries to deregulate financial systems. The removal of regulations
that might limit speculation has greatly increased capital investment in developing country
financial markets. More than $1.5 trillion crosses borders every day. Most of this capital is
invested short-term, putting countries at the whim of financial speculators. The Mexican 1995
peso crisis was partly a result of these IMF policies. When the bubble popped, the IMF and US
government stepped in to prop up interest and exchange rates, using taxpayer money to bail out
Wall Street bankers. Such bailouts encourage investors to continue making risky, speculative
bets, thereby increasing the instability of national economies. During the bailout of Asian
countries, the IMF required governments to assume the bad debts of private banks, thus making
the public pay the costs and draining yet more resources away from social programs.

10.

IMF bailouts deepen, rather then solve, economic crisis

During financial crises -- such as with Mexico in 1995 and South Korea, Indonesia, Thailand,
Brazil, and Russia in 1997 -- the IMF stepped in as the lender of last resort. Yet the IMF bailouts
in the Asian financial crisis did not stop the financial panic -- rather, the crisis deepened and
spread to more countries. The policies imposed as conditions of these loans were bad
medicine, causing layoffs in the short run and undermining development in the long run. In
South Korea, the IMF sparked a recession by raising interest rates, which led to more
bankruptcies and unemployment. Under the IMF imposed economic reforms after the peso
bailout in 1995, the number of Mexicans living in extreme poverty increased more than 50
percent and the national average minimum wage fell 20 percent.

The IMF is often depicted as a heartless moneylender which

forces poor countries to adopt bad policies and takes its pound of flesh
back while the countries sink further into poverty. Pakistans long IMF
clientship provides some insights into this accuracy. Pakistan is among
the most frequent users of IMF loans, having borrowed IMF money 12
times since 1980. However, 10 of these programmes were abandoned
midway due to Pakistans failure to fully adopt the IMFs policy
recommendations. There is debate on whether this failure was due to
Pakistans poor implementation or the IMFs poor programme design.

A 2002 evaluation by the IMFs own Independent Evaluation Office

(IEO) helps in disentangling this Gordian knot.
The report identifies several problems with Pakistans implementation,
eg, inadequate political will and mismanagement. Thus, there is little
doubt that Pakistans economic malaise today is primarily due to its
own failure to undertake appropriate economic reforms. However, the
IEO also identifies serious problems with the IMFs programme
designs, which echo the opinions of external IMF critics, eg, undue US
interference, inadequate political analysis capacities within the IMF,
inappropriate sequencing and over-ambitious agendas given the short
loan durations. For example, Pakistan was advised to reduce import
duties before it developed alternative taxation measures to cover the
ensuing tax revenue shortfalls. This increased Pakistans public debt
significantly as it had to borrow to cover the resulting fiscal deficits.
However, Pakistan must partly share the blame since it accepted the
loan conditions. True, distressed borrowers often have little choice. If
an illiterate village widow signs unfair borrowing conditions with a
landlord while her child is sick, one would largely blame the landlord.
While this analogy holds for some African countries, which lack both
the technical capacities to analyse the IMF conditions and alternative
financing options, Pakistan is no illiterate village widow. It has
sufficient technical analytical capacities and can easily generate the
additional tax and export revenues needed to eliminate the IMF loans.
Having assigned primary responsibility to the patient though, one must
also analyse the quality of advice of the IMFs doctors. Although the
IMF-IEO evaluations for several other countries have also raised similar
criticisms as in the Pakistan evaluation and have led to some limited
flexibility in the IMF loan conditions, deep-seated problems still exist.
While IMF loans are essentially aimed at resolving short-term balance-

of-payments problems, the attached conditions covering fiscal,

monetary, exchange rate, privatisation, deregulation and financial
liberalisation issues restructure the whole economy and affect its longterm development potential.
Although most developing countries are in need of fundamental reform
along the general economic principles advocated by the IMF, the
problem lies with the specifics of the IMF reform agenda. Most
successful East Asian countries have adopted these general principles
but have utilised very different specific tools which preserve long-term
development, unlike IMF-recommended tools. Instead of widespread
immediate privatisation, China initially introduced managerial
incentive systems in agriculture and industry. This boosted Chinese
productivity without the massive economic ruin that the IMF-advised
mass-scale privatisation caused in Russia in the 1990s. In fact, no
developing country sticking entirely to the IMF approaches has
achieved the type of success achieved by East Asian countries.
The problem lies in the fact that the IMF is filled almost entirely with
macro-economists who specialise in short-term macroeconomic
stabilisation issues but have little background in long-term
development issues. Moreover, IMF loans are usually short term and
given when countries are already in distress and thus ill-equipped to
afford belt-tightening or major reforms. It would be best to drop
conditions entirely from IMF loans and attach them with the funding
given by the World Bank, the Asian Development Bank and bilateral
donors, since these give longer duration funding during normal times
and also have staff with broader specialisations.
IMF AND US

Over the years, the International Monetary Fund (IMF) has

emerged as a key influence on Pakistans macroeconomic

policies. Since the late 1980s, it has been imposing various conditions
on successive governments increasingly crippled by debt servicing.
Surprisingly, one finds that almost all discussion centres on Pakistans
failure to meet targets set by the IMF and hardly any on what success
might mean for Pakistans own development.
Typical IMF conditions comprise contractionary macroeconomic
policies (fiscal and monetary), inflation targeting regimes, financial
deregulation and increased openness to international capital flows,
trade liberalisation (including reduction of tariff and non-tariff
barriers) and privatisation of public-sector enterprises. In short, an
abandonment of state-led development strategy. Given space
constraints, let us confine ourselves for the time being to analysing the
effect of IMF conditions on fiscal policy in general and government
spending in particular.
One might begin by asking what the aim of macroeconomic policy
should be in a developing country. First and foremost, it should
facilitate and never impede long-run development goals. There is
enough evidence now to suggest that it should also be counter-cyclical.
In other words, government spending should expand to fill in for a fall
in private spending during a downturn and contract during an upturn.
The IMFs argument that government spending will crowd out private
investment does not stand up to scrutiny, nor is it backed by empirical
evidence. Indeed, as research by the United Nations Conference on
Trade and Development (UNCTAD) and the United Nations
Development Programme has shown, government spending, especially
on infrastructure, health, education, technology and communication,
has actually had the effect of crowding-in private investment in a
number of countries (UNCTAD 2003, Roy and Weeks 2004). This is
especially true in times of crisis when private investors become even
more risk averse.

It is difficult to see how the IMFs recommended contractionary policies

aimed at controlling inflation and reducing the deficit are consistent
with Pakistans development goals. Indeed, a recent study by the Centre
for Economic Policy Research (CEPR) finds that in 2008-09, 31 out of
the 41 IMF agreements made with countries in response to the global
recession included pro-cyclical fiscal or monetary policy, with 15 having
both. This inclination of the IMF has been criticised by several other
economists including the Nobel Laureate Joseph Stiglitz,
who criticised the IMFs handling of the East Asian Crisis in the
following terms: All the IMF did was make East Asias recessions
deeper, longer, and harder. Slashing the development budget in
Pakistan so that the deficit could be reduced, even when the Pakistani
economy was battered by the 2010 floods, was consistent with the IMFs
general policy but countered Pakistans own development needs.
The IMFs insistence that government deficits cause inflation is both
theoretically and empirically disputed in academic circles. The reality is
far more complex; inflation comes from various sources including
escalating global commodity prices, currency devaluation, wage-price
spirals and low productivity, issues that would not be solved merely by
cutting the deficit. This does not mean that inflation is not a serious
issue in Pakistan. On the contrary, it presents a huge burden for the
common man, but this is more because of stagnant wages due to the
absence of industrialisation than due to the deficit. It is worth noting
that countries such as Japan, South Korea and Brazil grew rapidly with
higher inflation than Pakistan did. This was made socially and
politically sustainable because real wages were rising too. In Pakistan,
another IMF favourite slashing subsidies on basic commodities
only serves to enhance the pain inflicted by inflation rather than leading
to any competitiveness.

Ironically, even if we were to make deficit reduction our primary goal,

over and above any developmental goals that we may have, the IMF
dictated policies are unlikely to achieve even that. This is due to the fact
that the nature of cuts the IMF advocates stifle prospects for long-term
growth by retarding development. The IMFs policy towards Public
Sector Enterprises (PSE) is a case in point. The policy is to privatise
PSEs and use the proceeds to repay debt and prevent the PSEs from
being a further drain on the exchequer. This view continues to hold
despite the fact that competing countries have created national
champions out of their PSEs. Rather than driving them into the ground,
they have used them to develop valuable capabilities and develop key
sectors.
Countries that started behind Pakistan and have since overtaken it,
developed their human capital by investing in crucial areas including,
health and education. The IMF, on the other hand, advocates
privatisation of these while insisting on the most unproductive
expenditure of all: domestic and external debt service. According to the
Ministry of Finance, Pakistans debt service alone made up
nearly 30 per cent of the current expenditure in FY 2011-12.
That is over 1.5 times the development expenditure for the same period.
Also ignored are the effects of other IMF-backed policies on the fiscal
deficit; an influential study by John Toye (2000) shows that trade and
financial liberalisation reforms can lead to a six to seven per cent
increase in the deficit.
A pro-cyclical macroeconomic policy that is not coherently tied to
development aims is likely to make the debt situation worse by
retarding economic growth. European policymakers are
increasingly realising the futility of pursuing fiscal austerity in
order to reduce the debt burden. Pakistani policymakers, too, would do
well to consider different policy options; as long as the IMF continues to

prioritise creditors over the interests of the country as a whole, growth

will not only remain low, but the debt burden will continue to be
unsustainable.
PLZ DONT BLAME IMF FOR EVERYTHING

I write with regard to the article by Natalya Naqvi titled The IMF and
us, which appeared on August 27, 2012. Ms Naqvi has a go at
everyones favorite bugaboo: the International Monetary Fund. Her
article is interesting but I beg to differ with much of what she says.
However, since there is only so much I can write here, she is welcome to
get in touch with me via email.
Ms Naqvis first sentence that the IMF has had a key influence on the
conduct of macroeconomic policies in Pakistan leaves me bewildered.
Considering we have never implemented an IMF-financed programme
(save the one during the previous regime or so it is claimed), this
postulate has no merit at all. However, I will concede that some reforms
were undertaken as part of our agreements with the IMF in the areas of
central bank autonomy, prudential supervision, open market
operations, interest and exchange rate flexibility, and privatisation
(even if that was handled by financing from the World Bank). In other
areas, and especially on the fiscal side the mother of all evils
Pakistan has implemented absolutely nothing, despite IMF
conditionality. Indeed, if anything, we keep regressing, adding new
exemptions, concessions and amnesty schemes, so that we have the
most regressive, distortionary, dysfunctional, fragmented and corrupt
fiscal system in the world.
So I would put it to the writer that the IMFs imprint on our
macroeconomic policies has been marginal and fleeting at best. It is for
a very good reason that Pakistan has been given the undistinguished
title of a country characterised by start-stop adjustment in the IMF.

Actually, I prefer the description start-stop-roll back. As soon as we

have abandoned (another) programme, we roll back any reforms that
we may have implemented. Removing exemptions and concessions and
then promptly restoring them is a case in point.
Ms Naqvi talks of counter-cyclical fiscal policy and how the IMF simply
does not get it. This point has been mentioned by others. Indeed, in the
case of one specific person, he said that Pakistan should have rejected
the IMFs recommendations to tighten both fiscal and monetary policies
in the context of the 2008 stand-by arrangement because it was bad for
growth. I say to both Ms Naqvi and the gentleman that their
recollection of the conditions prevailing at the time is a little blurred.
The facts were that, prior to the engagement with the IMF in 2008, the
Pakistan economy was heading off a cliff: growth had slowed, inflation
was accelerating, there was massive capital flight, asset price bubbles
had burst, the exchange rate was in free-fall and our foreign exchange
reserves were disappearing at an astonishing speed.
Given this grim picture, does Ms Naqvi seriously think that a countercyclical fiscal stance (and, as a sweetener, a dash of monetary easing as
well), would have been the right policy prescription? Or would such an
injection of stimulus have done no more than hasten the plunge off the
cliff? Would this be the right policy prescription again today with an
FY12 budget deficit clocking in at 8.5 per cent of the GDP, inflation in
double-digits and our foreign exchange reserves under immense
downward pressure?
It is true that there were countries that had built-up fiscal buffers
prior to the global financial crisis of 2008 and had room to manoeuver.
China and India come to mind. Both countries had the fiscal space for
discretionary policy action and were able to safeguard their growth and
development objectives. Pakistan did not. The Pakistan

economy was over-stretched, overheating and in peril. It had no

choice but to undertake drastic adjustment measures to halt the
downward spiral.
Ms Naqvi is harsh on IMF-imposed cuts in development. But her
angst is misdirected. Based on experience, the prerogative of where and
how much to cut on the spending side is that of the authorities, not the
IMF. They certainly make suggestions and typically focus on noninterest current spending. It will also do well to note that the World
Bank and the Asian Development Bank are at the negotiating
table to ensure, inter alia, that development spending is not unduly
compressed for the sake of fiscal adjustment. Cutting development
spending, or delaying the release of funds to projects to meet fiscal
targets is an entirely home-grown Pakistani initiative. Yet, the irony is
that despite across-the-board cuts that are disruptive and destructive,
we still failed to meet fiscal deficit targets!
Ms Naqvi then has a predictable dig at another IMF favourite, as she
calls it, of cutting subsidies. The IMF is not against subsidies. It is,
however, very much against open-ended, untargeted and burdensome
subsidies that benefit primarily the rich. Most level-headed economists
would be too. On her additional point about PSEs (public sector
enterprises) becoming national champions, I would ask her how she
would rate our national champions of today: PIA, the railways and
the Pakistan Steel Mills? Should we just hang on to these dying
national champions?
Finally, if the writer thinks that the persistence of double-digit inflation
in Pakistan has very little to do with fiscal slippages (and how they are
financed), and everything to do with domestic and external shocks, I
recall a story told to me about a meeting of the Economic Committee of
the Cabinet (ECC) which Ms Benazir Bhutto chaired. She was being

assured that inflation was being caused by the price of onions and
potatos, and had nothing to do with the stance of macroeconomic
policies. With economic advice like that, no wonder her government
was toppled twice.

IMF gives clean chit for release of $1.1

billion to Pakistan
The International Monetary Fund (IMF) says its mission held productive discussions
with government and central bank officials on Pakistans economic performance under
the EFF program and is encouraged by the overall progress in strengthening
macroeconomic stability and output growth.
In a statement after the talks with Finance Minister Senator Ishaq Dar and senior
Pakistani officials, the IMF said the mission reached staff-level understandings with the
authorities on a Memorandum of Economic and Financial Policies which, upon
managements approval, will be considered by the IMF Executive Board in December to
conclude the fourth and fifth reviews. Upon the Boards approval, SDR 720 million
(about US$1.1 billion) will be made available to Pakistan.
The International Monetary Fund (IMF) staff mission, led by Mr. Jeffrey Franks, visited
Dubai from October 29-November 8, 2014 to conduct discussions on the fourth and fifth
reviews of Pakistans SDR 4.393 billion (about US$6.6 billion) Extended Fund Facility
(EFF), approved by the IMFs Executive Board on September 4, 2013. The mission met
with Finance Minister Ishaq Dar, State Bank of Pakistan (SBP) Governor Ashraf Wathra,
and other senior officials.
The IMF statement said Pakistans economic indicators are improving, with growth
expected to reach 4.3 percent in fiscal year (FY) 2014/2015, inflation on a downward
trajectory, and credit to the private sector expanding at a robust pace. The external
current account deficit was somewhat higher than expected over the past two quarters,
with lower goods exports and higher imports partially compensated by strong
remittances performance. The rapid build-up of gross reserves which rose from US$5.4
billion at the end of March to US$9.1 billion by the end of June 2014 stalled thereafter
due to delays in divestment and Sukuk transactions and the effects of political

uncertainty on capital flows. However, going forward reserves are expected to surpass
3-months of imports by the end of FY 2014/2015.
It said despite some difficulties, the authorities reform program remains broadly on
track, with the government and SBP meeting most quantitative performance criteria for
end of June and end of September 2014. The authorities are committed to taking the
necessary corrective actions for missed targets, and with these actions, they will be ontrack to meet their objectives for end-December.
The mission was pleased that the government met the indicative targets on social
transfers to the poor under the Benazir Income Support Program (BISP). Staff
welcomed the governments efforts to expand support to the poor through the BISP to
4.8 million eligible families by the end of this year.
The mission was encouraged by the strong fiscal performance achieved during FY
2013/2014, and by the authorities determination to further lower the deficit to 4.8
percent of GDP in the current fiscal year. Progress is being made in broadening the tax
base by eliminating tax concessions and exemptions granted through Statutory
Regulatory Orders (SROs), strengthening anti-money laundering legislation, and
implementing tax administration reforms to enhance compliance and enforcement.
However, continued efforts are needed to improve the tax-to-GDP ratio and create
resources to finance much-needed spending on investment and social development,
while making the taxation system more efficient, transparent and equitable.
The SBP remains committed to a prudent monetary policy stance to assure attainment
of its inflation and reserves accumulation objectives. While legislation to enhance the
SBP autonomy is still in the Parliament, internal reforms are underway to enhance the
central banks effectiveness. Banking sector performance remains strong due to
improved earnings and solvency.
The IMF mission urged the authorities to deepen their structural reform agenda in order
to improve Pakistans competitiveness in global markets. In the energy sector, declining
world oil prices and the expected start of imports of liquefied natural gas provide an
opportunity to improve energy supply and continue tariff reforms while containing price
increases to consumers. High priority needs to be placed on enhancing governance and
efficiency of energy firms, and in strengthening the capacity of regulatory bodies. The

mission supports the governments strategic private partnership agenda and

encourages stronger reform efforts in improving the business climate.

What are the various disadvantages of

IMF?
Disadvantages of IMF
Though IMF funds are helpful in many ways, there are certain areas where the IMF
fails to address the member nations. The disadvantages of IMF are discussed
briefly below

1. Passive approach by IMF

The IMF has been passive in its approach and not been effective in
promoting

exchange

stability

and

maintaining

orderly

exchange

arrangements. This is considered as one of the major disadvantages of IMF.

The original fund agreement permits fluctuations of exchange rate within
limits. It can fluctuate within a range of one per cent above or one per cent
below the official price. This is called adjustable peg system. The exchange
rate of currency was fixed in terms of golden dollar. Over years, U.S gold
stock declined and U.S balance of payments suffered. It led to the collapse
of Bretton Wood System in August 1971 when U.S refused convertibility of
dollars

into

currency. Member

countries were

also

following

diverse

exchange policies. These events simply prove that IMF was not able to
maintain

uniform

international

exchange

system

which

is

big

disadvantage.

2. Unsound policy for fixation of exchange

rate by IMF
The unsound policy for fixation of exchange rate is one of the disadvantages
of IMF. Some of the provisions of IMF are unsound. For example, devaluation
is justified when international inflation causes fundamental disequilibrium. If
inflation persists, devaluation of currency cannot be effective. Appropriate

adjustments are desired only through internal economic policy changes.

Further, member countries have changed the par value of currencies with
impunity. In 1949, about 23 countries devalued their currencies in total
disregard to the IMF rule. The IMF could not contain the situation and
remained ineffective.

3.
Non-removal
restrictions by IMF

of

foreign

exchange

One of the important objectives of the IMF has been to remove foreign
exchange restrictions which retard the growth of global trade. Still, member
countries follow unhealthy practices of exchange controls and multiple
exchange rates. Consequently, the international business is adversely
affected.

4. Inadequate resources
The resources at the disposal of the IMF are not adequate to cater to the
needs of member countries which is a setback of IMF. Uncertain capital
inflows into the international financial system necessitates the strengthening
of the fund resources. The resources of the fund may be enhanced by raising
the quota. But developed countries are reluctant to increase the quota of the
fund.

5. High interest rates by IMF

High interest rates charged on its advances are considered one of the major
disadvantages of IMF. So, the debt servicing for the less developed countries
is difficult. For example, since 1982 the interest charged for loans out of the
ordinary resources of the fund is 6.6 per cent. The interest rates payable on
the loans made out of borrowed funds is as high as 14.56 per cent. So,
developing countries experience a lot of difficulties in redeeming their loans
borrowed from the IMF.

6. Stringent conditions by IMF is one of its

disadvantages
The stringent conditions imposed by IMF on its member nations are one of
the big disadvantages of IMF. The IMF is criticized for its strict conditional
clauses while extending credit to member countries. Till 1970, the
conditional clauses attached to loans were not stiff. The IMF insisted that the
borrowing countries reduce public expenditure in order to tide over BOP
deficits. But after 1970, the IMF imposed stiff conditional clauses. Among
them are periodic assessment of the performance of the borrowing countries
with adjustment programmes, increases in productivity, improvement in
resource

allocation,

reduction

in

trade

barrier, strengthening

of

the

collaboration of the borrowing country with the World Bank, etc.

Conditional clauses imposed by IMF:

The conditional clauses imposed by IMF after 1995 are pretty stiff which are
big disadvantages of IMF. To state a few:

liberalizing trade by removing exchange and import controls;

eliminating all subsidies so that the exporters are not in an

advantageous position in relation to other trading countries; and

treating foreign lenders on an equal footing with domestic lenders. The
fund maintains a close watch on the activities of the borrowing country
related to monetary, fiscal, trade and tariff programmes. IMFs
intervention in the domestic economic matters of the borrowing countries
places them in a difficult position.

7. Failure to play an effective role in

international monetary matters is one of the
disadvantages of IMF:

One of the disadvantages of IMF is that it has failed to play an effective role
in international monetary matters. For example, it does not provide facilities
for short term credit arrangements. This has lead to the swap arrangements

among the central banks of the Group 10 (Group of 10 leading industrialized

countries). This arrangement provides for the exchange of each others
currency and also short term credit to correct temporary equilibrium
in balance of payments. The swap facility paved way to the growth of Eurocurrency market. This has undermined the role of IM as a central monetary
institution.

8. Failure to tackle East Asian currency crisis

is one of the disadvantages of IMF:
The failure to tackle East Asian currency crisis is considered one of the
disadvantages of IMF. In July 1997, the occurrence of the East Asian
currency crisis affected East Asian countries like Thailand, Malaysia,
Philippines, South Korea, Singapore, Hong Kong and Indonesia. Depreciation
of their currencies led to fall in the prices in the stock markets. The
functioning of the financial institutions and flow of foreign capital were badly
affected. In this context, the IMF advocated the East Asian countries to
adopt high interest rates and cut public expenditure. But this advice proved
to be faulty. As a result, in 1998 the whole East Asian region witnessed
widespread recession, unemployment and low growth rates. The IMF was
expected to follow a debt rescheduling plan. But this scheme was not
introduced at the insistence of the United States and other advanced
countries. Milton Friedman blamed the IMF for global crisis.

9. Domination by rich countries is one of the

disadvantages of IMF:
The domination by rich countries is another major disadvantages of IMF.
Though the majority of the members of the IMF are from the less developed
countries of Asia, Africa and South Africa, the IMF is dominated by the rich
countries like USA. It is said that the policies and operations of the IMF are

in favor of rich countries. At one stage, the IMF was regarded as rich
countries club. These rich countries are partial towards the issues faced by
poor countries.
As reported in The Hindu (May 2, 2007), Venezuelas president Hugo Chavez
announced his countrys decision to leave IMF and the World Bank. He
accused them of exploiting small countries. He branded the IMF and the
Wold Bank as mechanisms of American imperialism. Moreover, the
OPEC nations leader Mr. Chavez said: we are going to withdraw. and let
them pay back what they took from us. He issued an order to his Finance
Minister to begin proceedings to withdraw Venezuela from both IMF and
World Bank.

Though IMF funds are helpful in many ways, there are certain areas where
the IMF fails to address the member nations. The disadvantages of
IMF are discussed briefly below.

1.

approach by IMF

Passive

The IMF has been passive in its approach and not been effective in
promoting

exchange

stability

and

maintaining

orderly

exchange

arrangements. This is considered as one of the major disadvantages of IMF.

The original fund agreement permits fluctuations of exchange rate within
limits. It can fluctuate within a range of one per cent above or one per cent
below the official price. This is called adjustable peg system. The exchange
rate of currency was fixed in terms of golden dollar. Over years, U.S gold
stock declined and U.S balance of payments suffered. It led to the collapse
of Bretton Wood System in August 1971 when U.S refused convertibility of
dollars

into

currency. Member

countries were

also

following

diverse

exchange policies. These events simply prove that IMF was not able to
maintain

uniform

international

exchange

system

which

is

big

disadvantage.

2. Unsound policy for fixation of exchange

rate by IMF
The unsound policy for fixation of exchange rate is one of the disadvantages
of IMF. Some of the provisions of IMF are unsound. For example, devaluation
is justified when international inflation causes fundamental disequilibrium. If
inflation persists, devaluation of currency cannot be effective. Appropriate

adjustments are desired only through internal economic policy changes.

Further, member countries have changed the par value of currencies with
impunity. In 1949, about 23 countries devalued their currencies in total
disregard to the IMF rule. The IMF could not contain the situation and
remained ineffective.

3.
Non-removal
restrictions by IMF

of

foreign

exchange

One of the important objectives of the IMF has been to remove foreign
exchange restrictions which retard the growth of global trade. Still, member
countries follow unhealthy practices of exchange controls and multiple
exchange rates. Consequently, the international business is adversely
affected.

4. Inadequate resources
The resources at the disposal of the IMF are not adequate to cater to the
needs of member countries which is a setback of IMF. Uncertain capital
inflows into the international financial system necessitates the strengthening
of the fund resources. The resources of the fund may be enhanced by raising
the quota. But developed countries are reluctant to increase the quota of the
fund.

5. High interest rates by IMF

High interest rates charged on its advances are considered one of the major
disadvantages of IMF. So, the debt servicing for the less developed countries
is difficult. For example, since 1982 the interest charged for loans out of the
ordinary resources of the fund is 6.6 per cent. The interest rates payable on
the loans made out of borrowed funds is as high as 14.56 per cent. So,
developing countries experience a lot of difficulties in redeeming their loans
borrowed from the IMF.

6. Stringent conditions by IMF is one of its

disadvantages
The stringent conditions imposed by IMF on its member nations are one of
the big disadvantages of IMF. The IMF is criticized for its strict conditional
clauses while extending credit to member countries. Till 1970, the
conditional clauses attached to loans were not stiff. The IMF insisted that the
borrowing countries reduce public expenditure in order to tide over BOP
deficits. But after 1970, the IMF imposed stiff conditional clauses. Among
them are periodic assessment of the performance of the borrowing countries
with adjustment programmes, increases in productivity, improvement in
resource

allocation,

reduction

in

trade

barrier, strengthening

of

the

collaboration of the borrowing country with the World Bank, etc.

Conditional clauses imposed by IMF:

The conditional clauses imposed by IMF after 1995 are pretty stiff which are
big disadvantages of IMF. To state a few:

liberalizing trade by removing exchange and import controls;

eliminating all subsidies so that the exporters are not in an

advantageous position in relation to other trading countries; and

treating foreign lenders on an equal footing with domestic lenders. The
fund maintains a close watch on the activities of the borrowing country
related to monetary, fiscal, trade and tariff programmes. IMFs
intervention in the domestic economic matters of the borrowing countries
places them in a difficult position.

7. Failure to play an effective role in

international monetary matters is one of the
disadvantages of IMF:

One of the disadvantages of IMF is that it has failed to play an effective role
in international monetary matters. For example, it does not provide facilities
for short term credit arrangements. This has lead to the swap arrangements

among the central banks of the Group 10 (Group of 10 leading industrialized

countries). This arrangement provides for the exchange of each others
currency and also short term credit to correct temporary equilibrium
in balance of payments. The swap facility paved way to the growth of Eurocurrency market. This has undermined the role of IM as a central monetary
institution.

8. Failure to tackle East Asian currency crisis

is one of the disadvantages of IMF:
The failure to tackle East Asian currency crisis is considered one of the
disadvantages of IMF. In July 1997, the occurrence of the East Asian
currency crisis affected East Asian countries like Thailand, Malaysia,
Philippines, South Korea, Singapore, Hong Kong and Indonesia. Depreciation
of their currencies led to fall in the prices in the stock markets. The
functioning of the financial institutions and flow of foreign capital were badly
affected. In this context, the IMF advocated the East Asian countries to
adopt high interest rates and cut public expenditure. But this advice proved
to be faulty. As a result, in 1998 the whole East Asian region witnessed
widespread recession, unemployment and low growth rates. The IMF was
expected to follow a debt rescheduling plan. But this scheme was not
introduced at the insistence of the United States and other advanced
countries. Milton Friedman blamed the IMF for global crisis.

9. Domination by rich countries is one of the

disadvantages of IMF:
The domination by rich countries is another major disadvantages of IMF.
Though the majority of the members of the IMF are from the less developed
countries of Asia, Africa and South Africa, the IMF is dominated by the rich
countries like USA. It is said that the policies and operations of the IMF are

in favor of rich countries. At one stage, the IMF was regarded as rich
countries club. These rich countries are partial towards the issues faced by
poor countries.
As reported in The Hindu (May 2, 2007), Venezuelas president Hugo Chavez
announced his countrys decision to leave IMF and the World Bank. He
accused them of exploiting small countries. He branded the IMF and the
Wold Bank as mechanisms of American imperialism. Moreover, the
OPEC nations leader Mr. Chavez said: we are going to withdraw. and let
them pay back what they took from us. He issued an order to his Finance
Minister to begin proceedings to withdraw Venezuela from both IMF and
World Bank.

Criticism of IMF
Criticisms of IMF include:
1. Conditions of Loans
On giving loans to countries, the IMF make the loan conditional on the implementation
of certain economic policies. These policies tend to involve:

Reducing government borrowing Higher taxes and lower spending

Higher interest rates to stabilise the currency.

Allow failing firms to go bankrupt.

Structural adjustment. Privatisation, deregulation, reducing corruption and

bureaucracy.
The problem is that these policies of structural adjustment and macro economic
intervention make the situation worse.

For example, in the Asian crisis of 1997, many countries such as Indonesia,
Malaysia and Thailand were required by IMF to pursue tight monetary policy (higher

interest rates) and tight fiscal policy to reduce the budget deficit and strengthen
exchange rates. However, these policies caused a minor slowdown to turn into a serious
recession with mass unemployment.

In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a
decline in investment in public services which arguably damaged the economy.
2. Exchange rate reforms. When the IMF intervened in Kenya in the 1990s, they made
the Central bank remove controls over flows of capital. The consensus was that this
decision made it easier for corrupt politicians to transfer money out of the economy
(known as the Goldenberg scandal, BBC link). Critics argue this is another example of
how the IMF failed to understand the dynamics of the country that they were dealing
with insisting on blanket reforms.
The economist Joseph Stiglitz has criticised the more monetarist approach of the IMF in
recent years. He argues it is failing to take the best policy to improve the welfare of
developing countries saying the IMF was not participating in a conspiracy, but it was
reflecting the interests and ideology of the Western financial community.
3. Devaluations In earlier days, the IMF have been criticised for allowing inflationary
devaluations.
4. Neo Liberal Criticisms There is also criticism of neo-liberal policies such as
privatisation. Arguably these free market policies were not always suitable for the
situation of the country. For example, privatisation can create lead to the creation of
private monopolies who exploit consumers.
5. Free market criticisms of IMF
As well as being criticised for implementing free market reforms Other criticise the IMF
for being too interventionist. Believers in free markets argue that it is better to let capital
markets operate without attempts at intervention. They argue attempts to influence
exchange rates only make things worse it is better to allow currencies to reach their
market level. [criticism of IMF]

There is also a criticism that bailout countries with large debt creates moral
hazard. Because of the possibility of getting bailed out it encourages people to borrow
more.

6. Lack of transparency and involvement

The IMF have been criticised for imposing policy with little or no consultation with
affected countries.
Jeffrey Sachs, the head of the Harvard Institute for International Development said:
In Korea the IMF insisted that all presidential candidates immediately endorse an
agreement which they had no part in drafting or negotiating, and no time to understand.
The situation is out of handIt defies logic to believe the small group of 1,000
economists on 19th Street in Washington should dictate the economic conditions of life
to 75 developing countries with around 1.4 billion people.source
7. Supporting military dictatorships
The IMF have been criticised for supporting military dictatorships in Brazil and
Argentina, such as Castello Branco in 1960s received IMF funds denied to other
countries.

Response to criticism of IMF

1. Crisis always lead to some difficulties
Because the IMF deal with economic crisis, whatever policy they offer, there is likely to
be difficulties. It is not possible to deal with a balance of payments without some painful
readjustment.
2. IMF have had some successes
The Failures of the IMF tend to be widely publicised. But, its successes less so. Also
criticism tends to focus on short term problems and ignores longer term view
3. Confidence
The fact there is a lender of last resort provides an important confidence boost for
investors. This is important during current financial turmoil
4. Countries are not obliged to take an IMF loan
It is countries who approach the IMF for a loan. The fact so many take loans suggest
there must be at least some benefits of the IMF.

5. IMF easy target

Sometimes countries may want to undertake painful short term adjustment but there is a
lack of political will. An IMF intervention enables the government to secure a loan and
then pass the blame on to the IMF for the difficulties.