Multilateral trade agreements are agreements on trade performed between many countries at one time. It is usually very difficult to negotiate but once they go through, they form a very powerful base. Once a multilateral trade has been signed, all parties that have signed the agreement are treated equally (Choueiri, 2005). This is usually a very big advantage especially to the poorer countries which are usually less competitive in nature. There are several multilateral trade agreements which have been formed. In the recent past, Doha round table multilateral trade agreements is one of the biggest agreements formed which were between all the 149 World trade organization members. (Daveri et al. 2005)
World Trade Organisation
The headquarters of World Trade Organisation is situated in Geneva Switzerland; at the Centre William Rappard. This is an organisation which is charged with a mandate of supervising and liberalising international trade. In 1995 January, WTO officially started. It effectively replaced GATT -- the General Agreement on Tariffs and trade-- (Choueiri, 2005). The world trade organisation majors on the trade regulations between its member countries. It also does provide a structure for trade agreements negotiation and formalization. The WTO has 153 members. Governing the WTO is a ministerial conference held in every two years. In addition, a general council is responsible for implementing the policy decisions of the conference besides a director general whose work is to oversee the organisation’s operations. The ministerial conference appoints the director general (Steinberg, 2002).
IMF (The International Monetary Fund)
The IMF (International Monetary Fund) is body that operates between governments. Its main duty is to oversee the worldwide financial system. It performs this by following its member countries’ macroeconomic policies. Its headquarter is situated in the United States; Washington D.C. It was started in 1944 and originally had 45 members. It officially came into existence in December 1948 (Choueiri, 2005). Its main goal was to not only stabilise the exchange rates but it could also assist in reconstructing the world’s system of international payment. The member countries contribute to a pool whereby they could later borrow from. The main objectives of the IMF are to stabilise exchange rates internationally and facilitate the developments in the member countries. This is achieved through the countries’ economic policies liberalization (Sullivan and Sheffrin, 2003). The organisation also offers loans with divergent conditions. The loans are usually offered to poverty-stricken countries. The affairs and development of the member countries are relatively highly influenced by the IMF. This has however, been met with criticisms from different parts of the globe (Davis, 2010).
The IMF proposed programs which helped in creating cutbacks in social service spending and in cutting fiscal deficits. These initiatives/ proposals have been criticized for having set back the third world countries (Stiglitz, 2002).These are some of the drawbacks of IMF however, to some extent they worked and helped in achieving some development programmes in the developing countries. A few of the IMF’s benefits include the recent initiative of lending money to countries during the recent financial crisis (Escobar, 1988).
Initially when started the IMF managed to achieve its objectives by helping to stabilize the economic system of the world. Currently 187 countries constitute its members and it continues to work to improve the economies of its members (Manuela, 2010). It works to promote worldwide monetary cooperation, safe financial stability, facilitate global trade, support high employment opportunities and economic growth sustainability and reduce poverty (Escobar, 1988).
THE GOVERNMENT OF IMF
A board of governors governs the IMF. The board is compost of The Finance Ministers or the Heads of Central Banks of member countries. In the UK, the Chancellor of the Exchequer is a member of the board. The board conducts an annual meeting once every year (Adam, 2010). The Executive Board is charged with the responsibility of day-to-day running of the IMF. When a decision is to be made, each country has a number of votes which is directly proportional to the size of its contribution. The USA is the biggest contributor and has the highest number of votes. Poor countries that have the least amount of contributions have very little say in the decisions of the IMF (Adam, 2010).
Reasons for the establishment the IMF
Some of the reasons for establishing the IMF were to:
- Get rid of any catastrophic repetitions of the Great Depression
- Assist in worldwide financial strength by stabilizing existing exchange rates
- Decrease poverty to trigger economic growth
- Boost worldwide trade and opportunities for employment
- Main countries in the IMF
- The IMF has USA, China, Germany, Japan, UK, and France as its main member countries. The US enjoys the highest voting power (Arnott, 2009).
Responsibilities of the IMF
Some of the IMF’s responsibilities are to:
- promote global monetary cooperation
- facilitate the expansion and balanced growth of worldwide trade
- promote the exchange stability
- make its resources accessible to members who experience difficulties of balance of payments
- support in establishing of a multilateral payment systems
The actual responsibility of the IMF is to ensure the stability of the worldwide monetary financial system. This helps in promoting the economic stability and prevents crises. They also help in promoting growth and in the process alleviate poverty. The main functions are to offer lending, inspection, and technological assistance to meet its laid objectives (Barnett, 2004).
This involves having partnership between the IMF and the member nations. The IMF then asses the economic situations of the member countries and offer a comprehensive financial and economic advice to the countries involved in the program (Arnott, 2009).
The IMF achieves this by offering technical financial assistance and advice in areas like banking and in the formulation of economic policies and assistance in the formulation of exchange rate policies. The IMF also assists the member countries to fight threats posed by money laundering or economic activities (Arnott, 2009).
In this objective, the needy member countries are provided with financial assistance. The IMF also helps its members to get financial assistance from the Word Bank (Arnott, 2009).
Achievements of IMF
IMF has been on the forefront to establish its roots in different countries across the globe. Several countries have benefited from the efforts which have been put forward by the IMF in order to meet its objectives. Most of the countries which have benefited from the IMF are developing countries which have been assisted to come out of the economic downfall to a level that they can now sustain themselves. Some of the countries which have benefited from the initiatives of the IMF include: Poland, Slovak Republic, Czech Republic and Hungary (Patrick and Larry, 2009).
The IMF helped Poland in triggering its economic transition. This transition included macro-economic management, institution building, and liberalization. The IMF helped in formulating a three pillar policy program that could help Poland contain public debt. This is attained by expenditure rationalization to strengthen Institutional and structural conditions. This could also help the country to realize the full benefits of the European Union Membership (Arnott, 2009). This initiative was one of the main achievements portrayed by IMF in Europe that helped Poland recover from its economic problems soon after the elections. They helped Poland in rebuilding its institutions and in the macro-economic management (Stiglitz, 2002).
Apart from organizing financial assistance to the member states of the IMF, the IMF is also charged with the responsibility of ensuring that it helps its member states fight terrorism and money laundering threats. In the case of the Czech Republic, a major source of illegal proceeds into the country is money laundering. The IMF initiative has helped quell this vice to a great extent (Botman etb al. 2008). The AML regime was brought into compliance with both the European and the International Standards. This was enforced through the assistance of the IMF and on February 15th 1996, anti money laundering Act was enacted which prevented the legitimization of proceeds from criminal activities. The IMF has also helped in giving funds to the Czech republic which has enabled it lay down measures which can be used to fight terrorism within its borders. (Botman and Anita, 2008).
IMF has had a major influence in the operation of the Slovak Republic by ensuring that the country reformed its tax structure to ensure smooth economic operation (Choueiri, 2005).
The IMF achieved these objectives through:
i. recommending a Tax System Design
The IMF recommended a tax system design that had the following features:
a. Heavy dependence on broadly based sales tax for instance VAT. This was achieved preferably by use of minimal exemptions and a single rate. The system also recommended excise duty levied on tobacco, petroleum products, and alcohol some few luxurious items (Disney, 2000).
b. Reducing reliance on export duties and other taxes which inhibit international competition.
c. Reducing importation taxes as much as possible.
d. Using an administrative simple taxation system which has limited number of deductions (Choueiri, 2005).
ii. single tax payer
iii. married tax payer
iv. labor income
v. net income
vi. tax structure
The focus which was laid on the tax and welfare system of the Slovak Republic had two main motivations which ensured strong motivations towards work. The introduction of the flat rate system which was initiated by the IMF has been successful and this can be seen as other neighbouring countries have also followed suit (Ivanova et al. 2005).
Around the world, several economies are on the event of collapsing. Some of the countries are currently laying their hopes on IMF to save them from collapsing. The IMF has the capabilities of playing a major role in trying to avoid the financial catastrophe and restoring confidence to the battered worldwide economy (Daveri, 2000). However, despite many countries laying their hopes on IMF, some critics see IMF as the main problem causer especially in the economic reforms. (Moffitt et al. 1998).
HUNGARY SECURED $25 BILLION RESCUE FROM IMF
Hungary was the first member of the European Union to agree an emergency rescue package worth $25 billion from the IMF so as to help its economy during the financial crisis it was undergoing. The IMF loan was to be disbursed over a period of 17 months. This agreement was the chief global rescue package offered to an up-and-coming market economy during the existing financial crisis that has been experienced by several countries across the globe. Some other countries which have benefited from the IMF funding during the global financial crisis include Iceland and Ukraine which got $2.1billion and $16.5 billion respectively (Ivanova et al. 2005). Hungary suffered a lot as its banking system relied so much on foreign investors. During the start of the international financial crisis, most of the investors who were from developing countries started to pull back. According to the Director of IMF, Dominique Strauss, “The Hungarian authorities have developed a complete policy package that will strengthen the economies near term stability and hence advance its long term growth potential.” (Manuela, 2010).
Each country that is a member of the IMF is allocated a quota depending on the size of its world economy. The funding received by Hungary was more than ten times the quota allocated to Hungary. The package offered to Hungary also includes measures that can be used to sustain adequate local and liquidity of the foreign currency. This financial assistance could help the country in the execution of reforms in areas such as the financial segment, fiscal management and the social reform sections. The measures would in turn help support the country’s longer-term stabilization and economic restructuring (Robert, 2010).
As much as there is laudability in the objectives of IMF, the intervention of IMF has negative effects on the beneficiary country’s economic vigor in the long run. From research, countries that sign the IMF Agreements negatively attract direct foreign investments as opposed to their counterparts outside the IMF Agreements. All the countries that have benefited from the IMF usually have poor economic growth in the long run, balance of payment problems, and problems in the current balance. The IMF intervention and support is perceived as a negative development by the international capital markets. All the countries that have resorted to IMF’s support usually pay the greatest price. Debt makes it possible for one to have access to the raw materials of other people on the highly cheap terms. Most of the countries that’ve got assistance from IMF are partly poor because of the IMF’s policies, as the dependence on the developed nations shoot uncontrollably.
Advantages of the IMF
IMF has a series of advantages that it has provided to the member countries. Some of the advantages include:
i. Lender to member countries: IMF is a lender especially to countries which are experiencing crisis to balance of payments. IMF has acted as a last resort to such countries and has provided crucial loans to help them stabilize thus preventing their collapse (Robert, 2010).
ii. IMF can also help in imposing some forms of indispensable reforms on an economy. Such reforms include privatization, economic responsibility, controlling Money supply and dealing with corruption. Some of the policies imposed by IMF can be seen as short-term pain but in the long run they prevent all the impending crisis and hence enhance long-standing development (Robert, 2010).
iii. They provide for an avenue of external assessments which helps in pushing governments to implement popular and democratic ideas in their operations.
iv. Helps in promoting international monetary cooperation and enhancing global financial stability (Robert, 2010).
v. Provides help to countries which are in debt particularly those countries with problems of balance of payment.
vi. Encourages economic growth as it imposes goals on to the countries that it is providing assistance to thus making them improve in the way they perform their development initiatives.
vii. Helps in giving financial advice to the member countries which help them in running their economies.
Disadvantages of the IMF
Despite IMF being an avenue for providing assistance to the member states, they have been met with a series of controversies. Some of the disadvantages include:
i. The perspectives of the G8 industrialized nations majorly influence the ideas imposed by IMF. IMF insists on policies that may have long-term effects to the economies of the developing countries. These policies only reflect the ideas of the members of the developed countries and rarely take into account the opinions of the countries that the policies are imposed on (Arnott, 2009).
ii. The rich countries make the decisions on the loans which are given to the poor countries so they have very little to say. Consequently this has a very negative impact especially to the poor countries since some of the conditions attached to the loans offered are very harsh yet they cannot influence the decision. This makes the developed countries to use the poor countries as avenues of getting richer yet the poor countries have no say to object or make any form of contribution. Some of the conditions imposed by the developed countries make the poor countries even poorer (Arnott, 2009).
iii. There are no financial advice given by the IMF and this has resulted into countries following IMF suffer. Some of the countries cannot formulate mechanisms of managing the funds given to them and since no financial advice is given to them, they end up suffering as a result of mismanaging the funds allocated to them (Arnott, 2009).
iv. The IMF opens markets for foreign goods especially to the poor countries which are members of the organization. This results into unfair competition of the goods and services from the foreign countries. This aspect later result into a decrement in the livelihoods of the people in poorer countries who are member s of the IMF (Arnott, 2009).
v. One size fits all: This is a problem caused by the IMF trying to solve all problems arising using the same kinds of solutions. This has however not been very effective since different problems have different origins which in turn should have different solutions. Some of the areas where they implemented this policy are the implementation of privatization which worked well for some countries but never worked for others (Arnott, 2009).
vi. Decline in Public Service: This was caused by the IMF’s policy on reducing public spending. This later resulted into a reduction in public services. Most of the countries which received funds from the IMF were forced to implement spending cuts and cost sharing. This resulted into problems in the health sectors of these countries and other sectors of the public economy (Hroboň et al. 2005).
vii. Take away political autonomy: The IMF took over the ability of countries to make national decisions and instead the countries had to follow the dictatorial instructions from IMF in order to continue receiving funding. The instructions were to be implemented whether good or bad. (Botman et al. 2008).
viii. Moral hazards: The intervention of IMF into the affairs of the member countries resulted into moral hazards. The countries who are members of the IMF especially the least developed ones are not allowed to take personal responsibility (Hroboň et al. 2005).
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