The IMF was conceived in July 1944 at the United Nations Bretton Woods Conference in New Hampshire, United States. The 44 countries in attendance sought to build a framework for international economic cooperation and avoid repeating the ‘competitive currency devaluations’ that contributed to the Great Depression of the 1930s. Competitive devaluation is a theoretical scenario in which one nation matches an abrupt devaluation in another country’s currency, often in a tit-for-tat manner. In other words, one nation is matched by a currency devaluation of another, which in turn devalues their currency in response. The IMF’s primary mission is to ensure the stability of the international monetary system: the system of exchange rates and international payments that enables countries and their citizens to transact with each other freely.
In order to maintain stability and prevent crises in the international monetary system, the IMF monitors member country policies as well as national, regional, and global economic and financial developments through a formal system known as surveillance. The IMF provides advice to member countries and promotes policies designed to foster economic stability, reduce vulnerability to economic and financial crises, and raise living standards among member nations. It also provides periodic assessments of global prospects in its World Economic Outlook, of financial markets in its Global Financial Stability Report, of public finance developments in its Fiscal Monitor, and of external positions of the largest economies in its External Sector Report, in addition to a series of regional economic outlooks. It provides zero interest rate for loans given to the Least developed Nations (LDC).
Such interventions are arbitrary and many nations are losing interest in getting loans from IMF as some nations through their consultants exert pressure to toe the line of the donor nations. The components used mainly in the project are always bought from the donor nations and project consultants get hefty salaries and perks.
Why do many countries prefer loans from China and not the World Bank or IMF even if the Chinese loans are often more expensive?
A true story from Indonesia, which is not well known in the world killed the development of airplane which would have brought the cost of planes down. America did the same to the EU, when the Airbus Consortia in EU was setup and this gave a tough competition both to Boeing and McDonnel Douglas or MD Aircrafts.
When Indonesia got loan from IMF in the year 1997, the Indonesian Government was forced to terminate this project as one of pre requirements in order to get the loan from IMF.
The planes were N250s, which were designed in Indonesia. The first ever plane produced by the Indonesian airplane manufacturer, PT IPTN was ready to soar in the sky. It was in the year 1997 N250 first prototype made its roll out. The plane successfully took off and conducted flight test. Unfortunately, Indonesia fell into a severe monetary crisis in the same year and had to go and approach to IMF to get the loan.
The IMF told President Suharto to cancel the N250 project and it was mandatory before getting the loan. Suharto had no option at the time but approve the direction of the IMF. Since then N250 project was cancelled. IMF also told Indonesia to stop funding IPTN totally but Indonesian government didn’t fully comply what IMF wanted. The funding to IPTN was only greatly reduced and its core business were diversified in order to survive with minimum budget support from the government, now IPTN changes its name into PT Dirgantara Indonesia.
Many said and believed, IMF intentionally terminated the N250 project was to accommodate the requests from some foreign airplane manufacturers which didn’t want Indonesia to produce its own planes, because they wanted Indonesia to keep buying from foreign power supported companies. US supports Boeing situated near Framingham, near Seattle, in the Washington State, likewise EU supported Airbus tooth and nail.
I won’t say getting loan from China will not be followed by their own recursive ‘terms and conditions’, but I just wanted to discuss how IMF put pressures on countries, that borrow money from it. It is a cacophony of the highest order. Many case studies have shown China in, poor light and they have usurped many naval bases in the name of development and support. The best part is they never say no, but when the fine print is read, I do agree, eyes open wide!
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