Policy Debate – IMF (Pro Kenneth Rogoff)

Policy Debate – IMF (Pro Kenneth Rogoff)

Main Issues

The international monetary fund (IMF) emerged as a cooperative venue for the promotion of a stable international monetary system and prevention of financial crises through the provision of advice to states, a forum for cooperative action, and financial and technical assistance. However, it has received numerous criticisms, especially after the Asian financial crisis, which focuses on its effectiveness in meeting the purpose for its establishment and its future role in the international monetary system.

Arguments

Kenneth Rogoff argues that the criticisms of the IMF are without strong basis.

1. The international monetary fund is not a solve-all. The stability of the international monetary system and the prevention of financial crisis largely depend on the implementation of the policies recommended by the IMF. Although the IMF also seeks to prevent financial crisis, it can only do so by providing financial advice to states and financial assistance. If advice is not well- received or financial assisted efficiently invested, then the consequences are out of the hands of the IMF.

2. In times of financial crisis, as in the Asian financial crisis, implementing a tight monetary policy remains effective in the long term. However, Rogoff does not deny that in the short term, there would probably be an initial exacerbating impact on the economy, especially economies with weak or poorly structured financial systems. In case of financial crisis dependent on investor confidence, an easy monetary policy that leads to the continuous depreciation of currency repels confidence that would cause inflation and threaten the solvency of financial institutions and domestic business firms. If these happen, increases in interest rates have to happen on a wider and prolonged period in order to achieve stability.

3. Globalization is an inevitable and continuing process and IMF provides a monetary forum for the discussion and resolution of financial issues arising from the sub-processes of globalization. Dismantling the IMF would not solve anything without having a better alternative.

Responses to Counter-Arguments

The counter-arguments of Josepth Stiglitz are:

·         Market fundamentalism adhered to by the IMF is not effective because a single policy cannot encompass the diverse situations in different regions.

·         Austere fiscal policies were not effective in dispelling the adverse effects of the Asian financial crisis or previous monetary crisis.

·         The IMF’s failure to encourage and practice transparency contributed, in part, to the occurrence of the financial crisis instead of preventing it.

Kenneth Rogoff responds to these by stating that:

·         Although the IMF adheres to market fundamentalism, its policy recommendations are based on information derived from the specific situations or states. The IMF conducts regular consultations with state leaders before communicating policy recommendations.

·         Both tight and fiscal policy could have dire effects on weak economies during a crisis but adhering to a tight fiscal policy constitutes the lesser evil because of its long-term positive effect even with some inconveniences in the short-term.

·         The IMF recognizes its weaknesses and finds ways of addressing these

Evaluations of Critical Evidence

1. In the context of globalization, having a forum for international monetary cooperation is important. While there is yet not alternative to the IMF, advocating rational and effective reforms constitutes a sound solution rather than calling for its dissolution.

2. The current state of international monetary relations makes it impossible and irrational to call for states to close their economies or to engage in international trade without a common forum for monetary cooperation.

3. However, the IMF has structural and procedural problems and weaknesses, which the forum admits, that should be the direction of debates. Stronger calls for reform may be needed.

 

 

 

 

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