Empirical Studies of the Impact of IMF Conditionality Program on Poland
The international monetary fund undertakes very elaborate negotiation process before accepting to advance loans and aid to beneficiary countries. Countries with extended balance of payment yet incapable of accessing loans from commercial banks from foreign countries normally opt for the IMF as their lender of last resort (Ryder, P M. , p 410). During the prequalification discussions, the IMF may come up with conditions that are to be met before the loan is advanced.
In return to financing its balance of payment the country will always be compelled to agree on the implementation of certain adjustment programmes that may not be readily adaptable by the recipient nation. These programmes are meant to assist the nation in question to undertake stabilisation. Inevitably, the programmes may involve stringent measures that may be full of austerity (Ministry of Finance, Republic of Poland Basic Information). Overall the negotiation may be termed as such yet they tend to be largely ultimatums. However, the option for the applying country may be either limited or not available at all.
The country seeking the loan/grant has to embrace the programmes to salvage its dwindling economic prospects. When the Polish government sought a loan for stabilisation from the International Monetary Fund, the condition was to embrace structural adjustment programmes. Inherently Poland to privatize all the state owned corporations (Khan, S. R. , p 1079). While the world over the prospects of privatisation is largely positive, the adjustment comes with numerous challenges such as mass worker lay-off and restructuring of the overall management of the various firms.
This tends to increase the rates of unemployment. Besides, the government may loss its popularity among the electorates (Khan, S. R. , p 1080). This may bring about mass action and in the long run some sought of anarchy The Polish relationship with the International Monetary Fund was a clear indication of the diktat theory where there is the existence of the superior and the subject. The IMF programmes adopted by the IMF were mainly of economic imperative or most importantly had much to do with the economic imperative and with Polish political inclination.
This principle orientation demonstrates the cardinal and manipulative role that the Western countries have on the policies and decisions of the International Monetary Fund. The ultimate relationship between IMF and the Polish government has been best depicted not as an opposing relation but as a trans-national pact that has effectively and efficiently lobbied other incidental actors towards attaining economic stability in Poland (Kirkpatrick, C. , Onis, Z. , p 347). The actors are inclusive of the Western creditors and its domestic constituencies geared towards achieving common incidental policy goals.
The Polish government has accepted albeit passively, the IMF prescriptions. Poland has used its political strength and domestic vulnerability to push the western states to support its financial prospects. Though the IMF stresses that its role is a politically neutral one, concerned particularly with the regulation of the international monetary system, it takes into consideration issues of political nature; these are captured in the conditions for the advancement of the requested loans (Trudel, R. , p 929). In deed, during the negotiations, the IMF does this strictly with the governments which are expected to be politically impartial.
Nevertheless, politics and the economy can not be treated in isolation. The negotiations of the IMF are ordinarily centred on the economic policy of the country in question. However, unlike in the cases of bilateral aid, the financing by the International Monetary Fund is not pecked on the fulfilment of the specific political conditions. This assertion notwithstanding, it should not be construed that the IMF financial aid of loans is devoid of conditions. The financing has much of political input from the receiving country.
To begin with each of the criteria used by the IMF used in the scrutiny of the legibility of any nation is normally attached to the country’s budget deficit or its exchange rate. These two aspects have a very close correlation with the country’s political debate. It is argued that the policies that are at the core of any country’s economic transformation are always at the core the country’s political epicentres and life. Secondly, approval of the agreement with the International Monetary Fund is always prone to influences from the national governments which are always subjected to political evaluation and reproach.
Countries with large contribution to the IMF such as the United States and Germany have to have their votes cleared by their governments. Ultimately, this makes the fund very political (Payne, A. , p 317). Countries such as the United States normally require that its executive director does take stock of the recipient country’s human rights records. Where government to be advanced the aid/loan have records of human rights violation, the United States may not approve of the loan advancement. This makes the fund full of non-economic curtailments.
The Polish relationship with the IMF and the World Bank can be traced back to the cold war period. Poland is one of the first members of both institutions. However the increasing intensity of the Cold War saw the relationship of the World Bank and Poland deteriorates (Khan, S. R. , p 1093). Not only did the relationship with the World Bank go awash but also the Polish relation with other International Financial Institution, the IMF inclusive. Conditionalities (Moore, W. , Scarritt, J R. , p 49) imposed by the International Monetary Fund do not necessarily auger well with all the states.
The structural adjustment programmes introduced by the IMF in Poland had mixed returns. Workers (International Labour Organization) were against the policies as there was massive employee layoff. While the policies were well intentioned, anarchy was not one of the central objectives of the policies. The devaluation of the currency, a common policy tool used by the international monetary fund, may also, unless effectively and efficiently managed present mixed blessings. Most commonly, the floating of the exchange rate is also largely speculative and may not present the desired results. The SAPs (Moore, W. , Scarritt, J R.
, p 52) may be also characterised by the abolition of monopolies and state owned enterprises in both the production and the market sectors. Inherently, the state may opt to reform the banking policies, including the rates of interest, reduction in the government budget and money supply which hurts to a reasonable extend the injection by the government into the economy. Where such injections are low, the investment becomes restricted and hence hurts the civilians (Dreher, A. , p 230). Besides, the removal of consumer subsidy which also characterises the SAPS may dwell a blow on the standards of living the large populace.
It should not perturb therefore that some of the impacts of the structural adjustment programmes have lead to much criticism of the World Bank and the IMF (Bird, G. , Rowland, D. , p 243). However, it is remarkable that at the time the Polish government needed the intervention of the both the IMF and the World Bank and the IMF, the policies were followed to the letter and largely put the Polish economy on tracks as it still stands out to this day. By all standards conditions that are applied by the International Monetary Fund are inevitable.
The fund has to ensure that the resources that it receives from the member states are safeguarded (Bird, G. , Rowland, D. , p 872). The only sure avenue of reaching this end is through the attachment of stringent conditions on the loans and aid that is advanced. Besides, these conditions assist the recipient states to attain the objectives for which they sought the loan or the aid. The polish government utilised the fund in the development of infrastructure that was a central incentive for the foreign investment that saw the Polish economy back on the track.
The road infrastructure opened up the rural area of Poland to both the foreign and domestic investment hence reducing the level of unemployment and increasing the country’s GDP (Ministry of Finance, Republic of Poland Basic Information). The education sector has also been a major beneficiary of the International Monetary Fund. The Polish government has been able, over the years to reduce the level of illiteracy considerably. This has been a key ingredient in the prospects of Poland’s development. The introduction of the universal basic free education in Poland saw the literacy level increase from an estimated 69% to 89% in 1994 (Payne, A.
, p 320). The agricultural sector was also a major beneficiary from the fund as the development of infrastructure opened the productive area and made the transportation of agricultural proceeds relatively fast (Dieter, H. , p 345). Besides, the industries were able to reach the areas easily to access the raw materials for the products. Besides, the developed infrastructure, electricity and road network made it possible for the development of industries in the rural area and created jobs for the residents. In addition, this led to the decrease in the rates of rural urban migration.Sample Essay of Paperial.com