Poland and the International Monetary Fund Policies
The debt crisis of the 1980’s brought to the limelight the central role of the International Monetary Fund in the exchange rate policies of nations. Third world states had to devalue their currencies to an estimated 50% (Elekdag, S. , p 630). This condition was precondition for any nation to access any loan from the Institution. Unfortunately, this move led to the increases in prices and compressions in the real earnings of nationals. The move seemed to ravage most states particularly those in Asia. Thailand and Korea for example underwent a serious financial crisis resulting from the condition by the International Monetary Fund.
The crisis was further precipitated by the institutional speculators who deliberately manipulated the currency market to be tilted in their favour. These set precedence for the IMF bailout. The bailout was done in consultation with the Breton woods institutions (World Bank). When Poland broke away from the soviet dominated bloc, it transformed its mainly planned economy to a market economy. At the very onset, in 1990, the polish government developed the Economic Transformation Programme. The plan was meant to stabilize the economy through the transformation of the structures that would see the economy become a market economy parse.
The polish economy was the first in the region to become a capitalist state. This was resultant from the policies that were developed to effectively transform the economy to a market economy. Poland was able to successfully transform without much recession and succeeded in getting a high GDP than had been experienced in the communist regime. The initial years were not characterised by positive development trends. However, years that succeeded the period so Poland transform into one of the first developing economies in central Europe.
The growth was further precipitated by an expansion in the private sector, translating into a GDP growth of 20% in 1999 relative to that in 1989 (Beeson, M. , Broome, A. , p 399). The policies introduced put the Polish economy on one that was ever-expanding. The polish economy was expanding with exceptional resilience and replete to the external environment with particular reference to the international financial crisis. Unlike countries such as the Czech Republic and Russia which were ravaged by the crisis, Poland’s economic resilience was attributed to the consistent and balanced macroeconomic policies that had been initiated by the IMF.
While the economy exhibited the much resiliency mentioned above, the crisis affected the country’s demand for its exports. Nevertheless, the economy had strengthened enough to withstand the economic tide that was ravaging the neighbouring countries and was able to survive replete of the slowing GDP growth to 1. 7% from the initial growth of 4%. The growth, however, rebounded in the third quarter of the year to 6% of GDP (Woods, N. , p 380). The intervention by the International Monetary Fund in the financial operation of states comes with mixed blessings.
From the very psychological perception, it is argued that given that the IMF comes in, in the event of a crisis, tends to make the crisis more likely to occur. It is apparent credit institutions would otherwise offer crisis-prone states loans at a rate lower had it been that the IMF was not available. Within the precincts of the assertion of the critics of the loaning policies of the IMF, the knowledge of the presence of a salvaging institution makes governments fail to put in place sound policies for the regulation and supervision of financial management that would otherwise reduce the likelihood of a crisis.
In Mexico, for example, the intervention of the IMF in the 1995 crisis prompted a massive bailout era. This bailout was characterized by high level risk taking ventures that set precedence for crises in the wider Eastern Asia and Russia. Brazil was hit hard years later as a result of the crisis that was dogging the neighbouring countries. Given, the aspect of the IMF funding being hazardous should not be wished away so lightly. In a way, the interventions by the IMF have mixed fortunes (Woods, N. , 393).
In some cases it is appreciable that the financing assists the country to pull away from the brink of collapse, assisting the countries mitigate the adverse effects of any down turn thereof. In some other cases, the interventions streamline the financial institutions and stabilises them altogether. Whole, with the intervention of the IMF, the moral hazard resultant is an unavoidable consequence. Zambia was largely devastated in 1975. The country had its per capita income drop to a quarter of the initial figure. In the same year the terms of trade for copper dropped by an estimated 50% (Beeson, M. , Broome, A.
, p 407). Merchandise imports similarly dropped by 25%. The drop affected the production level plunging the country into a crisis. The external situation equally complicated the state that the country was under going especially given that it was beyond the control of the government. The foreign debt for Zambia stood at $4500 million. This debt was due to private companies, banks and foreign governments. The intervention of the International Monetary Fund through loaning and the conditional ties that saw the country restructure its financial institutions brought the country back on track after 13 years.
This presents a success story for the intervention of the International Monetary Fund. Vividly, one can attest to the fact that the interventions of the IMF significantly affect the incentives of any state putting into effect mitigating measures for any financial crisis. Most importantly, during liquidity crisis, the international monetary fund is able come in to compensate for the market failures (Woods, N. , p 393). Where the effect could have been multifaceted, the victims of the crisis would definitely be cushioned.
The victims would include creditors and trade partners that would have otherwise been distressed by the contagion. In addition, the intervention, or rather the impending intervention by the International Monetary Fund tends to provide basic catalyst and certainty in international trade (Elekdag, S. , p 641). Creditors in international transaction are made certain of their payment where it appears definite that failure by the creditor to service the debt would have the International Monetary Fund come in to intervene. Overall this promotes international financial stability.
The aforementioned notwithstanding, one can easily observe that making extreme hypothesis on the hazardous or the beneficial nature of International Monetary Fund intervention is protracted. Hypothesizing that investors will obviously be bailed out in case of a crisis is equally extraverted. By any feasible standards, if this was a basis for evaluation and action, most countries would borrow at the very risk-free rates. In conclusion, the overall intervention of the international monetary fund has been characterised by mixed blessings.
These mixed blessings provide basis for the development of a global system that would be equipped in dealing with crises. Of particular essence will be the widened parameter within which regulations would be provided for the inclusion of all financial institutions. Besides, there is a dire need for incentives that would encourage all players to willingly take risks. In as much as the players will be encouraged to take risks, similar efforts will be put in place to ensure the very risks are mitigated. It should be noted that extroverted regulation may equally hurt the market.
This extraversion will be noted through stifled innovations. Subsequently, the benefits of integrating the global financial system will be limited to a large extend. Within the mandate of the aforementioned assertion, it will be tidal to develop a broad yet consistent framework that would consistent across the divide. Fervently, the founding principles of the International Monetary Fund were quite articulate and were in line with the development agenda of the time, however, the developmental prospects world over have moved through stages and the need for restructuring and reorientation of the IMF is timely and inevitable.Sample Essay of Paperial.com