Are we going back to the
The Second World War caused so much destruction that a decision was taken to rebuild
Article 1 of the IMF Constitution states as follows: To promote international monetary cooperation through a permanent institution, which provides the machinery for consultation and collaboration on international monetary problems. * To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income, and to the development of the productive resources of all members as primary objectives of economic policy. * To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. * To assist in the establishment of a multilateral system of payments in respect of current transactions between members, and in the elimination of foreign exchange restrictions which hamper the growth of world trade. * To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. * In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members. * The Fund shall be guided in all its policies and decisions by the purposes set forth in this Article.
In the same way, a country going to the IMF must meet certain requirements, as set out in the principles established under the Rooth Plan of 1952.
The borrowing country should agree with the IMF on policies to ensure that it could repay as soon as possible (maximum five years). A country requesting credit would be expected to include in its authenticated request a statement that it will comply with the principles agreed upon. The Fund would monitor the use of the credit to determine whether it is used in accordance with the agreed principles.
Request for finance within the gold tranche (that is relatively small amounts) would be treated liberally. If the borrowing country agrees to the Rooth Principles, IMF officials visit the country and examine the government's accounts books very thoroughly. If the officials are satisfied, the IMF draws up what is known as Letter of Intent. The Letter of Intent sets forth the programmes to be pursued by the borrowing country, usually the Minister of Finance.
Items covered by the Letter of Intent include exchange rate practices, import regulations, control of the domestic budget deficits, bank credit controls, and policies towards foreign investment. If the government fails to keep the commitments in the Letter of Intent, its right to borrow under the Stand-by Agreement will be suspended. The IMF spells out conditionalities to be followed by the borrowing country. Watch out for the second installment.
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