Answer to Question #175293 in Economics for EUGINE HAWEZA

Question

After over 50 years of being recipients of foreign aid from two major multilateral institutions in the name of International Monetary Fund (IMF) and World Bank (WB), most LDCs are still engrossed in high levels of poverty, rampant unemployment and many other developmental challenges. For this reason many critiques have been leveled against these Bretton woods institutions as being the major perpetrators of this underdevelopment. Critically analyzethe above statement basing practical examples from the Zambian context.

Answer 1

The impact of IMF loans has been widely debated. Opponents of the IMF argue that the loans enable member countries to pursue reckless domestic economic policies knowing that, if needed, the IMF will bail them out. This safety net, critics charge, delays needed reforms and creates long-term dependency. Opponents also argue that the IMF rescues international bankers who have made bad loans, thereby encouraging them to approve ever riskier international investments.

IMF conditionalities have also been widely debated. Critics contend that IMF policy prescriptions provide uniform remedies that are not adequately tailored to each country’s unique circumstances. These standard, austere loan conditions reduce economic growth and deepen and prolong financial crises, creating severe hardships for the poorest people in borrowing countries and strengthening local opposition to the IMF.