11 Minute Read

KNOW GOOD THINGS – The International Monetary Fund

September 1, 2017

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Howdy, gang! I didn’t have a chance to publish a new blog entry last week and it’s something that I hope to avoid in the future. I’m hoping (fingers crossed) that there were a few of you out there who missed me? Well…missed the blog, I mean. I hope to avoid the ire of my readers at all times so I’m expecting this week’s blog entry to double your satisfaction as to eliminate any annoyance I may have accidentally drummed up!

We’ve been making our way through the basic tenants of macroeconomics and recently left off with a rundown of the Austrian School, which featured Mises and Hayek. It always seemed ironic that these amazing minds and champions of liberty and free enterprise came through Austria, but I’m glad they were able to find themselves and feel courageous enough to write their books and teach their principles. I’d like to shift our focus a little bit from individuals to organizations. We’ve spent a lot of time learning and re-learning about people like Marx, Smith, Keynes, Mises, and Hayek! Now, let’s spend a bit of time getting more familiar with the International Monetary Fund (IMF) and the World Bank.

There’s always been a bit of a shroud hanging over both of these institutions because we’ve all heard of them and we’ve all seen the massive protests that both of these organizations seem to spark throughout the world, but what are they? What do they do? Well, let’s start with the International Monetary Fund and go from there. Of course, if there are any comments or questions then feel free to add them to the “comments” section of this blog at the bottom. I’m sure we’ll be able to create a fun and respectful dialogue between me, readers who have a good understanding, and the individuals with the questions. I will never pretend to act as if I have all the answers and I have no problem saying “I’m not sure”, so I definitely respect and enjoy anything that you may wish to add.

The International Monetary Fund (otherwise known as “The IMF”) is essentially a step-child of the United Nations simply because it was also created in 1944 as part of the Bretton Woods negotiations. The IMF’s main purpose is to help countries stabilize their balance of payments (specifically relating to their import/export balance) by giving loans to those countries who find themselves in deficit. What kind of deficit, you may ask? Well, here’s where it gets a bit tricky. The IMF has outlined their procedures and purposes, but they’ve always been a little tricky when it comes to actual implementation. Based on the simple understanding of their simplistic mission statement, one would expect that the IMF would be involved with nearly every country on earth! I’m not sure I could actually name a country that doesn’t have an import/export imbalance. Heck, the United States of America has had a trade imbalance (deficit) for my entire life on this planet plus a few more decades! We definitely import way more than we export and that simply will not change anytime soon. Our nation just doesn’t create stuff anymore like we used to. Steel mills have closed, iron production is declining, and manufacturing was recently at an all-time historical low. We’re a nation of importers and it’s not a secret as to WHY, either. Cheap labor in other countries combined with rigorous regulations and higher corporate taxes here at home have created an environment that’s simply not conducive for that kind of economic activity anymore. We’ve slowly made the switch to being a service-based economy rather than a production-based economy.

Since we happen to be one of the world’s largest importers, the IMF doesn’t get too involved with us. They, instead, tend to focus on the other side of the equation and wriggle their way into the capitals of nations who are having difficulties importing goods and services. It’s those nations that the IMF puts all of their efforts into. Countries on the African continent have been on the IMF’s radar (big time) for the past three decades, but I’m not sure if I can honestly say that there’s been any kind of noticeable difference made.

In return for the “sweetheart loans” that the IMF gives to struggling nations, it imposes stringent conditions (otherwise referred to as the Washington Consensus) designed to liberalize markets and reduce government intervention. It is assumed that 186 countries are members of the IMF, but it’s hard to find hard data on how many nations are just taking loans versus how many nations are acting as the supervisors of said loans.

The way I look at it is more familial than business-like. It’s sort of like the situation that many of us have found ourselves in at one point or another when we’ve had no other option but to take a loan from a family member in order to help us say afloat for a period of time until things get better. Now, getting money from an uncle is one thing, but seeing that same uncle a week later is quite a different story, right? The uncle wants to know what you’ve done with the money, how things are going, and when you’ll be able to pay him back! You already feel bad enough for even needing your uncle’s help in the first place, but now you’ve got the added stress and anxiety about making sure you don’t upset your uncle. The IMF will send “agents” to look after the affairs of the loan and because the money has specific conditions tied to it the “agent” is more like a consultant and has actual influence in the affairs of the government.

Some can make the argument that struggling countries need a helpful hand issues to them from time to time, but others can absolutely argue that the IMF goes above and beyond giving helpful hands! With money comes power and influence. I think the IMF is easily involved with all three of those commodities: money, power, and influence.
Until next time, my friends! Be good. Do good. Know good.
Kleiny (follow me on Twitter: @KnowGoodThings)

2 Replies to “KNOW GOOD THINGS – The International Monetary Fund”

  1. CARLOSGARCIA says:

    Thanks Kleiny! Great post, I certainly learned a lot on the IMF, but I am still wondering on the World Bank. Did I miss the part you explained on the World Bank, is it the same as the IMF, or is there a second part to this post? Thanks again Kleiny.

  2. MARKWEISS says:

    Good Post Kleiny! I did miss your post from last week. Since you brought up the IMF, what do you think of the theories about the IMF and the Federal Reserve in ‘Creature from Jekyll Island’?

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