the planners at Bretton Woods established the International Monetary Fund (IMF) and the International

Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These
organizations became operational in 1945 after a sufficient number of countries had ratified the
agreement.

The experience of the Great Depression was fresh on the minds of public officials. The planners at
Bretton Woods hoped to avoid a repeat of the debacle of the 1930s, when intransigent American
insistence as a creditor nation on the repayment of Allied war debts, combined with an inclination to
isolationism, led to a breakdown of the international financial system and a worldwide economic
depression.[1] The "beggar thy neighbor" policies of 1930s governments—using currency devaluations to
increase the competitiveness of a country's export products to reduce balance of payments deficits—
worsened national deflationary spirals, which resulted in plummeting national incomes, shrinking
demand, mass unemployment, and an overall decline in world trade. Trade in the 1930s became largely
restricted to currency blocs (groups of nations that use an equivalent currency, such as the "Sterling
Area" of the British Empire). These blocs retarded the international flow of capital and foreign
investment opportunities. Although this strategy tended to increase government revenues in the short
run, it dramatically worsened the situation in the medium and longer run.

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Article I
Purposes
The purposes of the International Monetary Fund are:
(i) To promote international monetary cooperation through a permanent
institution which provides the machinery for consultation and collaboration
on international monetary problems.
(ii) 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.
(iii) To promote exchange stability, to maintain orderly exchange
arrangements among members, and to avoid competitive exchange depreciation.
(iv) 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.
(v) 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.
(vi) 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.

Criticism of the IMF

The IMF plays an important role in trying to alleviate and stabilise financial crisis. However, its
role has come under intense scrutiny and it has been criticised for variety of reasons and from a
range of different sources. These are some of the main criticisms of the IMF:

1. Exacerbates Economic Problems. It is argued that the conditions of IMF loans cause more
harm than good. In the Asian Crisis of 1997, many criticise the IMF's insistence on deflationary
fiscal policy (Spending cuts and tax rises) and higher interest rates. It is argued the IMF turned a
minor financial crisis into a major economic recession with unemployment rates in countries like
Thailand, Indonesia and Malaysia shooting up. Chief economist of the World Bank, Joseph
Stiglitz, was particularly scathing in the IMF's insistence on high interest rates as Thailand
entered recession. (IMF criticised)

2. One Size Fits All. The IMF frequently argues for the same economic policies regardless of the
situation. For example, devaluation of the exchange rate may help many countries, but, it doesn't
mean that this is always the solution. Policies of privatisation and deregulation may work better
in developed countries in the West, but, maybe more difficult to implement in the developing
world.

3. Decline in Public Services Arguably the insistence on Spending cuts (fiscal responsibility)
lead to decline in public services. One report suggests the IMF spending cuts are responsible for
a resurgence of health problems amongst countries which received aid. (IMF linked to higher
tuberculosis rates) (IMF linked to Cholera). The IMF is frequently criticised for ignoring the
impact of its policies on the poor, concentrating only on macro economic data

3. Takes away political autonomy. Countries such as Jamaica, argue that the IMF take away the
ability for countries to decide national policy. Instead they have to follow the economic dictates
of an unelected body, with a perspective skewed by free market ideology and the interests of the
developed world.

4. Moral Hazard. The IMF has also been criticised by free market economists arguing that they
do to much. They argue that intervention creates moral hazard (encourages countries to be
reckless because they can rely on IMF loans) The intervention is often based on poor information
and fails to deal with the economic problems. It is argued that rather than the IMF, countries
should take personal responsibility.

I have to say there are many more criticisms of the IMF than this. The IMF have been criticised
for just about everything from supporting right wing dictatorships, facilitating corruption (e.g.
Kenya in the 1980s) to encouraging the destruction of the environment and the culture of
indigenous people.

IMF - Saint or Sinner?

The reality is something in between. At times they have appeared rather inflexible insisting on
fiscal responsibility and privatisation at a time which might not be helpful for the economy. The
criticism of exacerbating the Asian crisis has a strong argument.

But, at the same time, it must be remembered, people call on the IMF in times of crisis. When
you have a balance of payments crisis, depreciating exchange rate, there is no easy painless fix.
Whatever the IMF recommend people would use it as a convenient point of blame. It is hardly
surprising governments do blame an external body like the IMF, it helps to deflect criticism from
the government and why the economy ended up needing a bailout.

This does not mean that the IMF are blameless, far from it. They have made many mistakes and
errors of policy. But, they have been criticised for both doing too much and also doing too little.
They have accused of being free market ideologues but also have been accused of interfering too
much with free market mechanisms.

The problem the IMF face at the moment, is that they simply don't have the necessary funds to
bailout the amount of debt in emerging economies. The President of Pakistan has complained
that the current response of the IMF has been tardy and too slow (link) It may require greater
intervention from member states such as the US, gulf states and the European Union. If the
intervention is carefully managed, then short term loans may mitigate some of the worst effects
of the current financial crisis.