Most of the economies in the world ended up in the bottom of a global recession that led to a massive business contraction. This led to a rise in unemployment and shrinking in government revenues. In recent statistics, large industrialized economies have begun to recover from the global recessions (Copelovitch, 2010.p.304). Many industrialized countries and emerging and developing nations have adopted economic stimulus schemes to rescue their economies from the economic scourge. Many countries have resulted to borrowing from the International Monetary Fund to add to their investments packages. This crisis exposed the fundamental weaknesses in the global markets demonstrating how current economies are greatly interdependent resulting to complex policy dilemmas (Khang, 2010). Countries have adopted a four phase plan that will enable them cope up with the crisis and are able to stabilize their economies. This include making interventions to restore confidence in their systems, putting measures to contain the aftermaths of the crisis, developing new policies in their financial systems that will reduce the risk and prevent future crisis. This has been implemented through international leaders converging to put policies, and give political backing in enforcing the proposed policies. The most important phase is the fourth phase that deals with political, social and security effects of the global financial crisis. This paper discusses the efficiency of the International Monetary Fund to recover economic crisis giving a comparison of Malaysia and Korea.
The IMF is an enormous IGO with over 185 countries that was established in 1944. In the emerging global economy system, the IMF plays an important role despite its policies which are westernized being questionable. This is as a result of offering to help non western nation states that do not subscribe to liberal economic policies (Yoon, 2005, p.182). IMF offers a three package which include financial assistance, structural reforms and macroeconomic policies for economic sustainability. There has been a controversy on whether the IMF is an independent global controller which was best displayed by countries such as Malaysia and Indonesia rejecting the offers during the Asian financial crisis (Copelovitch, 2010.p.304). The issue of whether the IMF is capable of creating a positive relationship among nations can be put under question but not the reality that the global economy needs a stronger financial IGO. In order to manage the global economy efficiently there is need for a strong IGO. With the increasing number of member states participating in the global economy with their diversity, IMF role remains to be critical and controversial (Ping, n.d p.8).
The Role of IMF in the Global Economy
The IMF has been under criticism in recent years in the industrialized countries and even the developing countries. Its policies are perceived to be misguided and ineffective where by the fund’s largest shareholder have been blamed for politicizing the IMF lending and the staff for wrongly diagnosing the causes of the global economic recession (Zhu 2011). This criticism however are doubtful especially when looking into the archived documents on the number of recommendations and praise for its worldwide supporters for the efforts it has made in supporting borrowing countries and implementing working economic policy reforms. When the era of high growth in the East Asia came to a halt in 1997, countries such as Thailand, South Korea, and Indonesia succumbed to a currency and financial crisis that deeply affected their economies (Yoon, 2005, p.182).
The IMF offered rescue packages to these countries which included structural and institutional reforms that were aimed at improving governance. The main role of the IMF support program is to offer advice and assistance to stabilize the economy by controlling inflation and unemployment as well as promoting a well-structured economic growth program. The IMF assist in restructuring the economies by providing guidance on how to establish financial institutions that are required for the new market to function. The IMF provides loans, policy and technical advice to the country (Copelovitch, 2010).
Korea vs. Malaysia
When the Asian Crisis reached Korea in 1997, Seoul sought assistance from the IMF and was successful in making an agreement with the IMF which provided unprecedented financial support. This crisis exposed many weaknesses in the Korean economy that was largely dominated by large government enterprises. Since there was lack of openness in the Korean economy as there was little public information. This caused investors to lose confidence in the Korean market and withdrew their shares from Korea’s stock market and other investments. Korea’s stock market fell and the country plunged into a severe recession. In Malaysia, they has also done the same mistake all other Asians did which laid the groundwork for the recession themselves (Zhu, 2011). This was as a result of gluttonous foreign borrowing and impulse regional investments. Instead of banking the massive foreign capital that the country earned during the 1980s and early 1990s, Malaysian investors poured the money into real estate and equity shares. This resulted to an asset price bubble and raised inflation rates. Malaysia economy together with other Asian economies collapsed due to the massive capital disinvestments that progressed to a forced currency devaluation and eventually a financial crisis (Andrews, 2006, p.158).
- Quote paper
- Carol Nganga (Author), 2012, Efficiency of International Monetary Fund to Recover Economic Crisis, Munich, GRIN Verlag, https://www.grin.com/document/280532