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THE ROLE OF THE INTERNATIONAL MONETARY FUND IN GLOBAL ECONOMIC
STABILITY
1. Historical Background and Establishment
I. Bretton Woods Conference
The Bretton Woods conference of 1944 is considered as one of the important conferences in the
history of world economics as it set up the basis for the IMF and defined the further line of
development of the world economy after the Second World War. The conference, which was
hosted in New Hampshire, United States of America was a meeting of forty four Allied nations’
where new rules for a new international monetary system were proposed with an aim of
encouraging stability in the global economy and eradicating the situation that led to world war
two (Bordo, 2017). The main protagonists of this system were John Maynard Keynes of Britain
and Harry Dexter White of the United States and the basic principles of the created institution lay
down by them called for the organization of international monetary and exchange rate stability
(Steil, 2013). This lead to the creation of the Bretton Woods system of fixed exchange rates,
where the value of dollar was linked to gold and other currencies’ values were linked to the
dollar; this formed the basis of international monetary system for nearly three decades
(Eichengreen, 2019). This system was geared towards eliminating competitive exchange
depreciation and attempting to establish more orderly exchange relations among members, given
the severe economic disorder witnessed during the inter-war period. The Bretton Woods
Conference did not only establish the IMF but also its twin sibling, the World Bank that is
perhaps the foundations of the post WWII international economic system. It was intentionally
planned that while the IMF is concerned with short-term operational crises such as balance of
payments and monetary cooperation, the World Bank deals with longer term economic
development and rebuilding (Bordo, 2017). The Bretton Woods agreement; continues to be an
important platform in contemporary relations between countries to this very day, which goes to
prove that; the agreement in question is highly influential in the modern world. In this sense, one
must underscore the fact that the principle, which was set by the conference and declared later in
the war, continue to shape the existing structure of international economics and their institutional
program. The manner in which the Bretton Woods system was established was by way of
collaboration; a concept that was to form the basis of other international cooperation and
institution building in the future especially regarding economic stability, growth and
development for mutual benefit. Holding true to its name, the influence of the two institutions
established at Bretton Woods, hence the significance of this conference in the creation of a
lasting framework for the management of the world economy.
II. Founding objectives
Among such objectives, the first one was to promote international monetary cooperation, the
goal that aimed at avoiding an economic nationalism and a policy of autarchy that had
contributed to the great depth of the great depression (Boughton, 2004). It was the IMF’s
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responsibility to promote the growth and balanced expansion of world trade knowing that
interdependence could help spill over wealth and peace internationally (Vreeland, 2019). Other
significant goal included exchange rate stability that was geared at facilitating the formulation of
credible environment for the exchange of trade and investments (Ghosh & Qureshi, 2016). This
stability was going to be maintained by a system of par value which was adjustable within a
specified limit in terms of a fixed exchange rate; the IMF was also to act as a center for the
consultation on international monetary relations. The Fund was also required to help in the
creation of an international union for clearing all current transactions of members alongside the
elimination of various restrictions on exchange which hindered development of international
trade (Woods, 2006). In addition, the IMF was assigned the mission of short term supporting the
member countries experiencing balance of payments problems and aiding them in correcting the
maladjustments without incentives of measures that are injurious to national or international
welfare (Boughton, 2004). This lending operation was to be wedded with policy advice and
conditionality so that soft credit was efficiently utilized to right the balance in the economic
system. Altogether, these founding objectives demonstrated the idea of the more stable and
cooperative international economic system that can avoid the impact of economic instabilities
that fueled international conflicts in the past (Vreeland, 2019). The setting of these objectives
was the culmination of switching gear in the international economic policy from one that was
protectionist to one that sought to foster cooperation among countries. The IMF intended to;
establish the right conditions for the sustained development of economy worldwide, through the
practices that; encouraged cooperation and economic stability. This focus on multilateral
approach and collective commitment paved way for; the establishment of a stronger
interdependent globalization of the international economic systems that; effectively responds to
todays’ challenges and crises.
III. Evolution of IMF's role
There are a number of changes in the functioning of the International Monetary Fund as an
organization since its formation, in other words it can be argued that; there has been a number of
shifts in the nature of the IMF as an institution to reflect the nature of the economic realities of
the world and problems. Originally established to safeguard the Bretton Woods system of pegged
exchange rates which was created in 1944, the IMF thereby performed a role change once this
system was abandoned in the early 1970s (Boughton, 2001). This change in exchange rate
system of the world implied that the Fund had to ‘recast its mission in terms of stabilizing the
international economy’ and there was hence more focus on surveillance and policy advice
(Moschella, 2010). This evolution witnessed the IMF thus enhancing its analytical capacity and
also coming up with other instruments which would; allow the institution to evaluate the
economic policies and performance of member countries. The emergence of the debt crisis in the
1980s brought additional shifts in the IMF function that placed it in the institutional role of crisis
solver and the last-resort development fund for developing nations experiencing unfavorable
balance of payments situations (Reinhart & Trebesch, 2016). This period also saw the Fund’s
deep involvement in; structural adjustment programs, despite the controversy that surrounded
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this aspect, generally enhanced the Fund’s impact on borrowing country’s economic policies to a
great extent. New challenges emerged in the 1990s and the first years of the twenty-first century,
such as the actual post-Cold War diverse change of the countries of the former Soviet bloc from
centrally planned to market economies and the Asian financial collapse, enlarging the IMF
responsibilities in more areas, including the soundness of financial sectors, and liberalization of
capital accounts (Kentikelenis et al. , 2016). The global financial crisis of 2008 and the COVID-
19 pandemic have re-affirmed the IMF as the primary source of coordinating mechanisms for
global economic responses to shocks, increasing the fine-tuning of its credit instrument arsenal
and a return to its traditional role as a systemic financial guarantor (Grabel, 2019). The shift in
such mandates has posed invaluable challenges of maintaining the original mandate of the IMF
as the world changes have demanded the ability to respond to new complexities and
characteristics of the international monetary and financial system in order to retain its role in the
global economy.
IV. Key milestones and reforms
The IMF has passed through several significant events and changes in its structure and activities
representing the shift in the process of the international economy and the alterations in the
requirements of its participants. Presumably that one of the most major turning points was the
breakup of the Bretton Woods system in 1971-1973 which in its turn compelled the IMF to find
out anew its place in the world of fluctuations of exchange rates (Eichengreen, 2008). As a
result, the newly introduced surveillance obligation of the IMF was embedded into the Second
Amendment of the IMF’s Articles of Agreement in 1978, when the Fund’s focus was shifted
away from gold and towards surveillance (Boughton, 2001). However, another important reform
came in after Latin American debt crisis in the 1980s, arrived the Structural Adjustment Facility
(SAF) in 1986 and later ESAF in 1987, supplied the concessional loans to the low-
income/Heavily Indebted Poor Countries (Vreeland, 2003). These facilities were an enlargement
of the IMF’s work in the area of sustaining long-term development, yet with preceding
conditionality provisions. Further reforms were ushered in by the Asian financial crisis of 1997-
1998; that led to introduction of new lending instruments like the Supplemental Reserve Facility
and refocusing on the surveillance of the financial sector. The IMF governance structure was
criticized, therefore, the IMF passed the quota and voice reforms in 2008 and 2010 to increase
the shares of the emerging market and developing countries in the decision-making authority
(Vestergaard & Wade, 2015). Another major round of extensive reforms began in 2008, due to
the global financial crisis: to increase the IMF’s lending capacity by four times, the introduction
of new precautionary lending tools, and the coordination with other institutions such as the
World Bank and the Bank of International Settlements (Grabel 2011). A recently, dealing with
the COVID-19 crisis, the IMF has offered the prompt emergency financing and debt service
suspension, which confirms its further development as one of the main actors of the GECM
(Gallagher et al, 2021). Such bench marks and reforms as above are some of the evidences of the
IMF’s dynamic evolution and synergistic approach toward meeting the challenges of its varied
membership in the evolving world economic order.
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2. IMF's Core Functions
I. Surveillance of economic policies
The IMF economic surveillance of states’ policies is one of the dark workhorses of its endeavors
aimed at ensuring stability on the international plane as well as avoiding crises. This function
concerns the continuous surveillance and assessment of member countries’ economic and
financial conditions on national, international, and at the regional level (IMF, 2021).
Surveillance, similar to the monitoring process of Fund, is conducted in two ways; bilateral that
is in consultation with individual members annually under Article IV of the IMF’s Articles of
Agreement, and the multilateral that involves monitoring of global economic trends and cross-
country spill-overs (Lombardi and Woods 2008). Across these activities, the IMF seeks to; find
out loose risks to economic stability and also propose measures to contain threats that may
become major crises. There has been concern over the ability of IMF surveillance primarily
because its failure to forecast the major shifts in the economy for example the 2008 global
financial crisis (Moschella, 2011). As for the IMF surveillance, it was pointed out that it fell
short of addressing many of the concerns, and was occasionally politicized, with the IMF not
always providing timely and unvarnished assessments of its member’s policies (Momani: 2007).
Nonetheless, advocates argue that since surveillance is one of IMF’s most significant functions,
it assists in increasing transparency and accountability in economic decision-making while
offering information on economic developments and policies to the authorities and the market
(Broome, 2008). IMF has worked towards improving its surveillance capacity as a result of the
past shortcoming, for instance it has introduced new analytical frameworks, more emphasis on
financial sector vulnerability, and improved consideration for cross border and systemic risks
(IMF, 2018). They are expected to enhance the Fund’s capacity in the identification the likely
threats to the global economy hence emphasizing on the steady changes and relevance of the
surveillance role in the expanding world economy.
II. Financial assistance programs
Mandatory loan facilities are among the essential elements of the IMF measures for providing
financial aid to the member country in the balance of payments problems. Most of these
programs integrate cash with policy recommendation and strings for the purposes of correcting
the structural problems that lead to imbalances of the national economy with the view of
attaining macroeconomic stability (Babb & Carruthers, 2008). The IMF has administration of
lending tools that have been dynamic over time to suit the needs that its numerous members
encompass beginning with short-term funding to more extensive packages that involve various
forms of economic restructuring (Kentikelenis et al. , 2016). These programs have been very
useful for countries dealing with the economic downfall but at the same time, these programs
have caused much controversy and discussion among the people. IMF supporters claim that the
IMF loans enable the country in distress to gain investors’ confidence and thus, encourage other
sources of funds to flow in and hence, the necessity of the IMF’s presence is evident (Stone,
2008). Additionally, the structural adjustments related to the IMF programs are considered as
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efficient though sometimes unbearable means of obtaining a sustainable economic growth and
stability (Dreher, 2006). However, the critics argue that through the conditionality, the IMF can
be overbearing while offering prescription that are doctrinal in nature and can worsen the
economic problems as well as erode the sovereignty of the nation (Stiglitez, 2002). There are
some works which pointed that IMF programs may lead to adverse impacts on growth, income
distribution and social expenditure especially in the short run (Przeworski and Vreeland, 2000).
In rebuttal to these criticisms, the IMF has embarked on measures to reformulate conditionality,
enhance country ownership of reform processes, and improve the relevance of its aid to
borrowing members’ requirements and requisites (IMF, 2019). Nevertheless, discussion on the
viability and efficiency of its financial assistance programs, and accordingly, IMF financial
assistance programs continue to be; a vital tool in the international financial system as a shield
for developing and emerging market countries that fall across structural economic shocks or
transitions.
III. Technical assistance and training
The IMF’s technical cooperatives and capacities development projects provide; a review of
another more unnoticed but a significant approach within the IMF’s adjustment to global
economic management. Some of these capacity development activities are directed towards
improving the institutional and policymaking ability in the member countries especially in the
EMDEs (IMF, 2020). Thus, as the IMF expertise, practical experience, and knowledge
dissemination, it assists countries in enhancing the quality of economic institutions, enhancing
the quality of policy making and policy executing, and developing human capital in fiscal policy,
monetary and Financial system, statistical, and legal domains (Lombardi, 2005). IMF technical
assistance has been on the rise in the recent past in response to the rising challenges of economic
policy formulation and management in an integrated world economy as well as capacity shooting
for the institutional capability frontier (Tarp 2014). Some defended these measures as crucial to
enable countries to set course for proper policies that would change their sensitivity to shocks
and boost the probabilities of sustainable advance (Boughton, 2012). Furthermore, through
building the capacity of human capital in the IMF member countries, the technical cooperation
may help to enhance the economic reforms ownership of; the adjustment measures and decrease
reliance on the external consultants (Stoll, 2011). However, some concerns have been raised
regarding the methodologies for executing technical assistance to support a specific policy or
economic agenda at the detriment of the local knowledge and information (Park & Vetterlein,
2010). Besides, criticism has emerged around the need and capacity to sustain these initiatives
especially in the countries with the nascent institutional development or limited capacity to
provide job opportunities for trained officers (Andrews, 2013). Nevertheless, ongoing and
increasing, the IMF refines and diversifies the scale and complexity of its technical assistance
and training activities, as it acknowledges that these activities are crucial in supporting the IMF
surveillance and lending missions, as well as the key to strengthen the long term effectiveness of
economic systems to prevent socio world shocks and support inclusive growth.
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IV. Policy advice to members
The provision of policy advice to its member countries is essential in the core business of the
IMF because it equals to offering them technical cooperation services. This function goes beyond
the interaction with countries implementing lending programs, and encompasses periodic
consultation with all the IMF member countries and offering specific advice regarding numerous
economic and/or financial questions, as requested (IMF, 2021). The advice given by the IMF is
based on fairly comprehensive research; cross-sectional experience and global outlook with the
objective of helping countries cope with myriad macroeconomic issues as well as in formulating
and implementing sound structural stances (Broome, 2010). Although this function is
acknowledged to be important and thus plays an advisory role, it still remains the center of
controversy. Critic, advocates of IMF policy say that the advice that the IMF offers to the
countries allows them to obtain highly professional expertise and effectively encourages the use
of the best standards in the management of economic policies (Lombardi & Woods, 2008). The
Fund’s suggestions may assist in bringing legitimacy to domestic reforming processes and assist
the states in bringing their policies into compliance with international best practices (Chwieroth,
2013). However, the critics have argued that the IMF policy advice tends to be rigid; the
institution does not take adequate cognizance of country circumstance and other policy options
(Stiglitz 2002). Critiques have been made of the IMF as putting forward standardized recipes
regarding how emerging markets should be managed, including fiscal consolidation and
structural re-organization as well (Gabor, 2010). Furthermore, strategy of actions of the Fund has
been discussed as an attempt to enhance macroeconomic stability as a critical objective of
development at the expense of socio development goals (Kentikelenis et al. , 2016).
Subsequently, there has been a willingness to increase the degree of policy conditionality and
consider more societal actors and learn from previous cases and advances in scholarly literature
(IMF, 2018). While the efficacy of such policy suggestions and their rightfully raise some
concerns it is crucial to point out that the IMF policy advice remains one of the primary means
by which the institution endeavors to shape individuals and organizations’ actions in the pursuit
of international economic order as well as stability in the emerging globalized world economy.
3. Lending and Financial Support Mechanisms
I. Types of lending facilities
The International Monetary Fund (IMF) offers; a diverse array of lending facilities, each
designed to address specific economic challenges, faced by member countries. These facilities
have evolved over time to meet the changing needs of the global economy and to provide more
targeted and flexible support (IMF, 2021). The Stand-By Arrangement (SBA), the IMF's
workhorse lending instrument, provides short-term assistance for countries facing temporary
balance of payments problems (Barro & Lee, 2005). For longer-term structural issues, the
Extended Fund Facility (EFF) offers support over a more extended period, typically
accompanied by more comprehensive policy reforms (Dreher, 2009). In response to the needs of
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low-income countries, the IMF has developed concessional lending instruments such as the
Extended Credit Facility (ECF), the Standby Credit Facility (SCF), and the Rapid Credit Facility
(RCF), which offer financing on more favorable terms (Kentikelenis et al., 2016). The global
financial crisis of 2008 prompted the introduction of new precautionary instruments, including
the Flexible Credit Line (FCL) and the Precautionary and Liquidity Line (PLL), designed to
provide insurance against potential shocks for countries with strong economic fundamentals
(Grabel, 2011). More recently, in response to the COVID-19 pandemic, the IMF has expanded
its emergency financing toolkit and introduced the Short-term Liquidity Line (SLL) to provide
rapid support to members facing short-term liquidity needs (Gallagher et al., 2021). While these
diverse lending facilities demonstrate the IMF's efforts to tailor its support to different country
circumstances, critics argue that the proliferation of instruments has added complexity to the
Fund's operations and that access to certain facilities remains limited to a small group of
countries (Momani & Hibben, 2018). Nonetheless, the evolution of IMF lending facilities
reflects; the institution's ongoing attempts to balance flexibility with financial stability
considerations in its support for member countries.
II. Conditionality and structural adjustments
Conditionality and structural adjustments; are among the most contentious aspects of the
International Monetary Fund's lending operations. These policy requirements, attached to IMF
loans, are designed to address underlying economic imbalances and promote long-term stability
in borrowing countries (Dreher, 2009). Conditionality typically includes a range of
macroeconomic targets and structural reforms, such as fiscal consolidation, monetary tightening,
exchange rate adjustments, and market liberalization measures (Kentikelenis et al., 2016).
Proponents argue that these conditions are necessary to ensure the effective use of IMF resources
and to catalyze broader economic reforms that can enhance growth and stability (Corsetti et al.,
2006). They contend that conditionality helps to align domestic policies with international best
practices and can provide political cover for governments implementing difficult but necessary
reforms (Pop-Eleches, 2009). However, critics have long argued that IMF conditionality is often
overly restrictive, ideologically driven, and insensitive to country-specific circumstances
(Stiglitz, 2002). Studies have suggested that structural adjustment programs can have negative
short-term impacts on economic growth, income distribution, and social spending, particularly in
developing countries (Przeworski & Vreeland, 2000). Moreover, the imposition of external
conditions has been criticized for undermining national sovereignty and democratic decision-
making processes (Woods, 2006). In response to these critiques, the IMF has made efforts to
streamline and focus its conditionality, emphasizing country ownership of reform programs and
allowing for greater flexibility in policy design (IMF, 2019). The Fund has also increased its
attention to social protection measures and the distributional impacts of economic reforms
(Clegg, 2014). Despite these changes, debates persist about the appropriate balance between,
necessary policy adjustments and the preservation of policy space for borrowing countries;
reflecting the ongoing challenges in reconciling the IMF's global mandate with diverse national
circumstances and development priorities.
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III. Emergency financing instruments
IMF’s emergency financing instruments therefore serve an important role in; the global financial
safety net which offers a quick line of short term support to the member countries in balance of
payment necessity. These instrument have become especially widely used in recent years due to
the fluctuations in the global economy such as the financial crisis of 2008 up to the recent
COVID-19 pandemic (IMF, 2021). The RFI, and its concessional version, the RCF, are intended
to allow the provision of CSAs with minimal conditionality as soon as possible to countries that
need balance of payments because of external factors, natural disasters or other emergencies
(Grabel, 2011). These options enable the fast disbursement of funds, enabling countries to meet
any abrupt financing needs and prevent a weakening of macroeconomic foundations during
crises, to begin with (Kentikelenis et al. , 2016). Among these instruments, the IMF has found
the instruments versatile and efficient enough to rapidly respond to the unfolding financial crisis
due to the COVID-19 pandemic and issue, for instance, Emergency Financing Assistances
(EFAs), Purchase Under Ownership and Encouragement of Commercial Arising (PPOCA), and
rapid credit facility (RCF) to numerous countries that experienced a quite unprecedented level of
external shocks (Gallagher et al. , 2021). Advocates state that these short-term external funding
instruments illustrate; the IMF’s capacity to mobilize promptly and appropriately therefore
offering a crucial source of support to countries in difficulty and avoiding the translation of
regional problems into systemic concerns (Moschella, 2010). However, the critics have pointed
out that moral hazard can be seen arising because there is free access to emergency financing
which may make countries to avoid policies and adequate shock absorbers (Dreher, 2009). Also,
the effectiveness of such instruments in dealing with chronic crises or structural problems has
been questioned because these forms of encouragement are short-term liquidity Lotteries rather
than broad economic adjustment mechanisms (Reinhart & Trebesch, 2016). Still, the global
institutions keep on developing and enlarging its Emergency Financing Facilities, as the IMF
insists on the necessity of simple and immediately accessible sources of funding in the context of
the recently deepened economic instability of the world economy.
IV. Debt sustainability assessments
The Debt Sustainability Assessment (DSAs) have become the important part of the IMF budget
and lending and surveillance credit jointly assessing the countries’ ability to finance their policy
objectives and to service its existing and future debts sustainably without leading to
macroeconomic instability. These assessments encompass the evaluation of the debt
sustainability, which includes; economic growth forecast, fiscal policies and regulations, external
factors, and contingent liabilities (International Monetary Fund, 2021). IMF, sometimes with the
assistance of the World Bank, carries out DSAs for all countries that are creditors to the fund and
as a part of the surveillance exercise (Kraay & Nehru, 2006). The outcome of these assessments
contributes to the policy making process and the process of credit allocation as well as helps in
the identification of a country’s contingent liabilities (Wyplosz, 2011). Critics have said that
DSAs offer useful information to policy makers as well as creditors to avoid credit crises and
usable credit volume (Guzman & Lombardi, 2018). They argue that these assessments improve
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the transparency of sovereign debt markets and can spur the needed policy actions for a
country’s fiscal balance to stand a better chance of becoming sustainable in the long run
(Reinhart et al. , 2015). However, regarding the concept of DSAs, critics argued that these
metrics more often than not are overly conservative and do not consider a number of factors that
could be unique to the particular country such as the ability to grow the economy to enhance
revenues to kind of offset debts. Drawing from previous research, some studies have argued that
DSAs can be pro-cyclical, which possibly deepen a crisis: by constraining funds in the worst
possible time (Panizza et al. , 2009). In addition, there has been criticism related to the political
economy of debt sustainability analyses in the sense that they might be conditioned by
geopolitical aims or by creditors’ interests (Gelpern, 2016). To counter such criticisms, the IMF
has endeavored to strengthen the applied DSA techniques and procedures coupled with
incorporating probability models into the analysis of debt sustainability as well as integrating
factors indicative of country contexts (IMF, 2021). In this context, while debates over the
exhaustiveness and meanings of debt sustainability assessments are still existing and active, such
determinants are still fundamental instruments in the IMF strategy to maintain the worldwide
financial stability and to avoid the occurrence of sovereign debt crises.
4. Global Economic Crisis Management
I. Asian financial crisis response
The International Monetary Fund's response to the Asian financial crisis of 1997-1998 thus
marked a significant moment in its history of; global economic crisis management, sparking
intense debate about the institution's role and effectiveness. The crisis, which began with the
devaluation of the Thai baht and quickly spread to other East Asian economies, prompted the
IMF to intervene with large-scale financial assistance packages and policy recommendations
(Stiglitz, 2002). The Fund's approach centered on a combination of macroeconomic adjustments,
including fiscal austerity and monetary tightening, alongside structural reforms aimed at
addressing perceived weaknesses in the affected countries' financial systems and corporate
governance (Radelet & Sachs, 1998). Proponents of the IMF's intervention argue that it played a
crucial role in stabilizing the affected economies and preventing a more severe global contagion
(Fischer, 1998). They contend that the Fund's swift action helped restore market confidence and
that the policy reforms implemented under IMF programs laid the groundwork for the region's
subsequent economic recovery (Boughton, 2012). However, critics have argued that the IMF's
response was based on a misdiagnosis of the crisis, treating it as a traditional balance of
payments problem rather than a sudden reversal of capital flows (Furman & Stiglitz, 1998). The
Fund's insistence on contractionary fiscal and monetary policies in the midst of severe economic
downturns has been widely criticized for exacerbating the crisis and imposing unnecessary
hardship on the affected populations (Wade, 1998). Moreover, the structural reforms advocated
by the IMF have been seen by some as an overreach, pushing for rapid liberalization and
deregulation without adequate consideration of local institutional capacities and social impacts
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(Kapur, 1998). The Asian financial crisis experience led to; significant soul-searching within the
IMF and prompted a reevaluation of its approach to crisis management. Subsequent reforms
included greater attention to financial sector vulnerabilities, increased flexibility in policy
prescriptions, and enhanced focus on social protection measures in IMF-supported programs
(IEO, 2003). The lessons learned from this episode continue to; influence debates about the
IMF's role in; managing global economic crises and its approach to balancing short-term
stabilization with long-term development objectives.
II. 2008 global financial crisis
The most critical event during the IMF work was the 2008 global financial crisis that unfolded
itself into expressing its deep-seated impact on the financial institution as it contested to manage
a systematic shock that originated from the developed countries. This crisis was also responded
to in different ways by the IMF; it was involved in emergency lending, policy advice and a bid to
coordinate the responses of various economies (Claessens et al. , 2010). As opposed to prior
crises, the Fund was providing important financial and credit resources to AVs mainly Europe
and also helping EMDs forced into a slowdown by a global economic contraction (Lütz &
Kranke, 2014). Despite the onset of the crisis the IMF’s lending capacity was greatly increased
by the introduction of new financing arrangements, including the Flexible Credit Line (FCL),
which is intended to ensure supportive lending to countries with solid indicators of stability
(Grabel, 2011). Critic has however noted that the IMF was quick and offered large amounts to
the world economy and proved it is capable of learning and adapting to new challenges besides
fashioning out ways of mobilizing the global community to common purposes (Reuben, 2012).
Some posit that the Fund’s policy advice and financial assistance offered contingencies to
affected economies enabling the rebuilding of confidence during highly unpredictable times
(Kentikelenis et al. , 2016). However, some authors discussed that the role of the IMF as a
watchdog was weakened because the organization could not predict the crisis, and at the
beginning of the crisis overestimated the potential source of the problem (Moschella, 2010).
Critics claimed that Fund’s response aligned it with large, systemic countries: the Fund
assistance favored big and powerful economies (Woods, 2010). Also, the role of the IMF in the
post-crisis period where claimed to be pushing for fiscal consolidation that could have dampened
the recovery of the economies and deepened inequality (Stiglitz, 2016). The actual crisis that
happened in 2008 has also had a direct impact on the activities of the IMF: first, actions to
increase attention paid to macro-financial interactions, secondly, actions to pay special attention
to externalities and systemic threats, and, thirdly, actions to strengthen the IMF as a part of the
global financial system (IMF, 2018). Such shifts are indicative of a continuous adaptation to the
IMF’s management of various crises in the ever changing and extensive global system.
III. COVID-19 pandemic economic measures
COVID-19 has thus become a novel test for the International Monetary Fund; as it had to
provide a swift and also broad solution to a health issue that has affected the world economy.
The IMF during this period has been depicted to have been relying on the rapid provision of
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financial support, policy cooperation based on the nature of the crisis, and out rightly attempts to
mobilize the entire global economy’s response (IMF, 2021). The Fund has recently ramped up its
credit function, troubled by emergency lending facilities DFs, which include the RCF and RFI
that disburses immediately with few strings attached (Gallagher et al. , 2021). Moreover, it has
called for greater spending and eased monetary policies; for health systems and for the support of
the most needy; a quite different tone from that in its demands for austerity (Georgieva, 2020).
Critics say that the IMF’s action has been necessary to support countries through the storm;
especially, low-income and EMEs which have small fiscal buffers (Stubbs et al. , 2021). Critics
argue that due to the intervention of the Fund in the member countries’ affairs, which is also
quite responsive to shocks and which applied possibilities, they managed to hinder severe
massive economic collapse and have outlined the path to its fixing (Gelpern et al. , 2020). Yet,
there are arguments that the IMF’s reactions remain insufficient: the scale of the supports offered
insufficiently answers to the scale of the crisis, and debt relief for the most affected countries
remains insufficient (Neumeyer, 2020). Others have also criticized the IMF’s current lending
more for its potential for the future borrowing such as indebtedness and potential future austerity
measures (Kentikelenis et al. , 2020). The pandemic has also brought to the fore the discourse on
international financial organizations and the wish and need to remodel the global financial
system for effective management of global challenges (Ocampo, 2020). As the crisis unfolds, the
IMF’s mission of helping the global economy bounce back and envisaging and dealing with the
structural challenges that the pandemic has opened remains an issue of hot discussion and
concern among peoples.
IV. Future crisis preparedness strategies
Understanding of the recent global crises including; the financial crisis of 2008 and the COVID-
19 pandemic has thereby highlighted the importance of improving the IMF’s and the
international financial architecture’s crisis management frameworks. The IMF has been very
involved in bolstering the capability of the Fund to mitigate, detect, and counter next generation
crises as it is aware of the dynamic nature of economies in the modern world (IMF, 2021). To
this end, one aspect of these efforts has been to build up the Fund’s surveillance capacity, which
includes the evolution of more advanced tools such as early warning indicators and stress testing
frameworks that can help the Fund to foresee threats before they worsen into crises (IMF, 2018).
The IMF has also been paying attention to enhancing the effectiveness of the GFSF by engaging
in the RFA’s work and considering method to enhance al link and expand the precautionary
options of lending instruments (Scheubel & Stracca, 2019). The advocates claim that these steps
will increase the stability of the global economic structure and the capability of the IMF in terms
of a rapid and adequate reaction to future crises (Ocampo, 2017). Some scholars argue that it is
possible to boost the strength of crisis preparedness and lessen the adverse effects of economic
shocks and thereby, minimize the necessity for expensive ex-post rescue operations (Rey, 2019).
But some literature points out that moral hazard risks may be magnified if crisis prevention
becomes dominant, as countries lose incentives to apply sound policies and keep sufficient
buffers (Jeanne & Zettelmeyer, 2001). Some have also queried whether the IMF’s governance
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and financial assets are sufficient to manage the future crises especially in relation to the
changing global economic structures such that presently differentiated by the relation of the
emerging economies and non-bank financial entities (Helleiner, 2014). Also, there is an ongoing
debate on whether or not the current system of crisis management prepares the right leadership
for the future issues that are structural in nature such as climate change, inequality, and disrupted
economy brought in by technology (Gallagher & Kozul-Wright, 2019). It is similarly expected
that the proactivity and preparedness of the IMF to future crises will need further changes and
development to correspond to the multifaceted and interdependent problems of the contemporary
global economy.
5. Criticisms and Controversies
I. Structural adjustment program impacts
Structural adjustment programs adopted with the assistance of the International Monetary Fund
are the key object of critical attention and criticism. These have mainly been associated with the
IMF’s lending activities especially in the developing world and have included a mix of
macroeconomic policies alongside structural adjustments (Jayasuriya, 2015). On the positive
aspect, SAPs Advocates asserted that they are required to correct structural problems in the
economy reform fiscal policies and for preparing the ground for growth, (Przeworski Vreeland
2000). These assert that such programs have assisted nations by enabling them to balance on
their fiscal policies, consequent attraction of foreign investors and enhancement of their status in
the international community (Boughton, 2001). However, there has been criticism from
opponents of SAM on grounds of; adverse social and economic effects. According to Cornia et
al. , 1987 the SAPs have caused negative effects which include decline in the public health and
education expenditure, increased unemployment, and increased inequalities in income earning.
The concern has been raised that the high speed of liberalization and privatization has led to
elimination of the important social provisions and making the sensitive groups of the society
exposed to fluctuation of the market conditions (Stiglitz, 2002). Furthermore, the implementation
pattern of SAPs, especially focusing on a standard set of reforms, has been criticized for lack of
regard of country’s context and harm to local institutions (Woods, 2006). Certain studies have
thus indicated that countries that adopt IMF programs record lower rates of economic growth in
the period that the program is being implemented, although the matter therefore remains
inconclusive as to the program’s long-run impact. It is worth noting that there have been
critiques of SAPs regarding their effectiveness in poverty reduction by indicating that these
programs have been after all a cause for poverty in some circumstances (Easterly, 2005). To
these criticisms, the IMF has stepped up its measures of adjusting poverty reducing approaches,
flexibility in the design of its programs, and better focus on the areas of social protection (IMF,
2019). But further discussions regarding the suitability of the structural adjustment policies still
remain in relation to the very idea of the structural adjustment as the method of the economic
Page 13 of 25
growth and crisis solving, which voices the conflict between the international role of the IMF,
and the peculiarities of the members states’ needs.
II. Voting power and representation
The issue of voting power as well as representation in the IMF became one of major concerns in
the fourth quintessential aspect similar to the discords about the balance of global economic
power as well as changes in the relative economic strength in the international community. Other
structural reforms include the IMF’s governance structure as the key for decisions and voting
shares that mostly depend on the country’s economic size and openness has been described to
have unfair advantages of the developed countries over the developing ones (Woods, 2010).
These inequities manifest themselves clearly in the distribution of the IMF’s Executive Board
and Awards of Special Drawing Rights (SDRs) which is a reserve asset of the fund (Vestergaard
& Wade, 2015). The critics of this structure assert that this structure denies the IMF any
credibility and efficiency since it does not take into account the emerging markets and gives a
very small voice to the developing countries in the formulation of the rules of the global
economy that are expected to govern countries in the future (Stiglitz, 2002). One of the
significant issues, namely the underrepresentation of the member country, mostly belongs to low
– income nations and highly dependent on the IMF support, subpoenas policies that have little
regard to the needs of those belonging to that stratum (Kentikelenis et al. , 2016). Critics of the
current structure claim that increasing the quotas of the emerging economies would strengthen
the credibility of the IMF; increase the quality of decisions made at the organization and make
more countries committed to its policies (Grabel, 2011). A number of reforms have however
been made by the IMF in guarding against such criticisms, through quota increases and
realignments during the year 2008 and 2010 respectively which sought to increase the quota
representation of the emerging market and developing countries (IMF, 2021). But it has been
rather sluggish and often hindered by political issues, especially the unwillingness of first-tier
countries to give up power (Moschella, 2010). It is for this reason that some scholars reckon that
there are deeper changes needed including the two-tier voting procedure or different measures to
determine the weight of the vote (Rapkin & Strand, 2006). The controversy over voting power
and representation in the IMF thereby speaks volumes on issues of new distribution of world
power and also changing configurations of the global political economy in the 21 st century as
much as it does about the institution itself.
III. Conditionality and sovereignty concerns
The conditionality of the IMF has been a major point of concern mainly on its impacts on
national sovereignty within the context of the international lending programs. Conditionality is a
set of policies that need to be implemented by the borrowing country as a condition for receiving
the IMF’s loans, usually; it implies a set of policies such as fiscal restraint, monetary contraction,
and structural changes (Dreher 2009). The authors advocating for conditionality claim it to be
pertinent in helping in the efficient use of IMF resources and in tackling the reasons why aid was
deemed necessary in the first place (Corsetti et al. , 2006). They argue that these conditions can
Page 14 of 25
be effectively useful for governments in need of political justification for enacting painful yet
necessary reforms and assist in regaining the public’s trust in the market (Pop-Eleches, 2009).
However, critics argue that the ways through which IMF influences policy makers is in many
instances an improper intervention adaption of domestic policies based on external conditions
and realities (Stiglitz, 2002). This concern is particularly a notable one in the developing nations
as acceptance of the IMF policy could transform the economic policy structure and
developmental plans substantially (Woods, 2006). According to the critics, imposition of
conditions erodes democratic decision-making and the ability to have policies which will enable
nations to have different developmental models (Kentikelenis et al. , 2016). However, due to the
intrusion of its conditions it came into conflicts and critics regarding reforms possibly weakening
effectiveness of the programs (Vreeland, 2003). The tension between conditionality and
sovereignty underscores a fundamental dilemma in international financial cooperation:
concerning the tension between the fact that policies need to be changing and that states should
be allowed to determine their fate themselves (Babb & Carruthers, 2008). This mostly requires
massive economic changes that prove politically and socially sensitive to the borrowing IMF
country. For example, measures to decrease the fiscal deficits and to stabilize the economy tend
to mean stringent financial restrictions that will cause considerable reduction in government
expenditure on social programs. Only those that do not affect civil servants’ pocket or job
security can be made because these can elicit public stir and opposition to change that may
hinder some key reform measures. To these concerns, the IMF has taken some steps to make its
conditionality more efficient and specific, stressing the paradigms of country ownership of
reform work plans as well as allowing for policy flexibility (IMF, 2019). This approach’s
objective is to; adapt the conditionality to the actual environment and requirements of the
borrowing country, which may therefore improve the legitimacy and efficacy of such programs.
With the reform programs being developed and formulated by the borrowing countries with the
support from the IMF, there are high chances that the countries will adhere to the policies
outlined because they will see the programs as their own. However, IMF politics of conditions
remain contested to this date concerning their remit and quality. It has been suggested that while
certain changes have occurred in conditions, they still are considered being too widespread, rigid
and invasive and thus still continue to pose substantial limitations to national policy making. The
critics argue that, conditionality is instrumental in proving the proper spending of the IMF funds
and that the borrowing countries come up with the appropriate measures towards the eradication
of the causes of their problems. The question here is the: Balancing of these two and more
approaches to world economy in a way that IMF’s programs help the members to enhance their
economic stability and growth while at the same respecting the sovereignty and conditions of
each of the member. IMF conditionality remains a subject for discussion since it reveals main
concerns and contradictions in international financial cooperation. It will be contestable to assert
that, on the one hand, conditionality can help bring about the required economic reforms and
reinstate investors’ trust but, on the other hand, it poses serious questions about national
sovereignty and democratic governance. To this effect, as the institution strives to embrace
Page 15 of 25
change, the dialogue with the nations will remain crucial in tackling these issues and make
changes in conditionality to guarantee that institutions’ programs enhance sustainable economic
policies. The ideal outcome is, therefore, a synthesis of the IMF’s universalism with the
heterogeneity of the system’s clients, meaning that all stakeholders’ position in the global
political economy, opportunities, and challenges should be treated fairly and with equal
attention.
IV. Alternative perspectives on development
Critics argue that the IMF's emphasis on macroeconomic stability, market liberalization, and
structural reforms often reflects a narrow, neoliberal view of development that fails to adequately
address issues of poverty, inequality, and sustainable growth (Stiglitz, 2002). Alternative
development paradigms, such as the human development approach championed by economists
like Amartya Sen, argue for a broader conception of development that focuses on enhancing
individual capabilities and social well-being rather than just economic growth (Sen, 1999).
Proponents of these alternative perspectives contend that the IMF's policies can sometimes
undermine long-term development prospects by prioritizing short-term financial stability over
investments in human capital, infrastructure, and productive capacities (Chang, 2002). The
concept of "policy space" has emerged as a key critique, with scholars arguing that IMF
conditionality can restrict countries' ability to pursue heterodox economic policies that may be
more appropriate for their specific development challenges (Gallagher, 2005). Some critics
advocate for a more interventionist role for the state in guiding economic development, drawing
on the experiences of successful late industrializers in East Asia (Wade, 1990). Others emphasize
the importance of building strong institutions and addressing structural inequalities as
prerequisites for sustainable development (Acemoglu & Robinson, 2012). The growing
recognition of environmental sustainability as a crucial aspect of development has also led to
calls for the IMF to more fully integrate climate considerations into its policy advice and lending
practices (Volz & Ahmed, 2020). In response to these critiques, the IMF has made efforts to
broaden its approach to development, including greater attention to inequality, gender issues, and
environmental sustainability in its policy analyses and recommendations (IMF, 2021). However,
tensions remain between, the Fund's core mandate of promoting global financial stability and the
diverse development needs and aspirations of its member countries. The ongoing debate about
alternative perspectives on development thereby reflects broader questions about; the role of
international financial institutions in shaping economic policies and the most effective strategies
for; promoting inclusive and sustainable growth in an increasingly complex global economy.
6. IMF's Role in Future Challenges
I. Climate change and sustainability
Climate change and sustainability is a new area of operations for the IMF which can be seen as a
broadening of the competence of the institution due to a realization of how systemic economic
consequences the environment poses. When climate change poses a growing risk to global
Page 16 of 25
economic resilience, the IMF has been implementing climate factors in its bilateral surveillance,
emergency financing, and technical assistance development (IMF, 2021). These involve, among
others, evaluating macro-fiscal and financial repercussions of climate change, giving out policy
recommendations regarding climate change mitigation and adaptation and assisting countries in
attaining low-emissions (Krogstrup & Oman, 2019). Supporters state that is definitely necessary
given the fact that IMF is an institution that is part of the world economy system and plays an
important role in shaping policies across the entire membership (Volz, 2020). Some have argued
that the Fund has the potential to lead on green finance as well as on carbon pricing and
investment in climate-resilient infrastructure investments (Lagarde, 2019). Nevertheless, some
have expressed doubts on whether the IMF is capable or should be responsible for managing
issues of climate given that other institutions can work hand in hand with the IMF in steering the
environmental policy (Davenport, 2020). Critics have argued that the Fund might ignore the
development requirement of low-income countries as well as the policies’ redistributive
consequences toward climate (Gallagher and Kozul-Wright, 2019). Further discussions are still
emerging concerning how climate goals can be achieved while adhering to IMF’s main mandate,
which focuses on macroeconomic stability (Bhattacharya et al. , 2019). Along with the
broadening of IMF’s work related to climate change and sustainability, there is a need to create
new analytical capacities, improve the parameters of policy recommendations, and train staff to
address those diverse issues (Georgieva, 2020). Such changes to and development of the Fund
also locate itself within changes that are discerned in the international economic regime and
accentuation on the connection between environmental preservation and economic stability.
II. Digital currencies and fin-tech
The emerging phenomenon of digital currencies and Financial Technology better known as fin-
tech is one that is responsible for evolving at an exceedingly fast rate and due to this nature
becomes influential for the International Monetary Fund in its quest to monitor the financial
stability of the global financial market. Many of these developments have been orchestrated by
the IMF, which has acknowledged their ability to revolutionize the IMS and financial services
(IMF, 2021). It issues and related topics under this area include crypto-currencies and stable-
coins, their impacts on monetary policy as well as financial stability, possibilities of central bank
digital currencies, fin-tech innovation and their associated regulatory aspects (see Adrian and
Mancini-Griffoli, 2019). The supporters claimed that it is necessary to have the IMF’s
involvement to follow the integration of such technologies, protect financial sovereignty, and
encourage innovation without dangers (Lagarde, 2018). Some of them argue that the Fund is
capable of actively involved in the setting of the new international guidelines and global trends
in the management of the crypto-assets and fin-tech providers (He et al. , 2017). However, critics
have a number of concerns particularly on the IMF’s preparedness of effectively respond to fast
emerging technologies and/or addressing the innovation-stability dilemma (Knight& Northcott,
2020). Critics claim that the Fund’s conventional methods of regulating financial flows could
prove ineffective in the context of many of the distributed and libertarian global currencies and
fin-tech firms (Arner et al. , 2017). Additionally, there is a concern on the impact of ‘digital
Page 17 of 25
currencies’ in the monetary sovereignty as well as in the emerging economy (Mancini-Griffoli et
al. , 2018). While the IMF still does so, it needs to address the following tasks that also reflect
the need for the introduction of new analytical approaches, improvement of technical
competence, and cooperation with various stakeholders in the digital finance system (Georgieva,
2020). In this case, changes in the fund’s activity seem to best illustrate general tendencies
associated with the shifting nature of the global financial system and the emergence of new
technologies that call for adjustments to related initiatives on the part of international
organizations.
III. Income inequality and inclusivity
The IMF’s perspectives on income distribution and growth for all have shifted in the last few
years due to the appreciation of adverse impacts of increasing inequalities. While initially mostly
concerned with macroeconomic balance and economic expansion, distributional elements have
been integrated in to the IMF’s thinking and policy recommendations in recent years (IMF,
2020). This has been occasioned by studies that have pointed to the fact that increasing levels of
income disparity are significantly damaging to growth, social equity, and politics (Ostry et al. ,
2014). Mainstream international organizations’ role on inequality is lengthy and comprises many
topics such as distributional implications of fiscal and structural policies, an integration of
financial systems to proactively advance inclusiveness, effect of innovations and globalization
(Furceri & Loungani, 2018). The critics have stressed that, due to its advocacy of its member
countries’ policies, the IMF has a significant role in addressing the inequality issues, as well as
increasing the focus on the inclusive development paths (Stiglitz, 2016). He and his co-authors
argue that the Fund can strongly help push for pro-competitiveness policies that are also socially-
inclusive— for example, through increasing the degree and progressivity of taxation, increasing
outlay for other forms of social spending, and in labor market reforms that include and protect
the marginalized (Gaspar et al. , 2019). Nevertheless, the organization’s critics have expressed
doubts as to how committed the IMF is to reducing inequality: they have pointed out that the
organization’s structural adjustment policy recommendations tend to widen income inequality
(Kentikelenis et al. , 2016, p. 93). Others have observed that the Fund’s approach to inequality is
still rather limited to mainly economic measures and does not take sufficient account of social
and political aspects (Gallagher & Kozul-Wright, 2019). The solution can be criticized because
it; contributes to the neoliberal approach, according to which the IMF promotes fiscal discipline
and market-oriented reforms that can thus harm the drive to reduce inequality due to austerity
measures and cuts in social protected service. However, there are still controversies over the
accounts of the movement that hence focuses on inequality, regarding its compatibility with the
IMF’s core objectives such as; fiscal consolidation and neoliberal structural adjustments. This
ongoing process is slowly transforming the approach of the IMF to inequality and inclusiveness
but it has to tackle the issue of coming up with detailed policy frameworks meeting the related
distributional concerns and at the same time keeping the macro- stability and growth factors in
mind (Georgieva, 2020). These changes can be observed in the development of the Fund’s
framework in this area, which in turn is linked to; changes in the general paradigm of economic
Page 18 of 25
thought and also the awareness of the correlation between the improvement of conditions for
productive inclusion as well as the stability of the world economy. To correct these problems, the
IMF has launched several actions of them are as follows: – promoting proportional taxation
regime so that higher earner should pay more to state’s coffers. Also, the IMF advocates for
social expenditure which entails spending on education, health and any other social programs
that would ensure the improvement of standards of the vulnerable groups of society. In addition,
the IMF has advocated for this in that a large majority of citizens have no access to formal
financial services and that more must be done to provide financial services to the marginalized
sections of the population to enable them contribute to the economy adequately. Thus, through
promotion of policies, especially in the credit, savings, and insurance segments, the IMF’s goal is
to enable everyone play his part in the growth of an economy. Another set of issues that are
important in the society today and follows the other issues include technological change and
globalization which is also of IMF concern. The Fund also understands that technological
progress, on the one hand, provides economic growth, but, on the other hand, can cause
inequality if there is no corresponding strategy in the management of the process. Hence, IMF
seeks to encourage the measures for workforce development and promotion because employees
must be ready to get the jobs and relevant skills in a changing job market. In summary, it
becomes clear that the activity of the IMF in relation to income differentiation and promoting the
sustainable growth of countries’ economies does not remain confined to a single tool and
develops constantly. Since then, positive progress has been observed in incorporating
distributional concerns into the policy instruments of the IMF but the organization must learn to
walk a tight rope between its core preserve mission of fiscal prudency and specification for pro-
facility, pro- growth distribution strategies. Such an ongoing process demonstrates; an increased
awareness concerning the social angle thus as the crucial element of sustainable economic
progress and hence the Fund’s mission to advance successful policies in this regard.
IV. Enhancing global financial stability
The IMF’s stated intrinsic mission of promoting international monetary cooperation and orderly
exchange arrangements crumbles in a world economy that is gradually becoming complex. Over
time the IMF has been striving to improve its surveillance, to further develop its lending
instruments, and to enhance the global cooperation in order to tackle the crises of the world
financial system (IMF, 2021). These actions include improving the Fund’s diagnostic tools in
terms of systemic risk and cross-border contagion, designing more suitable and adaptable
instruments of lending facilities, and achieving greater coherence in the GFSN (Adrian &
Gopinath, 2020). That is why the supporters of the IMF’s activity state that the organization’s
functions are essential for creating a stronger financial structure of the global economy, given the
frequency and scale of economic crises (Rey, 2019). Nevertheless, critics have claimed that the
organization has proved to be inefficient in halting crises, for instance, it did not see the major
financial shocks like the 2008 global financial meltdown (Moschella, 2010). Others maintain that
the Fund’s financial stability framework and surveillance is still lodged in conventional
macroeconomic aggregates and does not capture adequately this novel risks in Shadow Banking
Page 19 of 25
System and Fintech (Helleiner, 2014). Furthermore, there is further discussion regarding the
optimal combination of international standards and governments’ ability to implement a
particular policy in the financial sector (Rodrik, 2017). Another challenge that the IMF is even
still dealing with while trying to develop the approach to the improvement of the international
financial stability is the need to take into account sources of the new systemic risks which
include climate change risk, cyber security threats, and emergence of new role of nonbank
financial intermediation sources as noted by Georgieva (2020). First of all, the Fund also need to
confront with numerous political economy of international financial cooperation considering the
countries’ heterogeneity of IMF members while seeking ways to achieve global institution’s
reason and efficiency (Woods, 2010). The continuous improvements in the effort signify that the
globe has continued to struggle with the challenges of operating an integrated world economy
and the centrality of international organizations in the process of building the physical structures
for a resilient economy.
Page 20 of 25
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