WORKING AND EVALUATION OF THE FUND
It is clear that final can play a vital role and achieving intcrnauonal cconunuc vtability and in pro moting healthy international monetary relations. However. the I.M.F. failed to achieve its objectives in the early years of its operations. (i) For many years. the Fund was not able to achieve its fundamental objective of pulling down trade barriers, Agricultural protection dominates fiscal policies in Europe and the U.S.A. It is a pity that the U.S.A. still clings to the protectionist policy in spite of her tremendous competitive strength. These policies rc repugnant to the underlying objectives of the Fund. Lad, (If international co-ordination of monetary. import and stockpiling polices has aggravated the difficulties. Uil The Fund is helpless in restraining iuflatiouary pressures in a country and in maintaining monetary stability. The seventh report of the Fund Emphasizes internal monetary stability as the primary need and it issued a warning to the member-countries to em! inflation or the world will move further towards restrictions on trade and currency convertibility. But the warning went unheeded. The I. 1.F. was unable to promote exchange stability In the member-countries. Perhaps the post war dislocation proved a little too much for the l.M.F. In 1948. France carried 44.4 per cent devaluation and established a free market in gold and.U.S. dollars in Paris which was incompatible with the principles of the Fund. But still the Fund treated France
in distress with sympathy and enhanced its reputation for its principles. and for its management. Up to September, 1949. there was no general devaluation; but Great Britain devalued her pound at that time by 30.5 per cent and the British example was followed not only hy the Common wealth nations (except Pakistan) but also by 13 other countries. India devalued her currency by 36.5 per cent in June. 1966 and England.England again devalued the £ in November.
1967 by 14.3 per cent. The Fund could object to this big change in the par value of the currencies involved. but did not. It felt that the action was necessary to correct a fundamental disequilibrium. TIle change. though not agreeable. was inescapable.
The Fund was unable to prevent dollar shortage in the late forties. It should have declared dollaras a scarce currency and adopted measures tu make the dollar freely available. But it did nothing of the kind. r) TIle Fund has suffered all along from inadequacy of funds, Funds of the I.M.F. may not be sufficient to cope with the sudden movements of hut money when there arc no exchange controls to stop them. Then there arc national sovereignties to be reckoned with. “TIle I.M.F. agreement is a transparent piece of paper stretched across the cracks which exist in the world polity of every national character.” An apt pieture of the working of the Fund is given by Coulborn: “There arc fifty (1952) countries trying to play the semi-gold standard game. whereas there used to be six principal players and few lesser ones.
Yet it is the same game (because I.M.F. is essentially an amalgamation of the Exchange Equalisation Accounts of gold standard days put under international
control). and the chief players are the same, as the voting strengths show. It remains to be seen whether it is a better game played somewhat publicly in Washington. with fairly precise rules codified for it and a large number of amateur players taking a small part. or whether it was better when six stars played with skill and without
distraction. making the rules as they went along. It may be a reasonable guess that the best game (If all will prove to be a combination of the present from with the earlier .one There might be added both strength and flexibility to the I.M.F. system if the Exchange Equalisation Accounts. provided a new with resources in some cases. came into the exchange market again in the more important financial centres.
Gradually. however. the Fund improved its performance. The annual report if the Fund presented at its annual meeting held in October II/58 ill New Delhi said that considerable headway had made towards the achievement of its objectives. To an in creasing extent. the world had been moving towards exchange stability with orderly exchange arrangements, among the Fund’s members, the avoidance of competitive depreciation, the elimination of excl] jlnge restrictions and establishment of a multilateral system of payments. The Managing Director the Fund declared at the opening of the annual conference in September 1962 that there were indications that -the world was approaching a state of economic equilibrium solid enough to withstand monetary tension. The improvement has continued since then. A plan for a new international asset, known as the ‘special drawing rights’. was approved by the I.M.F.’s Board of Governors in September, 1967. It is like a normal account in a bank except that no deposits are required to build up the account. Once the allocation is made. a participating country automatically receives a share corresponding to its quota in the I.M.F.’s general account. They are treated as part of the monetary reserves 10 finance their international trade. The special drawing lights supplement the gold. the dollars and pounds sterling most countries now use as .moncy reserves. In order to mitigate the hardship of the developing countries arising from the unprecedented oil price
hike, the I.M.F. set up a three-billion “Oil ” Fund in 1974 in the form of special drawing rights .
The developing countries get a credit out of this fund at a low rate of interest (2.5 per cent) to enable them to pay their enhanced oil bills and meet balance of payrnents difficulties caused thereby, It was decided to keep the “oil window” open for another year and to raise the oil facility funds from $3 billion to $6 billion.
Interest is subsidized from a fund contributed by oil exporting and industrial countries. The Oil Facility was wound up in 1976. Another facility provided by the Fund to its McPherson is the Compensatory)’ Financing Fucility, Established in February 1963. it is designed to extent the Fund’s balance of payments short-term support to such member countries-particularly primary producting countries as suffer from fluctuations in their export receipts due to circumstances beyondtheir control. Expect in the case of natural disasters or other major emergencies, the drawings under this facility cannot exceed in anyone year. more than 50% (previously 25%) of the member’s quota and the total draw nags more than 75% (previously 50%) of the quota. Drawings under the compensatory financing facility arc additional to those under the Fund’s regular tranche policies. Mention may also be made of the Extend Facility which was established by the Fund in October.