Colonial Loans
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Colonial loans The modern economic global system that most counties adopt now is capitalism which is based on the capital or the money owned by individual ,organizations or companies in a free market .that means that they can decide where to invest ,what to sell and they determine the prices at which they sell these products or services without any control other than the supply and demand concept .still the governments of counties all over the world will have to put some sort of regulation to protect the interest of their people. (Peet, 2003). Sometime the counties doesn’t have such amount of capital as certain companies .these countries need to develop in order to cope up with the changes happening in the world, so they seek the help of other entities ,like other counties or other organization that will help develop their communities. The main goal of this paper is to understand the benefits of domestic production and developing the county internally by developing its resources and their proper use instead of seeking quick money in the form of loans from big international organization such as the IMF which may lead to social ,economic and political problems in these counties That economic concept which most the counties adopt was made possible by globalization which by definition is the integration of many diverse counties all together in many different aspects economically, socially, culturally that was made possible by the ease of flow of information in the modern day world through very advanced information technology and due to these massive scale communication and connections of almost all the countries of the globe that all work with the same economic capitalistic model ,the need for some regulatory organization that will help the harmonious achievement of the rules and regulation of capitalism ,thus the formation of world bank and the international monetary fund . The International Monetary Fund (IMF) is an international organization created for the purpose of standardizing global financial relations and exchange rates. The goals behind creating the IMF are promoting global monetary and exchange stability, facilitating the expansion and balanced growth of international trade and assisting in the establishment of a multilateral system of payments for current transactions. The IMF was created in 1944 in Bretton woods in a UN conference among 44 attending countries .The main need back then was to help with the effect of the great depression following the Second World War .The goal back then was to standardizing global financial relation, exchange rate ,international cooperation trade, the reduction of poverty and financial crises, and economic growth (Katasonov, 2014) . The IMF played a restabilizing role after the Second World War as it helped the countries to restabilize the global economy so it could move toward prosperity, using systems such as fixed exchange rates. Currently, there are 188 member countries in the IMF, in Washington, D.C. Each country or region is represented by a member on the Funds Executive Board and numerous staff members. The ratio of board members from each country is based on the countrys global financial position, so that the most powerful countries in the global economy have the heaviest representation. The United States has the highest voting power, followed by Asian countries such as Japan and China and Western European countries such as Britain, Germany, France, and Italy. (Katasonov, 2014).The fixed exchange rate that was first implemented in 1944 means that the value of the currency is tied to the value of gold .but that system was abolished in 1971 as the IMF implemented the floating exchange rate which means that the value of a currency is interchanging depending of the value of anther currency.Along with being a regulatory body for the global economic system it also help counties by lending money to help them build their economy and rebuild the financial structure ,assists countries in developing sustainable financial policies, provides economic advice, helps countries maximize their financial effectiveness, and work to help developing countries stabilize and sustain themselves in the global economy.The same goes for the word bank which is another regulatory body that was established with the IMF in Bretton woods 1944.although they are two separate entities they work together IMF focus more on short term loans that are funded by its members, while the world bank focus on long-term economic help in more public areas such as preventing disease and is funded by its members and bonds
The loans to be taken from IMF need the approval of its members.To ensure the payback of the money and also to help the country the IMF will implement some conditions in the loan agreement in what is known as the conditionality. The donor country requires that the country receiving the funds adhere to certain rules directing the use of funds.These conditions can go as high as reduction of the public spending by the government ,they control and choose what projects the government should do or invest in .and most of the times the money given to the counties will be towards a specific project not just left to the discretion of the receiving government which is controversial as it either means that the lending counties have specific agenda of project that coalesce with their interest, or that the country of credit doesnt know what to do with the money and doesnt have a wise economic and financial views . In some cases, conditionality can help push the receiving country toward improvement, while in others it might lead to political conflict in the receiving nation To develop the country is better to develop the domestic production, instead of taking foreign loans from IMF which will make the country free to take its own decision .The IMF is considered one of the main international organization that give loans to developed and underdeveloped countries instead of taking loans from other countries that will make the country of credit more under the control of the lender country, for that reason international institutions became more favorable .as they do not interfere in the internal affairs of these countries. But this is only just on the surface as the IMF has the conditionality terms that interferes with the economic policies of the country in credit making corrections in the domestic economic management as the IMF believes that the loans will not be paid unless the country in credit stick to these adjustments .The main goal of these adjustments is to increase the foreign currency reserve to make sure the fulfilment of their loans with no regards to the risks and the social disadvantage it may have on the community.And that is not the case if the country chooses the other way of developing itself. They will not be subjected to any conditions from any other foreign entities, it will only follow the rules that will help its own domestic, foreign and financial policies .Its goal will be actually to increase the income of the country and help its people instead of just gaining foreign currency to make the loan payment