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What Is International Monetary Fund
The International Monetary Fund or commonly abbreviated as the International Monetary Fund is a monetary fund in the international realm. In other words, the IMF is an international organization engaged in finance and also providing loans to each of their member countries. The International Monetary Fund aims to improve global economic development as well as maintain international financial stability, increase international trade, and reduce poverty levels globally. The International Monetary Fund is an international organization established today in Washington, D.C. with members in 189 states. Each of these countries will have a representation on the exclusive board of the International Monetary Fund in accordance with their respective interests. For any country that is stable or strong in terms of the global economy, it will automatically be able to have the power with the most votes. The reason for the formation of the International Monetary Fund is due to the existence of an international private capital market that moves imperfectly, so that more and more other countries do not have access to the financial market. Therefore, from the imperfect market and funding in the balance of payments, this is one of the reasons for the IMF to provide official funding to borrowing countries. Without the rummy state, the country referred to above will have the potential to implement a poor economic policy so that later it can cover up an imbalance in its balance of payments. Therefore, the International Monetary Fund offers several alternative sources to overcome all these financial problems.Objectives of the International Monetary Fund
The articles of the International Monetary Fund Agreement list six objectives intended to guide the institution "in all its policies and decisions." 1 They include the promotion of international monetary cooperation "through permanent institutions that provide the means for consultation and collaboration on international monetary issues;" the facilitation of "balanced expansion and growth of international trade", thus contributing to high levels of employment and income; as well as the temporary provision of financial resources, under adequate protection, to provide members of the International Monetary Fund "with the opportunity to correct adjustment errors in their balance of payments without resorting to measures that undermine national or international prosperity." Translating goals into practice, the International Monetary Fund focuses on three main activities:- Monitor economic and financial developments and policies at the country, regional, and global levels to drive growth and promote stability through the International Monetary Fund Supervision.
- Provide financial support to members of the International Monetary Fund for external needs (balance of payments) to facilitate adjustment and shorten economic crises through International Monetary Fund Loans.
- Building capacity through training and technical assistance to members of the International Monetary Fund.
Functions of the International Monetary Fund
The International Monetary Fund uses three main functions – supervision, financial assistance, and technical assistance – to promote the stability of the international monetary and financial system. Supervision: The International Monetary Fund closely monitors the economic and financial developments of each member country and holds regular policy dialogues with member countries (also known as Article IV Consultations), usually once a year, to assess its economic conditions with a view to providing policy recommendations. The IMF also reviews global and regional developments and outlooks based on information from individual consultations. The IMF publishes such assessments of multilateral oversight through the World Economic Outlook and the Global Financial Stability Report every six months. Financial Assistant: The International Monetary Fund provides loans to its member countries facing balance of payments problems to facilitate the adjustment process and restore economic growth and stability of member countries through various lending instruments or "facilities". IMF loans are usually granted under "regulation", which requires the borrowing country to take specific policies and measures to resolve its balance of payments issues as specified in the "Letter of Intent". Most IMF loans are mainly financed by its member countries through quota payments. Thus, the International Monetary Fund's borrowing capacity is primarily determined by the total amount of the quota. However, if necessary, to supplement the resources from the quota. Technical Assistance: The International Monetary Fund provides technical assistance to help member countries strengthen their capacity to design and implement effective policies in four areas, namely, 1) monetary and financial policy, 2) fiscal policy and management, 3) statistics and 4) economic and financial legislation. In addition to technical assistance, the International Monetary Fund also offers training courses and seminars to member countries at the IMF Institute in Washington DC, and other regional training institutions (Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates).IMF In Indonesia
The International Monetary Fund's latest annual assessment of Indonesia's economy shows the country has the power to drive its economic recovery. Appropriate reforms and policy actions can lead to a greener and more inclusive recovery. Here are five charts of Indonesia's outlook.- Economic activity began to recover last July, following the easing of containment measures and strong government support, led by government consumption and net exports. Amid uncertainty over the evolution of the pandemic and a slow vaccination rollout, the recovery is expected to be gradual during the year. Improved policy and economic support could be the main drivers initially, followed by greater mobility and confidence as the vaccination program progresses.
- Indonesia's comprehensive response to the pandemic is crucial in preventing a deeper decline. The National Economic Recovery Program aims to strengthen healthcare capacity and provide financial support to vulnerable households and businesses. The central bank is supporting this effort by buying government bonds in the primary market, a remarkable but appropriate and temporary move that has ensured financial market stability. To support this plan, Indonesia temporarily suspended the pre-pandemic budget deficit ceiling of 3 percent of GDP until 2023. Given the relatively low public debt ratio and the ongoing recovery, the expected return should be gradual and complemented by a well-defined public debt ratio. , medium-term fiscal strategy.
- Continued financial support for viable Indonesian companies will be crucial to support the recovery and facilitate the restructuring of hard-hit industries. The government introduced some extraordinary support measures for businesses, such as large-scale loan restructuring programs and interest subsidies for the most affected sectors, such as hospitality, which have helped prevent mass bankruptcies. Nonetheless, credit growth for Indonesian companies remains weak, likely reflecting a combination of weak loan demand and risk aversion by banks amid underlying corporate vulnerabilities. The authorities must be vigilant and ready to take bolder actions if credit growth is still sluggish, because it will be an obstacle to economic growth in general.
- The banking system has weathered the storm well but must prepare for a decline in profitability and the risk of a decline in asset quality after the pandemic. A strong capital position, as well as a series of regulatory relief measures, such as a temporary easing of loan classification standards and liquidity coverage requirements, have helped Indonesian banks to absorb the initial shock. They may use this window to prepare for possible credit losses, through active backups and close monitoring of restructured loans. Supervisors must continue to strengthen crisis management and resolution frameworks to efficiently address potential bank failures.
- Prioritizing the strengthening of government revenue. Indonesian government revenues (as a share of GDP) are substantially lower than most other developing countries, including other countries in the region. Indonesia has an urgent need to increase government spending on development in order to unlock considerable growth potential and meet the Sustainable Development Goals. Higher incomes will allow for increased spending on education, infrastructure, health, and social safety nets, fostering sustainable and inclusive growth. Additional fiscal resources will also help Indonesia address challenges related to climate change and transition to a greener economy.
History of the IMF in Indonesia
The Asian Financial Crisis that spread across Asia and in particular East and Southeast Asia was created by a heavy reliance on short-term foreign loans and openness to hot money. Asian governments generally do not run budget deficits and believe that the IMF will be reliable in the event of a bailout. Instead, the IMF failed to shift short-term loans to long-term loans and forced governments, including Indonesia, to guarantee private debt owed to foreign creditors. About US$110 billion in short-term loans were given to Indonesia, South Korea and Thailand to help stabilize their economies.The IMF imposed requirements by increasing taxes and interest rates combined with cuts in government spending resulting in most countries recovering in 1999. The International Monetary Fund arrived in Indonesia with a bailout package of US$43 billion demanding the closure of 16 private banks and advising Bank Indonesia to raise interest rates. From the outset, the IMF realised their programme was not going well and the managing director had used a pre-planned visit to get President Suharto's attention to raise interest rates but failed.
This resulted in failure because the closure of 16 banks triggered flight in other banks. Billions of rupiah were withdrawn from savings accounts, limiting the ability of these banks to lend, forcing the Central Bank to extend large loans to the remaining banks to avoid a banking crisis. Evidence shows that in January 1998 the Indonesian rupiah lost half of its value within 5 days. The second IMF agreement was designed to include a social safety net provision designed to overcome Suharto's patronage system. This still failed until a third agreement was drafted in April 1998. It was more flexible, demanding the privatization of state-owned companies and new bankruptcy laws and courts to handle bankruptcy cases.
The fourth and final agreement was signed in June 1998 after B.J. Habibie increased following the fall of Suharto which allowed the budget deficit to widen further while new funds were pumped into the economy. Indonesia's economy finally improved in 1999 due to the improving international environment which led to an increase in export revenues. On January 21, 2003, the Indonesian government announced that it would withdraw from the commitment of the International Monetary Fund. The government does not want to extend the existing US$4.8 billion loan package with the International Monetary Fund.
Then President Megawati Soekarnoputri has raised the prices of basic necessities such as fuel, electricity and telephone to meet the International Monetary Fund program, cut state subsidies and narrow the budget deficit. Protests erupted and although the crisis is not expected to be as severe as the one that toppled Suharto in 1998, the newly formed democratic government has been at a crossroads between facing more protesters or backing out of International Monetary Fund loans. The new democratic government is deeply concerned about the fragile breakdown of peace that held the nation back after the 1998 riots.
The end of the IMF agreement with Indonesia was also cemented by long-standing dissatisfaction between the two parties and the Indonesian government who believed that the IMF was also interfering. many in policymaking. The implementation of poor structural adjustment policies is also increasingly detrimental to the lower class. In 2018 the national International Monetary Fund Summit was held in Bali, Indonesia. The International Monetary Fund supported Indonesia's response to the sell-off in the currency by saying higher interest rates and foreign exchange intervention were right in reducing volatility.
Recent political events from major economies such as China and the United States have threatened the rupiah's position. During the summit, it was agreed that meaningful commitments should be made between countries to restore balanced trade relations. The Indonesian rupiah recently fell to a two-decade low with banks aggressively raising interest rates and draining foreign exchange reserves by up to 10%.
Both sides agreed that economic threats are not dominated by stronger powers but more than dominance. The Central Bank has limitations on its power but the approval of the International Monetary Fund in its actions gives it credibility. The IMF had given a positive assessment of Indonesia's economy a few months earlier and suggested improving rigid labor laws and reducing the influence of state-owned companies to increase foreign investment flows.
After knowing about the International Monetary Fund itself, then you can find out what are the duties of this institution for the world and the roles and functions it creates. Also, make sure to register an account with GIC and trade together with fellow beginner and professional traders!
