The International Monetary Fund was formed with the purpose of stabilizing exchange rates and thus securing economic prosperity for member states. It currently includes 188 states. However, the membership includes both developed and developing countries (Moschella, 2010). The developed member countries act as creditors of the organization by providing a pool of funds from which the developing member states take loans whenever they feel in need, but they become subject to fulfillment of laid down conditions and procedures. The mandate and governance of IMF has evolved with changes in the entire global economy. This has in turn allowed organizations to retain their major role within the international financial arena.
The organization has faced numerous challenges as it seeks to achieve its objectives. These are discussed hereunder. The debt crisis is a major concern. The debt crisis occurs mostly when developing countries borrow funds from the organization. Most of these nations have weak economies. Their political setups are characterized by uprisings leading to political instabilities, wars, thus providing the environment unfavorable to conduct a successful business (Moschella, 2010). Mismanagement of resources through corruption, tribalism, and nepotism only serve to worsen the already difficult situation. Thus, funds meant for meaningful causes are either embezzled of mismanaged, thereby defeating the purpose of the loans. This leads to stunted development and therefore makes structuring of development facilities or infrastructure a difficult task. Governments therefore do not generate income to service the debts to the organization. This denies the organization funds to lend other nations, which may require such assistance. As such, the IMF has a challenge handling the debts that emerge due to advanced funds of developing nations.
The exchange rate crisis is another concern. This entails devaluation of a country’s currency to the extent that it compromises the ability of the currency to serve as a medium of exchange and store of value. Confidence in the currency diminishes. The effect is that this compromises the interest rate that prevails in the countries affected (Warren, 2008). Unfavorable changes can affect imports of a country; thus, the level of income in the country is affected. This can result in unfavorable balance of payments. This can also affect the GDP of a country leading to unemployment and thus poverty levels increase against the set objectives of the IMF, which aims to alleviate poverty among member states. This has therefore proven to be a challenge to the organization given that it has little influence regarding the regulation of exchange rates.
The International Monetary Fund has also been accused of doing little or being insensitive towards the development or improvement of financial structures of developing countries. The organization has not made deliberate efforts to help such nations develop their capacities in the management and implementation of financial matters (Joicey and Pickford, 2011). Infrastructure in handling finances has not been effectively developed to ensure that the funds are handled properly with minimal challenges encountered.
A capacity should be built to ensure efficient accounting of money and the infrastructure to run the system. There should be an improved technology that is secure and systems that ensure checks for accountability to ensure transparency in the way the funds are used. Assistance should also be accorded to nations to promote political stability and guarantee a safe environment that allows for the development to thrive. However, it has been challenging for the organization to achieve this objective.
There is also the idea of short-term crisis management. The IMF is accused of only concentrating on giving remedial assistance in the only instance upon which a crisis has arisen. For example, they only give aid to victims of disasters, but no measures are put in place for continued assistance to ensure that their lives are brought closest to where they were before a calamity struck. This therefore shows that the kind of aid accorded to victim countries is not comprehensive and lacks merit. Their responses are also said to be too slow to have a meaningful impact (Joicey and Pickford, 2011). The organization responds late. This therefore beats the relevance of the aid that ought to be timely to save the necessary matter as required. The organization is thereby urged to improve its activities for it to remain relevant in the modern world.
The advice given to the organization is seen to be erroneous in judgment, thereby leading to incorrect decisions. Their lending ways and repayment terms are not informed by facts but rather by what is seen as political influence by developed nations that usually finance the organization. This has led to financing with unclear aims whose terms are not in the interests of the organization and in line with the set objectives (Truman, 2010). Therefore, the organization is viewed as a rubberstamp of developed nations that are creditors to push for their agenda.
The conditions attached to any country to be considered for funding are stiff. There are requirements for economic policies of the country in need of such loans to comply with. Some of these conditions are seen to compromise political autonomy of developing countries, as they have to consent and implement the strategies set or recommended by the organization for them to be considered for allocation of loans. The conditions are usually set by developed countries that have immense influence on the organization (Warren, 2008). This has caused mistrust between developing and developed countries. Due to the stringent requirements for compliance, some developing nations resort to avoidance of loans, which leads to abject poverty and worsening economic situation. This is against the set aims of poverty eradication among the member states.