The Relationship Between India and the International Monetary Fund

An example of the IMF’s ability to promote strong, stable economies is the case of Jordan. In the 1980s the declining oil prices and the related recessions in the Middle Eastern oil exporting countries was disadvantageous to Jordan. In 1989 Jordan had a 30-35 percent unemployment rate and was having a hard time due to their external debt. This led the authorities to request the country’s first arrangement with the IMF. Economic reforms were a part of the agreement between Jordan and the IMF. Jordan agreed to a series of five year reforms financed by the IMF, therefore the government took on huge reforms prioritizing foreign investment and easier trade policies. They were ultimately able to reduce the overall debt payment up to a manageable level. Jordan is currently regarded as a country by which the effectiveness of the IMF assistance is assessed.

The Indian economy following the 1991 crisis swiftly moved away from central planning economy towards market-based economy with the government having less intervention and control. As a result, companies were operating in what is called emerging

Kumar (1996) compares trends/fluctuations in key macro-economic variables in India pre and post 1991, both before and after initiation of new Indian economic policy in '91. These reforms included, amongst other things, the opening up of the Indian economy for international trade (prior to this India was a socialist state not involved in these markets) plus investment and heavy de-regulation processes. These particular changes to this policy allow for great insight into the impact of de-regulated, international capital trade on previously effective macro-management. He observes that this new economic policy increased economic instability which facilitates speculative activity, particularly resulting from financial sector liberalisation and the opening up of the economy. He adds that the observed increased volatility in economic fluctuations is a result from state intervention under these new economic policies that have reduced policy effectiveness. To quote: "The NEP not only lay greater stress on market forces but on opening up of the economy to foreign capital. This imposes constraints on policies since government cannot control the external environment which is governed by international finance capital- a force far more powerful than the Indian state hence able to dictate to it". He argues that since the interest of

The IMF is interested in trade creation and has the power to lend money with conditionality (Rose 682). According to the IMF website, they exist for 3 purposes:

The word bank and IMF are the two main global financial institutions that lend money to various developed and developing countries. According to Wolff (2013) these institutions came into being in 1944 after the Bretton woods conference to establish a firm global economy after the world war two. The purpose of these institutions was to stimulate a stable development and offer unconditional loans to nations in economic crisis so as to achieve their developmental needs (Wolff, 2013). However, these never saw the daylight, due to pressure experienced from the US legislatures, also known as the ‘‘Washington Consensus’’ which as a result led the IMF and World Bank to lend money with harsh conditions.

❖ A member’s quota in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of Special

In 1991, India was in an economic crisis that was triggered by the rise in imported oil prices following the first Gulf War. During

The IMF has 185 member countries; their work mainly consists of monitoring and advising countries on exchange rates,

In 2013 the total exports for India was at $313.2 billion whereas the import stood at $467.5 billion (CIA, 2014). India followed the Adam Smith model producing only what it was efficient at and imported the rest. There started a reversal in capital inflows which hit the export demand and posted a crunch in the domestic markets leading to a decline of more than 2% in India’s GDP in the fiscal year 2008-2009 (Kumar & Vashisht, 2009). In 2008 India was already experiencing a high inflation rate, which reduced expenditure in the country. To address the crisis and its affects the Indian government and the banks introduced fiscal stimulus and relaxed monetary policies in order to boost domestic demand. The market interest rates increased to 20% and above suddenly. India had received a fiscal stimulus of $80 billion injected into the economy to ensure liquidity. India was loosing badly on FDI’s and remittances. During 2008, India’s FDI inflows experienced a negative growth of 2% (Kumar & Vashisht, 2009). Remittances also are a major part of the capital inflows of the country, in 2008 the remittance inflow declined by more than 29% (Kumar & Vashisht, 2009) as every country first wanted to protect jobs of its home citizens and there was a severe lay off. Exports to USA is a major component of India’s GDP. After a sharp decline in the demand from the US, India had to lay off more than 300,000 workers instantly. There was a decline in exports of India by

Following the fall of the soviet union in 1991, the Russian economy entered a downward spiral. The IMF was at the ready and loaning Russia billions of dollars in an attempt to prevent a total collapse of it's economy. The leaders of the IMF undoubtedly understood that the leaders of Russia were not the most trustworthy people to loan such money to. However, their economy was collapsing and if allowed to fail, the rest of the world would surly suffer the consequences.

The purpose of this paper is to evaluate the effects of the rivalry between the International Monetary Fund and the Asian Infrastructure Investment Bank on the international financial markets worldwide. I will examine the introduction of the new financial institution (the AIIB) that was initiated by the BRICS countries after their voting share-percentage in the IMF quota reform were unsuitable to their emerging economies. Additionally, I will especially focus on the differences and possible advantages that come with the addition of the Asian Infrastructure Investment Bank to the financial markets of developing and transitional countries with the objective

provided funds in an elastic manner of time, usually after a decade of a grace period,

The three major international economic institutions are the International Monetary Fund (IMF), the World Bank and the World Trade Organization; this book mainly focuses on the IMF and the World Bank, due to the author’s first-hand experience with both institutions. The IMF, a public institution built as a guiding hand for economic stability around the world, has brought false

1.The international financial institutions (IFIs) are central pillars and the architects of the global economy. The world bank and IMF were founded and funded by the United states after the second world war to build shattered world economy after the war and great depression of the 1930s (socialist alternative,). The creation of the IFIs was to bring about a global economy after the “isolation economy” which some argue brought about the Second World War. The IFIs were to help the economy of the less developing countries (LDCs) to bring about growth and development, a phenomenon known as globalization.

Globalization in India began essentially in the year 1991 when the deficit in the balance of payments prompted India, under Prime Minister, P. V. Narasimha Rao and his Finance Minister, Manmohan Singh (currently the Prime Minister of India) to undertake a series of structural economic reforms as a part of the bailout deal with the International Monetary Fund. Since 1991, the context of administration has again been changing under the impact of the New Economic Policy. Concepts like 'globalisation', 'liberalisation', and 'privatisation' have gained wide cur¬rency that are indicative of more openness of government to international competition, deregulation and dismantling of a series of government controls, and downsizing of government by handing over selected activities to the private sector, and by encouraging the non-government organisations to work more and more in the social development sector, particularly in such