The International Monetary Fund (IMF) is an international organization headquartered
in Washington, D.C., of 189 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and
sustainable economic growth and reduce poverty around the world. Formed in 1944
at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and
John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which
countries experiencing balance of payments problems can borrow money. As of 2016
the fund had SDR477 billion (about $668 billion).
Through the fund, and other activities such as the gathering of statistics and analysis,
surveillance of its members' economies and the demand for policies, the IMF works to
improve the economies of its member countries. The organization's objectives stated
in the Articles of Agreement are: to promote international monetary co-operation,
international trade, high employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty.
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Countries facing analogous crises of confidence like Nigeria, Poland and Turkey have had to seek IMF support.
South Africa can hope that the situation will improve. But it should also plan for the possibility that it will not and that confidence in the government’s ability to manage
its deteriorating financial situation will evaporate. This will lead to both higher borrowing costs and reduced access to financing for the government and state-owned
enterprises. It could also lead to state owned enterprises defaulting on their debts and
their creditors calling in their government guarantees. As government loses the ability
to fund its operations, it will be forced to turn to the IMF. It is the one organization that can help it regain access to financing – on condition that South Africa agrees to implement an IMF approved set of reforms.
No-one wants an IMF programme for South Africa.
First, it means the government accepting an outsider, dominated by rich countries,
overseeing its economic policies. Second, IMF support will be conditioned on the
country agreeing to painful reforms such as:
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· Reducing the government’s budget deficit and the current account deficit so
that it can meet its financial obligations
· Deregulation and labour market reforms designed to encourage investment.
But if South Africa begins preparing for this possibility it may be able to mitigate its worst effects and be ready to exploit whatever opportunities it creates.