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Imf Raising Extra Lending Capacity

In: Business and Management

Submitted By hudiefuren1988
Words 612
Pages 3
Article Summary Assignment
The Author’s Opinion on IMF Raising Extra Lending Capacity
Brief Summary of the Article (150)
According to New York Times, the International Monetary Fund (IMF) announced altogether with its sister institution World Bank that they raised more than $430 billion and expanded their lending capacity, in the afternoon on Apr. 20, 2012.
The contribution came mostly from the developed economies such as Japan, Britain, Saudi Arabia and South Korea.
Some emerging countries such as Brazil, India, Russia and China did not make particular commitments or detailed exact dollar amounts. They were supposed to clarify the precise decision after obtaining advice and orders from their governments.
The United States considered Europe’s problems were of its own to deal with and that the it was not necessary for IMF to raise extra lending capacity and contended to contribute no more dollars.
Another issue the author found interesting was concerning the voting power. Emerging countries thought they should have a more strong voice with the fund while an American delegate pointed out financing pledges were not supposed to alter the voting shares within IMF.
The Author’s Opinion (350)
The Europe has been going through a suffering time since the 2008 financial storm. Last February, the euro zone has set up a constant bailout fund European Stability Mechanism, worthy of above 500 billion euros. Based on this action, IMF may find it reasonable to lend the European an extra hand.
As it has been discussed in class, long time of fiscal deficit may bring about many unfavorable consequences, finally resulting in sovereign crisis. In term of economy development, once the sovereign credit rating of a country deteriorates and meanwhile increases the difficulty for the recovery of the real economy. Businesses may find it hard to refinance and threatened by funding strands breaks. Besides, firms devoted to international trade may be faced with a worsened situation and accordingly revenues will be reduced.
To avoid these unfavorable impacts, proper measures should be taken immediately and help the economies to bottom out.
In effect, several economies in the Europe may find themselves hardly able to make a change from the facts. IMF, as an international institution to balance and promote the economic development, is responsible to assist with the obstacles. Though delegates from America doubted the necessity of raising new fund to increase the lending ability of the Fund which might be true, worldwide response, in the author’s opinion, was more than welcomed.
The author found it was reluctant to agree that the sovereign crisis is problem that should be taken care just depending on the Europeans. On the ground of international business and the world’s becoming flattened, no state can survive without a bruise if the euro zone cannot make it.
The nations developing at a rapid grow rate stated their commitments and claimed a larger voting share. It is of the author’s opinion that such a rearrangement of voice may help with legitimacy in fund distribution. The undeveloped economies have an equal right to enjoy economic prosperity and by controlling the usage of the fund one can give a great push to the economic growth, domestically and overseas. For example, the state can adopt a strategy that they can ask the recipient to spend the contributed money on products and services generated by the donor. In this way, both the contributor and the receiver will benefit from the action of aid.
In conclusion, the author supports the new pledges of assistance and the claim of stronger voice of the emerging world. Reference:
Borensztein, E. (2004). Sovereign debt structure for crisis prevention, Intl Monetary Fund
Mankiw, N. G. (2007). Macroeconomics, Worth Publishers, 6th ed.

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