The role of the IMF in helping poor and debt-troubled countries Assignment - 1

The role of the IMF in helping poor and debt-troubled countries - Assignment Example Its major function is to maintain international monetary system, the system through which countries make international payments. It basically works toward providing a system that will enable foreign exchange among countries as it promotes investments and encourage a global trade that is balanced (Heakal 2010). Countries accumulate debts by borrowing from other countries or institutions especially when getting funds from outside seems cheaper and easier. This is done for the purpose of investment in areas such as factories, production of raw materials, and to acquire products that cannot be found within their borders. Borrowing is also done to overcome crises such as wars and natural disasters. There are two means of paying the debts; by simply paying what is owed from the outcomes of the investments especially when loans are invested and managed in viable projects, and by borrowing new loans when conditions are favorable, which is used to offset the older debt (Kocic 2014). The International Monetary Fund is one organization that lends a shoulder to countries with difficulties to pay their debts. These countries experience a situation where their imports and other income sources cannot balance off what they owe. These countries turn to the IMF for two reasons; through loans, the IMF provides an instant means to offset obligations to external lenders and other lenders (both private and public) such as the World Bank which only give loans to financially struggling countries that have agreed to loan terms with IMF. This puts the IMF in the role of a gatekeeper; for a poor country to get loans from other areas, they must first have a loan with IMF (Multinational Monitor Magazine, 2000). As stated by IMF (2014), when a country is experiencing trouble financially and is unable to pay debts, it puts the international financial system at the risk of instability. The loan is open to all member states regardless of their economic state; whether poor,