Promoting Healthy Economies

• Pages: 15-18

Page 15

The main job of the IMF is to promote international monetary cooperation, and economic and financial stability in member countries and at the global level, as a basis for sustained economic growth, which is essential for raising living standards and reducing poverty. Promoting macroeconomic and financial stability is partly a matter of avoiding economic and financial crisis, which can destroy jobs, slash incomes, and cause great human suffering. But it is also a matter of avoiding large swings in economic activity, high inflation, and excessive volatility in exchange rates and financial markets. Any of these types of instability can increase uncertainty and discourage investment, impede economic growth, and hurt living standards.

Page 16

A dynamic market economy necessarily involves some degree of instability, as well as gradual structural change. The challenge for policymakers is to minimize instability without hampering the ability of the economic system to raise living standards through the higher productivity, efficiency, and employment that it generates.

Experience has shown that the countries with the strongest growth and employment rates and the least economic instability are those that

* follow sound macroeconomic (fiscal, monetary, and exchange rate) policies;

* allow markets to function, with appropriate regulatory, structural, and social safety net policies;

* are open to international trade;

* build strong economic policymaking and regulatory institutions;

* foster the development of strong financial systems;

* collect, monitor, and disseminate high-quality data; and

* embrace good governance.

The IMF promotes the stability of the international financial system through its three primary functions:

Surveillance. The IMF is responsible for overseeing the international monetary system and the compliance of each member country with its obligations to help ensure orderly exchange arrangements and a stable system of exchange rates.

The Fund exercises this responsibility by tracking economic and financial conditions around the world and examining whether policies in member countries are appropriate from the international as well as the national point of view. It alerts member countries to impending dangers, enabling governments to take preventive action if necessary.

Lending. The IMF lends to countries with balance of payments difficulties. The primary objectives of its lending to lowincome countries are economic growth and poverty reduction.

Technical assistance and training. The IMF helps member governments develop strong policymaking institutions and economic policy instruments.

Surveillance in action

With its nearly universal membership, the IMF serves as an international forum where members can monitor and discuss developments in their respective economies and also global economic developments. In recent decades, the major challenge to financial stability has come from the growth in the size and sophistication of international capital markets. A large number of countries have gained access to these markets. In many ways, financial globalization is a welcome development.

It provides...