SOLD BY: EVALUATION OF THE EFFECT OF INTERNATIONAL MONETARY FUND (IMF) LOAN POLICY ON DEVELOPING ECONOMY
(A CASE STUDY OF NIGERIA)
ABSTRACT
This research work sought to evaluate the effect of International Monetary Fund loan policy on developing economy with Nigeria as a case study. The statement of problem in this research work is the dysfunctional relationship between lenders and borrowers in international finance. The main objective of the study is to evaluate the effect of international monetary fund (IMF) loan policy on developing economy. The sources of data used are primary and secondary sources. The study revealed that the developed nations are using the fund to control the economy of the developing nations. Recommendations such as the establishment of a framework for dealing with international debt crisis and avoiding such crisis in the future were made.
TABLE OF CONTENTS
Title page i
Approval page ii
Dedication iii
Acknowledgement iv
Abstract v
Table of contents vi
CHAPTER ONE: INTRODUCTION
1.1 Background Of The Study 1
1.2 Statement Of The Problem 3
1.3 Objectives Of Study 4
1.4 Research Questions 4
1.5 Research Hypothesis 5
1.6 Significance Of The Study 5
1.7 Scope Of The Study / Limitation 5
1.8 Definition Of Terms 6
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction 9
2.2 Conceptual Frame Work 9
2.3 Empirical Framework 11
2.4 Theoretical Frame Work 19
2.5 Organization And Structure Of Fund 23
2.6 International Monetary Fund (IMF) Debate In Nigeria 24
2.7 An Approval Of International Monetary Fund (IMF) Loan In Nigeria. 26
2.8 Functions Of International Monetary Fund 27
2.9 Problems Faced By International Monetary Fund 28
2.10 Conditionality Of IMF Loan 31
2.11 Contributions Of The IMF 33
2.12 Areas Of Coverage / Limitations/ Constraints / Challenges 34
2.13 Summary Of Chapter Two 36
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction 38
3.2 Research Design 38
3.3 Sources Of Data 38
3.4 Method Of Data Collection 39
3.5 Population Size 39
3.6 Sample Procedure And Sampling Techniques 39
3.7 Justification Of Data Analysis Techniques 39
3.8 Summary Of The Chapter 40
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction 41
4.2 Data Presentation 41
4.3 Data Analysis 41
4.4 Test Of Hypothesis 49
4.5 Data Interpretation 51
4.6 Discussion Of Findings 51
4.7 Summary Of Chapter Four 52
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary 53
5.2 Limitation Of The Study 54
5.3 Conclusions 54
5.4 Recommendations 55
Bibliography 57
Appendix 59
CHAPTER ONE
1.0 INTRODUCTION
Loans from the International Monetary Fund (IMF) largely come with policy change conditions attached – conditions that the International Monetary Fund has played a significant role in developing. Criticisms of the excessive burden and politically sensitive nature of these conditions led to significant reviews at the International Monetary Fund and the introduction of some conditionality-free facilities, although these are limited in scope. The International Monetary Fund claims to have limited its conditions to critical reforms agreed by recipient governments. However, the worrying findings of this research suggest that the IMF is going backwards – increasing the number of structural conditions that mandate policy changes per loan, and remaining heavily engaged in highly sensitive and political policy areas.
1.1 BACKGROUND OF THE STUDY
The International Monetary Fund (IMF) was conceived and nurtured at Bretton Woods Conference (USA) in 1944 by representatives of forty-four (44) countries. These countries include among others, United States of America, Japan, Canada, Britain and few Latin American countries. The conference was called to discuss the international trade and payment problems that were causing monetary upheaval and inducing many countries to adopt protective and restrictive trade practices. The conference was also called to reconstruct and restructure many European economies, which have been ravaged by the Second World War.
Reconstruction and restructuring a war-ravaged economy is extremely an expensive task. The countries involved obviously could not foot the bill of such huge expenditure without foreign assistance. The united states of America was ready to protect these European economies from communist temptation thus, quickly devised what came to be known as the Marshal plan, which essentially brought in resources to finance the reconstruction and restructuring programmes of the war ravaged Western European countries. The United States of America also considered it necessary to establish a strong and lasting trading relationship and to strengthen the relation and interest of alt the Western European countries.
Therefore, to facilitate and promote such international trade, it was considered very important to set up an international organization with adequate resources and control to facilitate the payment and provide short-term balance of payment facilities for countries suffering from balance of payment deficit caused by temporary and non-structural economic dislocations. This conception gave birth to international monetary fund as an institution suitable for this purpose.
When the International Monetary Fund was established in 1944 (World Bank Report 1996), most of the developing countries were under colonial rule and their economies were simply under imperial control with nothing but simple agricultural products and raw materials which were regarded as products of imperial countries. The International Monetary Fund was therefore essentially set up to address short-term balance of payment deficit of western industrial countries. The articles establishing International Monetary Fund stipulated that as developing countries are becoming independence they could join the International Monetary Fund since they might also experience short-term balance of payment crises for which they could seek and perhaps get assistance.
1.2 STATEMENT OF THE PROBLEM
The rise of IMF lending and crisis mediation since the early 1980s reflects, in large part, the development of dysfunctional relationship between lenders and borrowers in international finance. Referring the relationship requires that moral hazard be reduced and that crises prevention and management be more effective. The IMFs new initiatives to deal with crises, however are likely to be ineffective. An approval based on greater reliance on two-party negotiation holds more promise in stabilizing the international financial system than current approach, in which the IMF too often becomes a burdensome third party.
1.3 OBJECTIVES OF STUDY
It is obvious that economic problems of developing nations have consistently defied solutions. This research work will focus attention on the evaluation of the international monetary fund (IMF) loan policy on developing economy. To achieve this, the following objectives will be pursued.
i. To assess the various IMF loan policies
ii. To examine the impact of IMF loan policies on developing nations
iii. To analyze the challenges faced by developing nation in accessing and paying back IMF loans.
iv. To appraise recommendation to be adopted by IMF and developing nation to reduce the adverse effect of the various loan policies.
1.4 RESEARCH QUESTIONS
To achieve the objectives of this study the researcher tries to find out solution to the following research questions.
i. What are the IMF loan policies?
ii. Has the IMF loan policies any adverse effects on the economy of developing nations?
iii. Has the implementation of International Monetary Fund loan any adverse effect on the economy of developing nations?
iv. What is the variation of the International Monetary Fund loan policy from developed nations and the developing ones?
v. What is your assessment of the impact of International Monetary Fund loan policies on developing nations?
1.5 RESEARCH HYPOTHESIS
H0: International Monetary Fund loan policy has negatively impacted on the economy of developing nations
H1: International Monetary Fund loan policy has positively impacted on the economy of developing nations
1.6 SIGNIFICANCE OF THE STUDY
This project work will be of immense benefit in the following ways:
i. Revamping the ailing economy of developing nations.
ii. The appropriate reform of the International Monetary Fund loan policies.
iii. The study will also be useful to those other countries wanting to borrow from the fund or seeking other economic measures to revive their ailing economies.
1.7 SCOPE OF THE STUDY / LIMITATION
This study covers the evaluation of IMF loan policies on developing nations. This is a wide area to cover, but as a result of limited time and resources the researcher deem it fit to reduce the scope of the study to Nigeria alone since the condition of Nigeria economy and the impact of International Monetary Fund loan policies is the same with other developing nations of the world
In carrying out this work the researcher encountered some problems. Apparently the researches carried out in developing countries like Nigeria are usually inhibited by inadequate data, this serve as one of t the major limiting factors. Lack of sufficient funds and the uncooperative
1.8 DEFINITION OF TERMS
The following terms are frequently used in this work. It is therefore necessary to offer definition for them with short explanation.
IMF: International Monetary Fund
Balance of Payment: It is defined as the statistical record of all economic transaction that take during a specific period of time between the country resident and the rest of the world.
Bretton World Agreement of 1944: this articles of agreement adopted by the international monetary conference of 44 nations which met at Bretton Woods, New Hamspire, USA.
Capital Flight: Illegal transfer of a country’s foreign exchange earning into foreign personal account.
Debt services used to ration: this is ratio of debt to exhort of goods and services used to assess the ability to use export to service external debt.
Development: This is a multifaceted concept. It measures changes in the standard of living of people over time.
Economic Development: This is one aspect of development. It provides answers to such questions as: What has happen to poverty? What has happen to the gap between the have and the have not.
Extended Fund Facility:This is a fund that supports medium term programmes through extended arrangement that generally run for three years (four years in exceptional cases) and are aimed at overcoming balance of payment difficulties stemming.
Loan: A business transaction between two entities whereby one party (the lender) agrees to rent fund to the second party (the borrower). The fund may be rented with or without a fee. This fee is called interest or discount.
Long-term debts: Are liabilities that become due more than one year after the signal of the agreement? Usually these are formal legal agreements demanding periodic payments of interest until the maturity date at which the principal amount is repaid.
Monetary Policy: That part of economic policy which regulates the level of money or liquidity in order to achieve some desired policy objective such as control of inflation, an improvement in the balance of payment position, high level of employment and growth in the economy.
Monetary Reserve:A member’s monetary reserves are its net official holding of gold of convertible currencies of other members and he currencies of such non-member as the fund may specified.
Structural Adjustment Facility (SAF): Facility established by IMF to provide financial assistance on concessional terms to low income earning countries with balance of payment problem.
Structural Adjustment Programme (SAP): an economic measure aimed at revamping the economy. It is based on a policy of privatization and commercialization of public utilities, removal of subsidies, liberalization and self-reliance
Special Drawing Rights (SDR): This is an international reserve asset which is the official unit of account of the IMF which has also increasingly serve as a substitute for gold in international payments. The special drawing account was set up in 1969.
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