International Monetary Funds's Role in Financial Crisis

During the Great Depression of the 1930s, world trade declined sharply and employment and living standards plummeted in many countries. In order to avoid a repetition of the same economic disaster, the International Monetary Fund (IMF) was established after World War II to oversee the international monetary system and to encourage its member countries to trade with each other. The IMF was created to assist the worldwide economic recovery and it continues to work on its mission until today.

At the beginning of 2008, surging prices of oil and other commodities reminded people of the stagflation in the 1970s. The Lehman Brothers’ collapse brought the final crisis nightmare to  real life. As an organization that has been closely involved in the resolution of crises throughout the years, the IMF did not just "let it happen." It published the Global Financial Stability Report at the end of year and estimated that losses on U.S.-based mortgage-related and other credits would add up to $1.4 trillion. This warned other countries to start to take actions and to reform their economic policies.

During the crisis, the IMF provided annual “health checks” for its member countries and gave them analytical assessments and solutions for the current economic issues. For instance, the staff report showed that Britain’s economic recovery could be imbalanced because of the slow growth in emerging markets, and it advised that the Bank of England keeps the monetary policy loose.

The IMF also increased its lending firepower to help the struggled countries overcome the economic difficulties; it especially supported low-income countries. For example, in the Solomon Islands, the IMF-supported program recognized the need to step up government spending on infrastructure, health, and education to achieve inclusive growth. The financial environment in the nation has improved since the government committed to this plan.

The IMF ensures balance in the global economy. It provides accesses for low-income countries to seek for help. Its analytical assessment and suggestions help the country to find out its growth limits and to achieve continuous growth in the future. For more information about IMF's role in economic recovery, check out the new globalEDGE newsletter!