FOREIGN DEBT AND ECONOMIC DEVELOPMENT: IMF POLICY ISSUES
GEORGE E. SAMUELS AND RAUL MONCARZ
The Bretton Woods agreement attempted to recapture the tranquility of fixed exchange rates without domestic rigidities caused by the pure gold standard, thereby facilitating trade. A central reserve fund, the International Monetary Fund (IMF), was created to loan money to nations that needed funds in order to stabilize exchange rates. 1 The purpose of this chapter is to look at the effects of recent events on the IMF; its credibility, purpose, and function; the consequences for Latin America; and the issue of the United States' increased contribution to the IMF. Questions regarding the IMF's need for more money, how it will be used, and the possibilities of debt repudiation still require discussion.
The IMF was established to promote international monetary cooperation, facilitate expansion of growth and trade, promote exchange stability, and lessen balance-of-payments disequilibria. In pursuing these goals, the Fund provides more than money; an IMF economic adjustment plan also serves as a "seal of approval" that commercial banks or governments require before they lend, giving the IMF influence over the economies of struggling nations. 2 There are several channels through which influence may be exerted. First, the IMF provides a direct source of financial assistance at below-market rates. Second, because a large proportion of its lending is conditional, it has considerable input regarding economic policy in those countries requesting assistance. Third, it may have an impact on private capital flows, with the negotiation of the IMF program encouraging private banks to lend to countries that would otherwise seem less credit-worthy. 3