Qiu jing jing  (?????o:p> )
                           Student ID :s06095

             Law School
            Research Paper Superviser : Dr. Sekou Conde
                        Minzhu University of China
                      2006-2007 Academic Year
 
 
Poverty is a great threat to our world. Despite progress in recent decades, the extreme poverty prevalent in low-income countries is a critical problem facing the global community.
World Bank economists estimate that roughly one billion people, one sixth of the world population, are living in extreme poverty today.  The World Bank uses a statistical standard to determine who is considered to be the extreme poor of the world.  Those whose income is less than $1 a day are considered to be living in "extreme poverty".   These are the people struggling just to survive each day.  Another 1.5 billion people are living in "moderate poverty", having incomes of between $1 and $2 a day.  These are people whose basic needs are met, but they struggle to make ends meet.  90% poor people live in South Asia, Africa, Southeast Asia, Mongolia, Central America and Brazil.[1]        
Poverty is a source of the world upheaval, and eliminating poverty is a great task of the whole human race, therefore, for a very long time, people have been fighting with it. During the war between poverty and human being, the IMF plays an important role.
I. The creation of the IMF[2]
The International Monetary Fund—also known as the “IMF” or the “Fund”—was conceived at a United Nations conference convened in Bretton Woods, New Hampshire, U.S. in July 1944. The 45 governments represented at that conference sought to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s.
During that decade, to shore up their failing economies??/span>countries began to limit imports, devalue their currencies to compete against each other for export markets, and curtail their citizens' freedom to buy goods abroad and to hold foreign exchange, but all of those attempts were proved to be self-defeating. World trade declined sharply, and employment and living standards plummeted in many countries.
Seeking to restore order to international monetary relations, the IMF's founders charged the new institution with overseeing the international monetary system to ensure exchange rate stability and encouraging member countries to eliminate exchange restrictions that hindered trade. When its first 29 member countries signed its Articles of Agreement in December 1945, the IMF came into existence.
Now, the IMF is an international organization of 185 member countries, with approximately 2,716 Staff from 165 countries. Headquartered in Washington DC, it is governed by and accountable to the governments of the 185 countries that make up its near-global membership. In the first part, I want to talk about how the IMF helps to eliminate the world poverty concretely. Since the IMF does this work through 3 functions: financial support, technical assistance and surveillance, I will introduce each function in a separate part in details. It is true that the IMF plays a important role in alleging the world poverty, but it also has defects, so in the second part, I will point out its defects and my suggestion.
 
II. How the IMF helps to reduce poverty
The IMF helps the low-income countries by providing them with financial support, technical assistance and Surveillance. [3]
(I) Financial support
The IMF provides financial support through its concessional lending facility and through debt relief facility.
1. The concessional lending facility
A member country may request IMF financial assistance if it has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms to meet its net international payments. An IMF loan eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.
Over the years, the IMF has developed various loan instruments, or "facilities," that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). The PRGF is for those low-income countries that experience balance of payments problems, and the ESF is for countries that temporarily need arise from exogenous shocks. The interest rate on PRGF and ESF loans is very concessional, only 0.5 percent and loans are repaid over a period of 10 years. Such assistance well satisfies the need of low-income countries for capital, enables them to rebuild their international reserves, stabilize their currencies, and continue paying for imports and restore conditions for strong economic growth.
PRGF and ESF lending programs are based on Poverty Reduction Strategy Papers (PRSP). A PRSP is prepared by the government of a low-income country, in concert with civil society and development partners such as the IMF and World Bank, to describe the policies that will be employed to promote growth and reduce poverty in the country. In addition to economic policies, PRSPs typically cover structural and social policies that are needed to improve health and education safeguard the environment, and combat HIV/AIDS, malaria, and other diseases. The IMF sees the PRSP approach as a key framework for implementing the Monterrey Consensus, and is working to ensure better alignment of PRGF lending programs with PRSPs.
2. The debt relief program
(1) The importance of the debt relief program
If the low-income countries can’t develop their economy continuously, there will be no way to reduce poverty. But for various reasons, the economy of many low-income countries stagnates for a long time, even experiences minus-increase. So those counties have to borrow money from other countries, and survive by depending on loans. However, the debts are heavy burden to economy development, for when a indebt country has economic growth, it has to repay the debt and the interest, after which, it unable to build any Infrastructure Facilities or do any invest. Then IMF realized that for some heavily indebt countries, the debt burden is so heavy that it is impossible for them to have any economy growth, and without debt relief program, eliminating the world poverty is just a dream which would never come true.
(2) The content of the debt relief program
  The IMF carries out the debt relief program through the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).
The HIPC Initiative was first launched in 1996 by the IMF and World Bank. Its aim is to ensure that no poor country faces a debt burden it cannot manage. The Initiative entails coordinated action by the international financial community, including multilateral organizations and governments, to reduce to sustainable levels the external debt burdens of heavily indebted poor countries. The HIPCs that have already obtained debt service relief are spending much more on social services than on debt service—on average four times as much—and have shown a marked increase in the share of health and education in the budgets under their PRGF programs.
The Multilateral Debt Relief Initiative (MDRI) provides for 100 percent relief on eligible debt from three multilateral institutions to a group of low-income countries. The initiative is intended to help them advance toward the United Nations' Millennium Development Goals (MDGs), which are focused on halving poverty by 2015.
(3) The effect of the debt relief program
The debt relief program has a tangible impact on poverty. Before this program, eligible countries were, on average, spending slightly more on debt service than on health and education combined. Now, they have increased markedly their expenditures on health, education and other social services and, on average, such spending is now more than five times the amount of debt-service payments.[4]
 
(III) IMF Surveillance
A core responsibility of the IMF is to encourage a dialogue among its member countries on the national and international consequences of their economic and financial policies, to promote external stability. This process of monitoring and consultation normally referred to as "surveillance".
1. The importance of the IMF surveillance
In today's globalized economy, the economic and financial policies of one country may affect many other countries, so international cooperation to monitor economic developments on a global scale is important.
The importance of effective surveillance was underscored by the financial crises of the late 1990s. In response, the IMF has undertaken many initiatives to strengthen its capacity to detect vulnerabilities and risks at an early stage, to help member countries strengthen their policy frameworks and institutions, and to improve transparency and accountability.
2. How IMF country surveillance works in practice
According to the Article IV of its Articles of Agreement, the IMF has a mandate to oversee (i) the international monetary system to ensure its effective operation, and (ii) each member's compliance with the obligations to direct its policies toward fostering orderly economic growth with reasonable price stability, to seek to promote stability by fostering orderly underlying economic and financial conditions, and to follow exchange rate policies in keeping with these objectives. Exchange rate, monetary, and fiscal policies are at the center of IMF surveillance.
On a regular basis—usually each year—IMF economists visit the member country to gather information and hold discussions with government and central bank officials, and often business executives, labor representatives, members of parliament, and civil society organizations. [...]

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