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Economic Development of Central America Econ. 4200 - Spring 2004 – Dr. Taylor - page 29 / 153

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8.The International Monetary Fund (IMF):

- What is it?

- Critics=> IMF tool of MDNs lying in wait to get control of the nation's economic policies and reshape them in a monetarist, market oriented, conservative model (neoliberalismo).

- International role of IMF is to extend emergency credit (short-term not long-term credit!) to member nations who get in trouble.

- Problem:  It is partisan and has a standard package that includes:

[1] Monetary restraint and devaluation (reduces domestic demand and reins in inflation… devaluation also reduces appeal of capital flight )

[2] Reduce/Eliminate quotas and tariffs => open up economy to market forces.

[3] Government spending reduced (get rid of government deficits).

[4] Limit on wage rate increases (in countries with high inflation there are also price controls to help break inflation psychology [structural inflation] - Argentina, Brazil and Peru).

[7] Overhaul tax structure to reduce loopholes for wealthy and to make more efficient.

Goal: Reduce excess demand and to reorient the structure of national production away from imports and toward exports (low import content:  based on comparative advantage… focus on labor intensive manufactured goods and primary good production).

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