This essay will provide a discussion on the role played by the IMF in resolving the economic difficulty experienced by Korea in the mid 90's. The essay will begin with the internal working dynamics of the IMF, then move on to describe the conditions leading to financial difficulty in Korea and then lastly how the IMF intervened and alleviated the matters.
The IMF (International Monetary Fund) is an independent organization. Even though, it is officially a United Nations specialized agency. The IMF began in 1946 with the basis that a lot of countries encounter monetary problems because of flawed domestic policies . The main focus of the IMF is to monitor and regulate economic and financial programs of their members. The IMF also possesses a large sum of financial resources that can be used to help countries experiencing balance-of-payments difficulties. Generally if a country wishes to receive financial aid from the IMF, that country is required to alter their domestic economic and financial policies as the IMF sees fit, this is referred to as the "stand by" arrangement.
The lending process of the IMF is quite different from that of a traditional loan. Basically instead of just providing money to a country, the IMF exchanges hard currency for the country's soft currency, this term is usually referred to as "repurchases". The money that is provided by the IMF comes from many different sources like quotas and interest payments or indirectly from major creditors. As well as agreeing to the "repurchasing" terms, the member country (country in financial need) must also agree to some additional terms provided by the IMF. These terms are decided in the span of five phases: (1) initiation, (2) internal preparation, (3) negotiations in the field, (4) internal review of letter of intent, and (5) disbursement and monitoring . .
A request for a loan may come from an existing member or from an initiation of a new member.