International Monetary Fund (IMF) is an international organization which was established in December 1945. Actually, between the world wars, the world met the great depression in 1930s, and US was suffered the most. By knowing that after the World War II global would met the great recession again if they had done nothing; therefore, the representatives of 45 states had joined together in the Bretton Woods Agreement in order to create International Economic Cooperation in July 1944 when IMF was conceived. A year later, the 29 nations among 45 states that had joined the Bretton Wood Agreement in 1944 had signed the treaty to established IMF. The membership of IMF has increased from time after time. In 1960s, there were many African states got the independent and then they joined IMF; moreover, after the collapsed of USSR in 1991, all of the eastern European states had become IMF’s members. Nowadays there are 187 nations who are members of IMF and Cambodia became a member in December 1969 and Kosovo is the 186th.
The main goal of IMF does not only avoid the great recession but also make global growth and economic growth among member countries. That is, IMF helps the member states take the economic opportunities and manage the challenges. IMF also tracks global economic trends and performance; moreover, it alerts all members when it knows the issues on the horizontal. IMF provides a forum for policy dialogue, policy advice, and financial support to deal with economic difficulties and works with developing nations or poor countries such as Cambodia to reduce poverty and make economic stability.
Additionally, IMF has set three main policies to achieve its goals. Firstly, IMF promotes surveillance which means that IMF determines the regular monitoring of economies and associated provision of policy advice in order to identify all weaknesses of economy which could bring to financial crisis or economic instability. IMF wants to make sure what the causes of economic failure are. Secondly, IMF provides technical assistance by sharing it specializes with member states. IMF also trains the member nations in a wide range of areas such as central banking, monetary and exchange rate policy, fiscal policy and administration, and official statistics. Moreover, IMF provides consultation to countries that have to rebuild the nation in term of economic sector after the civil war or the civil unrest. IMF help heavily indebted poor countries reduce the debt and manage the dept. Around 80 percent of IMF technical assistance is given to low and lower-middle-income nations, such as in sub-Saharan African and Asia. Finally, IMF make loan to the member states that nearly reach the economic crisis or are in the situation of economic crisis. IMF lends when its members are in severe financial problem, unable to pay bill, and have failed to make the balance of payment in order to restore sustainable economic growth and make economic stability.
IMF has collaborated with many organizations such as World Bank, civil society, the media, World Trade Organization, UN agencies, and intergovernmental group such as Group of Eight and Group of Twenty. IMF works with World Bank because the objective of the two complements each other. IMF develops macroeconomic and financial sector of members to reduce poverty and World Bank loans finance infrastructure project and reform the particular sector of members’ economy in aiming of reducing poverty. Therefore, members of IMF can join
World Bank and IMF can be sure that its goad in reducing poverty can be fully achieved.
Moreover, IMF engages with civil society and the media in order to exchange ideas and receive new input of economy and finance from academic society or civil society. Furthermore, IMF works with world trade organization (WTO) because IMF can observe WTO meeting and it can contribute to all works of WTO such as trade, debt, and finance. IMF can be evolved in integrated frameworks of WTO for trade related technical assistance to least developed countries.
Finally, IMF engages with Group of Eight-Canada, France, Germany, Italy, Japan, Russia, UK, and US- in order to monitor the world economic development and assess economic policies.
Since IMF was established in 1945, it faced many issues such as international crisis in 1956, the breakdown of official gold market in 1968, the oil shocks in 1970, the debt crisis or Mexican crisis in 1982, Mexican Peso crisis in1994/1995, the Asian financial crisis in 1997, and the world financial crisis in 2008. Among these crisis, IMF had failed to deal with the 1997 Asian financial crisis and IMF itself had been dramatically criticized for its wrong economic policy reform. IMF’s failure to solve the Asian financial must be mentioned clear in the 3rd Minicomposition.
II- IMF-Cambodia relation and cooperation
IMF was created in 1945 a few months after the end of WWII, and there were many states decided to join it. Furthermore, Cambodia under Prince Sihanouk made a decision to become a member of IMF in 31th December 1969. However, IMF had done nothing in Cambodia because it had got a three-decade experience in civil war, social unrest, and genocide. Cambodia failed into conflict after the coup d’état of General Lon Nol in 1970, and this dispute continued three decades later. In 1989, Cambodia adopted the free economic market system which was the hope that IMF could start its work in Cambodia; however, IMF waited until 1993 when Cambodia had fully peace. In 1993, there was a treaty in Geneva that all conflicting parties in Cambodia (except Khmer Rouge) decided to stop fighting and went for the election and in the same year that Cambodia hold the constitutional monarchy which is the part of democratic system. Since then, IMF started fully its struggles in Cambodia. IMF takes its staff mission to Cambodia every year since 1993.
Actually, Cambodia is a developing state which its economy depends on garment and textile, agriculture (rice), and tourism, and most of the Cambodian people live under the poverty line, especially in the rural region. Therefore, IMF helps Cambodia develop and make stable these area, and it also want to make sure that poverty deduction in Cambodia had been reduced from time after time. In order to help Cambodia improve and make stable economics, IMF has suggested many recommendations and provided a lot of aid. For instance, in January 2006, IMF gave Cambodia the debt relief around US$ 82 million to implement new rural irrigation projects.
Moreover, it also urged the government to identify further projects on which debt relief could be used to reduce poverty. Cambodia and IMF; moreover, cooperate each other many field such as rural development, reconstruction the country’s infrastructure, and IMF also promotes to have small and medium-sized enterprise, trade opportunities, cutting down the dollarization.
According to the staff mission of IMF in 2005, IMF promoted to have good governance and reduce corruption, and greater transparency by clamed that good governance is an essential ingredient in the more effective use of public resources, increased economic activity, better tax collection, and improved poverty reduction. Moreover, in 2010, Cambodia had adopted the anticorruption law which IMF supported the most by saying that the implementation of anticorruption law could significantly cut down the cost of making business and improve the Cambodian’s international competitiveness. Moreover, in the same year 2010, IMF also commended on the National Bank of Cambodia (NBC) to take action to safeguard the health of the banking system. With that Cambodia government agreed that robust supervision of banks and strict enforcement of prudential regulation remains a key in sustained stability.
III- IMF’s struggle in Cambodia before 1997 and during the Asian Crisis
From 1995 to 1998, it is a very short time of period; however, it is very important and useful to mention the Cambodia’s economy play; IMF struggle in Cambodia; and the economic growth of Cambodia. Actually, the economic growth in Cambodia has been increased by 1995 increased by 7 percent, and in 1996 increased by 7.5 percent in which Cambodia got the aid and assistance from IMF and Cambodia commitments and policy. However, in 1997 Cambodia got the depression due to IMF’s reduction and delay of aid and assistance, and Asian financial crisis. Cambodia’s economy got a little increase by IMF gave back the fund.
In 1995, IMF provided aid to Cambodia around $41 millions following the program of Enhanced Structural Adjustment Facility (ESAF). The ESAF is a concessional IMF facility for assisting eligible low-income developing members that are undertaking economic reform to strengthen their balance of payment and foster growth. For this help, Cambodia had used to make growth and develop its economy of government’s 1995-1996 macroeconomic and structural adjustment programs. The 1995-1996 program of government tries to seek to consolidate recent macroeconomic gains and increase the output growth to an annual rate of about 7 percent between 1995-1197; increase of fiscal reserves to the equivalent of 2-0.25 months of imports by mid-1996. Moreover, with the fiscal policy, government wanted to improve it by making a broadening of tax which is aimed of a durable increase in the revenue- GDP ratio. In addition, with the IMF technical assistance, government had se the monetary policy of issuance of treasury bills in late 1995 by they would establish a market-determined interest rate for the riel which was lacing because of the high level of using dollar currency and the very limited use of riel currency in the economy.
Similarly, with the IMF’s technical assistance, they set a reform in financial structure by improving the regulation and supervision of the financial system which also is strengthened with the assistance of new central bank law. Government also set a policy in public administration by determining that the number of civil employees will be reduced by 10 percent by end-1996, and 10 percent more in 1997. Government also implemented individual rehabilitation programs will be implemented during 1995 and 1996 for those enterprises remaining in the public sector, which will include elimination of public transfers and credit from the National Bank, and only limited availability of credit from commercial banks. All these programs could be achieved by the help of IMF.
In 1997 when the Asian financial crisis happened, IMF had reduced and delayed its aid and assistance to Cambodia. Moreover the economy of Cambodia also suffered from that. However, according to the annual meeting in 1997 in Hong Kong, the minister of economy and finance and governor of the World Bank for Cambodia, Keat Chhon tried to call IMF to give back the aid and assistance by adding that if IMF did not do that the poverty deduction policy of Cambodia might meet deadlock. Moreover, during the annual meeting of IMF and World Bank in 1998 in US, he also mentioned some useful speech related to Cambodia’s economy and Asian financial crisis. He mentioned that the region crisis had given us an unique opportunity to reexamine the core, contours and contents of the established development paradigm.
Additionally, during the 1998 annual meeting, Chea Chanto, the governor of the fund for Cambodia also mentioned that Cambodia’s policy to increase economic growth. He mentioned three important points which was firstly that Cambodia would make the confident in freedom to save and invest in order to make sustained growth and greater wealth for both providers and recipients of capital flow. Secondly, it would make the safety in banking system and prudential control system by it had implemented a program of training in order to enhance the ability of the inspectors. Finally, it would try to encourage foreign direct investment (FDI) with determining that it would improve the legal environment of the country. Cambodia’s economy had a slide increase after the release of Asian financial crisis.
At the beginning, with the help of IMF, Cambodia’s economy had been increased; and the macroeconomic policy had been achieved; moreover, poverty deduction was good with the GDP growth. However, the economy was bad when IMF stopped provide aid and assistance, and the Asian financial crisis occurred.
Asian Financial Crisis and IMF roles
The Asian financial crisis started first in Thailand and then it spreaded around the region of East Asia and Southeast Asia which among them Thailand, South Korea, and Indonesia suffered the most. Actually, Thailand had been collapsed with the Thai baht caused by the wrong decision of the government to float the baht which cutting its peg to US dollars, after exhaustive efforts to support it in the face of a server financial over extension that was in part of estate. When Thailand felt into that, it had acquiesced a burden of foreign deft that led the country to bankrupt before it’s collapsed the currency system. When other states saw that, they started to devaluated stock market and other asset price which led the crisis spreaded from Thailand to region.
In order to solve this crisis, IMF was called. Therefore, IMF had set rescue packages for the most affected economies to enable affected nations to avoid default, tying the packages to reforms that were intended to make the restored Asian currency, banking, and financial systems. “To reverse currency depreciation, countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations”, said IMF Managing Director Michel Camdessus. He wanted all the crisis states to buy back their currency while before they there were millions of US dollars in their national bank. However, that kind of this solution was not affective; and it made the situation worse than before. Therefore, IMF was very much criticized in its solutions. They argued that the Asian financial crisis in the IMF crisis. They criticized the IMF for encouraging the developing –Asian states down the path of fast track capitalism, meaning liberalization of the financial sector by eliminating of restrictions on capital flows, maintenance of high domestic interest rates to attract portfolio investment (FPI) and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk.
IV- IMF struggle to increase economic growth in Cambodia after 1997
The economy of Cambodia had been declined because of the Asian financial crisis and the political unrest in 1997.Moreover, IMF also cut its aid and assistance to Cambodia; however, when the crisis had been over and new government had been established in 1998, the situation of Cambodia’s economy had been recovered a little even though it had been mostly suffered in 1997, following the IMF report in 1998. Therefore, I would like to mention the IMF’s struggle in Cambodia from 1998 in which I divided into several times.
Firstly, Cambodia had created the economic program for 1999-2002 that is designed to support the reconstruction of the country and accelerate economic growth; help improve social conditions, and preserve macroeconomic stability. With this formulation of this program, IMF had provided funds to support in the amount of 11.7 millions dollars in which it importantly was funded by the ESAF program. The program of 1999-2002 mainly focused on the development of nine fields which are fiscal policy, forestry policies, administrative and military reform, public sector and enterprise reform, banking and external policies, statistic, economic and social development policy, external financing requirement, and lastly, technical assistance requirement.
All of these developments aimed to increase government revenue, to reduce poverty, to increase government arrangement in taxation, banking, rural, and economic performance, and to increase GDP around six percent and reduce inflation around four percent. In addition, IMF also provided fund to Cambodia according to the requirement of the 1999-2002 program.
Additionally, Cambodia planed to form memorandum of economic and financial Policies for 2003 in which it aims to reduce poverty through sustainable growth. An annual growth target of 6-7 percent could be achieved in the medium term through capital deepening, upgrading of labor skills, and improving governance. Increasing fiscal revenue will be a key, in addition to reorientation of spending, to provide adequate social spending and infrastructure while avoiding recourse to domestic bank financing, essential for maintaining macroeconomic stability. IMF also provided fund to support this program.
In conclusion, IMF really tries hard to help Cambodia in finance, assistance, and economic policies. IMF have provided fund to support the economic program in 1999-2002 and the program in 2003. IMF also provide fund to Cambodia at any time if it is the Cambodia’s requirement. More importantly, the main behavior of IMF is just looking the economic policies of Cambodia and provided fund to support. Therefore, the economic of Cambodia can be on process due to the IMF’s help; otherwise, the economic program must meet deadlock.
IMF is an intergovernmental organization which is the part of Breton Wood System; and it was established in 1944 by a group of states who won the WWII. Firstly, the main goal of this organization is to restore European states that were in the mass destruction by the WWII. However, IMF had changed its mission following the process of the world affairs. Nowadays, the most importance of IMF is to provide aid and assistance to the developing world states in the hope of increasing the economic growth and reducing poverty. Moreover, IMF also plays the most crucial role in dealing the economic crisis such as the 2008 world financial crisis, the 1997 Asian financial crisis, and dept crisis and so forth. For the developing states, IMF also provides the economic recommendation and trains the given-aid states in the economic knowledge.
Indeed, the relation between Cambodia and IMF was found in 1969; however, this relation is the non-processing relation since Cambodia felt into civil war in 1970 and it lasted three decades more. IMF took its first mission in Cambodia in 1993 after Cambodia adopted the free market system and got the peaceful society and politics. IMF had struggled to increase Cambodia economy in three fields. Firstly, IMF helps Cambodia in agriculture system such as irrigation construction, and rice production. Next, the garment industry and tourism could be increased by aid and fund of IMF. As a result, the poverty had been reduced and living standard of Cambodia people had highly been increased.
Actually, I see that IMF depended on the reason that the government of Cambodia was formed by illegally; and the new government had gained power by military coup 1997; therefore, it had stop to provide aid and assistant to Cambodia even Cambodia always insisted. IMF had stated the new aid when the new government was formed by election. This was the very good behavior of IMF in which it should not provide aid the unreliable government. Moreover, I also want to give the suggestion that Cambodia have to carefully use the IMF’s fund. That is, Cambodia has to make sure that the economic program can be fully effective and achieved. Moreover, the given fund should not be corrupted.