The Imf's Financial Crisis Rescue Mechanism

Financial crisis is one violent solution to the various contradictions long accumulating in production and financial sectors, and causes serious damage to financial development and economic growth of the crisis country. In order to lessen the impact of financial crisis on the world economy, international assistance is always desirable. International Monetary Fund (IMF) is the most important international financial institution who is responsible for rescuing financial crises. Hence, in order to improve the IMF's capability of preventing and solving financial crises, studying its rescuing mechanism of financial crises is of important theoretical and practical meaning. This paper studies the current IMF's rescuing mechanism and summarizes its features and shortcomings, at last provides insights into how to improve the IMF's rescuing mechanism, thus strengthening IMF's status and capability in the international sphere. IMF's rescuing mechanism of financial crises refers to the dynamic process of IMF reacting to and rescuing financial crises in order to prevent the exacerbation and contagion. The rescuing mechanism consists of Stabilization Program, rescuing strength and reaction velocity, which is determined by theory basis, revenue strength and decision mechanism. In line with the idea of "present state-features-countermeasures", this paper develops in five chapters. In order to have a better knowledge of financial crises, Chapter One analyses the characteristics of financial crises under economic globalization, which are capital flows and speculation as crises causes and widespread contagion. Under the background of globalization, financial crises are often beyond the ability of crisis country, which necessitates the IMF's assistance with Stabilization Program as a precondition. Chapter Two takes a look at the contents and outcomes of Stabilization Program. The contents include fiscal and financial contraction plus economic liberalization. The outcomes, however, differ in practice across different countries. The author introduces the IS-LM-BP model to analyze the outcomes of Stabilization Program and provides underpinnings for the influences of IMF program on domestic economy, that is, the changes in balances of payments and inflation rate, and the outbreak of social disturbance. Chapter Three analyzes the theory basis under Stabilization Program, that is, the monetary approach to the balance of payments. IMF's theory is an age-old liberal economic theory stressing the economy's auto-adjusting ability. In addition, Chapter Three also examines the IMF's operation efficiency containing rescuing strength and reaction velocity. Developed countries play the dominant role in the IMF's decision mechanism, which is necessarily reflected in the operation efficiency and thus affects the program outcome. Now we can summarize the features of the current rescuing mechanism, as Chapter Four points out, the features are as follows: 1.The mechanism is based on the monetary theory but fails to appreciates exactly the causes of balance of payments disequilibrium. 2, Stabilization Program is all-inclusive and radical, thus leaving great impact on the domestic economy. 3. The mechanism is activated by political incentives under the control of developed countries. 4. Because of the limit of revenue strength, IMF's rescuing action often falls short of its own desire. Due to its little success in reality, IMF's rescuing mechanism is now under more and more criticisms, which mainly focus on Stabilization Program and its political color. It is advisable for IMF to absorb the reasonable elements from the criticisms for a better role in the international monetary system. Financial crisis suddenly breaks out and brings terrible damages, and counter-crisis measures are often harmful to the economic development at least in the short term, in some cases, these policies are even counter-productive, so the prevention of crisis is the best solution. Therefore Chapter Five, first of all, studies the domestic and IMF's me...