General Agreements to Borrow

Defining General Agreements to Borrow

The General Agreements to Borrow turned out to be a lending method for the Group of Ten (G-10) members. Under this agreement, G-10 countries were made to deposit funds into the International Monetary Fund (IMF) to access by such a country that would be dealing with economic distress.

Generally, the loans issued through GAB were not permanent and curated to assists look after potential situations of crisis. By the end of 2018, GAB lapsed by a unanimous decision of the participants, courtesy to the restricted and decreased use of the agreement.

Explaining General Agreements to Borrow

One of the core responsibilities of the IMF is to help countries dealing with economic distress. If a nation is experiencing financial issues, it threatens to harm the international monetary system or stall Economic Growth.

In such a scenario, the country can seek help from the IMF for supplemental liquidity. Through GAB, institutions and members provided funds to the IMF that could be distributed to nations requiring Capital.

The GAB allowed the IMF to take certain amounts of currencies from the G-10 countries, which were the United States, the United Kingdom, Sweden, the Netherlands, Japan, Italy, Germany, France, Canada, and Belgium; under specific situation. Although Switzerland has a minor role, it was still a participant.

However, in the late 1990s, the New Arrangement to Borrow (NAB) came into the picture that became the primary fundraising Facility to provide loans via IMF.

Support and Criticism of General Agreements to Borrow

As per the arguments put forth by supporters, there are times when a country requires an additional shot of liquidity to integrate adequate policies so as to begin their local economic expansion. And, through GAB, this sort of help was provided by the IMF to assist countries to restore exports after a natural disaster, whenever required.

It also allowed the IMF to resolute issues concerning the instability that may spread to other nations, if left unchecked. However, not everybody agreed that the IMF loans offered positive effects. According to some, this boosts poor policy decisions and acts as a backstop for unable government leadership.

Another major criticism was that these loans wind up flowing to Financial Institutions (FI) in countries that were industrialized, risky bets in developing markets. The conditions linked to these loans were also questioned.

Some experts argued that the terms and conditions prolonged economic distress, aggravate poverty and reproduce the colonialism structures.