How do the IMF and the Federal Reserve work together?

Question

in "bailing out "a country especially?
is this kind of like loaning money on a very grand scale.
you know, not "chump change" deals, but for the big boys?
and how does Goldmann Sachs and other major banks get their hands in the pie?

Answer 1

They don't, at least not directly.

And yes it is loaning money on a very grand scale.

The IMF is an international organisation from which all member countries can borrow. The Federal Reserve is just an institution in one country. It's the American central bank, the US equivalent of the Bundesbank in Germany and the Bank of England in Britain.

The cycle of process is this. The government of a developing country borrows money in $, £ or other hard currencies on the international markets. That's where G Sachs, Bank of America, Barclays etc get involved: they are the lenders. Later, the developing country finds it's not attracting enough foreign exchange to pay the interest on its debts. (Apart from more borrowing, the only ways a country can get foreign exchange are to export more than they import or to attract foreign direct and indirect investment, ie mostly investment into businesses in their country. China can do that but Sudan, for example, struggles to.)

The banks then say to the country with a debt crisis "we won't lend you any more money unless you first get an IMF loan in place". The polemic is that the IMF has the power and the will to tell the debtor how to run its economy properly. They will impose conditions on the country..... for example they might require specific measures to achieve less corruption and fewer restrictions on foreign ownership of that country's businesses.

The country then gets its IMF loan. It then reschedules its debts with the world's big commercial banks.

The ideal view is that it then gets its house in order and runs a prospering economy that grows out of trouble and becomes truly developing, at least passably competently like Mexico or Portugal, even if not brilliantly. The cynical view is that it then goes round the circuit again, borrowing more than it can afford to pay back, mismanaging its economy, being sent to the IMF, making (empty) promises of good governance, rescheduling its debts, borrowing more...... Argentina used to be masters at this game.