International Monetary Fund
|Headquarters||Washington, D.C., USA|
|Managing Director||Dominique Strauss-Kahn|
|Central Bank of|
|Currency||Special Drawing Rights|
|ISO 4217 Code||XDR|
|Base borrowing rate||3.49% for SDRs|
The International Monetary Fund (IMF) is the international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development. It also offers highly leveraged loans, mainly to poorer countries. Its headquarters are in Washington, D.C., United States.
The International Monetary Fund was created in July 1944, originally with 45 members, with a goal to stabilize exchange rates and assist the reconstruction of the world's international payment system. Countries contributed to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances (Condon, 2007). The IMF was important when it was first created because it helped the world stabilize the economic system. The IMF is still important because it works to improve the economies of its member countries.
The IMF describes itself as "an organization of 186 countries (as of June 29, 2009), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". With the exception of Taiwan (expelled in 1980), North Korea, Cuba (left in 1964), Andorra, Monaco, Liechtenstein, Tuvalu and Nauru, all UN member states participate directly in the IMF. Member states are represented on a 24-member Executive Board (five Executive Directors are appointed by the five members with the largest quotas, nineteen Executive Directors are elected by the remaining members), and all members appoint a Governor to the IMF's Board of Governors.
The International Monetary Fund was conceived in July 1944 during the United Nations Monetary and Financial Conference. The representatives of 45 governments met in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire, United States, with the delegates to the conference agreeing on a framework for international economic cooperation. The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement. The statutory purposes of the IMF today are the same as when they were formulated in 1943 (see #Assistance and reforms).
The IMF's influence in the global economy steadily increased as it accumulated more members. The number of IMF member countries has more than quadrupled from the 44 states involved in its establishment, reflecting in particular the attainment of political independence by many developing countries and more recently the collapse of the Soviet bloc. The expansion of the IMF's membership, together with the changes in the world economy, have required the IMF to adapt in a variety of ways to continue serving its purposes effectively.
In 2008, faced with a shortfall in revenue, the International Monetary Fund's executive board agreed to sell part of the IMF's gold reserves. On April 27, 2008, IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision of April 7, 2008 to propose a new framework for the fund, designed to close a projected $400 million budget deficit over the next few years. The budget proposal includes sharp spending cuts of $100 million until 2011 that will include up to 380 staff dismissals.
At the 2009 G-20 London summit, it was decided that the IMF would require additional financial resources to meet prospective needs of its member countries during the ongoing global financial crisis. As part of that decision, the G-20 leaders pledged to increase the IMF's supplemental cash tenfold to $500 billion, and to allocate to member countries another $250 billion via Special Drawing Rights.
In 1995, the International Monetary Fund began work on data dissemination standards with the view of guiding IMF member countries to disseminate their economic and financial data to the public. The International Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they were split into two tiers: The General Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS).
The International Monetary Fund executive board approved the SDDS and GDDS in 1996 and 1997 respectively and subsequent amendments were published in a revised “Guide to the General Data Dissemination System”. The system is aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country. It is also part of the World Bank Millennium Development Goals and Poverty Reduction Strategic Papers.
The IMF established a system and standard to guide members in the dissemination to the public of their economic and financial data. Currently there are two such systems: General Data Dissemination System (GDDS) and its superset Special Data Dissemination System (SDDS), for those member countries having or seeking access to international capital markets.
The primary objective of the GDDS is to encourage IMF member countries to build a framework to improve data quality and increase statistical capacity building. This will involve the preparation of metadata describing current statistical collection practices and setting improvement plans. Upon building a framework, a country can evaluate statistical needs, set priorities in improving the timeliness, transparency, reliability and accessibility of financial and economic data.
Some countries initially used the GDDS, but lately upgraded to SDDS.
Some entities that are not themselves IMF members also contribute statistical data to the systems:
The biggest borrowers are Mexico, Hungary and Ukraine.
The application will be considered first by the IMF's Executive Board. After its consideration, the Executive Board will submit a report to the Board of Governors of the IMF with recommendations in the form of a "Membership Resolution." These recommendations cover the amount of quota in the IMF, the form of payment of the subscription, and other customary terms and conditions of membership. After the Board of Governors has adopted the "Membership Resolution," the applicant state needs to take the legal steps required under its own law to enable it to sign the IMF's Articles of Agreement and to fulfill the obligations of IMF membership. Similarly, any member country can withdraw from the Fund, although that is rare. For example, in April 2007, the president of Ecuador, Rafael Correa announced the expulsion of the World Bank representative in the country. A few days later, at the end of April, Venezuelan president Hugo Chavez announced that the country would withdraw from the IMF and the World Bank. Chavez dubbed both organizations as “the tools of the empire” that “serve the interests of the North”. As of June 2009, both countries remain as members of both organizations. Venezuela was forced to back down because a withdrawal would have triggered default clauses in the country's sovereign bonds.
A member's quota in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of Special Drawing Rights (SDRs). A member state cannot unilaterally increase its quota—increases must be approved by the Executive Board and are linked to formulas that include many variables such as the size of a country in the world economy. For example, in 2001, China was prevented from increasing its quota as high as it wished, ensuring it remained at the level of the smallest G7 economy (Canada). In September 2005, the IMF's member countries agreed to the first round of ad hoc quota increases for four countries, including China. On March 28, 2008, the IMF's Executive Board ended a period of extensive discussion and negotiation over a major package of reforms to enhance the institution's governance that would shift quota and voting shares from advanced to emerging markets and developing countries. The Fund's Board of Governors must vote on these reforms by April 28, 2008.
Table showing the top 20 member countries in terms of voting power (2,216,193 votes in total):
|IMF member country||Quota: millions of SDRs||Quota: percentage of total||Governor||Alternate Governor||Votes: number||Votes: percentage of total|
|United States||37149.3||17.09||Timothy F. Geithner||Ben Bernanke||371743||16.77|
|Japan||13312.8||6.12||Naoto Kan||Masaaki Shirakawa||133378||6.02|
|Germany||13008.2||5.98||Axel A. Weber||Wolfgang Schäuble||130332||5.88|
|United Kingdom||10738.5||4.94||Alistair Darling||Mervyn King||107635||4.85|
|France||10738.5||4.94||Christine Lagarde||Christian Noyer||107635||4.85|
|China||8090.1||3.72||Zhou Xiaochuan||Hu Xiaolian||81151||3.66|
|Italy||7055.5||3.25||Giulio Tremonti||Mario Draghi||70805||3.2|
|Saudi Arabia||6985.5||3.21||Ibrahim A. Al-Assaf||Hamad Al-Sayari||70105||3.17|
|Canada||6369.2||2.93||Jim Flaherty||Mark Carney||63942||2.89|
|Russia||5945.4||2.74||Aleksei Kudrin||Sergey Ignatiev||59704||2.7|
|Netherlands||5162.4||2.38||Nout Wellink||L.B.J. van Geest||51874||2.34|
|Belgium||4605.2||2.12||Guy Quaden||Jean-Pierre Arnoldi||46302||2.09|
|India||4158.2||1.91||Pranab Mukherjee||Duvvuri Subbarao||41832||1.89|
|Switzerland||3458.5||1.59||Jean-Pierre Roth||Hans-Rudolf Merz||34835||1.57|
|Australia||3236.4||1.49||Wayne Swan||Ken Henry||32614||1.47|
|Mexico||3152.8||1.45||Agustín Carstens||Guillermo Ortiz||31778||1.43|
|Spain||3048.9||1.40||Elena Salgado||Miguel Fernández Ordóñez||30739||1.39|
|Brazil||3036.1||1.40||Guido Mantega||Henrique Meirelles||30611||1.38|
|South Korea||2927.3||1.35||Okyu Kwon||Seong Tae Lee||29523||1.33|
|Venezuela||2659.1||1.22||Gastón Parra Luzardo||Rodrigo Cabeza Morales||26841||1.21|
|remaining 166 countries||60081.4||29.14||respective||respective||637067||28.78|
The primary mission of the IMF is to provide financial assistance to countries that experience serious financial and economic difficulties using funds deposited with the IMF from the institution's 186 member countries. Member states with balance of payments problems, which often arise from these difficulties, may request loans to help fill gaps between what countries earn and/or are able to borrow from other official lenders and what countries must spend to operate, including to cover the cost of importing basic goods and services. In return, countries are usually required to launch certain reforms, which have often been dubbed the "Washington Consensus". These reforms are thought to be beneficial to countries with fixed exchange rate policies that may engage in fiscal, monetary, and political practices which may lead to the crisis itself. For example, nations with severe budget deficits, rampant inflation, strict price controls, or significantly over-valued or under-valued currencies run the risk of facing balance of payment crises. Thus, the structural adjustment programs are at least ostensibly intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness.
The role of the Bretton Woods institutions has been controversial since the late Cold War period, as the IMF policy makers supported military dictatorships friendly to American and European corporations. Critics also claim that the IMF is generally apathetic or hostile to their views of democracy, human rights, and labor rights. The controversy has helped spark the Anti-globalization movement. Arguments in favor of the IMF say that economic stability is a precursor to democracy; however, critics highlight various examples in which democratized countries fell after receiving IMF loans.
In the 1960s, the IMF and the World Bank supported the government of Brazil’s military dictator Castello Branco with tens of millions of dollars of loans and credit that were denied to previous democratically-elected governments.
|Country indebted to IMF/World Bank||Dictator||In power from||In power to||Debt % at start of dictatorship||Debt % at end of dictatorship||Country debts in 1996||Dictator debts generated $ billion||Dictator generated debt % of total debt|
|El Salvador||Military dictatorship||1979||1994||0.9||2.2||2.2||1.3||59%|
|Ethiopia||Mengistu Haile Mariam||1977||1991||0.5||4.2||10||3.7||37%|
|Zaire/Democratic Republic of the Congo||Mobutu||1965||1997||0.3||12.8||12.8||12.5||98%|
Notes: Debt at takeover by dictatorship; earliest data published by the World Bank is for 1970. Debt at end of dictatorship (or 1996, most recent date for World Bank data).
Two criticisms from economists have been that financial aid is always bound to so-called "Conditionalities", including Structural Adjustment Programs (SAP). It is claimed that conditionalities (economic performance targets established as a precondition for IMF loans) retard social stability and hence inhibit the stated goals of the IMF, while Structural Adjustment Programs lead to an increase in poverty in recipient countries.
One of the main SAP conditions placed on troubled countries is that the governments sell up as much of their national assets as they can, normally to western corporations at heavily discounted prices.
That said, the IMF sometimes advocates "austerity programmes," increasing taxes even when the economy is weak, in order to generate government revenue and balance budget deficits. Countries are often advised to lower their corporate tax rate. These policies were criticized by Joseph E. Stiglitz, former chief economist and Senior Vice President at the World Bank, in his book Globalization and Its Discontents. He argued that by converting to a more Monetarist approach, the fund no longer had a valid purpose, as it was designed to provide funds for countries to carry out Keynesian reflations, and that the IMF "was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community".
Argentina, which had been considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions, experienced a catastrophic economic crisis in 2001, which some believe to have been caused by IMF-induced budget restrictions — which undercut the government's ability to sustain national infrastructure even in crucial areas such as health, education, and security — and privatization of strategically vital national resources. Others attribute the crisis to Argentina's misdesigned fiscal federalism, which caused subnational spending to increase rapidly. The crisis added to widespread hatred of this institution in Argentina and other South American countries, with many blaming the IMF for the region's economic problems. The current — as of early 2006 — trend towards moderate left-wing governments in the region and a growing concern with the development of a regional economic policy largely independent of big business pressures has been ascribed to this crisis.
Another example of where IMF Structural Adjustment Programmes aggravated the problem was in Kenya. Before the IMF got involved in the country, the Kenyan central bank oversaw all currency movements in and out of the country. The IMF mandated that the Kenyan central bank had to allow easier currency movement. However, the adjustment resulted in very little foreign investment, but allowed Kamlesh Manusuklal Damji Pattni, with the help of corrupt government officials, to siphon off billions of Kenyan shillings in what came to be known as the Goldenberg scandal, leaving the country worse off than it was before the IMF reforms were implemented. In an interview, the former Romanian Prime Minister Tăriceanu stated that "Since 2005, IMF is constantly making mistakes when it appreciates the country's economic performances".
In September 2007 the IMF said "given the Irish economy's strong fundamentals and the authorities' commitment to sound policies, the Directors expected economic growth to remain robust over the medium term". Seventeen months later in April 2009 the New York Times quoted Nobel prize-winning economist, Paul Krugman, who identified Ireland as a model for the worst-case scenario for the global economy.
Overall the IMF success record is perceived as limited. While it was created to help stabilize the global economy, since 1980 critics claim over 100 countries (or reputedly most of the Fund's membership) have experienced a banking collapse that they claim have reduced GDP by four percent or more, far more than at any time in Post-Depression history. The considerable delay in the IMF's response to any crisis, and the fact that it tends to only respond to them (or even create them) rather than prevent them, has led many economists to argue for reform. In 2006, an IMF reform agenda called the Medium Term Strategy was widely endorsed by the institution's member countries. The agenda includes changes in IMF governance to enhance the role of developing countries in the institution's decision-making process and steps to deepen the effectiveness of its core mandate, which is known as economic surveillance or helping member countries adopt macroeconomic policies that will sustain global growth and reduce poverty. On June 15, 2007, the Executive Board of the IMF adopted the 2007 Decision on Bilateral Surveillance, a landmark measure that replaced a 30-year-old decision of the Fund's member countries on how the IMF should analyse economic outcomes at the country level.
A number of civil society organizations have criticized the IMF's policies for their impact on peoples' access to food, particularly in developing countries. In October 2008, former US President Bill Clinton joined this chorus in a speech to the United Nations World Food Day, which criticized the World Bank and IMF for their policies on food and agriculture:
We need the World Bank, the IMF, all the big foundations, and all the governments to admit that, for 30 years, we all blew it, including me when I was President. We were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture.
In 2008, a study by analysts from Cambridge and Yale universities published on the open-access Public Library of Science concluded that strict conditions on the international loans by the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care had to be weakened. In the 21 countries to which the IMF had given loans, tuberculosis deaths rose by 16.6 %.
Typically the IMF and its supporters advocate a monetarist approach. As such, adherents of supply-side economics generally find themselves in open disagreement with the IMF. The IMF frequently advocates currency devaluation, criticized by proponents of supply-side economics as inflationary. Secondly they link higher taxes under "austerity programmes" with economic contraction.
Currency devaluation is recommended by the IMF to the governments of poor nations with struggling economies. Some economists claim these IMF policies are destructive to economic prosperity.
Complaints have also been directed toward the International Monetary Fund gold reserve being undervalued. At its inception in 1945, the IMF pegged gold at US$35 per Troy ounce of gold. In 1973, the Nixon administration lifted the fixed asset value of gold in favor of a world market price. This need to lift the fixed asset value of gold had largely come about because Petrodollars outside the United States were worth more than could be backed by the gold at Fort Knox under the fixed exchange rate system. Following this, the fixed exchange rates of currencies tied to gold were switched to a floating rate, also based on market price and exchange. The fixed rate system had only served to limit the nominal amount of assistance the organization could provide to debt-ridden countries. Current IMF rules prohibit members from linking their currencies to gold.
Research by the Pew Research Center shows that more than 60 percent of Asians and 70 percent of Africans feel that the IMF and the World Bank have a positive effect on their country. However it is pertinent to note that the survey aggregated international organizations including the World Trade Organization. Also, a similar percentage of people in the Western world believed that these international organizations had a positive effect on their countries. In 2005, the IMF was the first multilateral financial institution to implement a sweeping debt-relief program for the world's poorest countries known as the Multilateral Debt Relief Initiative. By year-end 2006, 23 countries mostly in sub-Saharan Africa and Central America had received total relief of debts owed to the IMF.
Historically the IMF's managing director has been European and the president of the World Bank has been from the United States. However, this standard is increasingly being questioned and competition for these two posts may soon open up to include other qualified candidates from any part of the world. Executive Directors, who confirm the managing director, are voted in by Finance Ministers from countries they represent. The First Deputy Managing Director of the IMF, the second-in-command, has traditionally been (and is today) an American.
The IMF is for the most part controlled by the major Western Powers, with voting rights on the Executive board based on a quota derived from the relative size of a country in the global economy. Critics claim that the board rarely votes and passes issues contradicting the will of the US or Europeans, which combined represent the largest bloc of shareholders in the Fund. On the other hand, Executive Directors that represent emerging and developing countries have many times strongly defended the group of nations in their constituency. Alexandre Kafka, who represented several Latin American countries for 32 years as Executive Director (including 21 as the dean of the Board), is a prime example. Mohamed Finaish from Libya, the Executive Director representing the majority of the Arab World and Pakistan, was a tireless defender of the developing nations' rights at the IMF until the 1992 elections.
Rodrigo Rato became the ninth Managing Director of the IMF on June 7, 2004 and resigned his post at the end of October 2007.
EU ministers agreed on the candidacy of Dominique Strauss-Kahn as managing director of the IMF at the Economic and Financial Affairs Council meeting in Brussels on July 10, 2007. On September 28, 2007, the International Monetary Fund's 24 executive directors elected Mr. Strauss-Kahn as new managing director, with broad support including from the United States and the 27-nation European Union. Strauss-Kahn succeeded Spain's Rodrigo de Rato, who retired on October 31, 2007. The only other nominee was Josef Tošovský, a late candidate proposed by Russia. Strauss-Kahn said: "I am determined to pursue without delay the reforms needed for the IMF to make financial stability serve the international community, while fostering growth and employment."
|May 6, 1946 – May 5, 1951||Camille Gutt||Belgium|
|August 3, 1951 – October 3, 1956||Ivar Rooth||Sweden|
|November 21, 1956 – May 5, 1963||Per Jacobsson||Sweden|
|September 1, 1963 – August 31, 1973||Pierre-Paul Schweitzer||France|
|September 1, 1973 – June 16, 1978||Johannes Witteveen||Netherlands|
|June 17, 1978 – January 15, 1987||Jacques de Larosière||France|
|January 16, 1987 – February 14, 2000||Michel Camdessus||France|
|May 1, 2000 – March 4, 2004||Horst Köhler||Germany|
|June 7, 2004 – October 31, 2007||Rodrigo Rato||Spain|
|November 1, 2007 – present||Dominique Strauss-Kahn||France|
Life and Debt, a documentary film, deals with the IMF's policies' influence on Jamaica and its economy from a critical point of view. In 1978, one year after Jamaica first entered a borrowing relationship with the IMF, the Jamaican dollar was still worth more on the open exchange than the US dollar; by 1995, when Jamaica terminated that relationship, the Jamaican dollar had eroded to less than 2 cents US. Such observations lead to skepticism that IMF involvement is not necessarily helpful to a third world economy.
The Debt of Dictators explores the lending of billions of dollars by the IMF, World Bank multinational banks and other international financial institutions to brutal dictators throughout the world. (see IMF/World Bank support of military dictatorships)
Radiohead mentions the IMF in their song "Electioneering" on their 1997 release, OK Computer. The lyrics state, "It's just business/Cattle prods and the IMF/I trust I can rely on your vote". Bruce Cockburn mentions the IMF in his song "Call It Democracy". The lyrics state "IMF dirty MF/takes away everything it can get/always making certain that there's one thing left/keep them on the hook with insupportable debt". Rage Against The Machine in "Wind Below" from Evil Empire makes reference to IMF with the lyrics "Flip this capital eclipse/ Them bury life with IMF shifts, and poison lips". Thievery Corporation mention the IMF in their song "Vampires" on their album Radio Retaliation: the lyrics are "Lies and theft/ Guns and debt/ Life and death/ IMF".
International Monetary Fund
In the 1930s, many countries faced economic problems. Some of such problems were falling standard of living and unemployment by large number of people. Trading between different countries also came down. Some countries reduced the value of their currencies. All such factors combined and an economic depression resulted. By late 1939, the Second World War had started.
After the Second World War was over, most countries found that the international value were not smooth and facing many restrictions. Leaders of many countries thought over these matters and discussed them in meetings. Thus, after the Second World War, many countries felt the need to have an organization to get help in monetary matters between countries. To begin with, 29 countries discussed the matter, and signed an agreement. The agreement was the Articles of Association of the International Monetary Fund. The International Monetary Fund came into being in December 1945.
Any country may apply to become a member of the IMF. When a country applies for membership, the IMF’s Executive Board examines the application. If found suitable, the Executive Board gives its report to IMF’s Board of Governors. After the Board of Governor clears the application, the country may join the IMF. However, before joining, the country should fulfill legal requirements, if any, of its own country. Every member has a different voting right. Likewise, every country has a different right to draw funds. This depends on many factors, including the member country’s first subscription to the IMF.
The IMF does a number of supervisory works relating to financial dealings between different countries. Some of the works done by IMF are:
A Board of Directors manages the IMF. One tradition has governed the selection of two most senior posts of IMF. Firstly, IMF’s managing director is always European. IMF’s president is always from the United States of America.
The major countries of Europe and America control the IMF. This is because they have given more money to IMF by way of first subscriptions, and so have larger share of voting rights.
Many people and countries have commented about IMF. Some are good and some are bad comments about the work of IMF. Despite many adverse comments of IMF, a research shows that more than 60 percent of Asians and 70 percent of Africans feel that IMF have had a positive effect on their country .