The
International Monetary Fund
(
IMF) is an
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 rates 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
located in Washington,
D.C.
, United
States
.
Organization and purpose
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.
History
The International Monetary Fund was formally created in July 1944
during the
United Nations
Monetary and Financial Conference.
The representatives of
44 governments met in the Mount Washington Hotel
in the area of Bretton
Woods, New
Hampshire
, United States
of America
, with the delegates to the conference agreeing on a
framework for international economic cooperation. The IMF
was formally organised 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).
Today
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 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 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.
Data dissemination systems
IMF Data Dissemination Systems
participants:
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:
- – GDDS
- – SDDS
- institutions:
The biggest borrowers are Mexico, Hungary and Ukraine.
Membership qualifications
Any country may apply for membership to the IMF. 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 fulfil 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 organisations as “the tools of the empire” that “serve
the interests of the North”.
[2074] As of June 2009, both countries remain as
members of both organisations. 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.
Members' quotas and voting power, and Board of Governors
Major decisions require an 85%
supermajority.
The United States has always been the only country able to block a
supermajority on its own.
Table showing the top 20 member countries in terms of voting power
(2,216,193 votes in total):
Assistance and reforms
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.
IMF/World Bank support of military dictatorships
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.
Countries that were or are under a
Military dictatorship whilst being
members of the IMF/World Bank (support from various sources in $
Billion):
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).
Criticism
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 criticised
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.
Impact on access to food
A number of
civil society
organisations have criticised 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
criticised the
World Bank and IMF for
their policies on food and agriculture:
Impact on public health
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 %.
Criticism from free-market advocates
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 organisation
could provide to debt-ridden countries. Current IMF rules prohibit
members from linking their currencies to gold.
Attempts to repair image
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
organisations including the World Trade Organisation. Also, a
similar percentage of people in the Western world believed that
these international organisations 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.
Managing Director
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."
| Dates |
Name |
Country |
| 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 |
Media representation of the IMF
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 [2075] 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".
See also
References
Further references
- The Best
Democracy Money Can Buy by Greg
Palast (2002)
- The IMF and The World Bank: How do they differ?
by David D. Driscoll
- Rivalries between IMF and IBRD, " Sister-talk", The Economist (2007-03-01)
- George, S. (1988). A Fate Worse Than Debt. London: Penguin
Books.
- Hancock, G. (1991). Lords of Poverty: The Free-Wheeling
Lifestyles, Power, Prestige and Corruption of the Multi-billion
Dollar Aid Business. London: Mandarin.
- Markwell, Donald (2006), John Maynard Keynes and
International Relations: Economic Paths to War and Peace,
Oxford & New York: Oxford University Press.
- Rapkin, David P. and Jonathan R. Strand (2005) “Developing
Country Representation and Governance of the International Monetary
Fund,” World Development 33, 12: 1993–2011.
- Strand, Jonathan R and David P. Rapkin (2005) “Voting Power
Implications of a Double Majority Voting Procedure in the IMF’s
Executive Board,” in Reforming the Governance of the IMF and World
Bank, Ariel Buira, ed, London: Anthem Press.
- Williamson, John.
(August 1982). The Lending Policies of the International
Monetary Fund, Policy Analyses in International Economics 1,
Washington D.C., Institute for
International Economics. ISBN 0-88132-000-5
External links
- IMF and International Economic Policy U.S. House of
Representatives
- International
Monetary Fund website
- Finance & Development - A quarterly magazine of
the IMF
- Annual Reports of the Executive Board
- World Economic Outlook Reports
- IMF Publications
- IMF Fiscal Affairs Department (FAD)
- August Review - Global Banking: The IMF
- Kenneth Rogoff - The sisters at 60
- How the IMF Props Up the Dollar System
- IMF’s Origins as a Blueprint for Its Future, Anna
J. Schwartz, National Bureau of Economic Research
- Center
for International Finance & Development by the University
of Iowa research center
- IMF-Supported Macroeconomic Policies and the World
Recession: A Look at Forty-One Borrowing Countries, October
2009, report from the Center for Economic and
Policy Research
- What's the difference between the IMF and the World
Bank? by economist Arthur MacEwan, in Dollars & Sense magazine
- "Monetary Freedom Act" HR 391, by Congressman
Ron Paul, 1981
- Bretton Woods
Project Critical voices on the World Bank and IMF
- Eurodad report: Critical conditions: The IMF maintains its grip on
low-income governments
- The IMF Rules the World by Michael Hudson,
Counterpunch, April 6 2009
- Reforming the IMF: A Debate, from Summer 2007
issue of International
Finance
- Fallacy and the Reality of IMF Standby Arrangement for Sri
Lanka by The Sunday
Times
for the Eurozone –
SDDS
/Congo
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