international economics

1. International Monetary Fund (IMF)
Synopsis
 INTRODUCTION
 OBJECTIVES
 GOVERNANCE
 FUNCTIONS
 CRITICISM
INTRODUCTION
Along with the World Bank, the IMF was founded on the day the Bretton Woods
Agreements were signed (July 1944 at Washington D.C.). Its first mission was to support the
new system of standard exchange rates.
When the Bretton Wood fixed rates system came to an end in 1971, the main function of
the IMF became that of being both policeman and fireman for global capital : it acts as
policeman when it enforces its Structural Adjustment Policies and as fireman when it steps
in to help out governments in risk of defaulting on debt repayments.
(Alternate definition)
The International Monetary Fund, or IMF, promotes international financial stability and
monetary cooperation. It also facilitates international trade, promotes employment and
sustainable economic growth, and helps to reduce global poverty. The IMF is governed by
and accountable to its 189 member countries.
The institution is dominated by five countries: The United States, Japan, Germany, France
and the UK. The rest 183 member countries are divided into groups led by one country. The
most important one (6.57% of the votes) is led by Belgium. The least important group of
countries (1.55% of the votes) is led by Gabon and brings together African countries.
OBJECTIVES
a) Foster global monetary cooperation
b) Secure financial stability
c) Facilitate international trade
d) Promote high employment and sustainable economic growth
e) And reduce poverty around the world
GOVERNANCE
o BOARD OF GOVERNORS: At the top of its organizational structure is the Board of
Governors, consisting of one governor and one alternate governor from each
member country, usually the top officials from the central bank or finance ministry.
The Board of Governors meets once a year at the IMF–World Bank Annual Meetings.

2. o EXECUTIVE BOARD: The day-to-day work of the IMF is overseen by its 24-member
Executive Board, which represents the entire membership and supported by IMF
staff.
o MANAGING DIRECTOR: The Managing Director is the head of the IMF staff and Chair
of the Executive Board and is assisted by four Deputy Managing Directors.
FUNCTIONS OF IMF
 Surveillance
A core responsibility of the IMF is to oversee the international monetary system and
monitor the economic and financial policies of its 189 member countries. IMF
monitoring typically involves annual visits to member countries. During these visits
IMF staff engage government and central bank officials in discussions about risks to
domestic and global stability.
Upon completion of their evaluation IMF staff present a report to the Executive
Board for discussion. The Board’s views on the report are then transmitted to the
country’s authorities, concluding a process known as an Article IV consultation.
 Resources
Each member contributes a sum of money called a quota subscription. Quotas are
reviewed every five years and are based on each country’s wealth and economic
performance—the richer the country, the larger its quota. The quotas form a pool of
loanable funds and determine how much money each member can borrow and how
much voting power it will have. For example, the United States’ approximately $83
billion contribution is the most of any IMF member, accounting for approximately 17
percent of total quotas. Accordingly, the United States receives about 17 percent of
the total votes on both the board of governors and the executive board.
 Financial Assistance
Providing loans to member countries that are experiencing actual or potential
balance-of-payments problems is a core responsibility of the IMF. Each member may
immediately borrow up to 25 percent of its quota in this way. Borrowers must repay
the interest by purchasing with their own currencies with the foreign currencies held
by the IMF.
 Capacity Development
The IMF provides technical assistance and training to help member countries build
better economic institutions and strengthen related human capacities. These
capacity development efforts help countries achieve their growth and development
objectives and are an important contribution to countries’ progress toward their
Sustainable Development Goals (SDGs). Capacity development is one of the three
core functions of the IMF and accounts for around a third of its spending.
 SDRs – Special Drawing Rights
SDRs are an international reserve asset created by the IMF in 1969 to supplement
members’ existing reserve assets of foreign currencies and gold. Countries use the

3. SDRs that have been allocated to them by the IMF to settle international debts. SDRs
are not part of the quota subscriptions supplied by members, and thus they are not
part of the general asset pool available for loans to members. The IMF uses the SDR
as its unit of account for all transactions.
CRITICISMS
The impact of IMF loans has been widely debated. Opponents of the IMF argue that the
loans enable member countries to pursue reckless domestic economic policies knowing
that, if needed, the IMF will bail them out. This safety net, critics charge, delays needed
reforms and creates long-term dependency.
IMF conditionalities have also been widely debated. Critics contend that IMF policy
prescriptions provide uniform remedies that are not adequately tailored to each country’s
unique circumstances. These standard loan conditions reduce economic growth and deepen
and prolong financial crises, creating severe hardships for the poorest people in borrowing
countries and strengthening local opposition to the IMF.