International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 190 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of last resort to national governments, and a leading supporter of exchange-rate stability. Its stated mission is "working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world."[1][9] Established in July 1944[10] at the Bretton Woods Conference, primarily according to the ideas of Harry Dexter White and John Maynard Keynes, it started with 29 member countries and the goal of reconstructing the international monetary system after World War II. It now plays a central role in the management of balance of payments difficulties and international financial crises.[11] Through a quota system, countries contribute funds to a pool from which countries can borrow if they experience balance of payments problems. As of 2016, the fund had SDR 477 billion (about US$667 billion).[10]
"IMF" redirects here. For other uses, see IMF (disambiguation).Abbreviation
IMF
27 December 1945
Promote international monetary co-operation, facilitate international trade, foster sustainable economic growth, make resources available to members experiencing balance of payments difficulties, prevent and assist with recovery from international financial crises[1]
700 19th Street NW, Washington, D.C., U.S.
Worldwide
190 countries (189 UN countries and Kosovo)[2]
$1,295 million[8]: 60
2,400[1]
The IMF works to stabilize and foster the economies of its member countries by its use of the fund, as well as other activities such as gathering and analyzing economic statistics and surveillance of its members' economies.[12][13] IMF funds come from two major sources: quotas and loans. Quotas, which are pooled funds from member nations, generate most IMF funds. The size of members' quotas increase according to their economic and financial importance in the world. The quotas are increased periodically as a means of boosting the IMF's resources in the form of special drawing rights.[14]
The current managing director (MD) and chairwoman of the IMF is Bulgarian economist Kristalina Georgieva, who has held the post since October 1, 2019.[15] Indian-American economist Gita Gopinath, previously the chief economist, was appointed as first deputy managing director, effective January 21, 2022.[16] Pierre-Olivier Gourinchas was appointed chief economist on January 24, 2022.[17]
According to the IMF itself, it works to foster global growth and economic stability by providing policy advice and financing the members by working with developing countries to help them achieve macroeconomic stability and reduce poverty.[18] The rationale for this is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance-of-payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse economic consequences.[19] The IMF provides alternate sources of financing such as the Poverty Reduction and Growth Facility.[20]
Upon the founding of the IMF, its three primary functions were:
The IMF's role was fundamentally altered by the floating exchange rates after 1971. It shifted to examining the economic policies of countries with IMF loan agreements to determine whether a shortage of capital was due to economic fluctuations or economic policy. The IMF also researched what types of government policy would ensure economic recovery.[21] A particular concern of the IMF was to prevent financial crises, such as those in Mexico in 1982, Brazil in 1987, East Asia in 1997–98, and Russia in 1998, from spreading and threatening the entire global financial and currency system. The challenge was to promote and implement a policy that reduced the frequency of crises among emerging market countries, especially the middle-income countries which are vulnerable to massive capital outflows.[24] Rather than maintaining a position of oversight of only exchange rates, their function became one of surveillance of the overall macroeconomic performance of member countries. Their role became a lot more active because the IMF now manages economic policy rather than just exchange rates.
In addition, the IMF negotiates conditions on lending and loans under their policy of conditionality,[21] which was established in the 1950s.[22] Low-income countries can borrow on concessional terms, which means there is a period of time with no interest rates, through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF). Non-concessional loans, which include interest rates, are provided mainly through the Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance via the Rapid Financing Instrument (RFI) to members facing urgent balance-of-payments needs.[25]
The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its member countries.[26] This activity is known as surveillance and facilitates international co-operation.[27] Since the demise of the Bretton Woods system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of new obligations.[26] The responsibilities changed from those of guardians to those of overseers of members' policies.
The Fund typically analyses the appropriateness of each member country's economic and financial policies for achieving orderly economic growth, and assesses the consequences of these policies for other countries and for the global economy.[26] For instance, The IMF played a significant role in individual countries, such as Armenia and Belarus, in providing financial support to achieve stabilization financing from 2009 to 2019.[28] The maximum sustainable debt level of a polity, which is watched closely by the IMF, was defined in 2011 by IMF economists to be 120%.[29] Indeed, it was at this number that the Greek economy melted down in 2010.[30]
In 1995, the International Monetary Fund began to 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).[31]
The 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 (MDG) and Poverty Reduction Strategic Papers (PRSPs).
The primary objective of the GDDS is to encourage member countries to build a framework to improve data quality and statistical capacity building to evaluate statistical needs, set priorities in improving timeliness, transparency, reliability, and accessibility of financial and economic data. Some countries initially used the GDDS, but later upgraded to SDDS.
Some entities that are not IMF members also contribute statistical data to the systems:
A 2021 study found that the IMF's surveillance activities have "a substantial impact on sovereign debt with much greater impacts in emerging than high-income economies".[33]
Impact[edit]
According to a 2002 study by Randall W. Stone, the academic literature on the IMF shows "no consensus on the long-term effects of IMF programs on growth".[145]
Some research has found that IMF loans can reduce the chance of a future banking crisis,[146] while other studies have found that they can increase the risk of political crises.[147] IMF programs can reduce the effects of a currency crisis.[148]
Some research has found that IMF programs are less effective in countries which possess a developed-country patron (be it by foreign aid, membership of postcolonial institutions or UN voting patterns), seemingly due to this patron allowing countries to flaunt IMF program rules as these rules are not consistently enforced.[149] Some research has found that IMF loans reduce economic growth due to creating an economic moral hazard, reducing public investment, reducing incentives to create a robust domestic policies and reducing private investor confidence.[150] Other research has indicated that IMF loans can have a positive impact on economic growth and that their effects are highly nuanced.[151]
Scandals[edit]
Managing Director Lagarde (2011–2019) was convicted of giving preferential treatment to businessman-turned-politician Bernard Tapie as he pursued a legal challenge against the French government. At the time, Lagarde was the French economic minister.[210] Within hours of her conviction, in which she escaped any punishment, the fund's 24-member executive board put to rest any speculation that she might have to resign, praising her "outstanding leadership" and the "wide respect" she commands around the world.[211]
Former IMF Managing Director Rodrigo Rato was arrested in 2015 for alleged fraud, embezzlement and money laundering.[212][213] In 2017, the Audiencia Nacional found Rato guilty of embezzlement and sentenced him to 4+1⁄2 years' imprisonment.[214] In 2018, the sentence was confirmed by the Supreme Court of Spain.[215]
Alternatives[edit]
In March 2011, the Ministers of Economy and Finance of the African Union proposed to establish an African Monetary Fund.[216]
At the 6th BRICS summit in July 2014 the BRICS nations (Brazil, Russia, India, China, and South Africa) announced the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$100 billion, a framework to provide liquidity through currency swaps in response to actual or potential short-term balance-of-payments pressures.[217]
In 2014, the China-led Asian Infrastructure Investment Bank was established.[193]
In the media[edit]
Life and Debt, a documentary film, deals with the IMF's policies' influence on Jamaica and its economy from a critical point of view. Debtocracy, a 2011 independent Greek documentary film, also criticises the IMF. Portuguese musician José Mário Branco's 1982 album FMI is inspired by the IMF's intervention in Portugal through monitored stabilisation programs in 1977–78. In the 2015 film Our Brand Is Crisis, the IMF is mentioned as a point of political contention, where the Bolivian population fears its electoral interference.[218]