What is... | November 2, 2015

What is the IMF?

The International Monetary Fund (IMF) is rarely out of the headlines – what it does affects economies all around the world.

The IMF organisation was one of the proposals conceived at a 1944 UN meeting in Bretton Woods, USA. At the meeting, representatives from 44 countries agreed on the need for ways to reduce the chance of economic turmoil around the globe.

What does the IMF do?
At the time of writing in 2015, the IMF primarily oversees the international monetary system. It lends money, provides debt relief, and advises countries on economic and financial policy. It also monitors global economic developments, offers expertise, and brings countries together to discuss related issues of potential importance.

The idea is that demand can and should be actively stabilised, according to the principles of economists including the UK's John Maynard Keynes and the US's Harry Dexter White. This was partly a response to economic instability following World War II and the 1930s Great Depression – the latter characterised by competitive currency devaluations, falling prices and massive unemployment.

Where does IMF money come from?
Today the IMF has 188 member states. Each IMF member is assigned a money contribution – a “quota” calculated in the IMF accounting units, known as Special Drawing Rights (SDR). Up to 25% of each quota is paid in certain widely-accepted currencies such as the yen or euro, the remaining 75% in the country’s own currency.

Quotas are based roughly on the size of the member country’s economy and are regularly reviewed. The IMF can also borrow funds via two standing arrangements, in 2015 worth 387 billion SDRs (about US$543 billion).

Who benefits?
A more stable global trading and financial system has been helpful for many countries. One stellar example is South Korea, whose per-capita income expanded faster in any 10-year period 1960-1995 than the British economy had during the whole of the 19th Century.

Under the IMF’s quota system since the 1970s, richer countries generally do more of the lending, and poorer ones receive more of the funds. However, all members are subject to requests for change and improvements to the way they manage money. In the wake of the 2007-2012 global downturn, the IMF stepped in on behalf of various members – for example, bailing out European Union countries, including Greece.

Criticisms of the IMF
Some argue the US and Europe have too much say in the IMF. More market-friendly policies tend to be reflected in the IMF’s recommendations and arrangements. It is argued that poorer countries are disadvantaged by the IMF loan conditions – which critics maintain are based on ideology rather than the genuine needs of loan recipients.

However, the IMF’s multilateral role is complex, and there is probably no international body – including the UN – which has not drawn fire for its activities at some point.


eZonomics team
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