International Monetary Fund (IMF)
The IMF is an organization that has 187 member countries. It works to foster global monetary cooperation, secure financial stability, facilitate international trade, sustain economic growth, promote high employment and reduce poverty. The IMF is headquartered in Washington, D.C.
It is a specialized agency of the United Nations, but has its own charter, finances and governing structure. The members of the IMF are represented through a quota system based broadly on their relative size in the global economy.
The IMF is also known as the Fund. It was created at a United Nations conference convened in Bretton Woods, New Hampshire, United States in July, 1944. The 44 governments represented at that conference wanted to create a framework for economic cooperation that would stop the vicious circle of competitive devaluations that contributed to the Great Depression of the 1930s.
The IMF has its members’ quota and voting power. It has board of governors, who are the highest decision-making body of the IMF. The board of governors consists of one governor and one alternate governor for each member country. The governor is appointed by the member country and is usually the minister of finance or the
governor of the central bank.
All powers of the IMF are vested in the Board of Governors. They may delegate to the Executive Board all powers except certain reserved powers. The Board of Governors meet once a year.
How the IMF Works
Responsibilities of the IMF
The aim purpose of the IMF is to ensure the stability of the international monetary system. International monetary system is the system of exchange rates and international payments that enable countries and their citizens to transact with one another. This system leads to the promotion of sustainable economic growth, an increase in the living standards, and in reduction of poverty.
After the recent recession, the IMF has been clarifying and updating its mandate to cover all macroeconomic and financial sector issues that have an impact on global stability.
The IMF reviews country policies, and national, regional and global economic and financial development to maintain stability and prevent crisis in the international monetary system. Through a formal system of surveillance, the IMF provides advice to its 187 member countries with the aim to encourage policies that foster economic stability, reduce vulnerability to economic and financial crisis, and raise living standards.
The Fund also provides regular assessment of global prospects in its World Economic Outlook, financial markets in Global Financial Stability Report, and public finance development in its Fiscal Monitor. It also publishes a series of regional economic outlook.
The IMF’s Executive Board has been considering many options to improve multilateral, financial and bilateral surveillance. That includes better understanding of spill-over, assessment of emerging and potential risks and strengthening the traction of IMF policy advice.
Another responsibility of the IMF is to provide its member countries the breathing room they need to correct balance of payment problems. National authorities have designed a policy program that is supported by the IMF for effective implementation of this program. After the recent global economic crisis, the IMF has strengthened its lending capacity and approved a major overhaul of mechanisms for providing financial support in April, 2009. Further reforms were adopted in August, 2010.
After the recent reforms, the IMF lending instruments now provide flexible crisis prevention tools to a broad range of members with sound fundamentals, policies and institutional policy frameworks. For low-income countries, the IMF doubled loan access limits and is also boosting its lending to the world’s poorer countries.
Special Drawing Rights (SDR)
SDR is an international reserve asset that is issued by the IMF. It can supplement the official reserves of member countries. Member countries can voluntarily exchange SDRs for currencies amongst themselves. Two allocations in August and September 2009 increased the outstanding stock of SDRs almost ten-fold to reach a total of SDR
204 billion (US $328 billion). The IMF staff is exploring options to enhance the role of the SDR to promote international monetary stability.
The IMF provides technical assistance and training to help its member countries in strengthening their capacity to design and implement effective policies. It offers technical assistance in many area namely tax policy and administration, expenditure management, monetary and exchange rate policies, banking and financial system supervision and regulation, statistics and legislative frameworks.
The IMFs resources are provided by its member countries primarily through payment of quotas, which broadly reflect the economic size of a country. Historically, the annual expenses of the IMF were met mainly by interest receipts on outstanding loans, but recently the member agreed to adopt a new income model based on a range of revenue sources that are better suited to the diverse activities of the IMF.
In 2009 at G-20 Summit, world leaders agreed to support the tripling of the IMFs lending resources from about US $250 billion to US $750 billion.
Governance and Organization
The IMF is accountable to the governments of its member countries. Its Board of Governors has one Governor and one Alternate Governor from each member country. Twenty-four Governors sit on the International Monetary and Financial Committee (IMFC) and usually meet twice a year.
Daily activities of the IMF are supervised by its 24-member Executive Board, which represents the entire membership. This work is guided by the IMFC and is supported by the IMF staff.
Qualification for Membership
The IMF’s executive board considers the application to become a member of a country. The executive board then submits 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, customary terms and conditions of membership.
After a request for membership has been accepted, the applicant state requires taking legal steps 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 existing member country of the IMF can withdraw from the IMF.
IMF Membership Quota
A member’s quota in the IMF determines its amount of subscription, its voting weight, its access to IMF financing, and its allocation of SDRs. A member state cannot increase its quota independently. An increase in quota needs to be approved by the Executive Board of IMF. It is also linked to many formulas that include many variables such as the size of a country in the world economy.
In September 2005, the IMF member countries agreed to an increase in the quota of four countries including China. Because of the financial crisis, the control has tilted from heavily indebted mature economies of the United States and United Kingdom in favour of the fast-growing and cash-rich economies of India, China, Brazil and
Hierarchy in Quota
The United States has the largest number of votes among the IMF members followed by Japan. At the 2009 G-20 Summit, the United States raised the possibility that some European countries might need to reduce their votes in favour of an increase in votes for emerging economies. France and Britain were reluctant because an increase in
China’s votes would mean it will have more votes than them.
Here is the list of the top member countries of the IMF.
|Country||Quota (Percentage of total)|
|Rest of 166 countries 28.79|
All staff of the IMF at the time of joining the organization, sign an agreement committing them to the IMF’s ethics that includes a Standard of Conduct and rules for financial disclosure. The IMF also has a zero tolerance policy on harassment which is subject to strict disciplinary action.
The IMF’s ethics framework includes the following:
- It has an independent Ethics Office and Ethics Advisor that produces advice and guidance to IMF employees, and investigates allegations of unethical behaviour and misconduct.
- It has an independent Ombudsman who provides impartial and independent assistance in resolving employment-related problems in a manner that helps in improving the overall working environment of the IMF.
- It has an Integrity Hotline that enables general public and IMF staff to report misuse of IMF resources or misconduct of its staff securely and anonymously.
The institution promotes integrity and diversity in its staff in terms of culture, gender and nationality. In the IMF, there are 2,400 employees from more than 160 countries and they are expected to observe the highest ethical and workplace standards of conduct.
Their Civic & Community Relations programs guide their humanitarian and community outreach efforts. They help by providing donations, volunteering and supporting community initiatives. They also regularly add funds to humanitarian and disaster relief effort around the world.
They started a matching program in 1998. Since then, the IMF has provided over $1.2 million to assist victims of flood, earthquakes, famine and disease, and support other humanitarian needs.
Resolving Current Economic Challenges
In 2007 when the mortgage markets in the United States were in a crisis and led to a crisis that affected activity and institutions worldwide, the IMF mobilized on many fronts to support its member countries. They increased the lending, using its cross-country experience to advice countries on policy solutions, and introducing reforms to modernize its operations.
Now that the crisis has shifted to Europe and the United States, the IMF has become active in engaging in the region and working with the G-20 to support a multilateral approach.
- Partnering in Europe: The IMF is working independently and in European Union (EU) countries in cooperation with European institutions such as European Commission (EC) and the European Central Bank (ECB). The IMF’s work in Europe has intensified because of the global financial crisis in 2008 and in mid 2010. The Managing Director of the IMF, Christine Lagarde, has stressed that to get beyond the crisis Europe must address the key issues of lack of growth, reduced competitiveness and the need for greater integration.
- Reinforcing Multilateralism: The multilateral process, where G-20 countries set out to objectives and policies to get out of the crisis, ensured a lasting recovery and a brighter economic future. At the 2009 Pittsburgh Summit of G-20, the countries pledged to adopt policies to resolve the economic crisis. At their request, the IMF provides technical analysis to evaluate how members’ policies fit together.
- Rethinking Macro-economic Principles: The IMF is encouraging a wholesale re-examination of macro-economic policy principles in the wake of the global crisis. In March, 2011, the IMF hosted a conference to consider policy questions and promote a discussion about the future of macro-economic policy. The areas discussed were; financial intermediation and regulation, fiscal policy, capital account management, growth strategies, and international monetary system.
- Stepping up crisis lending: During the global economic crisis, the IMF has beefed up its lending capacity. It has approved major overhaul of how it lends money by offering higher amounts and tailoring loan terms to countries’ varying strengths and circumstances. Moreover, the IMF is also working to prevent crisis in future. It has committed more than $280 billion to countries hit worst by the present economic crisis including Greece, Ireland, Romania, Portugal and Ukraine.
- Strengthening International Monetary System: This system has some weaknesses such as lack of an automatic and orderly mechanism for resolving the build-up of real and financial imbalances, volatile capital flows and exchange rates that can have damaging economic effects. The IMF thinks that addressing these problems is important in achieving global public good for economic and financial stability.
- Supporting Low-Income Countries: After taking into account the changing nature of economic conditions in low-income countries, the IMF has upgraded its support. It has overhauled its lending instruments in favour of short-term and emergency support. It has mobilized additional resources, provided interest relief and established a new set of financial instruments.
The IMF publishes data on IMF lending, exchange rates, and other economic and financial indicators. Their manuals, guides and other material on statistical practices are available.