International Monetary Fund:
The International Monetary Fund (IMF) is a significant United Nations financial agency and an international financial organization with 190 member nations and a headquarters in Washington, D.C. Its declared goal is to "seek to build global monetary cooperation, ensure financial stability, enable trade between nations, promote high employment and sustainable economic growth, and alleviate poverty around the globe." It was established in 1944 and officially began on December 27, 1945, at the Bretton Woods Conference. With 29 members and the aim of remaking the global monetary system, it was founded principally on the theories of Harry Dexter White and John Maynard Keynes. The handling of the balance of payments issues and global financial crises now heavily relies on it. Through a quota system, nations contribute money to a pool from which nations with balance of payments issues may borrow money. The fund held XDR 477 billion (about US$667 billion) as of 2016. The IMF is recognized as the world's last-resort lender.
The IMF strives to affect the economies of its member nations via the fund and other initiatives including data collection and analysis, monitoring the economies of its members, and calling for specific policies. The goals of the organization, as stated in the Articles of Agreement, are to advance global monetary cooperation, global commerce, high employment, exchange-rate stability, sustainable economic development, and the provision of resources to member nations experiencing financial hardship. Loans and quotas are the two main ways that the IMF gets its funding. The majority of IMF finances come from quotas, which are collective contributions from members. The level of a member's quota is determined by how significant its economy and finances are globally. Larger quotas apply to countries with higher economic importance. To grow the IMF's resources in the form of special drawing rights, the quotas are regularly raised.
Kristalina Georgieva, an economist from Bulgaria, has been serving as the IMF's managing director (MD) and chairwoman since October 1, 2019. With effect from January 21, 2022, Indian-American economist Gita Gopinath, who formerly held the position of Chief Economist, was promoted to First Deputy Managing Director. On January 24, 2022, Gopinath was succeeded as Chief Economist by Pierre-Olivier Gourinchas.
Functions:
The IMF claims that it supports economic development and stability globally by offering policy recommendations, supporting its members, and working with developing nations to eliminate poverty and promote macroeconomic stability. The justification for this is that many nations have restricted access to financial markets and that private international capital markets operate imperfectly. Without such market imperfections and financing for the balance of payments, many countries would only be able to address significant external payment imbalances by taking steps that would hurt their economies. The Poverty Reduction and Growth Facility is one of the alternative funding options offered by the IMF. [Reference required]
The IMF's initial three main responsibilities were:
to oversee the agreements between nations that have fixed exchange rates, assisting national governments in managing their exchange rates and enabling them to put an emphasis on economic growth, as well as providing short-term capital to support the balance of payments and stop the spread of global economic crises.
to provide capital investments for economic growth and projects like infrastructure, as well as to help put the pieces of the world economy back together after the Great Depression and World War II.
The advent of floating exchange rates after 1971 significantly changed the IMF's role. To determine whether a lack of capital was caused by economic fluctuations or economic policy, the focus shifted to looking at the economic policies of nations with IMF loan agreements. The IMF conducted research into the kinds of government initiatives that would promote economic recovery. The IMF was particularly concerned with preventing financial crises from spreading and endangering the entire global financial and currency system, like those that occurred in Mexico in 1982, Brazil in 1987, East Asia in 1997–1998, and Russia in 1998. Promoting and implementing a strategy to lessen the frequency of crises among emerging market nations, particularly middle-income nations that are susceptible to significant capital outflows, posed a challenge. Their role evolved to include monitoring the overall macroeconomic performance of member nations rather than continuing to focus solely on exchange rates. They took on a much more active role as a result of the IMF now overseeing economic policy as well as exchange rates.
Additionally, the IMF negotiates loan and lending terms through its conditionality policy, which was developed in the 1950s. Through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF), and the Rapid Credit Facility, low-income nations may borrow on favorable conditions, which means there is a period during which there are no interest rates (RCF). The Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility are the major channels for non-concessional loans, which come with interest rates. IMF members in need of immediate balance of payments support might use the Rapid Financing Instrument (RFI).
Surveillance of the global economy:
The IMF's responsibilities include regulating the global monetary and financial system and keeping an eye on the national economic and financial plans of its members. This practice is called surveillance and promotes cross-border cooperation. Since the Bretton Woods system of fixed exchange rates was abandoned in the early 1970s, surveillance has evolved primarily through the adoption of new procedures rather than new obligations. The duties of guardians were replaced by those of overseers of members' policies.
The Fund typically evaluates each member country's economic and financial policies to determine whether they are appropriate for achieving orderly economic growth and assesses the effects of these policies on other nations and the global economy. For instance, from 2009 to 2019, the IMF played a crucial role in providing financial help to particular nations like Armenia and Belarus to attain stabilization finance. IMF economists established the maximum sustainable debt level of a country in 2011; this level is one that the IMF constantly monitors. In fact, it was at this point in 2010 when the Greek economy collapsed.
- Participants in the IMF Data Dissemination Systems include IMF members utilizing SDDS, GDDS, and IMF members not using any of the systems; non-IMF entities using SDDS, GDDS, and IMF members not interacting with the IMF.
- The International Monetary Fund started developing guidelines for data distribution in 1995 to assist IMF member nations in making their economic and financial data available to the general public. The General Data Dissemination System (GDDS) and the Special Data Dissemination Standard are the two tiers of recommendations for dissemination standards that were approved by the International Monetary and Financial Committee (IMFC) (SDDS).
In 1996 and 1997, respectively, the executive board authorized the SDDS and GDDS, and any updates were made public in an updated Guide to the General Data Dissemination System. The system seeks to enhance various facets of a nation's statistics systems and is mainly targeted toward statisticians. Additionally, it is included in the Poverty Reduction Strategic Papers and Millennium Development Goals (MDG) of the World Bank (PRSPs).
The main goal of the GDDS is to urge member nations to create a framework to enhance data quality and statistical capacity development to review statistical requirements and define priorities in enhancing financial and economic data's timeliness, transparency, dependability, and accessibility. Some nations switched from using the GDDS to the SDDS over time.
Additionally, certain organizations that are not IMF members provide statistical information to the systems:
GDDS for the Palestinian Authority
Institutions of the European Union: The European Central Bank for the Eurozone - SDDS Eurostat for the whole EU - SDDS, supplying data from Malta and Cyprus (which does not use a system on its own) (using only GDDS on its own)
The IMF's monitoring efforts "had a major influence on sovereign debt with substantially bigger repercussions in developing than high-income states," according to a 2021 research.
Conditional loan terms
A set of guidelines or requirements that the IMF requests in return for financial resources are known as IMF conditionality. While the IMF does demand collateral from nations for loans, it also expects the government to request help to implement policy changes to address its macroeconomic imbalances. The money is withheld if the requirements are not satisfied. A 1952 executive board resolution established the idea of conditionality, which was eventually adopted into the Articles of Agreement.
Conditionality is related to economic theory and serves as a method of payback enforcement. The theoretical foundation of conditionality was the "monetary approach to the balance of payments," which principally derived from the work of Jacques Polak.
structural modification
Additional details: structural modification
Among the prerequisites for structural adjustment are:
- Austerity is the practice of reducing expenses or increasing profits.
- concentrating economic activity on resource exploitation and immediate export,
- a decline in currency values
- Import and export limitations being lifted as part of trade liberalization
- Increasing investment stability (by supplementing foreign direct investment with the opening of facilities for the domestic market),
- balancing expenditure and avoiding debt,
- Taking away state subsidies and pricing restrictions,
- Privatization, or the sale of all or a portion of a state-owned company,
- improving international investors' rights about national legislation,
- combatting corruption and enhancing governance
- The Washington Consensus refers to these circumstances.
Benefits:
These loan requirements guarantee that the borrower will be able to pay back the IMF and won't try to resolve their balance-of-payment issues in a manner that would hurt the global economy. Since countries in need of IMF loans typically lack internationally valuable collateral anyway, conditions are used to mitigate the incentive problem of moral hazard, which occurs when economic agents maximize their own utility to the detriment of others because they do not bear the full consequences of their actions.
Additionally, conditionality guarantees to the IMF that the money provided to them will be utilized for the objectives outlined in the Articles of Agreement and offers assurances that the nation will be able to correct its structural and macroeconomic imbalances. According to the IMF, if a member adopts certain remedial actions or policies, it will be able to pay back the IMF and ensure that there would be funds available to help other members.
As of 2004, borrowing nations had a solid history of paying back loans obtained under the IMF's standard lending facilities in whole and on time. Given that lending nations get market-rate interest on the majority of their quota subscription, any own-currency subscriptions that the IMF loans out, and all of the reserve assets they supply the IMF, this suggests that IMF lending does not place a burden on creditor countries.
History:
In 1944, as a component of the Bretton Woods System Exchange Agreement, the IMF was first established. Countries dramatically increased trade barriers during the Great Depression to boost their faltering economies. As a result, national currencies depreciated and global commerce decreased.
There is a need for monitoring as a result of this breakdown in global monetary cooperation. In Bretton Woods, New Hampshire, in the United States, 45 government leaders gathered for the Bretton Woods Conference to examine ways to reconstruct Europe and a framework for postwar international economic cooperation.
Regarding what function the IMF should play as a world economic organization, there were two points of view. Harry Dexter White, an American delegate, envisioned an IMF that operated more like a bank, ensuring that borrowing governments could pay back their obligations on schedule. The majority of White's idea was included in the Bretton Woods final agreements. The IMF, on the other hand, was envisioned by British economist John Maynard Keynes as a cooperative fund from which member governments might draw to sustain economic activity and employment despite recurring crises. According to this perspective, the IMF should assist countries and function like the American government did from the New Deal to the Great Depression of the 1930s.
The first 29 nations accepted the IMF's Articles of Agreement on December 27, 1945, which marked the organization's official founding date. The IMF had 39 members at the end of 1946. The IMF started conducting financial transactions on March 1 of that year, and France became the first nation to borrow money from it on May 8.
One of the most important institutions in the global economic order was the IMF, whose architecture allowed for a balance between entrenched liberalism and the reconstruction of global capitalism on a national level while also maximizing human happiness. As the IMF grew in membership, its impact on the world economy grew as well. Because the majority of nations in the Soviet sphere of influence did not join the IMF, the growth was particularly reflective of the political independence gained by several African countries and, more recently, the Soviet Union's breakup in 1991.
The Bretton Woods exchange rate system was in place until 1971 when the US government stopped allowing the US dollar (as well as dollar reserves held by foreign countries) to be convertible into gold. The Nixon Shock is what's happening here. The Jamaica Accords, which were adopted in 1976, confirmed the modifications to the IMF articles of agreement that reflected these improvements. Large commercial banks started lending to states later in the 1970s because they had an abundance of cash deposited by oil exporters. After a worldwide recession sparked a crisis that drew the IMF back into global financial governance in the 1980s, the lending of the so-called money center banks was what caused the IMF to change its position.
Member countries:
Not all member countries of the IMF are sovereign states, and therefore not all "member countries" of the IMF are members of the United Nations. Amidst "member countries" of the IMF that are not member states of the UN are non-sovereign areas with special jurisdictions that are officially under the sovereignty of full UN member states, such as Aruba, Curaçao, Hong Kong, and Macao, as well as Kosovo. The corporate members appoint ex-officio voting members, who are listed below. All members of the IMF are also International Bank for Reconstruction and Development (IBRD) members and vice versa.
Former members are Cuba (which left in 1964), and Taiwan, which was ejected from the IMF in 1980 after losing the support of United States President Jimmy Carter and was replaced by the People's Republic of China. However, "Taiwan Province of China" is still listed in the official IMF indices.
Apart from Cuba, the other UN states that do not belong to the IMF are Liechtenstein, Monaco, and North Korea. However, Andorra became the 190th member on 16 October 2020.
Former Czechoslovakia was expelled in 1954 for "failing to provide required data" and was readmitted in 1990, after the Velvet Revolution. Poland withdrew in 1950—allegedly pressured by the Soviet Union—but returned in 1986.
