International Monetary Fund

From New World Encyclopedia

The International Monetary Fund (IMF) is a global membership organization, founded in 1944, that attempts to insure a stable worldwide financial system by fostering cooperation among its 185 members regarding exchange rates and other monetary issues; facilitating international payments and transfers; reducing the payment imbalances of its members; and providing loans. It also seeks what it terms a balanced growth of international trade, which it maintains will lead to increased employment, income, and production within member countries. It is headquartered in Washington, D.C., USA.


After the War

As World War II drew to a close, the economies of numerous nations were in disarray, owing not only to the inherent devastation of the war itself, but to years of competitive currency devaluation that many economists felt contributed to the worldwide depression of the 1930s.[1] At the time, to encourage consumer purchases of domestically produced goods, and limit purchases of foreign imports, a nation would officially lower the exchange rate of its currency against those of other nations, thereby making imports more expensive to its consumers. While this often helped to strengthen the domestic manufacturing sector, it also stoked inflation, and more seriously weakened the economies of other countries, by tightening access to their foreign markets. In international parlance, it was termed a "beggar my neighbor" approach.[2] Inevitably, these other countries counteracted by devaluing their own currencies, which led to a spiral of international protectionism, inflation, and global economic decline. To bring some order to this essentially chaotic situation, the United States, along with several economically advanced nations, felt the need to supervise, if not directly regulate, the system of international currency exchange.[3]

Early Years: Official Goals and Policies

Headquarters in Washington D.C.

Planned during a United Nations conference of 45 nations in July 1944 (convened in Bretton Woods, New Hampshire), the International Monetary Fund (often referred to as IMF or the Fund) set for itself six international goals. They included promoting international monetary cooperation; facilitating a balanced approach to global trade; promoting foreign exchange stability; helping to establish a multilateral system of payments and transfers; providing resources to its more needy members; and reducing "the magnitude of payment imbalances."[4] It would finance these aims in part by requiring members to contribute funds that could be borrowed by those experiencing a balance of payments deficit.[5][6] The amount of each country's contribution was (and remains) determined by a quota, largely reflecting the size of the country's domestic economy relative to others. The quota also limits the amount of reserve assets the country can draw down, and determines the weight of its vote. Thus, unlike the United Nations General Assembly, voting rights are not based on a one-country/one-vote system, but on the economic and therefore political strength of the participating nations.

Also, and equally important, the Fund sought to replace the ad hoc system of exchange rates with a system under which any currency would be convertible to the U.S. dollar, based on an established or fixed ratio. Each country had to establish a par value—a parity relationship—of their currencies to the dollar. In turn, the dollar's value was based on its relationship to gold, which was fixed at $35 per ounce.

Further, members were required to maintain the market rate of their currencies to within 1 percent of this par value. The aim was to insure that payment for goods and services "would take place freely and that all balances arising out of these transactions would be convertible into other countries [for use in] further current transactions."[7]

These official goals were a notable departure from established procedure, marking the first time that nation-states agreed specifically to engage directly in supervising international exchange. According to one scholarly review, at the time "international monetary relations were not considered the province of national governments. Rarely did any entity intervene in foreign exchange markets, and when one did, it was nongovernmental banks such as the House of Morgan or the still private Bank of England. There were several attempts at monetary cooperation and collaboration among international private bankers during the late nineteenth century, but it was sporadic....[T]he notion of a permanent international bank to guide global efforts to increase living standards and eliminate global poverty was truly remarkable."[8]

The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement.

Initial Impact

Notwithstanding its innovative nature, the Fund was not very successful in meeting its goals during its early years. For example, although it sought to eliminate or largely curtail the practice of multiple exchange rates, "multiple currency practices actually increased among the Fund's membership."[9] Further, provision of financial resources to members was minimal, in large part because the United States' Marshall Plan was already providing European countries with the resources they needed to resuscitate their economies. Thus, as one official recounting noted, "The impact of the Fund on the policies and its role in providing financial assistance were limited during the late 1940s and the first half of the 1950s."[10]

SDRs and the Expansion of the Fund

But by the late 1950s and early 1960s, drawings from the Fund began to rise. Examples were huge drawings by the United Kingdom and France during the 1956 Suez Crisis, with both nations experiencing serious losses of revenue when the Suez canal was nationalized by Egypt.[11] At around the same time, concern grew among IMF members that the global supply of official reserve assets—gold, U.S. dollars and other strong currencies—was insufficient to meet the growing demand, fed by a robust volume of international trade. Thus, in July, 1969, the Fund decided to create its own reserve asset, which it refers to as Special Drawing Rights, or SDRs. While not technically a currency, SDRs function to some extent as a currency by allowing nations to temporarily exchange their domestic currencies for them. Later, when the economies and reserves of these borrowing countries improve, they can re-exchange the SDRs they hold for other currencies, which facilitates the goal of international currency liquidity—a goal newly created by the IMF.[12] Initially, the value of the SDR was equivalent to nearly 0.89 grams of fine gold, the same rate as the U.S. dollar. (After 1974, the value of the SDR was set on the basis of a basket of currencies, with each currency assigned a weight in accordance with its market value relative to the dollar. Currencies and weights are revised every five years.)[13]

As the extent of drawings grew, so did the IMF's membership (and staff), which in turn led to even more drawings. In 1968 and 1969, drawings amounted to the equivalent of $3.5 billion and $2.5 billion respectively, "the largest annual amounts since the Fund commenced operations in 1947."[14]

Collapse of Bretton-Woods System

By the late 1960s, the United States experienced rapidly rising inflation, due in part to the war in Vietnam and increased spending on social programs under the Great Society initiatives of then President Lyndon B. Johnson. Inflation, by definition, meant that the value of the dollar was declining, so to keep steady the fixed exchange rate—thereby preventing runaway price increases in their own economies—central banks in foreign countries either had to convert their dollars into gold, or increase their purchases of dollars. As the U.S. supply of gold was declining, the banks kept accumulating dollars. "Thus the German, British, French and Japanese, et. al., central banks bought up dollars in great quantities and at the same time continually increased their own domestic money supplies."[15] Ironically, amassing balance of payment surpluses by increasing the money supply also leads to inflation. Pressures on the fixed-rate system increased manifold. Altogether, these pressures "put the sustainability of the system into question."[16]

Eventually, on August 15, 1971, then President Richard M. Nixon announced the suspension of the dollar's convertibility into gold. He also imposed a 10 percent surcharge on all imports, and some domestic price controls to dampen inflation. As a result, in December 1971, the Bretton-Woods agreement was effectively supplanted by the Smithsonian Agreement, under which countries accepted a revaluation of their currencies towards the U.S. dollar (which effectively "devalued" the dollar) "in return for the elimination of the import surcharge." They also increased the market rate margins around the new par value of their currencies from 1 percent to 2.25 percent. Two years later, in March 1973, another dollar outflow led to a shutdown of foreign exchange trading on the FOREX for three months. After it reopened, "foreign currencies were floating with respect to each other. The Bretton-Woods system was dead."[17]

Soon thereafter, lending to its members became the IMF's principal activity—a far departure from its initial focus on moderating international currency exchange.[18]

The unilateral actions of the United States with regard to its suspension of the dollar's convertibility into gold underscores what some critics have often charged, namely, that "In practice the initial scheme, as well as its subsequent development and ultimate demise, were directly dependent on the preferences and policies of its most powerful member, the United States."[19]

The 1980s

The IMF during the 1980s confronted two overarching and related crises: a worldwide recession during the early part of the decade; and an international debt crisis, in which poorer nations that had borrowed from the Fund and other sources during the previous decade found themselves increasingly unable to meet repayment obligations—hundreds of billions of dollars. In August, 1982, "Mexico stunned the financial world by declaring that it could no longer continue to pay its foreign debt."[20] Similar declarations of default were made shortly thereafter by Brazil, Argentina, Venezuela, and Chile, among others.

Debt Reduction and Structural Adjustment Programs

To deal with these crises, especially the debt defaults, the IMF, along with the World Bank, persuaded commercial banks to extend loan repayment periods and offer new loans to debtor nations; in return, the debtors had to agree to "structural adjustment programs." These typically included sharp curtailments of government spending on domestic programs such as health, education and development (to counter budgetary deficits); a tight monetary policy (restrictions on printing money to inhibit inflation); and currency devaluations to increase exports. Later, additional reforms, including privatization of state-owned industries and sharply decreased government regulation of business activities, were proposed.[21] Nevertheless, international "debt fatigue" continued, as many debtor nations refused to adhere to the IMF reforms, which they argued would hurt lower income residents through increasing unemployment and loss of social safety nets.

The Brady Plan

In 1989, U.S. Treasury Secretary Nicholas F. Brady proposed a new plan, under which commercial banks would lend to debtor nations in exchange for bonds—I.O.U.s—carrying either a below-market interest rate, or a discounted face value. The BMIR bonds facilitated a long term reduction of debt, and the discounted bonds allowed for an immediate reduction. The principal of these bonds would be secured by U.S. Treasury bills.[22] As a condition for receiving loans on these favorable terms, debtor nations would have to implement, or continue, their domestic reforms.

The impact of The Brady Plan and other IMF programs that require nations to undertake stringent structural reforms in exchange for loans or debt relief have been a source of ongoing debate among observers. Supporters point to a reduction in worldwide debt, diversifying risk, and encouraging many "emerging markets countries to adopt and pursue ambitious economic reform programs."[23] Opponents cite declining employment and restrictions on the ability of poor nations to employ fiscal policies to combat economic decline.[24]

The 1990s: The Argentina Example

Although subject to constant criticism from both the political left and right, the IMF pointed to Argentina as an example of the benefits in adhering to IMF conditionalities, or structural adjustment reforms, such as privatizing state enterprises, liberalizing foreign trade, pegging the Argentine peso to the U.S. dollar, and tightening restrictions on monetary policy. In its 1996 annual report, the Fund noted with approval that Argentina had "cut wages for higher-paid public employees; and established two trust funds to facilitate the restructuing of private banks and the privatization of provincial banks. As a result...its economy appeared to have stabilized [with billions of dollars flowing back in]; bank credit was beginning to recover; the country had regained access to international credit markets; and international reserves were being rebuilt."[25]

From Boom to Bust

As noted by the Fund's Independent Evaluation Office (IEO) in 2003, Argentina—and by implication the IMF—"had been widely praised for its achievements in stabilization, economic growth and market-oriented reforms under IMF-supported programs."[26] The IEO also noted that Argentina's hyperinflation of the previous decade had been checked, and that its economy had begun to grow at an average annual rate of six percent.

But that changed dramatically as the decade drew to a close. In 1998, Argentina once again found itself in recession; a few years later, in 2001-2, its economy plummeted. Consequently the IEO's report went on to acknowledge "the eventual collapse of the convertibility regime and the associated adverse economic and social consequences for the country."[27] (The IEO was also concerned that the reputation of the IMF was in peril.)

Other observations were more scathing. "[A]s the economy continued to spiral downward,the inflow of dollars slowed, forcing the [Argentine] currency board to restrict the country's money supply even further. And still worse, in the late 1990s, the U.S. dollar appreciated against other currencies, which meant (because of the one-to-one rule) that the peso also increased in value. As a result, the price of Argentine exports rose, further weakening world demand for Argentina's goods."[28] Another review noted that "many countries [are] required by IMF to pursue tight monetary policy (higher interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However, these policies caused a minor slowdown to turn into a serious recession with mass unemployment [in Asia]. In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a decline in investment in public services which arguably damaged the economy."[29]

Not all the criticism, however, was from the left of the political spectrum. Conservatives argued that IMF funding causes problems not because it imposes austerity measures, but because it violates laissez faire policies. A news story, covering a report prepared by the IMF itself, noted that "the study helps rebut criticism that the Fund insists on excessive austerity in developing countries. In Argentina's case, the report concluded that officials were too lenient."[30]

In any event, with the shift in its lending focus from developed countries during its first decades, to developing countries in the 1980s, and in response to a barrage of criticisms in the 1990s that its structural adjustment reforms and other conditions for loan acceptance were actually intensifying domestic economic crises, the IMF during the decade "began to take issues such as poverty into account and developed funding programs to protect vulnerable populations during adjustment periods."[31] The Fund also increased its technical assistance on social safety nets, and began to "coordinate with other multilateral organizations such as the United Nations International Children’s Emergency Fund (UNICEF) and the International Labor Organization (ILO)" on minimizing adverse effects of conditionalities on vulnerable populations.[32]

Data Improvement

On another front, In 1995, the Fund began work on data dissemination standards to help IMF member countries improve the quality and dissemination of their economic and financial data. Guidelines for the dissemination standards, which consisted of the General Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS), were approved by the executive board in 1996 and 1997.[33]

Today

At present, the IMF continues its concern with both foreign exchange issues and "surveillance," or oversight of macroeconomic policies of poorer nations. Its 2008 annual report noted that its governors voted "to give more weight to low-income countries" in the Fund's decision making, and encouraged members to "avoid exchange rate manipulation for specific purposes."[34] In addition, the Fund appears increasingly concerned with the current worldwide economic recession.

Internally, faced with a shortfall in revenue, the Fund's executive board in 2008 agreed to sell part of its gold reserves. Also, on April 27, IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision to propose a new framework for the fund, designed to close a projected $400 million budget deficit over the next few years. The budget proposal includes sharp spending cuts of $100 million until 2011 that will include up to 380 staff dismissals.[35], accessed February 19, 2009

Criticisms

During the last two decades, the IMF has engendered a sustained volume of both criticism and defense. As summarized in a recent collection of essays, defenders of the IMF include "Most economists, finance officials and central bankers [who] agree that the benefits of global, market-based integration can more than ofset the costs for the poorest countries and the poor within countries." The opposite view is espoused by "Most social activists [who], in contrast, emphasize that so far potential has not been realized...those activists see [the IMF and other international financial institutions] as undemocratic. They see the overall system as controlled by corporate and financial insiders, not by the world's median income voter."[36]

Members' quotas and voting power, and Board of Governors

Table showing the top 21 member countries in terms of voting power:[37]

IMF Member Country Quota: Millions of SDRs Quota: Percentage of Total Governor Alternate Governor Votes: Number Votes: Percentage of Total
Flag of Australia Australia 3236.4 1.49 Wayne Swan Ken Henry 32614 1.47
Flag of Belgium Belgium 4605.2 2.12 Guy Quaden Jean-Pierre Arnoldi 46302 2.09
Flag of Brazil Brazil 3036.1 1.4 Guido Mantega Henrique de Campos Meirelles 30611 1.38
Flag of Canada Canada 6369.2 2.93 Jim Flaherty Mark Carney 63942 2.89
Flag of People's Republic of China China 8090.1 3.72 Zhou Xiaochuan Hu Xiaolian 81151 3.66
Flag of France France 10738.5 4.94 Christine Lagarde Christian Noyer 107635 4.86
Flag of Germany Germany 13008.2 5.99 Axel A. Weber Peer Steinbrück 130332 5.88
Flag of India India 4158.2 1.91 P. Chidambaram D. Subbarao 41832 1.89
Flag of Italy Italy 7055.5 3.25 Giulio Tremonti Mario Draghi 70805 3.2
Flag of Japan Japan 13312.8 6.13 Koji Omi Toshihiko Fukui 133378 6.02
Flag of South Korea Korea, South 2927.3 1.35 Okyu Kwon Seong Tae Lee 29523 1.33
Flag of Mexico Mexico 3152.8 1.45 Agustín Carstens Guillermo Ortiz 31778 1.43
Flag of Netherlands Netherlands 5162.4 2.38 A.H.E.M. Wellink L.B.J. van Geest 51874 2.34
Flag of Russia Russian Federation 5945.4 2.74 Aleksei Kudrin Sergey Ignatiev 59704 2.7
Flag of Saudi Arabia Saudi Arabia 6985.5 3.21 Ibrahim A. Al-Assaf Hamad Al-Sayari 70105 3.17
Flag of Spain Spain 3048.9 1.4 Pedro Solbes Miguel Fernández Ordóñez 30739 1.39
Flag of Sweden Sweden 2395.5 1.1 Stefan Ingves Per Jansson 24205 1.09
Flag of Switzerland Switzerland 3458.5 1.59 Jean-Pierre Roth Hans-Rudolf Merz 34835 1.57
Flag of United Kingdom United Kingdom 10738.5 4.94 Alistair Darling Mervyn King 107635 4.86
Flag of United States United States 37149.3 17.09 Henry Paulson Ben Bernanke 371743 16.79
Flag of Venezuela Venezuela 2659.1 1.22 Gastón Parra Luzardo Rodrigo Cabeza Morales 26841 1.21
remaining 165 countries 60081.4 29.14 respective respective 637067 28.78

Assistance and reforms

The primary mission of the IMF is to provide financial assistance to countries that experience serious financial and economic difficulties using funds deposited with the IMF from the institution's 185 member countries. Member states with balance of payments problems, which often arise from these difficulties, may request loans to help fill gaps between what countries earn and/or are able to borrow from other official lenders and what countries must spend to operate, including to cover the cost of importing basic goods and services. In return, countries are usually required to launch certain reforms, which have often been dubbed the "Washington Consensus." These reforms are generally required because countries with fixed exchange rate policies can engage in fiscal, monetary, and political practices which may lead to the crisis itself. For example, nations with severe budget deficits, rampant inflation, strict price controls, or significantly over-valued or under-valued currencies run the risk of facing balance of payment crises. Thus, the structural adjustment programs are at least ostensibly intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness.

IMF/World Bank support of military dictatorships

The role of the Bretton Woods institutions has been controversial since the late Cold War period, as the IMF policy makers supported military dictatorships friendly to American and European corporations. Critics also claim that the IMF is generally apathetic or hostile to their views of democracy, human rights, and labor rights. The controversy has helped spark the anti-globalization movement. Arguments in favor of the IMF say that economic stability is a precursor to democracy, however critics highlight various examples in which democratized countries fell after receiving IMF loans.[38]

In the 60’s, the IMF and the World Bank supported the government of Brazil’s military dictator Castello Branco with tens of millions of dollars of loans and credit that were denied to previous democratically-elected governments.[39]

Countries that were or are under a Military dictatorship whilst being members of the IMF/World Bank (support from various sources in $ Billion):[40]

Country indebted to IMF/World Bank Dictator In power from In power to debts at start of Dictatorship(1) Debts at end of Dictatorship(2) Country Debts in 1996 Dictator debts generated $ billion Dictator generated debt % of total debt
Flag of Argentina Argentina Military dictatorship 1976 1983 9.3 48.9 93.8 39.6 42%
Flag of Bolivia Bolivia Military dictatorship 1962 1980 0 2.7 5.2 2.7 52%
Flag of Brazil Brazil Military dictatorship 1964 1984 5.1 105.1 179 100 56%
Flag of Chile Chile Augusto Pinochet 1973 1989 5.2 18 27.4 12.8 47%
Flag of El Salvador El Salvador Military dictatorship 1979 1994 0.9 2.2 2.2 1.3 59%
Flag of Ethiopia Ethiopia Mengistu Haile Mariam 1977 1991 0.5 4.2 10 3.7 37%
Flag of Haiti Haiti Jean-Claude Duvalier 1971 1986 0 0.7 0.9 0.7 78%
Flag of Indonesia Indonesia Suharto 1967 1998 3 129 129 126 98%
Flag of Kenya Kenya Moi 1979 2002 2.7 6.9 6.9 4.2 61%
Flag of Liberia Liberia Doe 1979 1990 0.6 1.9 2.1 1.3 62%
Flag of Malawi Malawi Banda 1964 1994 0.1 2 2.3 1.9 83%
Flag of Nigeria Nigeria Buhari/Abacha 1984 1998 17.8 31.4 31.4 13.6 43%
Flag of Pakistan Pakistan Zia-ul Haq 1977 1988 7.6 17
Flag of Paraguay Paraguay Stroessner 1954 1989 0.1 2.4 2.1 2.3 96%
Flag of Philippines Philippines Marcos 1965 1986 1.5 28.3 41.2 26.8 65%
Flag of Somalia Somalia Siad Barre 1969 1991 0 2.4 2.6 2.4 92%
Flag of South Africa South Africa apartheid 1948 1992 18.7 23.6 18.7 79%
Flag of Sudan Sudan Nimeiry/al-Mahdi 1969 present 0.3 17 17 16.7 98%
Flag of Syria Syria Assad 1970 present 0.2 21.4 21.4 21.2 99%
Flag of Thailand Thailand Military dictatorship 1950 1983 0 13.9 90.8 13.9 15%
Template:Country data Zaire Zaire/Congo Mobutu 1965 1997 0.3 12.8 12.8 12.5 98%

Notes: Debt at takeover by dictatorship; earliest data published by the World Bank is for 1970. Debt at end of dictatorship (or 1996, most recent date for World Bank data).

Criticism

Two criticisms from economists have been that financial aid is always bound to so-called "Conditionalities" by the Roi Heenok, including Structural Adjustment Programs. Conditionalities, which are the economic performance targets established as a precondition for IMF loans, it is claimed, retard social stability and hence inhibit the stated goals of the IMF, while Structural Adjustment Programs lead to an increase in poverty in recipient countries.[41]

Typically the IMF and its supporters advocate a Keynesian approach. As such, adherents of supply-side economics generally find themselves in open disagreement with the IMF. The IMF frequently advocates currency devaluation, criticized by proponents of supply-side economics as inflationary. Secondly they link higher taxes under "austerity programmes" with economic contraction.

Currency devaluation is recommended by the IMF to the governments of poor nations with struggling economies. Supply-side economists claim these Keynesian IMF policies are destructive to economic prosperity.

That said, the IMF sometimes advocates "austerity programmes," increasing taxes even when the economy is weak, in order to generate government revenue and balance budget deficits, which is the opposite of Keynesian policy. These policies were criticised by Joseph E. Stiglitz, former chief economist and Senior Vice President at the World Bank, in his book Globalization and Its Discontents.[42] He argued that by converting to a more Monetarist approach, the fund no longer had a valid purpose, as it was designed to provide funds for countries to carry out Keynesian reflations, and that the IMF "was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community."[43]

Complaints are also directed toward International Monetary Fund gold reserve being undervalued. At its inception in 1945, the IMF pegged gold at US$35 per Troy ounce of gold. In 1973 the Nixon administration lifted the fixed asset value of gold in favor of a world market price. Hence the fixed exchange rates of currencies tied to gold were switched to a floating rate, also based on market price and exchange. This largely came about because Petrodollars outside the United States were more than could be backed by the gold at Fort Knox under the fixed exchange rate system. The fixed rate system only served to limit the amount of assistance the organization could use to help debt-ridden countries. Current IMF rules prohibit members from linking their currencies to gold.[citation needed]

Argentina, which had been considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions, experienced a catastrophic economic crisis in 2001, which some believe to have been caused by IMF-induced budget restrictions — which undercut the government's ability to sustain national infrastructure even in crucial areas such as health, education, and security — and privatization of strategically vital national resources.[44] Others attribute the crisis to Argentina's maldesigned fiscal federalism, which caused subnational spending to increase rapidly.[45] The crisis added to widespread hatred of this institution in Argentina and other South American countries, with many blaming the IMF for the region's economic problems.[46] The current — as of early 2006 — trend towards moderate left-wing governments in the region and a growing concern with the development of a regional economic policy largely independent of big business pressures has been ascribed to this crisis.

Another example of where IMF Structural Adjustment Programmes aggravated the problem was in Kenya. Before the IMF got involved in the country, the Kenyan central bank oversaw all currency movements in and out of the country. The IMF mandated that the Kenyan central bank had to allow easier currency movement. However, the adjustment resulted in very little foreign investment, but allowed Kamlesh Manusuklal Damji Pattni, with the help of corrupt government officials, to siphon off billions of Kenyan shillings in what came to be known as the Goldenberg scandal, leaving the country worse off than it was before the IMF reforms were implemented.[citation needed] In a recent interview, the Prime Minister of Romania stated that "Since 2005, IMF is constantly making mistakes when it appreciates the country's economic performances".[47]

Overall the IMF success record is perceived as limited.[citation needed] While it was created to help stabilize the global economy, since 1980 critics claim over 100 countries (or reputedly most of the Fund's membership) have experienced a banking collapse that they claim have reduced GDP by four percent or more, far more than at any time in Post-Depression history.[citation needed] The considerable delay in the IMF's response to any crisis, and the fact that it tends to only respond to them or even create them[48] rather than prevent them, has led many economists to argue for reform. In 2006, an IMF reform agenda called the Medium Term Strategy was widely endorsed by the institution's member countries. The agenda includes changes in IMF governance to enhance the role of developing countries in the institution's decision-making process and steps to deepen the effectiveness of its core mandate, which is known as economic surveillance or helping member countries adopt macroeconomic policies that will sustain global growth and reduce poverty. On June 15, 2007, the Executive Board of the IMF adopted the 2007 Decision on Bilateral Surveillance, a landmark measure that replaced a 30-year-old decision of the Fund's member countries on how the IMF should analyse economic outcomes at the country level.

Whatever the feelings people in the Western world have for the IMF, research by the Pew Research Center shows that more than 60 percent of Asians and 70 percent of Africans feel that the IMF and the World Bank have a positive effect on their country.[49] However it is pertinent to note that the survey aggregated international organizations including the World Trade Organization. Also, a similar percentage of people in the Western world believed that these international organizations had a positive effect on their countries. In 2005, the IMF was the first multilateral financial institution to implement a sweeping debt-relief program for the world's poorest countries known as the Multilateral Debt Relief Initiative. By year-end 2006, 23 countries mostly in sub-Saharan Africa and Central America had received total relief of debts owed the IMF.

In 2008, a study by analysts from Cambridge and Yale universities published on the open-access Public Library of Science concluded that strict conditions on the international loans by the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care had to be weakened. In the 21 countries which the IMF had given loans, tuberculosis deaths rose by 16.6 %.[50]

Past managing directors

Historically the IMF's managing director has been European and the president of the World Bank has been from the United States. However, this standard is increasingly being questioned and competition for these two posts may soon open up to include other qualified candidates from any part of the world. Executive Directors, who confirm the managing director, are voted in by Finance Ministers from countries they represent. The First Deputy Managing Director of the IMF, the second-in-command, has traditionally been (and is today) an American.

The IMF is for the most part controlled by the major Western Powers, with voting rights on the Executive board based on a quota derived from the relative size of a country in the global economy. Critics claim that the board rarely votes and passes issues contradicting the will of the US or Europeans, which combined represent the largest bloc of shareholders in the Fund. On the other hand, Executive Directors that represent emerging and developing countries have many times strongly defended the group of nations in their constituency. Alexandre Kafka, who represented several Latin American countries for 32 years as Executive Director (including 21 as the dean of the Board), is a prime example. Mohamed Finaish from Libya, the Executive Director representing the majority of the Arab World and Pakistan, was a tireless defender[citation needed] of the developing nations' rights at the IMF until the 1992 elections.

Rodrigo Rato became the ninth Managing Director of the IMF on June 7, 2004 and resigned his post at the end of October 2007.

EU ministers agreed on the candidacy of Dominique Strauss-Kahn as managing director of the IMF at the Economic and Financial Affairs Council meeting in Brussels on July 10, 2007. On September 28, 2007, the International Monetary Fund's 24 executive directors elected Mr. Strauss-Kahn as new managing director, with broad support including from the United States and the 27-nation European Union. Strauss-Kahn succeeded Spain's Rodrigo de Rato, who retired on October 31, 2007.[51] The only other nominee was Josef Tosovsky, a late candidate proposed by Russia. Strauss-Kahn said: "I am determined to pursue without delay the reforms needed for the IMF to make financial stability serve the international community, while fostering growth and employment."[52]

Dates Name Country
May 6, 1946 – May 5, 1951 Camille Gutt Belgium
August 3, 1951 – October 3, 1956 Ivar Rooth Sweden
November 21, 1956 – May 5, 1963 Per Jacobsson Sweden
September 1, 1963 – August 31, 1973 Pierre-Paul Schweitzer France
September 1, 1973 – June 16, 1978 Johannes Witteveen Netherlands
June 17, 1978 – January 15, 1987 Jacques de Larosière France
January 16, 1987 – February 14, 2000 Michel Camdessus France
May 1, 2000 – March 4, 2004 Horst Köhler Germany
June 7, 2004 – October 31, 2007 Rodrigo Rato Spain
November 1, 2007 – present Dominique Strauss-Kahn France

Media representation of the IMF

Life and Debt, a documentary film, deals with the IMF's policies' influence on Jamaica and its economy from a critical point of view. In 1978, one year after Jamaica first entered a borrowing relationship with the IMF, the Jamaican dollar was still worth more on the open exchange than the US dollar; by 1995, when Jamaica terminated that relationship, the Jamaican dollar had eroded to less than 2 cents US. Such observations lead to skepticism that IMF involvement is necessarily helpful to a third world economy.

The Debt of Dictators explores the lending of billions of dollars by the IMF, World Bank multinational banks and other international financial institutions to brutal dictators throughout the world. (see IMF/World Bank support of military dictatorships)

See also

  • Third world debt
  • Economics
  • Special Drawing Rights
  • Development aid
  • Organisation for Economic Co-operation and Development
  • Globalization and Its Discontents
  • Globalization and Health
  • Bancor
  • Bank for International Settlements
  • World Bank
  • Inter-American Development Bank
  • Bretton Woods system
  • Global Governance Watch

References
ISBN links support NWE through referral fees

  1. The Role and Function of the International Monetary Fund, 1985 IMF, Washington, D.C., page 1.
  2. http://www.economicshelp.org/dictionary/b/beggar-my-neighbour.html. Accessed February 10, 2009
  3. The Role and Function, page 1.
  4. "The IMF at a Glance," Fact Sheet September 2008.
  5. Reem Heakal, "What is the Balance of Paymens?, Investopedia, at http://www.investopedia.com/articles/03/060403.asp, accessed February 10, 2009. (The balance of payments is the "method countries use to monitor all international monetary transactions at a specific period of time....All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country." Receiving money is a credit, and paying money is a debit).
  6. "Balance of Payments," Fedpoint: Federal Reserve Bank of New York, at http://www.newyorkfed.org/aboutthe fed/fedpoint/fed40.html, accessed February 10, 2009
  7. Role and Function, Page 5
  8. The Encyclopedia of American Foreign Policy,at http://www.americanforeignrelations.com/E-N/International-Monetary-Fund-and-World-Bank.html; accessed February 11, 2009
  9. Margaret Garrison deVries,"The IMF in a Changing World: 1945-1985," 1986, IMF, Washington, D.C. Page 24.
  10. The Role and Function, Page 5
  11. DeVries, 1986, page 68
  12. "Special Drawing Rights (SDRs)," International Monetary Fund, "Factsheet," September 2008.
  13. "IMF Yearbook 2008: International Financial Statistics," IMF, Washington, D.C.
  14. "The IMF in a Changing World," page 89.
  15. Steven M. Suranovic, "The Breakup of Bretton-Woods," at http://internationalecon.com/Finance/Fch100/F100-1.php, accessed February 16, 2009.
  16. Suranovic, page 3
  17. Suranovic, page 6
  18. DeVries, page 118
  19. Benjamin Cohen, "Bretton Woods System," prepared for the Routledge Encyclopedia of International Political Economy, at http://www.polsci.ucsb.edu/faculty/cohen/inpress/bretton.html, accessed February 16, 2009
  20. Enrique R. Carrasco, 2008, "The 1980s: The Debt Crisis and the Lost Decade," University of Iowa Center for International Finance and Development,at http://www.uiowa.edu/ifdebook/ebook2/contents/part1-V.shtml, accessed February 18, 2009
  21. Carrasco, page 2.
  22. "The Brady Plan," Emerging Markets Trading Association, at http://www.emta.org/emarkets/brady.html, accessed February 18, 2009.
  23. "The Brady Plan"
  24. See for example, Arthur Macewan, "Economic Debacle in Argentina: The IMF Strikes Again," Dollars and Sense magazine, March/April 2002
  25. 1996 Annual Report, IMF, Washington, D.C.
  26. "The Role of the IMF in Argentina, 1991-2002," July 2003, Independent Evaluation Office, IMF, Washington, D.C., at http://www.imf.org/External/NP/ieo/2003/arg/070403.pdf, accessed February 18, 2009.
  27. "The Role of the IMF in Argentina"
  28. Macewan, page 2.
  29. "Criticism of IMF," Economics Help, at http://www.economicshelp.org/dictionary/i/imf-criticism.html, accessed February 19, 2009.
  30. Paul Blustein, "IMF Says Its Policies Crippled Argentina: Internal Audit Finds Warnings Were Ignored," Washington Post, July 30, 2004
  31. Nicole Wendt, Samantha Sheppard & Maria Weidner, "The World Bank & IMF Respond to Criticisms," Unversity of Iowa Center for International Finance and Development, at www.uiowa.edu/ifdebook/ebook2/contents/part2-III.shtml
  32. Wendt et.al.
  33. General Data Dissemination System (GDDS) and its superset Special Data Dissemination System (SDDS), for those member countries having or seeking access to international capital markets.
  34. 2008 Annual Report, IMF, Washington, D.C.
  35. IMF Press Release No. 08/74,April 7, 2008, at http://www.imf.org/external/np/sec/pr/2008/pr0874.htm
  36. Nancy Birdsall, "Why It Matters Who Runs the IMF and the World Bank," in Gustav Ranis, et. al. (eds), 2006, "Globalization and the Nation State," Routledge Taylore and Francis Group, London and New York, page 429
  37. "http://www.imf.org/external/np/sec/memdir/members.htm#3", IMF. Retrieved 2007-09-24.
  38. "World Bank - IMF support to dictatorships", cadtm. Retrieved 2007-09-21.
  39. BRAZIL Toward Stability, TIME Magazine, December 31, 1965
  40. "Dictators and debt", Jubilee 2000. Retrieved 2007-09-21.
  41. Hertz, Noreena. The Debt Threat. New York: Harper Collins Publishers, 2004.
  42. Stiglitz, Joseph. Globalization and its Discontents. New York: WW Norton & Company, 2002.
  43. Globalization: Stiglitz's Case
  44. Economic debacle in Argentina: The IMF strikes again
  45. Stephen Webb, "Argentina: Hardening the Provincial Budget Constraint," in Rodden, Eskeland, and Litvack (eds.), Fiscal Decentralization and the Challenge of Hard Budget Constraints (Cambridge, Mass.: MIT Press, 2003).
  46. How the IMF Props Up the Bankrupt Dollar System, by F. William Engdahl, US/Germany
  47. Tăriceanu: FMI a făcut constant greşeli de apreciere a economiei româneşti - Mediafax
  48. Budhoo, Davidson. Enough is Enough: Dear Mr. Camdessus... Open Letter to the Managing Director of the International Monetary Fund. New York: New Horizons Press, 1990.
  49. GLOBAL ATTITUDES : 44-NATION MAJOR SURVEY (2002), The Pew Research Center for the People & the Press
  50. International Monetary Fund Programs and Tuberculosis Outcomes in Post-Communist Countries PLoS Medicine. The study has not been independently verified, nor have the authors published parts of their supporting data. Retrieved 29-7-2008.
  51. Yahoo.com, IMF to choose new director
  52. BBC NEWS, Frenchman is named new IMF chief

References

  • Jan Joost Teunissen and Age Akkerman (eds.) (2005). Helping the Poor? The IMF and Low-Income Countries. FONDAD. ISBN 90-74208-25-8. 
  • Dreher, Axel (2002). The Development and Implementation of IMF and World Bank Conditionality. HWWA. ISSN 1616-4814. 
  • Dreher, Axel (2004). A Public Choice Perspective of IMF and World Bank Lending and Conditionality. Public Choice 119 (3–4): 445–464.
  • Dreher, Axel (2004). The Influence of IMF Programs on the Re-election of Debtor Governments. Economics & Politics 16 (1): 53–75.
  • Dreher, Axel (2003). The Influence of Elections on IMF Programme Interruptions. The Journal of Development Studies 39 (6): 101–120.
  • The Best Democracy Money Can Buy by Greg Palast (2002)
  • The IMF and The World Bank: How do they differ? by David D. Driscoll
  • Rivalries between IMF and IBRD, "Sister-talk," The Economist (2007-03-01)
  • George, S. (1988). A Fate Worse Than Debt. London: Penguin Books.
  • Hancock, G. (1991). Lords of Poverty: The Free-Wheeling Lifestyles, Power, Prestige and Corruption of the Multi-billion Dollar Aid Business. London: Mandarin.
  • Markwell, Donald (2006), John Maynard Keynes and International Relations: Economic Paths to War and Peace, Oxford & New York: Oxford University Press.
  • Rapkin, David P. and Jonathan R. Strand (2005) “Developing Country Representation and Governance of the International Monetary Fund,” World Development 33, 12: 1993-2011.
  • Strand, Jonathan R and David P. Rapkin (2005) “Voting Power Implications of a Double Majority Voting Procedure in the IMF’s Executive Board,” in Reforming the Governance of the IMF and World Bank, Ariel Buira, ed, London: Anthem Press.
  • Williamson, John. (August 1982). The Lending Policies of the International Monetary Fund, Policy Analyses in International Economics 1, Washington D.C., Institute for International Economics. ISBN 0-88132-000-5

External links


Credits

New World Encyclopedia writers and editors rewrote and completed the Wikipedia article in accordance with New World Encyclopedia standards. This article abides by terms of the Creative Commons CC-by-sa 3.0 License (CC-by-sa), which may be used and disseminated with proper attribution. Credit is due under the terms of this license that can reference both the New World Encyclopedia contributors and the selfless volunteer contributors of the Wikimedia Foundation. To cite this article click here for a list of acceptable citing formats.The history of earlier contributions by wikipedians is accessible to researchers here:

The history of this article since it was imported to New World Encyclopedia:

Note: Some restrictions may apply to use of individual images which are separately licensed.