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International Monetary Fund (IMF) Definition
The International Monetary Fund(IMF) is an international organization with 189 member countries, formed with the objective of promoting international trade and commerce, employment, sustained economic growth, financial security, and reducing poverty across the globe. It functions like a bank that formulates policies, outlines procedures, sanctions funds, and facilitates global monetary cooperation.
A Little More on What is the IMF
Amongst its many functions, the IMF sanctions loans to developing nations, monitors currency exchange rates, regulates currency exchange policies amongst commercial banks, encourages healthy economic policies based on statistical and economic analysis of the economies of its member states.
Loans sanctioned by the IMF carry the caveat of commitment to economic improvement by developing countries. It also facilitates policy and structural improvements like enforcing anti-corruption rules, FDI, cuts in government budgets, regulating imports, exports and securities exchange, currency valuation, and privatization.
Headquartered in Washington D.C., each of IMF’s 189 member nations have a representative on the executive board. The number of representatives is directly proportional to the strength of a country’s economic influence. This gives the developed countries more voting power than those with struggling economies.
Here’s a look at the methods IMF employs to achieve its goals:
Monitoring & Surveillance: The IMF tracks the economic data of all its member states including statistical data on global trade, GDP growth, and other parameters of national economic performance. It uses this data to forecast the economic outlook at the national as well as global level, published annually in the World Economic Outlook report. The report also discusses the effect of monetary and fiscal policies on sustainable financial growth and stability.
Capacity Development: The IMF provides policy advice, technical assistance, and training to member countries through its Capacity Development initiative. Collection of economic data and analysis to monitor economies is also an area of focus in this training.
Loans: Developing countries facing economic hardships can borrow from the IMF to tide over their fiscal crises. The IMF sanctions loans to poor and struggling economies from the funds pooled in by developed economies. As of 2018, it could readily tap into $242 billion dollars from its reserves. Donations are made by a quota system that allows rich countries to pool their resources. As a quasi-currency system, the IMF has a separate currency denomination system. Loans are sanctioned with strict conditions placed upon the recipient countries. Loans can only be sought for programs that help in growth and economic upliftment of poor economies. A.k.a. ‘Structural Adjustment Programs’, loans by IMF are heavily criticized by economists for promoting colonial practices and aggravating poverty.
History of the IMF
IMF was founded on December 27, 1945, as part of the Bretton Woods agreement to focus on financial cooperation across the globe. IMF oversaw the introduction of convertible currencies with fixed rates. The dollar amount was set with its value measured in an ounce of gold costing $35. Member nations now required IMF’s permission to readjust currency exchange rates exceeding 10% in value above or below.
IMF was also the gateway to membership at the International Bank for Reconstruction and Development(IBRD) a.k.a the World Bank, which was formed to expedite reconstruction efforts in Europe after World War II. IBRD membership was contingent upon IMF membership.
Floating exchange rates system was endorsed by IMF in the 1970s due to the collapse of the Bretton Woods system. Currency values are now determined in relation to one another by market forces.
References for the International Monetary Fund
Academic Research on the International Monetary Fund
- Why not merge the International Monetary Fund (IMF) with the International Bank for Reconstruction and Development (World Bank), Carreau, D. (1993). Fordham L. Rev., 62, 1989. This paper discusses the argument for and against the merger of IMF and World Bank, fifty years after their inception.
- Reforms for Major New Roles of the International Monetary Fund? The IMF Post–G-20 Summit, Griesgraber, J. M. (2009). Global Governance: A Review of Multilateralism and International Organizations, 15(2), 179-185.
- The International Monetary Fund in a time of crisis: A review of Stanley Fischer’s IMF essays from a time of crisis: The international financial system, stabilization, and …, Conway, P. (2006). Journal of Economic Literature, 44(1), 115-144. This is a collection of essays by Stanley Fischer – MD of IMF from 1994 to 2001, defending the role of IMF’s rapid response initiatives during international monetary crises across the globe in the 90s. It also reviews the essays with empirical investigations, in light of the criticisms leveled at the IMF and its ways.
- The Global Financial Crisis: The Role of the International Monetary Fund (IMF), Weiss, M. A. (2009, February). LIBRARY OF CONGRESS WASHINGTON DC CONGRESSIONAL RESEARCH SERVICE. This report takes a look at the role of IMF in resolving global financial crises via its lending and surveillance activities.
- Proposals for Changing the Functions of the International Monetary Fund (IMF), Mikesell, R. (1997). This paper looks at the criticisms lobbed at the IMF and its policies and examines the proposed changes to its structure and functioning.
- China at the International Monetary Fund: continued engagement in its drive for membership and added voice at the IMF executive board, Momani, B. (2013). Journal of Chinese Economics, 1(1), 125-50. This paper takes a critical look at the Chinese engagement with the international economy.
- The International Monetary Fund (IMF) and the Catalytic Effect: Do IMF Agreements Improve Access of Emerging Economies to International Financial Markets?, Arabaci, M. C., & Ecer, S. (2014). The World Economy, 37(11), 1575-1588. This study examines the access developing economies have to better international resources after an IMF loan. Empirical data from 116 countries, over a period of 13 years – 1984 to 2007, was analysed to draw insights. It concludes that an agreement with IMF has a catalytic effect on improvement of access to financial markets.
- International Monetary Fund (IMF): Financial Reform and the Possible Sale of IMF Gold, Weiss, M. A., & Sanford, J. E. (2007, September). Congressional Research Service, Library of Congress.
- Pakistan’s Experience with the International Monetary Fund (IMF) 2000–2004, Husain, I. (2010). RESEARCH JOURNAL of THE INSTITUTE OF BUSINESS ADMINISTRATION KARACHI-PAKISTAN, 5(1), 9. This research studies the effects of IMF activities in Pakistan.
- The Impact of International Monetary Fund (IMF) and the World Bank Structural Adjustment Programmes In Developing Countries. Case Study of Kenya, GITHUA, D. W. (2013). This is a case study of the impact of the World Bank and IMF’s Structural Adjustment Programme on the economy of Kenya, concluding that these loans adversely affect development, increase poverty and reliance on rich economies, and hinder education and social welfare.
- International Monetary Fund (IMF), Das, R. (2011). Encyclopedia of Global Justice, 570-573. This Encyclopedia tracks the trajectory of the IMF from its inception in 1945 to its current economic hold on the global monetary scenario.
- The International Monetary Fund (IMF) and the World Bank (IBRD): Social, political, and economic implications of the Structural Adjustment Program in …, Musa, M. A. (1992). This doctorate thesis studies the impact of IMF loans and its conditions on the Nigerian economy during the reign of President Babangid.