The International Monetary Fund is a 189-member organization that works to stabilize the global economy.
Objectives
The IMF meets its goal by targeting three objectives:
- It monitors global conditions and identifies risks among its member countries.
- It advises its members on how to improve their economies.
- It provides technical assistance andshort-term loansto prevent financialcrises. The IMF's goal is to prevent these disasters by guiding its members.
Survey Global Conditions:TheIMF has the rare ability to look into and review the economies of all its member countries. As a result, it has its finger on the pulse of the global economy better than any other organization.
The IMF produces a wealth of analytical reports. It provides the World Economic Outlook, the Global Financial Stability Report, and the Fiscal Monitor each year.It also delves into regional and country-specific assessments. It uses this information to determine which countries need to improve their policies. Hence, the IMF can identify which countries threaten global stability. The member countries have agreed to listen to the IMF's recommendations because they want to improve their economies and remove these threats.
AdviseMember Countries:Since the Mexican peso crisis of 1994–95 and theAsian crisisof 1997–98, the IMF has taken a more active role to help countries prevent financial crises. It develops standards that its members should follow.
For example, members agree to provide adequateforeign exchange reservesin good times. That helps them increase spending to boost their economies duringrecessions.
The IMF also issues member country reports that investors use to make well-informed decisions. That improves the functioning offinancial markets. The IMF also encourages sustained growth and high living standards, which is the best way to reduce members' vulnerability to economic crises.
Provide Technical Assistance and Short-term Loans:The IMFprovides loans to help its members tackle theirbalance of paymentsproblems, stabilize their economies, and restoresustainable growth.
Note
Becausethe Fundlends money, it's often confused with theWorld Bank. The World Bank lends money to developing countries for specific projects that will fight poverty.Unlike the World Bank and other development agencies, the IMF does not finance projects.
Traditionally, most IMF borrowers weredeveloping countries. They had limited access to internationalcapital marketsdue to their economic difficulties. An IMFloan signals that a country's economic policies are on the right track. That reassures investors and acts as a catalyst for attracting funds from other sources.
The IMF's Changing Role
The role of the IMF has increased since the onset of the2008 global financial crisis. In fact, an IMF surveillance report warned aboutthe economiccrisis. World leaders soon regretted that they ignored it.
As a result, the IMF has been called upon more and more to provide global economic surveillance. It's in the best position to do so because itrequires members to subject their economic policies to IMF scrutiny. They have also committed topolicies that keep prices stable. For example, they agree to avoid manipulatingexchange ratesfor an unfaircompetitive advantage.
For example, the 2010eurozone crisisprompted the IMF to provide short-term loans to bail out Greece. That was within the IMF's charter becauseit prevented a global economic crisis.
IMF Structure
The IMF chief has been Managing Director Kristalina Georgieva since Sept. 25, 2019.The Managing Director is the chief of the IMF’s 2,700 employees from 147 countries. She supervises four Deputy Managing Directors and is chair of the 24-member Executive Board.
The IMF Governance Structurebegins with the IMF GoverningBoard which sets direction and policies. Its members are the finance ministers or central bank leaders of the member countries. They meet each year in conjunction with the World Bank. The InternationalMonetaryand Financial Committee meets twice a year. These committeesreview the international monetary system and make recommendations.
Members
Rather than listing all 189 members, it's easier to list the countries that are not members. The seven countries (out of a total of 196 countries)that are not IMF members are Cuba, East Timor, North Korea, Liechtenstein, Monaco, Taiwan, and Vatican City. The IMF has 11 members that are not sovereign countries:Anguilla, Aruba, Barbados, Cabo Verde, Curacao, Hong Kong, Macao, Montserrat, Netherlands Antilles, Saint Maarten, and Timor-Leste.
Members do not receive equal votes. Instead, they have voting shares based on a quota. The quota is based on their economic size. If they pay their quota, they receive the equivalent in voting shares. TheMember Quotas and Voting Shares was updated in 2010.
History
The IMF was created at the 1944 Bretton Woods conference. It sought to rebuild Europe after World War II. The Conference also set up a modified gold standard to help countries maintain the value of their currencies. The planners wanted to avoid the trade barriers and high-interestratesthat helped cause the Great Depression.
Frequently Asked Questions (FAQs)
What is SDR in the IMF?
Special Drawing Rights (SDR) refers to an asset created by the IMF to help bolster member countries' currency reserves. When it was initially created in 1969, each SDR was worth 0.88671 grams of fine gold. Today, the IMF adjusts SDR valuation every five years using a basket of fixed conversion rates with the dollar, euro, yuan, yen, and pound sterling. SDRs can be exchanged with member countries for these currencies.
When did India become a member of the IMF?
India belongs to the inaugural group that became IMF members on December 27, 1945. The U.S. and Canada also became IMF members on that day, along with many other nations.
