IMF
International Monetary Fund (IMF)
Introduction
The international monetary fund (IMF) was initiated in 1944 during the Bretton Woods Conference and formally created in 1945 with a membership of 29 countries. The main IMF goal was stated as to assist in the reconstruction of the world’s international payment system post the Second World War. Countries contributed money and put it in a pool through a quota system from where countries which had an imbalance in trade could borrow. Ever since the membership of the IMF has grown to 188 countries of the world and the main goal changed to fostering global monetary cooperation, secure financial stability, promote high rate of employment and sustainable economic growth, facilitation of international trade and reduce poverty in the world. The objectives of the IMF include promotion of international economic co-operation, employment, international trade, stabilizing exchange rates and availing financial resources (Articles of Agreement of the International Monetary Fund, Article I – Purposes).
Each of the member states of the IMF is assigned a certain quota based on its size on the world economy. The quota system remains the permanent and primary pool of resources which are used for lending (Michael Sarabia, 2007). The quota also determines the country’s borrowing power and voting power. The IMF also gets fund from gold reserves. The gold is sold to member states to provide interstitial funding. The IMF also get fund from interest accrued from borrowed loans. At times the IMF borrows loans from the member states and it also gets money from trusts.
Management
The IMF has board of governors who are elected from member states. Each member state has one governor and one alternate governor. The board of governors is responsible for the quota approval, determining special drawing rights, admitting new members, determining compulsory withdrawal of members and the amendment of the articles of agreement and by laws. However the board of governors has delegated most of these duties to the IMF’s Executive Board. The executive board has 24 members representing all the 188 member states. A country whose economy is large has their own executive directors while the others are grouped into constituencies of about four countries each. A 2008 amendment on voice and participation requires each 8 countries to elect one director. A managing director who is appointed on merit is the chairperson of the executive board who is assisted by a first deputy and three other deputy managing directors (IMF governance structure). The current IMF managing director is Christine Lagarde.
Influence on world economy
The IMF has been advising countries on the implementation of economic and financial polices with the aim of promoting economic stability. The IMF also reviews the global trend and developments which affect the status of the international monetary and financial systems and consult with the member states on the consequences of their policies to the regions and the global perspective. In the ‘Surveillance’, IMF avails technical support that helps in fortification of the institutional capabilities and increases the availability of resources to them to make the necessary adjustments in the event of balance of payment crisis.
Financial stability is very important since it is the only sure way of avoiding economic and financial crises. The advice leads to avoiding of huge economic swings, high rates of inflation and excessive volatility in exchange rates and financial markets. Financial stability encourages investments and leads to economic growth that is sustainable. The IMF is also helping in curbing money laundering in international scale. It has a donor funded trust fund that finances technical support for combating the financing of terrorism and anti-money laundering (IMF, September 30th , 2013).
Countries that borrowed money in the recent years
Some of the countries that borrowed money in the recent years from the IMF include Pakistan $ 6.6 in 2013, Jamaica $ 30.6 2013, Mali $ 9.2 2013 among others. The countries that borrow money are affected in various ways. One of the main ways is increased international debt which burdens the countries. The countries are also required to adopt particular policies after funding which are mainly aimed at improving the economic status of the countries. These policies at times may not favor the economy of the country and hence lead to more economic challenges.
The pros and cons of IMF borrowing
One of the main advantages is that it helps in alleviating financial crisis in almost collapsing economies in the world. In this case, IMF is always the last resort. It also helps in imposing necessary reforms in economies in different countries like privatization, money control, avoiding corruption and fiscal responsibility. IMF also provides external economic assessment of the member states and provides the necessary solutions.
Some of the disadvantages include flawed development models imposed on countries, increases debt of the borrowing country and this may lead to further economic crisis. Some of the policies like privatization may lead to retrenchment of workers.
Role of IMF in recent financial crisis in Europe
In the event of crisis, the IMF fund is used to create stability by offering policy reforms and transformations. The IMF assesses risks that face the financial systems and propose policies that can help mitigate them. The IMF also funds the economies in crisis through loans to help in implementation of policies in response to the crisis. In the European crisis, the IMF funded the countries in crisis and is still providing technical advice to ensure stability is restored. In a G20 summit held in London April 2009 in a pledge agreed to triple the lending resources of the IMF so as to help in response to the European crisis. The IMF also offered early warning exercise which was aimed at improving the micro-finance linkages.
Reasons for protests in IMF meetings
During the IMF meetings the member states do agree on various issues. One of the most contested issues is how to calculate the quotas which determines the voting powers. The rift exists between the developed countries and the developing countries. Some member states do not agree on the timelines provided by the IMF to reduce the debt load and hence leads to highly contested opinions. The conditions provided before borrowing that include implementation of certain policies also remain a highly contested issue.
References
Michael Sarabia, (2007). Funding the IMF. Retrieved on Jan 9, 2014, from University of Iowa College of Law Center for International Finance and Development https://www.imf.org/external/np/exr/facts/aml.htm
IMF(n.d) Articles of Agreement of the International Monetary Fund, Article I – Purposes. Retrieved on Jan 9, 2014 from Articles of Agreement of the International Monetary Fund, Article I – Purposes
IMF (n.d) Governance structure. Retrieved on Jan 9, 2014 from http://www.imf.org/external/about/govstruct.htm
