International Monetary Fund headquarters, Washington, D.C.
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The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It also offers financial and technical assistance to its members, making it an international lender of last resort. Its headquarters are located in Washington, D.C., USA.
The International Monetary Fund was created in 1944 , with a goal to stabilize exchange rates and supervise the reconstruction of the world's international payment system. Countries contributed to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances. (Condon, 2007)
The IMF describes itself as "an organization of 185 countries (Montenegro being the 185th, as of January 18, 2007), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". With the exception of North Korea, Cuba, Andorra, Monaco, Liechtenstein, Tuvalu, and Nauru, all UN member states participate directly in the IMF. Most are represented by other member states on a 24-member Executive Board but all member countries belong to the IMF's Board of Governors.
In an apparent move to curb the sudden rise of gold prices, and to shore up the falling value of the US Dollar, The International Monetary Fund's executive board approved a broad financial overhaul plan that could lead to the eventual sale of a little over 400 tons of its substantial gold supplies. IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision April 7, 2008 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.
In 1995, the International Monetary Fund began work on data dissemination standards with the view of guiding IMF member countries to disseminate their economic and financial data to the public. The International Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they were split into two tiers: The General Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS).
The International Monetary Fund executive board approved the SDDS and GDDS in 1996 and 1997 respectively and subsequent amendments were published in a revised “Guide to the General Data Dissemination System”. The system is aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country. It is also part of the World Bank Millennium Development Goals and Poverty Reduction Strategic Papers.
The IMF established a system and standard to guide members in the dissemination to the public of their economic and financial data. Currently there are two such systems: 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.
The primary objective of the GDDS is to encourage IMF member countries to build a framework to improve data quality and increase statistical capacity building. This will involve the preparation of metadata describing current statistical collection practices and setting improvement plans. Upon building a framework, a country can evaluate statistical needs, set priorities in improving the timeliness, transparency, reliability and accessibility of financial and economic data.
Some countries initially used the GDDS, but lately upgraded to SDDS.
Some entities that are not themselves IMF members also contribute statistical data to the systems:
A member's quota in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of Special Drawing Rights (SDRs). A member state cannot unilaterally increase its quota — increases must be approved by the Executive Board and are linked to formulas that include many variables such as the size of a country in the world economy. For example, in 2001, China was prevented from increasing its quota as high as it wished, ensuring it remained at the level of the smallest G7 economy (Canada). In September 2005, the IMF's member countries agreed to the first round of ad hoc quota increases for four countries, including China. On March 28, 2008, the IMF's Executive Board ended a period of extensive discussion and negotiation over a major package of reforms to enhance the institution's governance that would shift quota and voting shares from advanced to emerging markets and developing countries. The Fund's Board of Governors must vote on these reforms by April 28, 2008. See "Reform of IMF Quotas and Voice: Responding to Changes in the Global Economy" at www.imf.org.
Examples of press coverage of the discussions regarding changes to the voting formula to increase equity: IMF Seeks Role in Shifting Global Economy
Table showing the top 21 member countries in terms of voting power:
|IMF Member Country||Quota: Millions of SDRs||Quota: Percentage of Total||Governor||Alternate Governor||Votes: Number||Votes: Percentage of Total|
|Australia||3236.4||1.49||Wayne Swan||Ken Henry||32614||1.47|
|Belgium||4605.2||2.12||Jezreel Pattaguan||Jean-Pierre Arnoldi||46302||2.09|
|Brazil||3036.1||1.4||Guido Mantega||Henrique de Campos Meirelles||30611||1.38|
|Canada||6369.2||2.93||Jim Flaherty||David A. Dodge||63942||2.89|
|China||8090.1||3.72||ZHOU Xiaochuan||HU Xiaolian||81151||3.66|
|France||10738.5||4.94||Christine Lagarde||Christian Noyer||107635||4.86|
|India||4158.2||2.44||P. Chidambaram||D. Subbarao||41832||1.89|
|Italy||7055.5||3.25||Giulio Tremonti||Mario Draghi||70805||3.2|
|Japan||13312.8||6.13||Koji Omi||Toshihiko Fukui||133378||6.02|
|Korea||2927.3||1.35||Okyu Kwon||Seong Tae Lee||29523||1.33|
|Mexico||3152.8||1.45||Agustín Carstens||Guillermo Ortiz||31778||1.43|
|Netherlands||5162.4||2.38||A.H.E.M. Wellink||L.B.J. van Geest||51874||2.34|
|Russian Federation||5945.4||2.74||Aleksei Kudrin||Sergey Ignatiev||59704||2.7|
|Saudi Arabia||6985.5||3.21||Ibrahim A. Al-Assaf||Hamad Al-Sayari||70105||3.17|
|Spain||3048.9||1.4||Pedro Solbes||Miguel Fernández Ordóñez||30739||1.39|
|Sweden||2395.5||1.1||Stefan Ingves||Per Jansson||24205||1.09|
|Switzerland||3458.5||1.59||Jean-Pierre Roth||Hans-Rudolf Merz||34835||1.57|
|United Kingdom||10738.5||4.94||Alistair Darling||Mervyn King||107635||4.86|
|United States||37149.3||17.09||Henry Paulson||Ben Bernanke||371743||16.79|
|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|
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.
|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|
|El Salvador||Military dictatorship||1979||1994||0.9||2.2||2.2||1.3||59.00%|
|Ethiopia||Mengistu Haile Mariam||1977||1991||0.5||4.2||10||3.7||37.00%|
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).
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. 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.
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.
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. Others attribute the crisis to Argentina's maldesigned fiscal federalism, which caused subnational spending to increase rapidly. 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. 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. 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".
Overall the IMF success record is perceived as limited. 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. 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 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. 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 hundreds of 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 %.
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 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. 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.
|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|
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)