We take a look at the IMF and what it does.
The International Monetary Fund (the "IMF") has been in the news of late, most recently related to its financial help in dealing with the devastating floods in Pakistan. But what actually is it, and what does it do? In this, our latest instalment in our occasional series looking at the world's financial institutions, we'll take a look.
What is it?
On its own website, the IMF describes itself thus:
"The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world."
The IMF, headquartered in Washington DC, was founded in 1945, from an initiative arising from the 1944 United Nations Monetary and Financial Conference at Breton Woods, New Hampshire.
With its initial 45 member countries, the IMF's aim was to assist post-war economic reconstruction by helping facilitate international payments and stabilise exchange rates, and this was achieved by setting up a fund, contributed to by its members, which could be used for making short-term loans to countries suffering from balance of payment difficulties.
Today, with its 187 members, the IMF's stated aim is to ensure the stability of the international monetary and financial systems, which, as we have seen in recent years, is not a simple task. The organisation, which works closely with the World Bank (which we will look at in a later article), goes about this business based on a three-pronged approach.
Intelligence
On the idea that that sound economic and financial policies are essential for economic stability and growth, the IMF keeps tabs on economic development around the world. In addition to monitoring and reporting on global and regional trends and developments, the IMF also keeps a close eye on the economic development and policies of individual countries, by co-operating with them in an ongoing analysis, and assessing the likely impact of their policies on their local economies and on the global economy. Most of the IMF's members allow the IMF to make their reports on their individual economic conditions openly available.
In addition to meeting with and analysing individual countries, the IMF also occasionally convenes regional meetings which bring together a number of countries to analyse regional economic and financial development.
As a results of this activity, the IMF provides a number of reports covering a range of economic and financial indicators, with the organisation's World Economic Outlook and Global Financial Stability Report being amongst the most widely read.
Consultation
In addition to providing analysis of its members' economies, the IMF also provides consultation and training, offering its member countries advice and training in areas of financial and monetary policy, fiscal policy, and generally sound economic management. In addition, it offers training for countries in collecting, monitoring and analysing data on their own economic progress.
Lending
The most powerful tool in the IMF's armoury, of course, is its pile of cash. And the best way to encourage a country to develop open and responsible economic policies is to offer to lend it the money to do it with. So to that end, the IMF offers loans to member states that are facing difficulty with their balance of payments -- when they can't raise enough from their own economies and from conventional lenders to cover the costs of running their economies. Preferential interest rates are available for less well developed countries, or those facing seriously difficult recovery problems.
Of course, an IMF loan always comes with conditions, and those conditions typically require the recipient country to commit to things like open trade, free movement of capital, and transparent financial policies. Such agreements, known as Structural Adjustment Programs, are intended to help the recipient countries develop responsible economic policies, and avoid the risk of simply lending money to be wasted on reckless spending. But the IMF's policies are not without criticism.
Criticism
The conditions attached to IMF loans, especially some of the austerity measures they impose, have led some to claim that IMF intervention increases hardship and poverty, at least in the short term. And this has helped fuel recent anti-globalisation movements.
Others criticise the IMF's essentially Keynsian monetarist approach, and opine that such a "one size fits all" policy might not always be the best for everyone, and might stifle a country's freedom to adopt innovative policies of its own that might prove more effective.
Further criticism is aimed at the number of unsavoury dictatorships that the IMF has offered financial support to in the past, suggesting that the IMF's aims have not always been so squeakily clean and have instead sometimes come down on the side of allies of economically strong Western governments.
But whatever criticism might be levelled at the IMF, there's little doubt that its activities have helped the spread of Western-style economic development.
And whether you think that is a good or a bad thing is up to you, so please feel free to let us know your thoughts, in the Comments section below.
Other articles in this series:
