The International Monetary Fund (IMF) aims to promote financial stability and economic growth globally, but its interventions in developing countries have made it one of the most controversial financial institutions. Established at the Bretton Woods Conference in 1944, the IMF was intended to prevent currency wars and promote sustainable economic growth. As a credit union, member countries contribute to a common fund and those facing financial difficulties may access loans in return for implementing IMF-recommended policies. These conditions, known as structural adjustments, have included privatization, trade liberalization, and currency devaluation. The IMF has faced criticism for its role in exacerbating poverty and inequality in the developing world.
—
Understanding the IMF: Origins, Functions, and Controversies
Introduction
The IMF claims to be an organization that cares all about the world’s economic growth and stability. It structures policies that it claims help the poorest nations overcome financial hardship. Anyone can support an organization like that, right? Well, not so fast. In today’s video, I’m going to tell you everything you need to know about this supranational body and explain why it should be viewed with utmost suspicion. This is a video you can’t afford to miss.
The IMF’s Role and Function
The International Monetary Fund or IMF has been both scrutinized and celebrated for its efforts to promote financial stability and economic growth across the globe. However, time and time again, it finds itself at the forefront of global economic crisis management. So much so that it’s commonly referred to by critics as “the world’s most controversial financial firefighter.”
Since its inception in July 1944, the IMF has undergone considerable change as chief steward of the world’s monetary system, having been officially charged with managing the global regime of exchange rates and international payments that allow nations to do business with one another. The fund recast itself in a broader, more active role following the 1973 collapse of fixed exchange rates, intervening in developing countries from Asia to Latin America. In 2010, it regained relevance as the European sovereign debt crisis unfolded, and just a decade later, it responded to the worldwide economic collapse triggered by the coronavirus pandemic.
The IMF pursues its mission in three fundamental ways: surveillance, technical assistance, and lending. Its surveillance structure entails a formal system of review that monitors the financial and economic policies of member countries and offers macroeconomic and financial advice. Technical assistance offers practical support and training directed mainly at low and middle-income countries to help with economic strategy and management. As it pertains to lending, the fund gives loans to member countries that find themselves struggling to meet their international obligations in terms of trade debt or monetary contributions.
Now, loans or sometimes bailouts are provided by the IMF to a country in need in return for implementing specific conditions dictated by the IMF itself. These conditions are designed to put government finances on a sustainable, productive footing and restore financial growth. These policies, commonly referred to as structural adjustments, have historically included processes such as balancing budgets, removing state subsidies, privatizing state enterprises, liberalizing trade and currency policies, and removing barriers to foreign investment and international capital flows.
The Board of Governors and Executive Board
At the top of the IMF’s organizational structure is the Board of Governors. This is the highest decision-making body of the IMF and consists of one governor and one alternate governor for each member country. This governor is appointed by the member country and is usually the minister of finance or the governor of the central bank. All powers of the IMF are vested in the Board of Governors. The Board of Governors may delegate to the Executive Board all except certain reserved powers.
The day-to-day operations of the IMF are overseen by its 24-member Executive Board, which represents the entire membership and is supported by the member staff. Since October 2019, the IMF has been led by Managing Director Kristalina Georgieva, the second woman to be selected for the role. Georgieva, a native of Bulgaria, was previously the acting president of the IMF’s twin institution, the World Bank.
Controversies
The IMF is commonly referred to as the world’s financial crisis firefighter, signifying a benevolent entity relied upon by member countries to deal with crippling sovereign debt and to prevent any contagion from spreading through the global financial system. However, lending conditions are designed not only to guarantee the repayment of loans but also to ensure that the money borrowed will be spent in line with the economic objectives stated by the fund.
Of course, the IMF cannot force its will on its member countries, as these accept its conditioned financial assistance on a voluntary basis. Much of the fund’s work has historically been done in developing countries, with interventions in Argentina, Brazil, Indonesia, and Mexico to name a few. However, the 2008 global financial crisis and subsequent European debt crisis necessitated major bailouts across various advanced eurozone economies such as Greece, Iceland, Ireland, and Portugal. This is where potential controversies come to life.
Conclusion
The IMF plays a significant role in managing the global monetary system, providing financial assistance to countries in crisis, and promoting financial stability and economic growth across the world. However, it has also faced controversy over its policies and practices. It’s important to have an understanding of the IMF’s origins, functions, and controversies to make informed opinions and decisions about its role in the global economy.
