The International Monetary Fund is one of the international organisations that was formed during the Bretton Woods Conference in 1944, and became active in 1945. Based in Washington DC, the IMF aims to promote international financial stability and monetary cooperation. The Fund also plays a key role in facilitating free trade. The organisation is
The International Monetary Fund is one of the international organisations that was formed during the Bretton Woods Conference in 1944, and became active in 1945. Based in Washington DC, the IMF aims to promote international financial stability and monetary cooperation. The Fund also plays a key role in facilitating free trade.
The organisation is constituted of 188 members who each have a set quota of contributions that it needs to make to the IMF every year. The quota of one member state is based on the relative size of their economy. This quota determines the voting powers of each member when voting on IMF decisions. It also specifies the amount of funding a member state can get in times of economic distress. It is this quota system what makes the functioning of the IMF a very complex one to get acquainted with. The biggest contributors are: the United States of America (16,75% of votes); Japan (6,23% of votes); Germany (5,81% share of votes); France (4,29% of votes); and the United Kingdom (4,29% of votes). These five countries have overall 37.37% of total votes which means that they can easily block any decision taken by the IMF that does not correspond to their position.
Another interesting thing about the IMF, compared to organisations like the United Nations, is it is governance system. The organisations is led by a Managing Director who has so far always been European. The current Managing Director is Christine Lagarde (France) who was Minister of Finance under Nicolas Sarkozy’s mandate. She also serves as the Chairman of the Executive Board of the IMF. The Executive Board is constituted of 24 members, 5 of which are representatives from the five biggest contributors. The other 19 members each represent a number of countries that are grouped into constituencies. The Executive Board meets at least once a week. The IMF governance system also includes a Board of Governors, which meets once a year.
The Board of Governors consists of two governors from every member state, appointed by their country to represent their country in the IMF. Some of the responsibilities of the Board of Governors include the admittance of new members to the IMF, the withdrawal of non-compliant members, the approval of increases in quotas, the appointment of representatives to the Executive Board, among others. Nevertheless, the Board of Governors has delegated most of its powers to the Executive Board. Moreover, the staff composition of the IMF cannot be overlooked. The IMF is known for recruiting highly trained economists and analysts.
An important priority of the IMF at the moment is to make sure that developing countries are following the right monetary and fiscal policies in other to strengthen their economies and turn them into more attractive locations for new investments. It cannot be denied that the IMF is one of the most effective and well managed institutions. The IMF has been described as being out of touch with local economies. When dictating policy reforms in countries that receive IMF loans, the organisation tends to ignore the strains that this will produce on society overall. Currently, the IMF is quite focus on helping Europeans countries, like Greece, to restructure their debt in order to reach a sustainable levels of public debt. At this point in time, Greece owes the international organisation €21.2 billion.
Yet, the IMF has been greatly criticised for the conditionality of its loan and the dominance of the United States. There have been a number of attempts to reform voting power by some member states, especially emerging economies, but these have been vetoed by the U.S. In order to fight against it, a number of alternative organisations have been set into place. These include the African Monetary Fund, BRICS Contingent Reserve Arrangement (CRA), and the Asian Infrastructure Investment Bank.
The IMF plays a very important role in international economics and politics. Whether the IMF needs to be reformed or not is a complex question as it has a number of economic implications that could have negative spill overs in the international economy.