International Monetary Fund

The International Monetary Fund (IMF) is one of the international financial organizations that came out of the Bretton Woods conference, and thus a key institutional component of the international economy since World War II. An international lender of last resort (extending credit and assistance when no one else will), it is the closest thing to an international central bank—lacking control over interest rates and the size of the money supply, it lends money to member states in need, seeking to stabilize exchange rates. Countries receiving loans are, when necessary, required to adopt various reforms to reshape their economy to better reflect the economic values and objectives of the Bretton Woods institutions (the so-called Washington Consensus).

The IMF was founded in 1944, after the Bretton Woods Conference at the Mount Washington Hotel in Bretton Woods, New Hampshire—a meeting of the Allied nations to discuss the shape of the international economy upon the end of World War II. It took another year and a half to implement the ideas forwarded at that conference, and when the founding countries—29 of the 45 attending the conference—signed the Articles of Agreement, the IMF began operations at the end of 1945. Membership has increased since, to 185 countries, including all United Nations members except Andorra, Cuba, Liechtenstein, Monaco, North Korea, Taiwan, Tuvalu, and Nauru. What was originally an Allied operation, then, now encompasses former Axis nations as well as nations of the former Soviet bloc.

The United States has exclusive veto power in the decisions of the IMF. The voting weight in other members is determined by its quota, the amount of money it has contributed to the fund, measured in special drawing rights (SDRs). SDRs are potential claims on the currencies in a figurative basket composed of U.S. dollars (44 percent), euros (34 percent), yen (11 percent) and pounds sterling (11 percent), a composition that will hold through 2010. The makeup of the basket is determined by the IMF's Executive Board every five years. The SDR is used for IMF accounting, and to provide a stable standard against which currencies can be pegged (though the euro is quickly displacing it in that role). Sometimes called “paper gold,” the SDR was conceived at a time when the gold standard was still a topic of mainstream discussion, and was designed to replace it internationally. At the end of May 2008, the total value of the IMF's quotas was $352 billion; $19.4 billion in loans were outstanding to 65 countries.

The 20 countries with the most voting power in the IMF are (percentage of total votes in parentheses): the United States (16.79 percent), Japan (6.02 percent), Germany (5.88 percent), France (4.86 percent), the United Kingdom (4.86 percent), China (3.66 percent), Italy (3.2 percent), Saudi Arabia (3.17 percent), Canada (2.89 percent), Russia (2.7 percent), the Netherlands (2.34 percent), Belgium (2.09 percent), India (1.89 percent), Switzerland (1.57 percent), Australia (1.47 percent), Mexico (1.43 percent), Spain (1.39 percent), Brazil (1.38 percent), South Korea (1.33 percent), and Venezuela (1.21 percent).

Structural Adjustments

The reforms prescribed by the IMF for nations receiving loans are called “structural adjustments,” because they were conceived of as a way to reshape national economies into something more closely resembling the ideal described at Bretton Woods. These adjustments are free-market-minded, focusing on the reduction of trade barriers (such as is encouraged by the World Trade Organization) and the privatization and deregulation of industries. The underlying assumption is that if the borrower nation had implemented these economic changes earlier, it might be less likely to need the loan, but even when that logic does not apply, the conditions are generally imposed; loans are the carrot, structural adjustments the more important goal than simply recouping the loan.

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