International Monetary Fund

Purpose and Makeup

The IMF formally came into existence in 1945, when 29 countries signed on to the IMF's six-point Articles of Agreement:

• (i)
  To promote international monetary cooperation.
• (ii)
  To facilitate the expansion and balanced growth of international trade.
• (iii)
  To promote exchange stability.
• (iv)
  To assist in the establishment of a multilateral system of payments.
• (v)
  To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments.
• (vi)
  To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

The IMF mandate is thus to safeguard international financial and monetary stability by conducting surveillance, providing technical assistance, and making short-term loans to member countries. The capital for these loans was initially collected, and is periodically enhanced, through payments of quotas by member countries. In 2006, the Fund's total holdings amounted to $60 billion, including $9 billion in gold reserves. The Fund also grows by charging interest on its loans; for instance, in 1987, the IMF received a surplus of $8.6 billion from loan repayments over what it lent out.

Today the IMF is comprised of 184 member countries and employs almost 2,700 staff members, mainly economists based at IMF headquarters in Washington, D.C. The Fund is generally directed by the Board of Governors comprised of one governor from each member country (typically the minister of finance), which gathers once a year. Theoretically, board decisions are made by consensus, but the unequal distribution of voting rights gives disproportionate power to Europe and the United States, which enjoy de facto veto power (even small European states hold more votes than India or Brazil). By tradition, the IMF's managing director is always a European.

Lending Activities

These inequalities matter because the IMF is arguably the world's most powerful nonstate economic actor. The Fund's powers stem from its capacity to dispense loans and its annual evaluations of member states' economic policies. The IMF extends loans through contractual arrangements that designate policy measures that must be implemented by the member country before loan disbursement. A country that receives a poor bill of health in its annual IMF evaluation will have a difficult time raising affordable capital on finance markets. In this way, the IMF's surveillance, lending practices, and policy recommendations are tightly linked to the practices of [Page 946]the World Bank, regional development banks (such as the Inter-American Development Bank and the Asian Development Bank), as well as private banks. In 2006, the IMF held $71 billion in outstanding loans to 82 countries, mainly in the Global South (Turkey is presently the IMF's largest debtor). While in an absolute sense, outstanding IMF credit peaked in 2003, in a relative sense—debt measured as a percentage of global trade—the Fund's loan portfolio was greatest in the mid–1980s. With the onset of the debt crisis in 1982, the IMF came to serve as judge of the creditworthiness of most developing economies, dispersing economic policies and advancing loans to those member states that accepted its conditions. After the creation of Structural Adjustment Loans (SALs) at the Belgrade IMF/World Bank annual meeting in 1979, SALs rapidly spread throughout Latin America, Africa, and much of Asia (no core capitalist economies were subjected to structural adjustment). Most SALs were said to be needed to overcome balance-of-payments problems caused by high oil prices and rising interest rates on debt incurred in the 1970s.

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