International Monetary Fund

The International Monetary Fund (IMF) is an international financial institution (IFI) which monitors the international financial system and provides loans to developing country member-states with balance-of-payments problems.

History

The IMF was established in 1945, having first been conceived at the Bretton Woods Conference in New Hampshire, USA in 1944. That conference saw representatives from forty four allied nations gather to to craft new rules and institutions to regulate the chaotic global economy – blamed for the Great Depression and for helping cause two World Wars. The outcome was the Bretton Woods Agreement which created two new multilateral institutions: the International Bank for Reconstruction and Development (IBRD), now known as the World Bank, and the International Monetary Fund.

The creation of the IMF was a ‘compromise’ between the proposals put to the Bretton Woods conference by head negotiators from England and the USA: John Maynard Keynes and Harry Dexter White. Keynes advocated the establishment of a global bank called called the International Clearing Union, which would have divided the responsibility for balance-of-payments imbalances between both the debtor and creditor nations. But the United States was at the time not just the most economically powerful nation in the world, but also the world’s largest creditor. As a result, it was White’s proposal for a Fund which favoured creditor nations – by placing the world’s debt burden solely on debtor nations – which won out in the end, altered only slightly by a few concessions to Keynes.

Roles

At its establishment, the IMF was to given a number of interconnected roles, set out in Article 1 of its Articles of Agreement. In essence, the IMF’s two main roles were to:

• Monitor an international system of fixed exchange rates based on the value of the US dollar which would be pegged to the value of gold, with the goal of ensuring international monetary stability; and
• Provide short-term loans to nations in danger of balance-of-payments crises (ie: when there is not enough hard currency to pay for imports). The loans were to be made from a large gold reserve, and from contributions from the Fund’s members, based on the relative size of their economies.

But in 1971, the US ended fixed US dollar/gold convertibility due to a variety of factors, including inflationary pressure and the cost of fighting the Vietnam War. This move resulted in the collapse of the system of fixed exchange rates which the IMF was established to oversee, and the Fund lost one of its two main roles. This provided the impetus for the change in focus which occured during the 1970s and 1980s. By the 1980s, the IMF had refocused to a large degree on lending to developing countries, both on providing finance and encouraging policies to stimulate growth. 1982 was the last year in which a member of the OECD used an IMF loan facility.

Accompanying this change in focus was a change in method. Former World Bank Chief Economist Joseph Stiglitz notes that originally, “the IMF was based on a recognition that markets often did not work well – that they could result in massive unemployment and might fail to make needed funds available to countries” (Stiglitz 2002, p. 12). But in the 1970s and 1980s, “the Keynesian orientation of the IMF, which emphasised market failures and the role for government in job creation, was replaced by the free market mantra of the 1980s, part of a new ‘Washington Consensus’” (Stiglitz 2002, p. 16).

The Washington Consensus was so named because it was a common ideology of the IMF, World Bank and Department of the Treasury – all based in Washington – that markets, free from government intervention of any kind, held the key to development in rich and poor countries alike.

Conditionality & Structural Adjustment

The impact of the Washington Consensus has been felt mainly through the IMF’s increasing use of loan conditions (‘conditionality’) to force policy change in developing countries. The use of loan conditions can be traced to section 1(v) of the Fund’s Articles of Agreement, which encourages the IMF to make its funds “temporarily available . . . under adequate safeguards”. But while conditions had, in the 1950s and 1960s, been used to promote global financial stability (as per the IMF’s Articles of Agreement) in the late 1970s and 1980s, loan conditions began to be used as "structural adjustment" tools, and conditionality – structural change in client countries – became a central focus for the IMF’s work.

Structural adjustment policies mean across-the-board privatization of public utilities and publicly owned industries. They mean the slashing of government budgets, leading to cutbacks in spending on health care and education. They mean focusing resources on growing export crops for industrial countries rather than supporting family farms and growing food for local communities. And, as their imposition in country after country in Latin America, Africa, and Asia has shown, they lead to deeper inequality and environmental destruction. For decades people in the Third World have protested the way the IMF and World Bank. [1]

In 1996, a new debt relief initiative for the heavily-indebted poor countries—the HIPC Initiative—was launched by the IMF and the World Bank.1 The HIPC Initiative was intended to resolve the debt problems of the most heavily-indebted poor countries (originally 41 countries, mostly in Africa) with total debt nearing $200 billion.Worldwide events in the 1970s and 1980s—particularly the oil price shocks, high interest rates and recessions in industrial countries, and then weak commodity prices—were major contributors to the debt build-up in the HIPC countries. [2][3]

"Research shows clearly that the policies prescribed by the IMF have, among other things, not produced strong or sustainable growth; opened countries, communities and families to new vulnerabilities; exacerbated inequalities, which puts a brake on growth, stresses political systems to the breaking point, and engenders new and powerful forms of criminality and social tension.

Bolivia has been a model student of such "reforms", and is now also a showcase for the contradictions and crisis these policies engender." [4] The IMF "supports the rapid conclusion of obscure deals made by un-transparent multinationals and unaccountable politicians, deals in which it is impossible for people to evaluate or have a choice." observes researcher Tom Kruse in LaPaz.[5]

It appears some of the debt restructuring for IMF happens through Paris club and London Club. Paris Club is the name given to the arrangements through which countries reschedule their official DEBT; that is, money borrowed from other governments rather than BANKS or private FIRMS. The club is based on Avenue Kléber in Paris. Its members are the 19 founders of the OECD as well as Russia. Other institutions such as the WORLD BANK attend in an ­informal role. Rescheduling requires the consensus agreement of members and must not favour one CREDITOR nation over another. Private debt re­scheduling takes place through the London Club. [6]

Power Balances & Decision-Making

From its beginning, the IMF was dominated by the rich industrialised countries - and particularly by the USA - which have tightly controlled the Fund’s agenda, both through the IMF’s formal decision-making structure, and through informal influence. Formal decision-making power in the Fund is held by two bodies: the Board of Governors, and the Executive Board. Everyday management of the Fund is the responsibility of the “Managing Director” – selected by and chair of the Executive Board. There is an unwritten agreement that every IMF Managing Director should come from Europe, and every first Deputy Managing Director is American. This has held true for the entire life of the Fund. Stiglitz points out that the managing director of the IMF is chosen “behind closed doors, and it has never even been viewed as a prerequisite that the head should have have any experience in the developing world.” (Stiglitz 2002, p. 19).

In contrast to democratic institutions, formal power on the IMF’s boards is distributed according to the economic power of its members. Voting is determined by “quotas”, which are in turn determined by the size of a country’s contribution ot the Fund. The USA – as the world’s largest economy – holds a significant 17 per cent of the total voting power. The G8 – the group of eight powerful industrialised nations – controls a vote of 48% of the votes on the Fund’s board, leaving only 52 per cent for the other 176 IMF members. In stark comparison to the influence of the rich countries, the largest African member of the Fund – South Africa – holds just 0.87 per cent of the total voting power (International Monetary Fund 2005a). This political structure has allowed rich countries to effectively control the agenda of the IMF, and has denied a real voice to the poor countries which are the recipients of Fund policies.

Personnel

===Senior Officials=== [7]

• Rodrigo de Rato, Managing Director (EU)
• Anne Krueger, First Deputy Managing Director (USA)
• Agustín Carstens, Deputy Managing Director (Mexico)
• Takatoshi Kato, Deputy Managing Director (Japan)

===Executive Board=== [8]

• Nancy P. Jacklin, (USA)
• Shigeo Kashiwagi, (Japan)
• Karlheinz Bischofberger (Germany)
• Pierre Duquesne (France)
• Tom Scholar (UK)

SourceWatch Resources

• Federal Reserve System
• globalization
• Timeline to Global Governance 1800 to 1969
• U.S. Department of the Treasury
• World Bank

External Links

• The Bretton Woods System.
• A guide to Committees, Groups and Clubs germane to activities of IMF
• Also see Paris Club and London Club
• Paris Club Representatives Meet Private Sector

Books

• Joseph Stiglitz, Globalisation and its Discontents, Penguin Books, 2002.