IMF, Its Objectives, Structure, Functions, Members, Role, History
Three Ways the IMF Protects the Global Economy
The International Monetary Fund is a 189-member organization that works to stabilize the global economy.
The IMF meets its goal by targeting three objectives:
- It monitors global conditions and identifies risks among its member countries.
- It advises its members on how to improve their economies.
- It provides technical assistance and short-term loans to prevent financial crises. The IMF's goal is to prevent these disasters by guiding its members.
Survey Global Conditions: The IMF has the rare ability to look into and review the economies of all its member countries. As a result, it has its finger on the pulse of the global economy better than any other organization.
The IMF produces a wealth of analytical reports. It provides the World Economic Outlook, the Global Financial Stability Report, and the Fiscal Monitor each year. It also delves into regional and country-specific assessments. It uses this information to determine which countries need to improve their policies. Hence, the IMF can identify which countries threaten global stability. The member countries have agreed to listen to the IMF's recommendations because they want to improve their economies and remove these threats.
Advise Member Countries: Since the Mexican peso crisis of 1994–95 and the Asian crisis of 1997–98, the IMF has taken a more active role to help countries prevent financial crises. It develops standards that its members should follow.
For example, members agree to provide adequate foreign exchange reserves in good times. That helps them increase spending to boost their economies during recessions. It reports on member countries' observance of these standards.
The IMF also issues member country reports that investors use to make well-informed decisions. That improves the functioning of financial markets. The IMF also encourages sustained growth and high living standards, which is the best way to reduce members' vulnerability to crises.
Because the Fund lends money, it's often confused with the World Bank. The World Bank lends money to developing countries for specific projects that will fight poverty. Unlike the World Bank and other development agencies, the IMF does not finance projects.
Traditionally, most IMF borrowers were developing countries. They had limited access to international capital markets due to their economic difficulties. An IMF loan signals that a country's economic policies are on the right track. That reassures investors and acts as a catalyst for attracting funds from other sources.
The IMF's Changing Role
The role of the IMF has increased since the onset of the 2008 global financial crisis. In fact, an IMF surveillance report warned about the economic crisis. World leaders soon regretted that they ignored it.
As a result, the IMF has been called upon more and more to provide global economic surveillance. It's in the best position to do so because it requires members to subject their economic policies to IMF scrutiny. They have also committed to policies that keep prices stable. For example, they agree to avoid manipulating exchange rates for an unfair competitive advantage.
The IMF chief has been Managing Director Kristalina Georgieva since Sept. 25, 2019. The Managing Director is the chief of the IMF’s 2,700 employees from 147 countries. She supervises four Deputy Managing Directors. She is Chair of the 24-member Executive Board.
The IMF Governance Structure begins with the IMF Governing Board which sets direction and policies. Its members are the finance ministers or central bank leaders of the member countries. They meet each year in conjunction with the World Bank. The International Monetary and Financial Committee meets twice a year. These committees review the international monetary system and make recommendations.
Rather than listing all 189 members, it's easier to list the countries that are not members. The seven countries (out of a total of 196 countries) that are not IMF members are Cuba, East Timor, North Korea, Liechtenstein, Monaco, Taiwan, and Vatican City. The IMF has 11 members that are not sovereign countries: Anguilla, Aruba, Barbados, Cabo Verde, Curacao, Hong Kong, Macao, Montserrat, Netherlands Antilles, Saint Maarten, and Timor-Leste.
Members do not receive equal votes. Instead, they have voting shares based on a quota. The quota is based on their economic size. If they pay their quota, they receive the equivalent in voting shares. The Member Quotas and Voting Shares was updated in 2010.
The IMF was created at the 1944 Bretton Woods conference. It sought to rebuild Europe after World War II. The Conference also set up a modified gold standard to help countries maintain the value of their currencies. The planners wanted to avoid the trade barriers and high-interest rates that helped cause the Great Depression.
International Monetary Fund. "IMF Executive Board Selects Kristalina Georgieva as Managing Director." Accessed June 24, 2020.
International Monetary Fund. "List of Members." Accessed June 24, 2020.
International Monetary Fund. "Cooperation and Reconstruction (1944-1971)." Accessed June 24, 2002.