International Monetary Fund – IMF
What is the International Monetary Fund (IMF)?
The International Monetary Fund (IMF) is an international organization that aims to
promote global economic growth and financial stability, encourage international trade,
and reduce poverty.
International Monetary Fund (IMF)
The International Monetary Fund (IMF) is based in Washington, D.C. and currently
consists of 189 member countries, each of which has representation on the IMF's
executive board in proportion to its financial importance, so that the most powerful
countries in the global economy have the most voting power. The IMF's
website describes its mission as "to foster global monetary cooperation, secure financial
stability, facilitate international trade, promote high employment and sustainable
economic growth, and reduce poverty around the world."
IMF funds are often conditional on recipients making reforms to increase their growth
potential and financial stability. Structural adjustment programs, as these conditional
loans are known, have attracted criticism for exacerbating poverty and reproducing the
structures of colonialism.
History of the IMF
The IMF was originally created in 1945 as part of the Bretton Woods agreement, which
attempted to encourage international financial cooperation by introducing a system of
convertible currencies at fixed exchange rates, with the dollar redeemable for gold at $35
per ounce. The IMF oversaw this system: for example, a country was free to readjust its
exchange rate by up to 10% in either direction, but larger changes required the IMF's
permission.
The IMF also acted as a gatekeeper: countries were not eligible for membership in the
International Bank for Reconstruction and Development (IBRD) – a World
Bankforerunner that the Bretton Woods agreement created in order to fund the
reconstruction of Europe after World War II – unless they were members of the IMF.
Since the Bretton Woods system collapsed in the 1970s, the IMF has promoted the
system of floating exchange rates, meaning that market forces determine the value of
currencies relative to one another. This system continues to be in place today.
The International Monetary Fund (IMF) is an organization of 189 countries, working to
foster global monetary cooperation, secure financial stability, facilitate international trade,
promote high employment and sustainable economic growth, and reduce poverty around
the world. Created in 1945, the IMF is governed by and accountable to the 189 countries
that make up its near-global membership.
IMF Activities
The IMF's primary purpose is to ensure the stability of the international monetary
system—the system of exchange rates and international payments that enables countries
(and their citizens) to transact with each other. The Fund's mandate was updated in 2012
to include all macroeconomic and financial sector issues that bear on global stability. The
IMF’s fundamental mission is to ensure the stability of the international monetary system.
It does so in three ways: keeping track of the global economy and the economies of
member countries; lending to countries with balance of payments difficulties; and giving
practical help to members.
Economic Surveillance The IMF oversees the international monetary system and
monitors the economic and financial policies of its 189 member countries. As part of this
process, which takes place both at the global level and in individual countries, the IMF
highlights possible risks to stability and advises on needed policy adjustments..
Lending The IMF provides loans to member countries experiencing actual or potential
balance of payments problems to help them rebuild their international reserves, stabilize
their currencies, continue paying for imports, and restore conditions for strong economic
growth, while correcting underlying problems.
Capacity Development The IMF works with governments around the world to modernize
their economic policies and institutions, and train their people. This helps countries
strengthen their economy, improve growth and create jobs.
ORGANIZATIONS AND FINANCES
The IMF has a management team and 17 departments that carry out its country, policy,
analytical, and technical work. One department is charged with managing the IMF’s
resources. This section also explains where the IMF gets its resources and how they are
used.
Management
The IMF has a Managing Director, who is head of the staff and Chairperson of the
Executive Board. The Managing Director is appointed by the Executive Board for a
renewable term of five years and is assisted by a First Deputy Managing Director and
three Deputy Managing Directors.
Staff
The IMF’s employees come from all over the world; they are responsible to the IMF and
not to the authorities of the countries of which they are citizens. The IMF staff is
organized mainly into area; functional; and information, liaison, and support
responsibilities.
IMF Resources
Most resources for IMF loans are provided by member countries, primarily through their
payment of quotas.
Quotas
Quota subscriptions are a central component of the IMF’s financial resources. Each
member country of the IMF is assigned a quota, based broadly on its relative position in
the world economy.
Special Drawing Rights (SDR)
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its
member countries’ official reserves.
Gold
Gold remains an important asset in the reserve holdings of several countries, and the IMF
is still one of the world’s largest official holders of gold.
Borrowing Arrangements
While quota subscriptions of member countries are the IMF's main source of financing,
the Fund can supplement its quota resources through borrowing if it believes that they
might fall short of members' needs.
GOVERNANCE
Governance Structure
The IMF has evolved along with the global economy throughout its 70-year history,
allowing the organization to retain a central role within the international financial
architecture.
Country Representation
Unlike the General Assembly of the United Nations, where each country has one vote,
decision making at the IMF was designed to reflect the relative positions of its member
countries in the global economy. The IMF continues to undertake reforms to ensure that
its governance structure adequately reflects fundamental changes taking place in the
world economy.
Accountability
Created in 1945, the IMF is governed by and accountable to the 189 countries that make
up its near-global membership. Decision making at the IMF was designed to reflect the
relative positions of its member countries in the global economy.
Transparency
The IMF has policies in place to ensure that meaningful and accurate information—both
about its own role in the global economy and the economies of its member countries—is
provided in real time to its global audiences.
Corporate Giving
The IMF Giving Together campaign guides the IMF's humanitarian and community
outreach efforts.
IMF Lending
The IMF assists countries hit by crises by providing them financial support to create
breathing room as they implement adjustment policies to restore economic stability and
growth. It also provides precautionary financing to help prevent and insure against crises.
The IMF’s lending toolkit is continuously refined to meet countries’ changing needs.
Why do crises occur?
The causes of crises are varied and complex, and can be domestic, external, or both.
Domestic factors include inappropriate fiscal and monetary policies, which can lead to
large economic imbalances (such as large current account and fiscal deficits and high
levels of external and public debt); an exchange rate fixed at an inappropriate level, which
can erode competitiveness and lead to persistent current account deficits and loss of
official reserves; and a weak financial system, which can create economic booms and
busts. Political instability and/or weak institutions can also trigger crises by exacerbating
economic vulnerabilities.
External factors include shocks ranging from natural disasters to large swings in
commodity prices. These are common causes of crises especially for low-income
countries, which have limited capacity to prepare for such shocks and are dependent on
a narrow range of export products. Also, in an increasingly globalized economy, sudden
changes in market sentiment can result in capital flow volatility. Even countries with sound
fundamentals could be severely affected by the impact of economic crises and policies in
other countries.
Whether the cause is domestic or external in origin, crises can take many different
forms: balance of payment problems occur when a nation is unable to pay for essential
imports or service its external debt repayments; financial crises stem from illiquid or
insolvent financial institutions; and fiscal crises are caused by excessive fiscal deficits
and debt. Often, countries that come to the IMF face more than one type of crisis as
challenges in one sector spread throughout the economy. Crises generally result in
sharp slowdown in growth, higher unemployment, lower incomes and greater
uncertainty which cause a deep recession. In acute crisis cases, defaults or
restructuring of sovereign debt may become unavoidable.
How IMF lending helps
IMF lending aims to give countries breathing room to implement adjustment policies in
an orderly manner, which will restore conditions for a stable economy and sustainable
growth. These policies will vary depending upon the country’s circumstances. For
instance, a country facing a sudden drop in the prices of key exports may need financial
assistance while implementing measures to strengthen the economy and widen its
export base. A country suffering from severe capital outflows may need to address the
problems that led to the loss of investor confidence—perhaps interest rates are too low;
the budget deficit and debt stock are growing too fast; or the banking system is inefficient
or poorly regulated. In the absence of IMF financing, the adjustment process for the
country could be more abrupt and difficult. For example, if investors are unwilling
to provide new financing, the country would have no choice but to adjust—often through
a painful compression of government spending, imports and economic activity. IMF
financing facilitates a more gradual and carefully considered adjustment. As IMF lending
is usually accompanied by a set of corrective policy actions, it also provides a seal of
approval that appropriate policies are taking place.
The IMF’s various lending instruments are tailored to different types of balance of
payments need as well as the specific circumstances of its diverse membership (see
table). Low-income countries may borrow on concessional terms through facilities
available under the Poverty Reduction and Growth Trust (PRGT; see IMF Support for
Low-Income Countries ), currently at zero interest rates. Historically, for emerging and
advanced market economies in crises, the bulk of IMF assistance has been provided
through Stand-By Arrangements (SBAs) to address short-term or potential balance of
payments problems. The Standby Credit Facility (SCF)serves a similar purpose for low-
income countries. The Extended Fund Facility (EFF) and the corresponding Extended
Credit Facility (ECF) for low-income countries are the Fund’s main tools for medium-term
support to countries facing protracted balance of payments problems. Their use has
increased substantially since the global financial crisis, reflecting the structural nature of
some members’ balance of payments problems.
Inter-American Development Bank
The Inter-American Development Bank (IADB or IDB or BID) is the largest source of
development financing for Latin America and the Caribbean.[1] Established in 1959, the
IDB supports Latin American and Caribbean economic development, social
development and regional integration by lending to governments and government
agencies, including State corporations.
The IDB is the largest multilateral source of financing for the Latin America and the
Caribbean region.[3] The IDB makes loans to the governments of its borrowing member
countries at standard commercial rates of interest, and has preferred creditor status,
meaning that borrowers will repay loans to the IDB before repaying other obligations to
other lenders such as commercial banks.
Governance
The IDB is governed by its Board of Governors, a 48-member body who regularly meets
once a year. In March 2010, reunited in Cancun, Mexico, the Board of Governors of the
Bank agreed on a $70 billion capital increase, along with full debt forgiveness for Haiti, its
poorest member country, devastated by an earthquake that had destroyed its
capital, Port-au-Prince, two months before.
The developing countries that borrow from the IDB are the majority shareholders, and
therefore control the majority of the decision-making bodies of the Bank. Each
member's voting power is determined by its shareholding: its subscription to the Bank's
ordinary capital. The United States holds 30 percent of the Bank's shares, while the
countries of Latin America and the Caribbean combined hold 50.02 percent but with
another 20% from Europe the US can veto decisions.[4] This arrangement is unique in
that the developing member countries, as a group, are the majority shareholders. Though
this arrangement was first viewed as risky, it is believed by some that strict peer pressure
prevents the borrowers from defaulting, even when under severe economic pressure.
Priority areas
In March 2015, the Bank updated its Institutional Strategy for 2010-2020The document
says that to ultimately transform Latin American and the Caribbean 'into a more inclusive
and prosperous society, three main development challenges must be addressed: social
exclusion and inequality, low productivity and innovation, and limited economic
integration." Moreover, the document also says that "these three challenges are inter-
related and certain overarching issues cut across them that public policies need to
address: gender equality and diversity; climate change and environmental sustainability;
and institutions and the rule of law."
Education Initiative
Vision
The IDB’s Education Division works in partnership with 26 borrowing countries in Latin
America and the Caribbean to ensure that children and adolescents exercise their right
to a quality education, achieve their potential, and reverse the cycle of poverty.
Mission
Given that education is a key to development and a prerequisite for a genuine equality of
opportunity, and given its strategic importance to the region, the IDB has an Education
Initiative that focuses its research and projects in three main areas: Early Childhood
Development, School to Work Transition and Teacher Quality.
Early childhood development
The IDB supports readiness to learn interventions so that children can have access to
quality programs within the region. Among the projects in this area are the Regional
Project on Child Development Indicators (PRIDI), which provides high quality, policy-
relevant, and regionally comparative data on the situation of young children and their
families. These data will allow countries to benchmark progress on childhood
development both within their borders and in the region, thus facilitating policy dialogue
between governments on how to best address the needs of young children and their
families. Participating countries include Argentina, Costa Rica, Ecuador, Nicaragua, Peru
and Paraguay.The IDB also participates in the Support for a Seamless Education System
Program in Trinidad and Tobago, which aims to improve the quality of early childhood
care and primary education,and the Alliance for Children Initiative (Alianza por la Iniciativa
Infantil), an initiative that seeks to foster collaboration between governments, families,
civil society and the private sector to support innovative interventions in the field.
Other projects
The Bank also has interventions in other areas that affect children and adolescents in the
region, such as education inputs, equity, and compensatory programs. The initiatives in
these fields are support projects for the reconstruction of educational infrastructure in
Haiti; a support project for the consolidation and expansion of the Plan Ceibal in Uruguay;
a community education program in Mexico, which aims to raise quality of educational
services for marginalized communities; a project to support the education plan in the
Dominican Republic; the National Infrastructure Program for the universalization of
education quality and equality in Ecuador; a program to support policies for the
improvement of education equity in Argentina (PROMEDU); a project to improve
education activities and learning quality in Mexico; and a comprehensive care program
for children in Nicaragua, which contributes to the development of children living in
extreme poverty within rural areas under 6 years old.
Poverty reduction
Government of developing countries is not equipped to reduce poverty due to heavy
responsibility to build and maintain infrastructure, as well as meet payroll and debt
obligations. Tax revenue is often weak or non-existent. Poverty reduction depends largely
on business investment in global markets to create sustainable jobs for economic
empowerment of individuals. International companies need funding, and difficulty lies on
the inability of the investment banks to overcome regulatory obstacles. Small business
entities are largely responsible for improving lives, as they play an inherent role in raising
the socio-economic status of families, making it possible to combat poverty in the long
range, as employed heads of household are in better positions to finance the education
of children for a better future. Hence, empowering institutions, such as, The World Bank,
IFC, the IADB, and others can exercise their due diligence to fit those promising entities
in their projects with eased regulatory restraints, as certain regulations that work in
developed nations are obstacles to progress in developing nations
WORLD BANK
The World Bank is like a cooperative, made up of 189 member countries. These
member countries, or shareholders, are represented by a Board of Governors, who are
the ultimate policymakers at the World Bank. Generally, the governors are member
countries' ministers of finance or ministers of development. They meet once a year at
the Annual Meetings of the Boards of Governors of the World Bank Group and
the International Monetary Fund. The governors delegate specific duties to 25 Executive
Directors, who work on-site at the Bank. The five largest shareholders appoint an
executive director, while other member countries are represented by elected executive
directors.
The World Bank Group President chairs meetings of the Boards of Directors and
is responsible for overall management of the Bank. The President is selected by
the Board of Executive Directors for a five-year, renewable term.
The Executive Directors make up the Boards of Directors of the World Bank.
They normally meet at least twice a week to oversee the Bank's business,
including approval of loans and guarantees, new policies, the administrative
budget, country assistance strategies and borrowing and financial decisions.
The World Bank operates day-to-day under the leadership and direction of the
president, management and senior staff, and the vice presidents in charge
of Global Practices, Cross-Cutting Solutions Areas, regions, and functions. The
World Bank Group has set two goals for the world to achieve by 2030:
Promote shared prosperity by fostering the income growth of the bottom 40% for
every country
The World Bank is a vital source of financial and technical assistance to developing
countries around the world. We are not a bank in the ordinary sense but a unique
partnership to reduce poverty and support development. The World Bank Group
comprises five institutions managed by their member countries.
Established in 1944, the World Bank Group is headquartered in Washington, D.C. We
have more than 10,000 employees in more than 120 offices worldwide.
Financial Products and Services
We provide low-interest loans, zero to low-interest credits, and grants to developing
countries. These support a wide array of investments in such areas as education,
health, public administration, infrastructure, financial and private sector development,
agriculture, and environmental and natural resource management. Some of our projects
are cofinanced with governments, other multilateral institutions, commercial banks,
export credit agencies, and private sector investors.
We also provide or facilitate financing through trust fund partnerships with bilateral and
multilateral donors. Many partners have asked the Bank to help manage initiatives that
address needs across a wide range of sectors and developing regions.
Innovative Knowledge Sharing
We offer support to developing countries through policy advice, research and analysis,
and technical assistance. Our analytical work often underpins World Bank financing and
helps inform developing countries’ own investments. In addition, we support capacity
development in the countries we serve. We also sponsor, host, or participate in many
conferences and forums on issues of development, often in collaboration with partners.
To ensure that countries can access the best global expertise and help generate
cutting-edge knowledge, the Bank is constantly seeking to improve the way it shares its
knowledge and engages with clients and the public at large. Key priorities include:
Results: We continue to sharpen our focus on helping developing
countries deliver measurable results.
Reform: We are working to improve every aspect of our work: how projects are
designed, how information is made available (Access to Information), and how to
bring our operations closer to client governments and communities.
Open Development: We offer a growing range of free, easy-to-access tools,
research and knowledge to help people address the world's development
challenges. For example, the Open Data website offers free access to
comprehensive, downloadable indicators about development in countries around
the globe. We have also made World Bank Live—live discussions open to
participants worldwide—a key part of our Spring and Annual Meetings with
the International Monetary Fund.
Five Institutions, One Group
The World Bank Group consists of five organizations:
The International Bank for Reconstruction and Development The
International Bank for Reconstruction and Development (IBRD) lends to
governments of middle-income and creditworthy low-income countries.
The International Development Association The International Development
Association (IDA) provides interest-free loans — called credits — and grants to
governments of the poorest countries. Together, IBRD and IDA make up the
World Bank.
The International Finance Corporation The International Finance Corporation
(IFC) is the largest global development institution focused exclusively on the
private sector. We help developing countries achieve sustainable growth by
financing investment, mobilizing capital in international financial markets, and
providing advisory services to businesses and governments.
The Multilateral Investment Guarantee Agency The Multilateral Investment
Guarantee Agency (MIGA) was created in 1988 to promote foreign direct
investment into developing countries to support economic growth, reduce
poverty, and improve people’s lives. MIGA fulfills this mandate by offering
political risk insurance (guarantees) to investors and lenders.
The International Centre for Settlement of Investment Disputes The
International Centre for Settlement of Investment Disputes (ICSID) provides
international facilities for conciliation and arbitration of investment disputes.
