Heard of the International Monetary Fund, or IMF for short, but not sure what it is? Let us explain it in plain English.
What Is It?The International Monetary Fund was established in 1945 by members of the newly founded United Nations. The original concept behind the IMF was to create a harmonious and cooperative economic relationship between the nations of the world. Prior to this, the Great Depression had occurred due to devaluations of competing economies. The aim was that this would not be repeated with a structured framework in pace for members of the UN to follow.
It hoped that with a stable global economy, more and more countries could create economic growth, which had long been stalled since the Second World War. It began with 29 member countries from the United Nations, and to this date has 188 members.
What Do They Do?The IMF’s main goal is to ensure a stable global economy and monetary system. This is achieved through surveillance and analysis of data of the global economy through its various departments, which can then be used to help members of the IMF to improve their overall economy.
Through this process they can offer economic advice on various policies of each country that could be negatively affecting their economy. Data is gathered on both a global scale and of the individual countries, which will then be analysed in accordance to the country’s economic policy. Training and advice is then given to improve these aspects of a countries economy by the IMF.
They also offer loans from a fund that is created by the members of the IMF. Loans are given to members who could be struggling to make payments. The hopes are that by providing loans, they can ensure that a country can stabilize its economy and currency, make payments for essential imports, and improving any policies that could be causing the problems leading to payment issues.
How Does It Work?
The IMF itself has 17 separate departments in total, along with a management team. These departments do the various work of the IMF, including data collection, policy analysis and managing the resources of the IMF.
Management of the IMF is done through the Managing Director and the Executive Board. The Managing Director is the Chairperson of the Executive Board, with the board having voted them into the position. This position is held on a five year, renewable term.
Day to day staff come from across the board. They answer and are responsible to the IMF themselves, and not the individual authorities of the country they belong or work in. There are many various job areas for employees of the IMF.
Funds are contributed through member countries, all of which is pooled together to create the capital required for the organisation. Each countries payment is based on a quota system, the more influence and prominence on the global economy your country has the more subscription payments are in turn, more influence is given to these nations.
Who Controls It?Each of the 188 members has a say in the control and direction of the IMF. The Managing Director and Executive Board have control over the running of the IMF on a day to day basis, but this is an ever evolving organisation, where changes can be implemented if decided upon.
As previously mentioned, the amount of control each member has is based on their payments to the IMF, which is in turn based on their position in the global economy. Should this change, as many economic positions do, more influence is given to the members that have increase their positions.
With that being said, each of the 188 members has a say in the overall governance and accountability of the organisation as a whole.
Why Is It Important?Having influence over the economic policies and directions of the world’s most important countries is a very important position of the IMF. They advise and monitor on economic relationships between the world’s biggest countries, not to mention have a strong influence over the global economy. By setting and advising on the best economic policies of the entire world, every decision made by the IMF has a massive effect on the entire global economy.
Providing loans to countries that are struggling to make payments ensures that there is a safety net for any economy that is struggling, with funds available sometimes with no interest. In the same way their economic policies and advice aim to improve a country, this can be vital to re-stabilizing a countries economy, emphasizing the importance of the IMF.
Do They Have too Much Power?It could be argued that in recent years, the IMF has seen a large balance of power shift in their direction. This can be blamed on the recent global economic crisis, which has seen a lot of influence gained by the IMF.
Due to the fragile nature of the global economy, there is a claim that an entire global reform is needed. The IMF would be in direct control of any new policies that are needed, as evidenced by their current influence over the Eurozone crisis.
While it remains to be seen if this is a cause for concern, the current global economy will likely dictate the powers they have. New economies that are taking center stage of the world, such as India and China, could see the power change into different hands, with the US and Europe taking a back seat – which could be a cause for concern for people of those countries.
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