INTERNATIONAL MONETARY FUND

The International Monetary Fund was established to foster international trade and currency conversion, which it does through consultation and loan activities. When it was created in 1946, the IMF had thirty-nine member countries. By November 1999 membership in the IMF had grown to 182 member countries and by the mid-2000s membership included every major country, the former communist countries, and numerous small countries. The only exception were Cuba and North Korea.

To join the IMF, a country must deposit a sum of money called a quota subscription, the amount of which is based on the wealth of the country's economy. Quotas are reconsidered every five years and can be increased or decreased based on IMF needs and the prosperity of the member country. In 2005, the United States contributed the largest percentage of the annual contributions—18 percent—because it had the largest, richest economy in the world. Voting rights are allocated in proportion to the quota subscription.

HISTORICAL DEVELOPMENT

The Depression in the 1930s devastated international trade and monetary exchange, creating a great loss of confidence on the part of those engaged in international business and finance. Because international traders lost confidence in the paper money used in international trade, there was an intense demand to convert paper money into gold—a demand beyond what the treasuries of countries could supply. Nations that defined the value of their currency in terms of a given amount of gold were unable to meet the conversion demand and had to abandon the gold standard. Valuing currencies in terms of given amounts of gold, however, had given currencies stable values that made international trade flow smoothly.

The relationship between money and the value of products became confused. Some nations hoarded gold to make their currency more valuable so that their producers could buy raw materials at lower prices. Other countries, desperate for foreign sales of their goods, engaged in competitive devaluations of their currencies. World trade became difficult. Countries restricted the exchange of currency, and even encouraged barter. In the early 1940s Harry Dexter White (1892–1948) of the United States and John Maynard Keynes (1883–1946) of the United Kingdom proposed the establishment of a permanent international organization to bring about the cooperation of all nations in order to achieve clear currency valuation and currency convertibility as well as to eliminate practices that undermine the world monetary system.

Finally, at an international meeting in Bretton Woods, New Hampshire, in July 1944, it was decided to create a new international monetary system and a permanent international organization to monitor it. Forty-four countries agreed to cooperate to solve international trade and investment problems, setting the following goals, for the new permanent, international organization:

• Unrestricted conversion of currencies
• Establishment of a value for each currency in relation to others
• Removal of restrictive trade practices

CREATION OF THE INTERNATIONAL MONETARY FUND

In 1946 in Washington, D.C., the international organization to monitor the new international monetary system came into existence—the International Monetary Fund (IMF). The purposes of the IMF are as follows:

To promote international monetary consultation, cooperation, and collaboration

To facilitate the expansion and balanced growth of international trade

To promote exchange stability

To assist in the establishment of a multilateral system of payments

To make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards

To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members

The Bretton Woods agreement created fixed exchange rates between countries based on the value of each country's currency in relation to gold or indirectly in relation to gold by relating their currency to the U.S. dollar. The United States in turn guaranteed that the dollar could be exchanged for gold at a fixed exchange rate. The United States, however, ultimately could not maintain the dollar's promised convertibility, ending it in 1971, in large part because of inflation and a subsequent run on the U.S. gold reserve. The fixed-exchange-rate system collapsed. This led to a managed flexible-exchange-rate system with agreement among major countries that they would try to coordinate exchange rates based on price indexes. How ever, without operational criteria for managing currency relationships, exchange rates have been increasingly determined by volatile international capital movements rather than by trade relationships.

ORGANIZATIONAL STRUCTURE

The organization of the IMF has at its top a board of governors and alternate governors, who are usually the ministers of finance and heads of central banks of each member country. Because of their positions, they are able to speak authoritatively for their countries. The entire board of governors and alternate governors meets once a year in Washington, D.C., to formally determine IMF policies. During the rest of the year, a twenty-four-member executive board, composed of representatives or the total board of governors, meets a number of times each week to supervise the implementation of the policies adopted by the board of governors. The IMF staff is headed by its managing director, who is appointed by the executive board. The managing director chairs meetings of the executive board after appointment. Most staff members work at IMF headquarters in Washington, D.C. A small number of staff members are assigned to offices in Geneva, Paris, and Tokyo and at the United Nations.

SURVEILLANCE AND CONSULTATIONS

At least annually, a team of IMF staff members visits each member country for two weeks. The team of four or five meets with government officials, makes inquiries, engages in discussions, and gathers information about the country's economic policies and their effectiveness. If there are currency exchange restrictions, the consultation includes inquiry as to progress toward the elimination of such restrictions. Statistics are also collected on such matters as exports and imports, tax revenues, and budgetary expenditures. The team reports the results of the visit to the IMF executive board. A summary of the discussion is transmitted to the country's government, and for countries agreeing to the release of the summary, to the public.

FINANCIAL ASSISTANCE

The IMF endeavors to stabilize the international monetary system by temporarily lending resources in the form of foreign currencies and gold to countries experiencing international payment difficulties. There are a number of reasons why a country may need such assistance. One possibility is that the country has a trade deficit, which is often offset by lending, capital investment, and possibly aid from richer countries. However, confidence in the country's economic system and its ability to repay its debts becomes diminished in such a situation. The IMF requires that the borrowing country provide a plan for reform that will ultimately result in resolving the payments problems. Reforms such as tighter fiscal and monetary policies, good government control of expenditures, elimination of corruption, and provision for greater disclosure are required.

The most immediate assistance to a member country with payments difficulty is permission to withdraw 25 percent of the quota subscription that was initially paid in the form of gold or convertible currency. If the country still cannot meet its payments obligations it can, ultimately, borrow up to three times its original quota payment. The borrowing country must produce a plan of reform that will overcome the payments problem.

The IMF has a number of additional lending plans to meet various problems experienced by its members as well as emergency lending programs. There are Stand-By Arrangements disbursed over one to two years for temporary deficits, the Compensatory and Contingency Financing Facility for sudden drops in export earnings, Emergency Assistance for natural disasters, Extended Fund Facility to correct structural problems with maturities of greater length, the Supplemental Reserve Facility to provide loans to countries experiencing short-term payments problems due to a sudden loss of market confidence in the country's currency, and the Systemic Transformation Facility for the former communist countries in Eastern Europe and Russia.

SPECIAL DRAWING RIGHTS (SDRS)

In the 1960s, during an expansion of the world economy while gold and the U.S. dollar were the reserve currencies, it appeared that reserves were insufficient to provide for international trade needs. The IMF was empowered to create a new reserve asset, called the special drawing right (SDR), which it could lend to member countries. The value assigned to the SDR is the average of the world's major currencies. Countries with strong currencies agreed to buy SDRs when needed by a country because of payment problems, and in turn sell other currencies. However, at present SDRs are used mostly for repayment of IMF loans. Creation of SDRs is limited by the IMF constitution to times when there is a long-term global reserve shortage. The board of governors and alternate governors is empowered to make such a determination.

LOANS TO POOR, INDEBTED COUNTRIES

The IMF has created various loan facilities such as the Trust Fund to provide loans to its poorest member countries. In addition, the IMF works cooperatively with the World Bank, other international organizations, individual countries, and private lenders to assist poor, debt-ridden countries. It encourages such countries to restructure their economies to create better economic conditions and better balance of payment conditions.

There have been critics of the IMF's effectiveness. Such critics have noted, for example, instances of massive corruption on the part of recipient governments that resulted in IMF funds being stolen and/or wasted. Also, there have been a number of instances in which IMF efforts have been assessed as unsuccessful. Recommended restrictive fiscal policies have been seen as causing troublesome conditions, such as food shortages and citizen unrest. Nobel-prize-winning economist Robert Mundell, for example, has taken the position that current IMF policy options are insufficient to achieve stable international currency exchange and thereby foster international trade. He recommends that a global currency and world central bank be created to establish a stable international currency.

see also Global Economy; International Investment; International Trade

bibliography

Ethier, Wilfred J. (1998, September). Essays in International Finance, No. 210. "The International Commercial System." Princeton, NJ: International Finance Section, Department of Economics, Princeton University.

Fischer, Stanley, Cooper, Richard, et al. (1998, May). Essays in International Finance, No. 207. "Should the IMF Pursue Capital Account Convertibility?" Princeton, NJ: International Finance Section, Department of Economics, Princeton University.

Gotherstrom, Maria (1998). "Development and Financial Structure of the International Monetary Fund." Economic Review—Sveriges Riksbank, previously Quarterly Review—Sveriges Riksbank (Stockholm) 4, 60–74.

International Monetary Fund (2005). "The IMF at a Glance." Retrieved October 26, 2005, from http://www.imf.org/external/np/exr/facts/glance.htm

Kenen, Peter B., ed. (1996, October). Essays in International Finance, No. 200. "From Halifax to Lyons: What Has Been Done About Crisis Management?" Princeton, NJ: International Finance Section, Department of Economics, Princeton University.

The Operations of the Department of the Treasury's Financial Crimes Enforcement Network: Hearing before the Subcommittee on General Oversight and Investigations of the Committee on Banking and Financial Services, U.S. House of Representatives. 1998, 105–55. Washington, DC: U.S. Government Printing Office.

"What Is the International Monetary Fund?" (2004). Retrieved October 26, 2005, from http://www.imf.org/external/pubs/ft/exrp/what.htm.

Williamson, John, and Mahar, Mary (1998, November). Essays in International Finance, No. 211. "A Survey of Financial Liberalization." Princeton, NJ: International Finance Section, Department of Economics, Princeton University.

Bernard H. Newman

International Monetary Fund

BIBLIOGRAPHY

The International Monetary Fund (IMF) originated at a United Nations (UN) conference in Bretton Woods, New Hampshire, in July 1944. The IMF is thus known as a Bretton Woods institution. The forty-five governments represented at that conference decided to build an institution to facilitate economic cooperation. They hoped the existence of such an institution would help countries avoid a recurrence of the disastrous, self-interested economic policies that led to the Great Depression that began in the United States around 1929 and spread throughout the world. The principal architects of the IMF were the British economist John Maynard Keynes (1883–1946), the author of The General Theory of Employment, Interest, and Money (1936), a work that revolutionized economic theory, and the chief international economist at the U.S. Treasury Department, Harry Dexter White (1892–1948). The IMF actually came into existence in December 1945 when the first twenty-nine countries signed its Articles of Agreement. The goals of the IMF were to encourage international monetary cooperation, remove foreign-exchange restrictions, stabilize exchange rates, and facilitate a multilateral payments system between member countries.

The IMF acts as an umpire in the international market and takes action to ensure the stability of the world’s financial system. Its main role in its first years was to supervise the newly established fixed exchange-rate system initiated in Bretton Woods. After the collapse of the fixed exchange rate in February 1973 and the adoption of flexible exchange rates, the IMF became more involved with member countries’ economic policies by providing advice. In the 1980s the IMF had to confront the problem of mounting foreign debt in developing countries. In the 1990s the IMF addressed the transition of former socialist countries to market capitalism, and more recently it had to assist countries facing currency crises.

The main goal of the IMF is to promote a healthy world economy. The organization’s responsibilities include: (1) promoting international monetary cooperation; (2) facilitating the expansion and balanced growth of international trade; (3) promoting exchange-rate stability; (4) assisting in the establishment of a multilateral system of payments; (5) fostering economic growth and high levels of employment; and (6) providing temporary financial assistance to countries experiencing balance-of-payments problems. The IMF also strives to reduce poverty in countries around the globe, independently and in collaboration with the World Bank and other international organizations.

The IMF had 184 member countries in 2007. With the exception of North Korea, Cuba, Liechtenstein, Andorra, Monaco, Tuvalu, and Nauru, all UN member states are members of the IMF or are represented by other member states. The IMF is headquartered in Washington, D.C., with an international staff of more than 2,500. As of March 2006, the IMF’s total quotas were $308 billion, with loans outstanding of $34 billion to seventy-five countries, of which $6 billion to fifty-six countries was on concessional terms.

The IMF is financed by quota subscriptions, the share of each member in the IMF’s total funds. The quota allocated to each IMF member determines that country’s voting power, the amount of gold or international currency or its own currency that the country initially subscribes, and its access to various borrowing facilities. A large quota offers an IMF member prestige and borrowing power because a large initial subscription provides liability to extend credit to countries that need to borrow. National quotas are periodically revised.

The IMF strives to prevent economic crises by encouraging countries to adopt what IMF directors perceive to be appropriate economic policies. The organization meets these objectives primarily through surveillance, technical assistance, and lending. Surveillance is the regular policy advice that the IMF offers once a year to each of its members. The fund conducts an in-depth analysis of each member country’s economic state of affairs. Members usually allow the publication of their IMF evaluation, supplying the information to the public. Technical assistance and training are offered, mostly free of charge, to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is also offered in several economic areas, including fiscal policy, monetary and exchange-rate policies, banking, financial system supervision and regulation, and statistical collection and analysis. Financial assistance is available to help member countries correct balance-of-payments problems. Countries under financial distress are required to develop a policy program supported by IMF financing, and continued financial support is conditional on the effective implementation of the program.

Major controversies surround the role and practices of the IMF in the world economy, especially concerning the conditionality of financial support, which is provided only if recipient countries implement IMF-approved economic reforms. Indeed, in a world of mostly floating exchange rates, in contrast to the fixed exchange rates in existence when the IMF was established, it is even questionable why this institution remains in existence. The IMF has received extensive criticism from people representing the entire political spectrum, including grassroots protestors and activists objecting to IMF policies in countries subjected to “structural adjustment.” Even the Austrian economist Friedrich Hayek (1899–1992) was deeply troubled by the global “statism” practiced by the IMF. IMF policies are implemented under the principle of “one-size-fits-all” (Stiglitz 2002, p. 141). Jeffrey Sachs, the economic advisor who encouraged transitioning economies to implement shock therapy programs, argued that “the International Monetary Fund’s view, all too often, is … based on a misunderstanding of what its own role should be” (1994, p. 504).

The principles behind IMF policies are based on what John Williamson (1990) referred to as the “Washington Consensus.” Washington, for Williamson, encompassed the World Bank and the U.S. Treasury, in addition to the IMF. Williamson identified ten policy instruments for which Washington-based institutions could muster a reasonable degree of consensus, and he summarized the content of the Washington Consensus as macroeconomic prudence, outward orientation, domestic liberalization, and free market policies. The Washington Consensus, as the set of economic policies implemented by the administrations of U.S. president Ronald Reagan (1911–2004) and British prime minister Margaret Thatcher, has been labeled a “neoliberal manifesto.” The program involves devaluation of the exchange rate, liberalization of markets where prices are regulated, privatization of public sector enterprises, contraction of public sector expenditure, and the implementation of restrictive monetary policy. There is an obvious hostility to inflation, which is strongly influenced by the effect of inflation on foreign investors (Payer 1974, p. 37). The IMF imposes these economic policies on countries in financial distress that request assistance through conditionality. Countries facing a crisis often have little alternative but to accept the terms stipulated by the IMF in order to receive assistance. Thus IMF financial support of a government program concurrently ensures obedient behavior (Payer 1974, p. 31).

Proponents of the IMF’s conditionality policy argue that the fund should not give money away for free. The IMF is a financial institution, and, like any financial institution, when it lends out money it requires borrowers to guarantee the loan that they have signed by accepting IMF-approved policies. Proponents insist that it is reasonable to stipulate that further financial support will only be released after the successful implementation of reforms. At the same time, it is not clear whether the policies enforced by the IMF have been successful. Lance Taylor argues that “a fair assessment would say that the outcomes of orthodox packages ranged to moderately successful to disastrous” (1988, p. 147). Nevertheless, the success or failure of IMF programs should not be measured by monetary criteria alone; qualitative criteria, such as socioeconomic improvements and social reforms, should also be considered in any evaluation of the IMF (Körner et al. 1986, p. 4).

SEE ALSO World Bank, The

BIBLIOGRAPHY

Dell, Sidney. 1986. The History of the IMF. World Development 14 (9) 1203–1212.

Keynes, John Maynard. 1936. The General Theory of Employment, Interest, and Money. London: Macmillan.

Körner, Peter, Gero Maass, Thomas Siebold, and Rainer Tetzlaff. 1986. The IMF and the Debt Crisis: A Guide to the Third World’s Dilemma. Trans. Paul Knight. London: Zed.

Payer, Cheryl. 1974. The Debt Trap: The IMF and the Third World. Harmondsworth, U.K.: Penguin.

Sachs, Jeffrey. 1994. Life in the Economic Emergency Room. In The Political Economy of Policy Reform, ed. John Williamson, 503–523. Washington, DC: Institute for International Economics.

Stiglitz, Joseph. 2002. Globalization and its Discontents. New York: Norton.

Taylor, Lance. 1988. Varieties of Stabilization Experience: Towards Sensible Macroeconomics in the Third World. New York: Oxford University Press.

Williamson, John. 1990. What Washington Means by Policy Reform. In Latin American Adjustment: How Much Has Happened? ed. John Williamson, 7–20. Washington, DC: Institute for International Economics.

Aristidis Bitzenis
John Marangos

INTERNATIONAL MONETARY FUND

The International Monetary Fund (IMF) is a specialized agency of the united nations that seeks to promote international monetary cooperation and to stimulate international trade. The IMF, which in 2003 had 184 nation-members, has worked to stabilize world currencies and to develop programs of economic adjustment for nations that require economic reform.

The IMF was created in 1944 at the United Nations Monetary and Financial Conference, held at Bretton Woods, New Hampshire. It first began operation in 1947, from its headquarters in Washington, D.C., with a fund of $9 billion in currency, of which the United States contributed almost a third. The creation of the IMF was seen as a way to prevent retaliatory currency devaluations and trade restrictions, which were seen as a major cause of the worldwide depression prior to world war ii.

Membership is open to countries willing to abide by terms established by the board of governors, which is composed of a representative from each member nation. General terms include obligations to avoid manipulating exchange rates, abstain from discriminatory currency practices, and refrain from imposing restrictions on the making of payments and currency transfers necessary to foreign trade.

The voting power of the governors is allocated according to the size of the quota of each member. The term quota refers to the IMF unit of account, which is based on each member's relative position in the world economy. This position is measured by the size of the country's economy, foreign trade, and relative importance in the international monetary system. Once a quota is set by the IMF, the country must deposit with the organization, as a subscription, an amount equal to the size of the quota. Up to three-fourths of a subscription may consist of the currency of the subscribing nation. Each subscription forms part of the reserve available to countries suffering from balance-of-payment problems.

When a member has a balance-of-payment problem, it may apply to the IMF for needed foreign currency from the reserve derived from its quota. The member may use this foreign exchange for up to five years to help solve its problems, and then return the currency to the IMF pool of resources. The IMF offers below-market rates of interest for using these funds. The member country whose currency is used receives most of the interest. A small amount goes to the IMF for operating expenses.

In its early years the IMF directed its major programs toward maintaining fixed exchange

rates linked to the U.S. dollar, which in turn could be converted at a standard rate into gold. Present IMF policy emphasizes an orderly adjustment of currency exchange rates to reflect underlying economic forces. Special attention has been given to the needs of developing countries, in the form of programs to provide long-term assistance to cover foreign exchange demands necessitated by high import prices, declining export earnings, or development programs. In appropriate circumstances the IMF may impose conditions on the use of IMF resources to encourage recipient countries to make needed economic reforms.

Since 1982 the IMF has concentrated on the problems of developing nations. It has gone beyond its own resources, encouraging additional lending from commercial banks. The IMF has also established new programs, using funds from its richer members, to provide money in larger amounts and for longer periods than those granted under the quota-driven lending procedures. It works closely with the world bank on these and other international monetary issues.

Starting in the 1990s, the IMF faced enormous economic challenges propelled by the increasing globalization of the world economy. Among the problems were the need to help a number of countries make the transition from a centrally-planned economic system to a market-oriented one, reducing turbulence in emerging financial markets such as Asia and Latin America, and promoting economic growth in the poorest nations. The IMF responded with a number of initiatives including creation of a loan fund to ensure sufficient funds to deal with major financial crises, a new approach to reducing poverty in low-income countries, and the Supplemental Reserve Facility created in 1997 specifically to help countries deal with large short-term financing needs resulting from a sudden reduction in capital outflows due to loss of market confidence.

Despite these moves, the IMF in the late 1990s and early 2000s faced an increasing volume of world-wide criticism and protest against its fiscal policies. A number of economists and other critics charged that IMF loan programs imposed on governments of developing countries resulted in severe economic pain for the populations of those countries, that IMF policies were poorly designed and often aggravated economic conditions in countries experiencing debt or currency crises, and that the IMF has forced countries to borrow foreign capital in a manner that adversely affects them.

In 2000, the managing director and members of the IMF agreed on several governing principles including the promotion of sustained non-inflationary economic growth, encouraging the stability of the international finance system, focusing on core macroeconomic and financial areas and being an open institution that learns from experience and continually adapts to changing circumstances.

further readings

International Monetary Fund. Available online at <www.imf.org> (accessed July 27, 2003).

Rogoff, Kenneth. 2003. "The IMF Strikes Back." Foreign Policy (January 1).

cross-references

International Law; United Nations; World Bank.

INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND (IMF), created at the Bretton Woods Conference in 1944, began operations on 1 March 1947.It had its inception on 1 July 1944, when delegates of forty-four nations met at Bretton Woods, New Hampshire, and proposed two associated financial institutions—the IMF, with $8 billion capital, and the International Bank for Reconstruction and Development. A recurrence of the restrictive trade policies, exchange instability, and international lending abuses that had characterized the interwar era was feared. After World War I, nations had sought monetary stability by returning to the gold standard, but in many instances the gold standard took the form of a weak version of the gold exchange standard. Its breakdown contributed to the 1929–1936 economic debacle.

The IMF's original purpose was to support world trade by reestablishing a stable international system. To this end, it was given the mandate to monitor the exchange rate policies of member countries and provide short-term loans in case of balance of payments problems.

Since the IMF and member nations accepted the dollar as equal to gold, the growing number of dollars in their central bank reserves, especially after 1958 and in turn the consequence of chronic U.S. government deficits, stimulated worldwide inflation. The gold exchange standard broke down in 1968–1971, notably after the United States ceased redeeming dollars in gold on 15 August 1971, thereby severely damaging the prestige of the IMF.

With the collapse of fixed exchange rates in 1973, the dominant role of the IMF was to provide financial support for member countries. As of 1993, it had 178 members and had become a major financial intermediary. Its involvement is virtually required before international bankers will agree to refinance or defer loans for Third World countries. The IMF was also instrumental in providing funds for the emerging market economies in eastern Europe following the breakup of the Soviet Union in 1991. The fund also provides information to the public, and technical assistance to governments of developing countries.

The IMF can make loans to member countries through standby arrangements. Depending on the size of the loan, the fund imposes certain conditions. Known as IMF conditionality, these measures often interfere with the sovereignty of member countries with regard to economic policy. IMF conditions can require devaluation of currencies, removal of government subsidies, cuts in social services, control over wages, trade liberalization, and pressure to pursue free-market policies. IMF conditionality has been criticized as being too severe, imposing hardship on debtor countries. Because IMF policies are imposed by an international agency consisting of industrialized countries, they give the appearance of maintaining the dependency of the Third World.

Critics point out that balance-of-payment problems in the Third World are often structural and long term, with the result that short-term stabilization by the IMF may lead to long-run development problems. Access of member countries to the fund's assets is determined by quota. Each member receives a quota based on the size of its economy. The quotas are defined in terms of Special Drawing Rights (SDRs), reserve assets created by the IMF to supplement world reserves. The value of SDRs for member nations requesting loans is determined by an IMF accounting system based on a weighted average of major economic powers' currencies.

BIBLIOGRAPHY

Aufricht, Hans. The International Monetary Fund: Legal Bases, Structure, Functions. New York: F. A. Praeger, 1964.

Horsefield, J. Keith, ed. The International Monetary Fund, 1945–65: Twenty Years of International Monetary Cooperation. Washington, D.C.: International Monetary Fund, 1969.

International Monetary Fund. "Supplement on the IMF." IMF Survey 22 (October 1993): 1–28.

Salda, Anne C. M. The International Monetary Fund. New Brunswick, N.J.: Transaction, 1992.

Marie D.Connolly

Donald L.Kemmerer/a. g.

See alsoBanking ; Banks, Export-Import ; Bretton Woods Conference ; Corporations ; Dumbarton Oaks Conference ; Foreign Aid .

INTERNATIONAL MONETARY FUND

An international institution charged with maintaining international monetary stability.

The International Monetary Fund (IMF) is an international organization that provides temporary financial assistance to any of its 184 member countries in order to correct their payment imbalances. The IMF was established during the conference at Bretton Woods, New Hampshire, in 1944 because the Allies wanted to avoid the competitive currency devaluations, exchange controls, and bilateral agreements that the world had witnessed prior to World War II. The IMF's main goal was to promote stable currencies in order to enhance international commerce.

Originally, the IMF's position was that restoring payments equilibrium could be achieved within a year by eliminating excess demand. It was not until 1974 that the IMF established the external fund facility to provide its members with up to three years of financial assistance and also introduced a long-term approach, termed the enhanced structural adjustment facility. In exchange for this financing, the IMF demands that borrowers make fundamental changes in their economies to prevent future balance of payments problems. These changes range from stabilization of the exchange rate and of government deficits to structural adjustment of the economy through privatization of state enterprises and liberalization of trade.

By article IV of its charter, the IMF was given the right to monitor on a yearly basis the exchange rate, monetary and fiscal policies, structural policies, and financial and banking policies of every member. It has been heavily involved in many Middle Eastern countries. It has been involved in Egypt and other North African countries since the 1970s. It became involved in Lebanon during the 1990s and finally in Sudan and Yemen through its Heavily Indebted Poor Countries Initiative (HIPC). One Middle Eastern country, Saudi Arabia, enjoys a permanent voting position on the IMF board of governors.

see also economics.

Bibliography

Spero, Joan. The Politics of International Economic Relations. London: Allen and Unwin, 1978.

Vreeland, James. The IMF and Economic Development. Cambridge, U.K.: Cambridge University Press, 2003.

david waldner
updated by khalil gebara

International Monetary Fund (IMF), specialized agency of the United Nations, established in 1945. It was planned at the Bretton Woods Conference (1944), and its headquarters are in Washington, D.C. There is close collaboration between it and the International Bank for Reconstruction and Development . Its primary mission is to ensure stability in the international monetary system. The IMF provides policy advice and financing to member countries with economic problems. The organization, using a fund subscribed by the member nations, purchases foreign currencies on application from its members so as to discharge international indebtedness and stabilize exchange rates. The IMF currency reserve units are called Special Drawing Rights (SDRs); from 1974 to 1980 the value of SDRs was based on the currencies of 16 leading trading nations. Since 1980 it has been reevaluated every five years and based on the relative international economic importance of the British pound sterling, the European Union euro (formerly the French franc and German mark), the Japanese yen, and the U.S. dollar. To facilitate international trade and reduce inequities in exchange, the fund has limited power to set the par value of currencies. Members are provided with technical assistance in making monetary transactions.

In 1995 the fund moved to increase disclosure requirements of countries borrowing money and at the same time created an emergency bailout fund for countries in financial crisis. IMF was criticized in 1998 for exacerbating the Asian financial crisis, through the fund's decision to require Asian nations to raise their interest rates to record levels. During the international financial crisis of the early 21st cent., the IMF provided loans and access to credit of more than $100 billion to developing countries that were affected by falling demand for their exports and other financial problems. The fund is ruled by a board of governors, with one representative from each nation. The board of governors elects an executive board of 24 representatives to direct regular operations; the executive board selects and is chaired by the managing director, who also heads the IMF's staff. There are 187 members in the IMF.

Bibliography: See studies by H. G. Grubel (1970), T. Agmon et al., ed. (1984); R. D. Hormats (1987), T. Ferguson (1988), E. P. McLellan, ed. (2002), D. Vines and C. L. Gilbert, ed. (2004), E. M. Truman, ed. (2006), and G. Bird (2003) and as ed. with D. Rowlands (2 vol., 2007).

International Monetary Fund (IMF) An international organization established in 1947 to enhance stability and convertibility in the international monetary system. The Fund assists any member experiencing short-term balance of payments difficulties by supplying the amount of foreign currency it wishes to purchase in exchange for the equivalent amount of its own currency. The member repays this amount by buying back its own currency in a currency acceptable to the Fund, usually within three to five years. High levels of borrowing are conditional on the implementation of IMF suggested policies for a country. The Fund is financed by subscriptions from its members, the amount determined by an estimate of their means. Voting power is related to the amount of the subscription. The head office of the IMF is in Washington. See also conditionality.

International Monetary Fund (IMF) Specialized, intergovernmental agency of the United Nations (UN), and administrative body of the international monetary system. Established by the Bretton Woods Conference (1944), its main function is to provide assistance to member states troubled by balance of payments problems and other financial difficulties. The IMF does not actually lend money to member states; rather, it exchanges the member state's currency with its own Special Drawing Rates (SDR) (a ‘basket’ of other currencies) in the hope that this will alleviate balance of payment difficulties. These exchanges are usually conditional upon the recipient country agreeing to pursue prescribed policy reforms. The organization is based in Washington, D.C.

http://www.imf.org

International Monetary Fund, see Bretton Woods conference.

International Monetary Fund, see IMF