International Monetary Fund (IMF) refers to a United Nations agency that seeks to promote trade by increasing the exchange stability of the major currencies. Formed on 27 December 1945, the agency has a membership of 189 countries and has its headquarters in Washington, D.C. The decision to create the organization was passed during the United Nations conference in Bretton Woods, New Hampshire, United States in 1994 (Fritz-Krockow & Parmeshwar 21).
The IMF initially started with 29 members who shared a common vision of reorienting the payment system used in international trade in a bid to promote sustainable economic development across the world. This objective was developed following the great depression of the 1930s that came about due to high devaluations within major economies (Boughton 7). The members established the need to stabilize the international monetary system in a manner that would allow for easy transactions between different countries.
The members often make monetary contributions using a quota system that allows those with problems relating to balance of payments to ask for money to cover the deficits (Myers 149). Currently, the members have made contributions of more than $ 320 billion into the fund. The fund has been a major contributing factor to the speedy growth of its member economies, because it helps them in completing crucial processes such as market analysis, surveillance, and development of economic policies (Fritz-Krockow & Parmeshwar 28).
The executive board of the IMF constitutes of 24 directors that represent either a single country or a group of countries depending on the factors that bring them together. The organization has a workforce of approximately 2,600 employees that are drawn from 147 countries (Myers 155). Some of the members that have the highest amounts of outstanding loans since the inception of the IMF include Portugal, Greece, Ireland, and Ukraine.
The biggest amounts of precautionary loans have been given to countries Mexico, Poland, Columbia, and Morocco. One of the biggest services that the IMF offers to its members is economic surveillance and technical assistance (Boughton 10). In offered 122 and 129 surveillance consultations in 2013 and 2014 respectively. One of the most impressive elements about the IMF is its governance structure.
Over the last six decades, the IMF has experienced a number of changes that have cemented its role of regulating the global monetary system. The concept of country representation also applies differently at IMF compared to the United Nations general assembly (Fritz-Krockow & Parmeshwar 37). Country representatives make their decisions depending on the current state of their economies. The IMF holds accountability in high esteem because it has an ethical responsibility to use the money contributed by its members as per the agreed terms. The agency is accountable to all the 189 members (Myers 162).
Corporate responsibility is another element that characterizes the governance system at the IMF. It is actively involved in promoting better governance within its structures, as well as among its members who struggle with issues such as developing effective policies (Boughton 11).
The IMF has a rich history with regard to the emergence and development of several economies around the world, especially following the conclusion of World War II. It participated a lot in the reconstruction of economies after the war through its mandate to regulate the global monetary system (Raymond 32).
It encouraged countries to remove any obstacles that could hold back the development of international trade. Another major contribution that the IMF has made in the development of global economies was its role in the conclusion of the Bretton Woods System that was characterized by fixed exchange rates. The system led to the financial shocks that hit the oil industry from 1973 to 1979 and the IMF had to intervene in a bid to address the impacts (Raymond 47).
One of the major impacts of the oil shocks was a huge debt crisis that hit several countries that were involved in the trade at the time. The IMF also played a major role in influencing societal change following the end of the Soviet Union in a bid to promote market oriented economic systems. The Asian upheaval also benefited a lot from the input of the IMF (Fritz-Krockow & Parmeshwar 60). In the recent past, the IMF has been very active in dealing with the consequences of globalization and the financial crisis. It has identified the bulging global credit crisis, as well as the escalating prices of oil and food commodities as some of the major challenges they are likely to encounter in the near future (Boughton 16).
Functions of the IMF
The creation of the IMF was regarded as one of the most crucial steps taken in the quest to promote the cooperation between global economies. Over the years, the functions of the IMF have increased owing to the growth of various global economies. One of the major functions of the agency is promoting the stability of the global exchange rate and payment system (Boughton 21). At the time when the IMF was being formed, many economies around the world were suffering from huge debts and a high rate of stagnation. It is the objective of the IMF to eliminate or reduce exchange controls in the economic policies of its members. This ensures the ease of conducting international business transactions between member countries because the number of requirements will be fewer (Copelovitch 101).
The IMF also holds the function of establishing and maintaining the ability of its members to convert their currencies with ease and at good rates. This function also plays a crucial role in promoting economic growth among its members because the process of transacting and making payments becomes very easy. The IMF is also involved in helping its members to make the necessary structural adjustments to their economies (Copelovitch 129). Some of the conditions that the countries ought to meet before benefiting from the service include devaluation of its currency, balancing of its national budgets, eliminating price controls, reducing expenditure, and promoting the rights of foreign investors among others (Fritz-Krockow & Parmeshwar 109).
Another function of the IMF is promoting the extension of trade and payment partnerships among its members. This element seeks to help countries compliment their strengths with the inputs that other countries can make into their economies through a standardized payment system (Machlup 260). The advantage of such a development is a reduction on the cost of doing business, as well as an avenue for creating more job opportunities.
The IMF also offers short-term, medium-term, and long-term credit to its members. During the formation of the IMF, the initial members agreed to be making monetary contributions through a quota system with an intention of creating a fund that would give credit to its members in case of an emergency or crisis that needed urgent funding (Raymond 78). Currently, the agency has more than $ 300 billion that its members can borrow. Most of this money comes from the contributions made by members when they joined the agency, interests from loans, as well as the usual yearly contributions by members. Another major function of the IMF is providing economic training to its members (Fritz-Krockow & Parmeshwar 124).
Over the years, the agency has conducted several studies and conferences geared towards helping its member countries achieve sustainable economic development. The outcomes of these events are documented in its numerous reports that offer their findings and recommendations that countries can apply to effectively, promote the growth of their respective economies (Machlup 269).
The IMF has been in existence for more than seven decades. One of the major events that contributed to its formation was the Great Depression, which raised an alarm over the urgent need for a regulated global monetary system that would encourage cooperation between countries in a bid to promote economic growth. Over the years, it has played a very crucial role in promoting sustainable economic development and good governance among its 189 members across the world.
Some of the major functions of the agency include stabilizing the global monetary system, promoting financial stability, enhancing international trade, identifying investment opportunities within the economies of its members, as well as poverty eradication across the world. The main objectives of creating the IMF include promoting international monetary cooperation, facilitating the expansion of international trade in a balanced manner, stabilizing the exchange system, assisting in the establishment of a multilateral system of payments, as well as providing financial assistance to member countries with difficulties in balancing their payments.
Boughton, James. The IMF and the Force of History: Ten Events and Ten Ideas that have shaped the Institution. Washington: International Monetary Fund, 2004. Print.
Copelovitch, Mark. The International Monetary Fund in the Global Economy: Banks, Bonds, and Bailouts. Boston: Cambridge University Press, 2010. Print.
Fritz-Krockow, Bernhard, & Parmeshwar, Ramlogan. International Monetary Fund Handbook: Its Functions, Policies, and Operations. Washington: International Monetary Fund, 2007. Print.
Machlup, Fritz. International Monetary Fund. New York: Routledge, 2013. Print.
Myers, Robert. The Political Morality of the International Monetary Fund. California: Transaction Publishers, 2011. Print.
Raymond, James. The IMF and Economic Development. Boston: Cambridge University Press, 2003. Print.