Bretton Woods Project - Critical voices on the World Bank and IMF

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IMF—International Monetary Fund

The IMF, an international organisation with 184 member countries, was established in 1944 to promote international monetary cooperation, exchange rate stability, and orderly exchange arrangements; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Based in Washington D.C. the managing director (traditionally a European national) is Dominique Strauss Kahn; the Fund currently has 2,693 staff from 141 countries; and 75 countries owe the Fund around $34 billion. Its operations include surveillance (of member countries economies and the global economy), technical assistance and financial support. The latter is provided in the form of loans to which conditions are attached.

The nature of the financial and organisational relationship a member state has with the IMF is determined by its quota, which is set when the country joins the Fund. The quotas are assigned as SDRs, the unit of account at the IMF, and are determined using a formula which takes into account the size and characteristics of a country's economy. The amount the member contributes, can potentially borrow and the number of votes allocated to it are determined by the quota.

The USA has the largest quota which affords their representative 16.83 per cent of the total votes - as a majority vote of 85 per cent is required to make some decisions (including changes to voting rules) the USA has veto over some types of IMF decision; the 25 EU member states have 31.4 per cent of votes (France, Germany and the UK have a combined vote of 15.64 per cent giving veto power over some decisions); by comparison the combined vote of the 47 African Nations is just above 6 per cent.


The IMF lends to member states which enter into balance of payment difficulties i.e. the country cannot reasonably finance its international debt payments. The profile of IMF lending, over time, varies sharply. Due to the nature of the reason for loans the highest volume has been during times of international financial instability, for example: the oil price shocks that occurred in the 1970s; the debt crisis of the 1980s; the economic transition of the former socialist countries, in central and eastern Europe and central Asia, in the early 1990s; or the wave of exchange rate and financial crisis in the second half of the same decade.

The process of lending involves the drafting of a "letter of intent" by a country's government in conjunction with the IMF - the letter of intent must then be accepted by the IMF's executive board. The letter contains the economic policy and structural adjustment conditions a country's government has agreed to fulfil in order to obtain the loan. As the Fund sometimes acts as a lender of last resort in crisis situations, governments are often not in a position to decline or negotiate conditions. Conditions attached to loans have been criticised as being too specific in their requirements, not tailored specifically to a country's needs and often damaging to governments' social programmes which impact the poorest in society most.

There are a number of 'instruments' through which countries can borrow money, they include the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shock Facility (ESF), which make loans available to low-income member states at a concessional rate of interest. PRGFs were established in 1999 to replace Enhanced Structural Adjustment Facilities (ESAFs) with the official aim of making poverty and growth more central to the Fund's lending. ESAFs had been criticised for their restrictive conditionality and detrimental effect on poverty; however PRGFs have come under similar criticism for imposing strict conditions especially in the area of public expenditure.

The ESF provides loans at short notice for countries to solve balance of payments or other macro-economic problems caused by external shocks to the economy, for instance, a sudden rise in the oil price. Poor countries are often severely effected by external shocks and protection mechanisms, such as building up foreign exchange reserves, are often unavailable to these countries.

Other lending instruments include: Stand-By Arrangements (SBA); the Extended Fund Facility (EFF); the Supplemental Reserve Facility (SRF); and the Compensatory Financing Facility (CFF). Loans via these instruments are made at non-concessional rates. The price, known as "the rate of charge," determined by the Special Drawing Right (SDR) interest rate which is adjusted on a weekly basis to account for fluctuations in international money markets.


Surveillance can otherwise be described as monitoring and consultation and its aim is to monitor world economic developments while encouraging international dialogue over the effects of member states' domestic economic policy. The IMF periodically undertakes Article IV consultation reports for individual member state assessing strengths and weaknesses of their financial systems. Global and regional surveillance results are published in to biannual publications the World Economic Outlook and Global Financial Stability Report - the former is a more general overview of the world economy, the latter focuses on the financial sector and capital markets.

Technical Assistance

The third component of IMF activities is technical assistance which any member state can obtain free of charge. Around three quarters of technical assistance goes to low or low-middle income countries and there is a high level of activity in post-conflict countries such as Iraq, Afghanistan and the Democratic Republic of Congo. The Fund provides technical assistance in many areas including, but not exclusively, macroeconomic, fiscal (government spending and taxation) and monetary policy; exchange rates; and financial and macroeconomic statistics.

Published: Saturday 27th May 2006, last edited: Friday 28th May 2010

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