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What is the IMF?

Mary McMahon
By
Updated Feb 15, 2024
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The International Monetary Fund (IMF) is an international organization headquartered in the United States which promotes the maintenance of a healthy global economy. There are 185 member nations in the IMF, which means that almost every country in the world is in the IMF, and the handful of countries which do not belong are usually represented indirectly. In the course of its daily operations, the IMF works closely with the International Bank for Reconstruction and Development, more commonly known as the World Bank.

Groundwork for the establishment of the IMF was laid at the Bretton Woods conference in 1944. The nations at the conference agreed that a rapid plan needed to be put into action to promote economic recovery in the wake of the Second World War. The goal was to make funds readily available for reconstruction and the rebuilding of key economies which had been devastated by the war, and from there, the IMF naturally expanded to an organization with international scope.

One of the key roles of the IMF in the global economy is as a lender to nations which are struggling economically. The IMF makes loans with funds invested by its member nations. The Fund also facilitates the smooth exchange of currency worldwide, and promotes international trade while keeping an eye on the health of the international economy and holding regular meetings for its member nations to discuss issues of importance.

Each member nation in the IMF is given a quota based on factors like the strength of its economy and the stability of its government. The quota determines the clout the member nation has in the IMF, and the amount of money which the nation may borrow. Each country is also assigned a number of Special Drawing Rights (SDRs) on the basis of its quota. SDRs allow member nations to draw on the IMF's currency reserve, and they are routinely used in international accounting. In fact, SDRs sometimes come very close to an international currency.

The work of the IMF is sometimes criticized by people who are concerned about developing nations. IMF loans usually come with terms known as conditionalities which some people feel are exploitative or unproductive. Conditionalities may place what is perceived as an unfair burden on the beneficiaries of IMF loans, or they may dictate national policy in a way which does not always benefit the population. Most notably, the IMF usually mandates Structural Adjustment programs which force its beneficiaries to open to free trade, sometimes at terms which are not very favorable.

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Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By yasirjawed93 — On Oct 29, 2013

I want to ask how the IMF terms, like in order to ensure the timely payment of the loan or any other, affects the currency of the country?

By ysmina — On Aug 07, 2011

@MrMoody- I don't think that anyone can deny that the IMF has helped many developing countries and even developed countries during financial crises. The issue is not even that the IMF lends money rather than providing financial aid to these countries for free in times of need. I think that this is actually a good thing because every country needs to be accountable for what it receives and it needs to learn to make wise decisions. Giving them money without expecting it back would be a mistake.

I think the issue is that the IMF also requires certain national policy changes from the country that it lends to, in addition to getting that money back. So the IMF might agree to lend a certain amount to a country with an economy in disaster but require that it privatize a certain percentage of its assets in that time frame.

The problem with this is that each country is different and is facing different problems. I think that the IMF puts in place very strict, social and economic policy requirements that might do these countries more harm in the long term than good. It also does this in a way that gives these countries little say because they are so desperate for the money. I think that this is the real issue with the IMF.

By MrMoody — On Aug 07, 2011

@miriam98 - The IMF is like the United Nations. Its collective power is only as good as the combined contributions of its member nations, so I don’t think you need to treat like some behemoth that is trying to swallow up the world.

I, for one, am grateful that the IMF is able to step in and help member nations that need the help. Let’s not forget that the IMF doesn’t create money out of thin air.

It gets that money from its member nations, so I think that they hold some clout as well. If everyone stopped contributing, the IMF and World Bank would fall flat on their faces.

By miriam98 — On Aug 06, 2011

I think that the IMF and the World Bank have got to be some of the most powerful organizations in the whole world, even more powerful than the United Nations.

The IMF has stepped in on numerous occasions to help countries that were about to default or were in a major financial crisis. While that is good in one sense, it does give that organization an enormous amount of clout.

I am not, like some, a conspiracy theorist, but I do fall into the camp of those people who believe that these organizations are too powerful. At the very minimum, their power should be curtailed by stripping them of their ability to impose certain conditions on loans they give out.

For example, they cannot impose conditions that contradict a nation’s sovereignty. I am one of those people who still believe in national sovereignty; a nation has a right to uphold its own laws.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
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