International Monetary Fund Essay

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The International Monetary Fund (IMF) is a multilateral financial organization that provides short-term loans to governments, promotes free trade and fiscal austerity policies, and collects financial data on the world economy. Its 186 member states agree to follow fiscal and monetary policies conducive to international financial stability and to allow IMF supervision of their national policy regimes. IMF loans typically carry policy conditions such as reductions in government spending, lower trade barriers, elimination of subsidies, and higher interest rates. Critics have charged that these policies hurt the poor and protect the interests of western financial institutions at the expense of impoverished nations.

The IMF originated in the 1944 conference at Bretton Woods, New Hampshire, convened to stabilize the world s economy following the end of World War II. It was created to monitor an international monetary system of fixed exchange rates and to provide a reserve fund for countries having short-term balance of payments problems. In the early years of the IMF, 75 percent of its loans or drawings were made to European countries recovering from the devastation of World War II. The rise of oil prices in the 1970s led to a dramatic increase in loans to developing countries. To address the ballooning debt burden of low-income nations, the IMF introduced the Structural Adjustment Facility in 1986. Funding was contingent on policy conditions such as reducing government subsidies for food and fuel, cutting back on social services such as education and health care, and reducing tariff barriers. The IMF instituted these policy conditions in concert with the World Bank and the US Treasury. Because these three institutions were all headquartered in Washington, DC, structural adjustment policies became known as the Washington Consensus. The USA has the most influence in shaping IMF policies since voting is weighted by the size of a member state s quota or subscription required for membership. The USA has the largest quota and an effective veto on decisions of the IMF s Board of Executive Directors.

The IMF has three main loan categories. ”Standby loans involve large amounts of quick money for member states undergoing a capital crisis and carry short maturities, typically one to five years. The Extended Loan Facility with maturities of eight to ten years is for states with longer-term financial problems. The third loan category is concessional loans at very low rates of interest (0.5 percent) and terms of ten years. These loans are reserved for the poorest member states facing protracted balance of payments problems.

Given its global influence and financial power, the IMF has been the target of much criticism, mostly concerning policy conditions required for loans. Critics have charged that the IMF ignores the social and political costs of policy conditions that amount to economic shock treatment. A number of massive protests have erupted after governments agreed to IMF conditions. The most serious confrontation was in Indonesia in 1998 when its government cut subsidies on petroleum and food in exchange for a $40 billion bailout. Riots targeted the wealthy minority Chinese Indonesians and 12,000 people were killed. Despite widespread criticism, the IMF holds to an economic orthodoxy of privatization, reduced government spending, lower tariffs, and increased foreign investment with no consideration of alternative routes to economic development. A better approach would be to use IMF influence to persuade banks to forgive loans and give low-income countries a fresh start.


  1. IMF (2006) What is the International Monetary Fund? IMF, Washington, DC.
  2. Peet, R. (2003) Unholy Trinity: The IMF, World Bank and WTO. Zed: New York.
  3. Woods, N. (2006) The Globalizers: The IMF, the World Bank, and Their Borrowers. Cornell University Press, Ithaca, NY.

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