The International Monetary Fund
1. Role and functioning of the IMF
1.1. The role of the IMF
The IMF was created in 1944 in Bretton Woods at the same time as the World Bank. It has 186 member countries, i.e. virtually all UN Member States, except Cuba, North Korea and some micro-States. Its primary role is to ensure stability of the global financial and monetary system. The IMF, created with the objective of regulating the fixed exchange rate system and putting an end to frequent devaluations, has seen its role evolve significantly as from 1973 with the flexible exchange rate system. It then became an instrument of financial regulation and assistance to developing countries facing balance of payments difficulties.
Today the IMF has four main roles:
1.2. Its structure
The IMF’s structure is based on a system combining the representation of each country or countries grouped into constituencies and a weighting of votes in Councils, calculated on the basis of each country’s quota. In fact, the quota of each member state determines the minimum amount of financial resources that the country undertakes to provide to the IMF and the number of votes it is allocated, thereby also determining the amount of financial assistance that it can obtain. Unlike other institutions, such as the UN or the WTO, the IMF does not offer equal votes to the 186 Member States. A quota is allocated to each country based on its relative importance in the global economy. The fund is governed by two main bodies:
The Board of Governors, a formal body, the members of which are generally Ministers of Finance or Governors of Central Banks, which meets once a year;
The Board of Directors, which is the standing decision-making body. It is made up of 24 Executive Directors appointed or elected by Member States and meets at the headquarters in Washington. Since the creation of the IMF, there are five Executive Directors appointed directly by their country (United States, Japan, Germany, France and United-Kingdom). Russia, China and Saudi Arabia have also got their own Executive Director since. All other Member States must be grouped into one of the 16 groups of countries represented by one Executive Director. Decisions are usually taken by consensus.
Finally, the Managing Director (since 2007 Dominique Strauss-Kahn, a French national) chosen from amongst the Executive Directors, chairs their meetings and manages day to day matters based on the Executive Directors’ instructions. He is the chief of the operating staff of the Fund, composed of 2 600 persons and representing 140 nationalities.
1.3. The IMF’s resources
The IMF’s resources come mainly of the quota contributed by each of its members. The IMF may also borrow from its members, in particular through loan agreements (see below). The IMF also receives interests on loans that it grants, which is used to finance its operating costs.
2. The financial crisis has given the IMF a major role in global economic governance
Structural adjustment plans imposed by the IMF in the 1980’s on developing countries (as part of what is know as the “Washington Consensus”) and its questionable management of the Asian crisis of 1997-1998 have sometimes raised questions about the legitimacy and effectiveness of IMF policies.
However, the current economic crisis and the need to respond to systemic global financial risks have led G20 leaders who met in London and then in Pittsburg to significantly enhance the IMF’s capacity for intervention and make its reform one of the key factors in the redefinition of global economic governance.
2.1 Resources and instruments
The G20 summit in London decided on a three-fold increase in the IMF’s resources to 750 billion Dollars, mainly via loan agreements. The European Union has contributed €75bn ($100bn) and France €11bn ($15bn) of these $500bn. France has urged its European partners to agree to a new increase in Europe’s contribution to the IMF, announced at the informal Ecofin of 2 September, to $175bn (instead of $100bn). Moreover, we will continue to call for the maximum number of countries to contribute to the increase in the IMF’s concessional resources.
A special allocation of $250bn of special drawing rights was decided in London, of which $110bn for emerging and developing countries. The allocation, effective since 23 August, was complemented by an additional allocation of $33bn on 9 September.
The IMF has also undertaken an in-depth reform of its instruments, with, since the beginning of 2009:
2.2 Continued reform of the institution’s governance
Following the quotas and representation reform of April 2008, it was decided in Pittsburgh to transfer quotas by January 2011 to emerging and dynamic developing countries by at least 5% from over-represented countries to under-represented countries, and, as regards the World Bank, to significantly increase by at least 3% the voting rights of developing and transition countries, to under-represented countries, as from April 2010.
Updated on 16.11.10