Established following World War II to help with post-war recovery, the International Monetary Fund (IMF) serves as a lender to modern governments and an overseer of international financial markets. It has no shortage of both supporters and critics.
- The International Monetary Fund (IMF) is an international organization that represents 190 member countries.
- It seeks to promote economic growth and financial stability and plays a key role in helping turn around struggling economies.
- Monetary support includes financial loans, but the organization also provides technical assistance.
- Critics of the IMF maintain that it intervenes either too much or too little and that its policies can create moral hazard.
International Monetary Fund: An Overview
In its infancy, the IMF was only responsible for supervising pegged exchange rates, part of the Bretton Woods dollar-gold reserve currency scheme.
The IMF grew in scope and influence in subsequent decades, particularly after the collapse of the Bretton Woods system in the 1970s.Now the IMF provides loans to help member nations fixperceived balance of paymentsproblems and fight off crises. The most notable example was the bailout of the Greek government in 2011.
As of 2021, the IMF has 190member nations. Each member nation publicly accepts and supports the goal of global economic stability and, in theory, a subjugation of some sovereign authority to support that goal.The IMF is funded mainly through what are called "quota contributions" from its members. Each IMF member nation is assigned an annual quota amount, based on the size of its economy when it joins the IMF.The IMF also has substantial gold holdings that it can sell andis authorized to borrow up to an amount approximately equal to its annual quota contributions.
IMF supporters claim it is a necessary lender of last resort for areas in crisis andit can impose necessary or difficult reforms on backward economies. Critics counterthe IMF supersedes national autonomy, exacerbates economic problems more often than not, and serves as a tool forthe wealthiest nations only.
Economists also frequently criticize the IMF for creating a moral hazard on national scales.
Advantages of the International Monetary Fund
The IMF assists member nations in several different capacities.
Provides Loans to Member Nations
Its most important function is its ability to provide loans to member nations in need of a bailout. The IMF can attach conditions to these loans, including prescribed economic policies, towhich borrowing governments must comply.
Fills Deficit Gaps
If a country has a balance of payments deficit, the IMF can step in to fill the gap.
Technical Support and Assistance
It serves as a council and adviser to countries attempting a new economic policy. It also publishes papers on new economic topics.
Skeptics maintain that a country in a financial crisis might ask the IMF for a bailout, but it's unclear whether the country is in crisis because it made poor policy decisions knowing that IMF aid would serve as a backstop.
Disadvantages of the International Monetary Fund
Despite its lofty status and commendable objectives, the IMF is attempting to pull off a nearly impossible economic feat: perfectly timing and sizing economic intervention on an international scale. It suffers criticism for the following:
Too Much or Too Little Intervention
The IMF has been criticized for not doing much and for overreaching. It has been criticized for being too slow or too eager to assist failing national policies. Since the United States, Japan, and Great Britain feature prominently in IMF policies, it has been accused of being a tool for free-market countries only. Simultaneously, free-market supporters criticize the IMF for being too interventionist.
Creates Moral Hazard
Some member nations, such as Italy and Greece, have been accused of pursuing unsustainable budgets because they believed the world community, led by the IMF, would come to their rescue. This is no different than the moral hazard created by government bailouts of major banks.
Criticisms of the IMF include. On giving loans to countries, the IMF make the loan conditional on the implementation of certain economic policies. These policies tend to involve: Reducing government borrowing – Higher taxes and lower spending.What are 2 Challenges of the International Monetary Fund? ›
The major challenges faced by IMF include its governance structure, increasing level of politicisation, leadership challenges, performance evaluation difficulties, and dealing with social instability.What happens when a country goes to IMF? ›
When a country borrows from the IMF, its government agrees to adjust its economic policies to overcome the problems that led it to seek financial aid. These policy adjustments are conditions for IMF loans and serve to ensure that the country will be able to repay the IMF.What are five advantages and five disadvantages of international trade? ›
- Advantages of specialization and division of labour.
- Availability and cheapness of commodities.
- Large scale production.
- Creation of industrial society.
- Stabilization of internal price.
- Availability of commodities whose costs of production are high.
- Improvement in transport.
The IMF employs three main functions – surveillance, financial assistance, and technical assistance – to promote the stability of the international monetary and financial system.Does IMF help poor countries? ›
The IMF provides broad support to low-income countries (LICs) through surveillance and capacity-building activities, as well as concessional financial support to help them achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.What is the impact of IMF programs on poverty? ›
Our findings suggest that, in general, IMF programs have not significantly increased poverty and income inequality; in some instances they are associated with reduced poverty and income inequality. Moreover, we find little evidence that IMF programs lead to severe cuts in social expenditure.Why has the IMF been criticized? ›
The IMF has drawn vocal criticism over the years. In his 2002 book, Globalization and Its Discontents, Nobel Prize–winning economist Joseph Stiglitz denounced the fund as a primary culprit in the failed development policies implemented in some of the world's poorest countries.How does IMF help developing countries? ›
The IMF provides broad support to low-income countries (LICs) through surveillance and capacity-building activities, as well as concessional financial support to help them achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.What is the purpose of the International Monetary Fund and the World Bank? ›
The World Bank Group works with developing countries to reduce poverty and increase shared prosperity, while the International Monetary Fund serves to stabilize the international monetary system and acts as a monitor of the world's currencies.
What goals does the International Monetary Fund serve today? It promotes the structural readjustment of some economies. It facilitates international monetary exchange.Does the IMF give money to individuals? ›
The Grant Review Committee meets during February-March and final decisions are communicated to applicants in April. The average grant is US $15,000.