Q&A: What does the International Monetary Fund do?

The International Monetary Fund, or IMF, played a key role in the financial crisis, but what does it actually do?

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by Chris Marshall on Aug 27, 2010 at 00:01

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The International Monetary Fund, or IMF, played a key role in the financial crisis, but what does it actually do?

What is the IMF?

Founded after the Second World War, the IMF is a global organisation which seeks to maintain stability in the financial system. It has 187 member countries, each of which pay a quota for the privilege. The size of this fee depends on the size of the economy of the member, with the US the biggest contributor – a levy which allows it nearly 17% of voting power.

In return, members can call on financing if they fall into financial difficulties – it’s like a huge credit union. One such example during the recent crisis was indebted Greece which received a three year 30 billion euro loan from the fund.

What else does it do?

In addition to its core lending role, the IMF has several other jobs.

It tracks global economic growth, producing a Global Financial Stability Report and economic outlooks. It uses these to publish forecasts about economic growth, and also to call on members to make what it believes are the necessary policy changes, such as in its last report when it urged members to cut their budget deficits.

This leads us onto its next role - consulting with member countries and providing them with macroeconomic and financial policy advice.

The fund works to cut poverty, part of which involves providing guidance and training to low- and middle-income countries to help them effectively manage their economies.

What did it do during the crisis?

Prior to the crisis, detractors claimed the fund’s role both as a lender and observer was becoming irrelevant, and it took the credit crisis to bring it back to the fore.

Managing director Dominique Strauss-Kahn moved fast during the crisis, recommending that countries undergo economic stimulus programmes as early as 2008.

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2 comments so far. Why not have your say?

Doesn't it lend money to desperate countries that can never pay off the debt, but will keep having to pay the interest ad infinitum? Maybe that was another organisation? So the IMF just happily gave away 30 Billion to Greece, doesn't this seem like either a reckless, deperate or even crazy thing to do? Just where does this money ultimately come from, the other impoverished nations? Doesn't it make sense then to be the first to grab this free stash before the well dries up?

No doubt the people of the countries that maintain this fund will be the ones to ultimately suffer when the bill has to be paid? Well done Greece, first to take the p*ss out of the system.

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Victor Meldrew

Aug 29, 2010 at 01:35

From my rather patchy reading I gather that in South East Asia the IMF is regarded as a western instrument of torture. China avoided an Asian Crisis because they ignored IMF advice and pressure to abolish currency controls, and so never needed their help.

A little history. After World War I, Germany has hit with expensive reparations, suffered misery, got Hitler, and Europe got World War II. After that the IMF was founded to help countries in crisis so they wouldn't feel the need to conquer continents. So what did they do when Russia needed help? Not much.

Medical statisticians have found a close correlation between IMF intervention and rising TB.

On the plus side, when Labour called the IMF in (pre-Thatcher-ish), it let a bit of fiscal responsibiliy happen. It was just easier to tell lefty MPs and the party that this and that had to go because the IMF said so.

The IMF might have gone soft these days as the recipients are getting closer to the sponsors.

The IMF needs to be true to it's original purpose, not chuck money down a hole but not tighten a tornique round a neck for ideological reasons, and be fair to all regions of the world. Unfortunately it will always be the tool of those who fund it. If you think this is left wing crap, remember this post when the West his lost control of the IMF and we have to go begging.

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