INTERNATIONAL MONETARY FUND – STRUCTURE AND CRITICISM

Photo via wikimedia.org

International Monetary Fund is an international financing institution. It tracks economy, foreign reserves and external debts on a country. It provides debts and technical assistance to tackle the economic crisis. After World War II many European countries were facing a crisis on the balance of payments. The International Monetary Fund was created to help Europe come out of the economic debacle. This institute was established according to an agreement signed in Bretton Woods. It was authorized on December 30, 1945. Initially, the IMF had only 29 members. Cuba was also the member of IMF however it withdrew later.

Photo via flickr.com

The purpose of establishing the IMF was to

1- form a new and state of the art monetary system.

2-Help the countries facing a crisis on the balance of payment

3- Correctly assess the foreign reserves of the member countries and devising a clarified monetary system  

IMF’s central office is located in Washington. Currently, the International Monetary Fund (IMF) has 188 member states. However, North Korea, Cuba, and a few other countries are not part of the IMF. The IMF is in full control of big powers. It’s voting procedure remained under strict criticism since its inception.  Critics accuse the IMF as a tool of first world traders to exploit the developing countries.

IMF disburses debts to almost all the member states. These debts are regarded as foreign debts for that country. However, these debts are given after imposing some strict conditions. Critics claim that the IMF’s conditions worsen the economy of poor countries. The need to change the structure of IMF is being felt across the globe.

Russian president meeting with IMF heads. Photo via en.kremlin.ru

Currently, the voting quota of IMF is dependent on a particular country’s Gross domestic product (GDP), Foreign reserves and a balance between exports and imports. These rubrics decide the and voting quota for a particular country. The member states are required to deposit the money equivalent to voting quota. Due to this voting structure, poor and developing countries have very fewer votes in the IMF. Rich countries are beneficiaries of this voting structure. For example, USA’s votes are about 18 percent of the total votes of the IMF. The collective votes of USA, UK, Japan, France, and China constitute about 40 percent of IMF votes. Collectively The G-20 countries have 70 percent voting quota in IMF. Clearly, they are ruling IMF.

Any country can obtain debt equivalent 25 percent of its quota to correct its balance of payments. Besides this, poor countries can obtain debts to alleviate poverty.

Other IMF  debts include

1- SBA – Stand-by Arrangement: Provided for emergency conditions

2- EFF – Extended Fund facility: Provided to extend the current debt

3-SRF – Supplement Reserve Facility: Provided for additional precautions

4- CCL – Contingent Credit Lines: These are conditioned loans

5- CFF – Compensatory Financing facility: Provided to increase exports

Critics claim that the IMF is acting as an international policeman. For example, IMF disburses fund to poor countries on strict conditions. The IMF demands increase in interest rate which may result in increased poverty. IMF also demands an increase in Tax collection which may result in joblessness. IMF also demands the privatization of state-owned entities. In this way, national assets go in foreign hands.

Similarly, IMF demands ease for foreign investment which may result in instability in the stock exchange. IMF also urges for freedom for international banks and multinational corporations which harms the local business enterprises. After these conditions, the debt receiving countries hardly manage to pay interest on foreign debts.

Photo via flickr.com

The Global recession of 2008 affected all the countries except China and India. The Influence of IMF is nowhere in these two countries. These are the countries who demand change in the structure of the IMF.  Conclusively when world undergoes economic crisis it becomes beneficial for IMF as happened after the 2008 global recession.

This was all about IMF its structure and voting system. Despite facing intense criticism from a few countries including China, India, and Brazil the IMF is still an important entity in the world’s economic structure. Brazil, India, and China want changes in the voting structure of the IMF. Many experts believe that BRICS ( including Brazil, Russia, India, China, and South Africa) was framed to counter IMF in the region.

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