International Monetary Fund

Organization and purpose

The International Monetary Fund was created in July 1945, originally with 45 members, with a goal to stabilize exchange rates and assist the reconstruction of the world's international payment system. Countries contributed to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances (Condon, 2007). The IMF was important when it was first created because it helped the world stabilize the economic system. The IMF works to improve the economies of its member countries.

The IMF describes itself as "an organization of 187 countries (as of July 2010), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". With the exception of Cuba (left in 1964), Taiwan (expelled in 1980), North Korea, Andorra, Monaco, Liechtenstein, Tuvalu and Nauru, all UN member states participate directly in the IMF. Member states are represented on a 24-member Executive Board (five Executive Directors are appointed by the five members with the largest quotas, nineteen Executive Directors are elected by the remaining members), and all members appoint a Governor to the IMF's Board of Governors.

History

The International Monetary Fund was conceived in July 1944 during the United Nations Monetary and Financial Conference. The representatives of 45 governments met in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire, United States, with the delegates to the conference agreeing on a framework for international economic cooperation. The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement. The statutory purposes of the IMF today are the same as when they were formulated in 1943 (see #Assistance and reforms).

The IMF's influence in the global economy steadily increased as it accumulated more members. The number of IMF member countries has more than quadrupled from the 44 states involved in its establishment, reflecting in particular the attainment of political independence by many developing countries and more recently the collapse of the Soviet bloc. The expansion of the IMF's membership, together with the changes in the world economy, have required the IMF to adapt in a variety of ways to continue serving its purposes effectively.

In 2008, faced with a shortfall in revenue, the International Monetary Fund's executive board agreed to sell part of the IMF's gold reserves. On April 27, 2008, IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision of April 7, 2008 to propose a new framework for the fund, designed to close a projected $400 million budget deficit over the next few years. The budget proposal includes sharp spending cuts of $100 million until 2011 that will include up to 380 staff dismissals.

At the 2009 G-20 London summit, it was decided that the IMF would require additional financial resources to meet prospective needs of its member countries during the ongoing global financial crisis. As part of that decision, the G-20 leaders pledged to increase the IMF's supplemental cash tenfold to $500 billion, and to allocate to member countries another $250 billion via Special Drawing Rights.

As of August 2010 Romania ($13.9 billion), Ukraine ($12.66 billion) and Hungary ($11,7 billion) are the largest borrowers of the fund.

Data dissemination systems

In 1995, the International Monetary Fund began work on data dissemination standards with the view of guiding IMF member countries to disseminate their economic and financial data to the public. The International Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they were split into two tiers: The GDDS and the SDDS.

The International Monetary Fund executive board approved the SDDS and GDDS in 1996 and 1997 respectively and subsequent amendments were published in a revised "Guide to the General Data Dissemination System". The system is aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country. It is also part of the World Bank Millennium Development Goals and Poverty Reduction Strategic Papers.

The IMF established a system and standard to guide members in the dissemination to the public of their economic and financial data. Currently there are two such systems: General Data Dissemination System (GDDS) and its superset Special Data Dissemination System (SDDS), for those member countries having or seeking access to international capital markets.

The primary objective of the GDDS is to encourage IMF member countries to build a framework to improve data quality and increase statistical capacity building. This will involve the preparation of meta data describing current statistical collection practices and setting improvement plans. Upon building a framework, a country can evaluate statistical needs, set priorities in improving the timeliness, transparency, reliability and accessibility of financial and economic data.

Some countries initially used the GDDS, but lately upgraded to SDDS.

Some entities that are not themselves IMF members also contribute statistical data to the systems:

•  Palestinian Authority – GDDS
•  Hong Kong – SDDS
•  European Union institutions:
  • the European Central Bank for the Eurozone – SDDS
  • Eurostat for the whole EU – SDDS, thus providing data from  Cyprus (not using any DDSystem on its own) and  Malta (using only GDDS on its own)

Members

Membership qualifications

The application will be considered first by the IMF's Executive Board. After its consideration, the Executive Board will submit a report to the Board of Governors of the IMF with recommendations in the form of a "Membership Resolution." These recommendations cover the amount of quota in the IMF, the form of payment of the subscription, and other customary terms and conditions of membership. After the Board of Governors has adopted the "Membership Resolution," the applicant state needs to take the legal steps required under its own law to enable it to sign the IMF's Articles of Agreement and to fulfill the obligations of IMF membership.

Similarly, any member country can withdraw from the Fund, although that is rare. For example, in April 2007, the president of Ecuador, Rafael Correa announced the expulsion of the World Bank representative in the country. A few days later, at the end of April, Venezuelan president Hugo Chavez announced that the country would withdraw from the IMF and the World Bank. Chavez dubbed both organizations as "the tools of the empire" that "serve the interests of the North". As of June 2009, both countries remain as members of both organizations. Venezuela was forced to back down because a withdrawal would have triggered default clauses in the country's sovereign bonds.

A member's quota in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of Special Drawing Rights (SDRs). A member state cannot unilaterally increase its quota—increases must be approved by the Executive Board of IMF and are linked to formulas that include many variables such as the size of a country in the world economy. For example, in 2001, the People's Republic of China was prevented from increasing its quota as high as it wished, ensuring it remained at the level of the smallest G7 economy (Canada).

In September 2005, the IMF's member countries agreed to the first round of ad hoc quota increases for four countries, including China. On March 28, 2008, the IMF's Executive Board ended a period of extensive discussion and negotiation over a major package of reforms to enhance the institution's governance that would shift quota and voting shares from advanced to emerging markets and developing countries. Under existing arrangements, the industrialised countries hold 57 per cent of the IMF votes. But the financial crisis has tilted control away from heavily indebted mature economies, such as the United States and the United Kingdom, in favour of the fast-growing, cash-rich, so-called “BRICS ” economies of Brazil, Russia, India and China.

Since the United States has by far the largest share of votes (approx. 17%) amongst IMF members (see table below), it has little to lose relative to the Europeans. At the 2009 G-20 Pittsburgh summit, the US raised the possibility that some European countries would reduce their votes in favour of increasing the votes for emerging economies. However, both France and Britain were particularly reluctant as an increase in China's votes would mean China now has more votes than the UK and France. At a subsequent IMF meeting in Istanbul Turkey the same month as the Pittsburgh Summit, IMF managing director Jean Claude Trichet then highlighted that "If we don't correct them, we'll have the recipe for the next major crisis." Citing the seriousness of the issue to be tackled.

Members' quotas and voting power, and board of governors

Major decisions require an 85% supermajority. The United States has always been the only country able to block a supermajority on its own. Table showing the top 20 member countries in terms of voting power (2,220,817 votes in total):

Members' quotas and voting power, and board of governors
IMF member country Quota: millions of SDRs Quota: percentage of total Governor Alternate Governor Votes: number Votes: percentage of total
United States 37149.3 17.09 Timothy F. Geithner Ben Bernanke 371743 16.74
Japan 13312.8 6.12 Yoshihiko Noda Masaaki Shirakawa 133378 6.01
Germany 13008.2 5.98 Axel A. Weber Wolfgang Schäuble 130332 5.87
United Kingdom 10738.5 4.94 George Osbourne Mervyn King 107635 4.85
France 10738.5 4.94 Christine Lagarde Christian Noyer 107635 4.85
China 8090.1 3.72 Zhou Xiaochuan Hu Xiaolian 81151 3.66
Italy 7055.5 3.24 Giulio Tremonti Mario Draghi 70805 3.19
Saudi Arabia 6985.5 3.21 Ibrahim A. Al-Assaf Hamad Al-Sayari 70105 3.16
Canada 6369.2 2.93 Jim Flaherty Mark Carney 63942 2.88
Russia 5945.4 2.73 Aleksei Kudrin Sergey Ignatyev 59704 2.69
Netherlands 5162.4 2.37 Nout Wellink L.B.J. van Geest 51874 2.34
Belgium 4605.2 2.12 Guy Quaden Jean-Pierre Arnoldi 46302 2.08
India 4158.2 1.91 Rajesh Kumar J Duvvuri Subbarao 41832 1.88
Switzerland 3458.5 1.59 Jean-Pierre Roth Hans-Rudolf Merz 34835 1.57
Australia 3236.4 1.49 Wayne Swan Ken Henry 32614 1.47
Mexico 3152.8 1.45 Agustín Carstens Guillermo Ortiz 31778 1.43
Spain 3048.9 1.40 Elena Salgado Miguel Fernández Ordóñez 30739 1.38
Brazil 3036.1 1.40 Guido Mantega Henrique Meirelles 30611 1.38
South Korea 2927.3 1.35 Okyu Kwon Seong Tae Lee 29523 1.33
Venezuela 2659.1 1.22 Gastón Parra Luzardo Rodrigo Cabeza Morales 26841 1.21
remaining 166 countries 62593.8 28.79 respective respective 667438 30.05

Assistance and reforms