International Monetary Fund

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The International Monetary Fund (IMF) is an international organization that oversees the global financial system by observing exchange rates and balance of payments, as well as offering financial and technical assistance when requested. Its headquarters are located in Washington, D.C..

Contents 1 History 2 Data Dissemination Systems 3 Membership qualifications 4 Assistance and reforms 5 Criticism 6 Past managing directors 7 Footnotes 8 See also 9 External links 10 References

[edit] History

[edit] Data Dissemination Systems

In 1995, the International Monetary Fund (IMF) 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 General Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS).

The IMF 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) [1] and its superset Special Data Dissemination System (SDDS) [2] 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 metadata 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 initialy used the GDDS, but lately upgraded to SDDS.

Some entities that are not itself 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)

[edit] Membership qualifications

Any country may apply for membership to the IMF. 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.

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 SDRs. A member state cannot unilaterally increase its quota - increases must be approved of by the Executive Board. For example, in 2001, China was prevented from increasing its quota as high as it wished, ensuring it remained at the level of the smallest G7 economy (Canada).^[1] Since then, its contribution has been allowed to be increased slightly further.

As of 2006, participating nations were discussing changes to the voting formula, to increase equity. [3]

[edit] Assistance and reforms

The primary mission of the IMF is to provide financial assistance to countries that experience serious financial difficulties. Member states with balance of payments problems may request loans and/or organizational management of their national economies. In return, the countries are usually required to launch certain reforms, which have often been dubbed the "Washington Consensus". These reforms are generally required because countries with fixed exchange rate policies can engage in fiscal, monetary, and political practices which may lead to the crisis itself. For example, nations with severe budget deficits, rampant inflation, strict price controls, or significantly over-valued or under-valued currencies run the risk of facing balance of payment crises in their future. Thus, the structural adjustment programs are at least ostensibly intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness.

However, this approach is not without its critics, as described below. Many proponents of the IMF contend that some criticisms are the result of the fact that many people are not familiar with the operations and objectives of the IMF, and blame a lack of transparency within the IMF for this, as well as the dense nature of international finance in general. Suggestions for improving these understandings have included greater community outreach efforts, tighter accounting standards, possible regulatory oversight, and changes in the organizational structure of the IMF to include fewer economists, whom many fear are attempting to use developing countries as nothing more than lab rats. Some fear, however, that some of these reforms to the IMF itself introduce political considerations rather than economic considerations, many of which may have resulted in the financial crises in the first place. According to Ulrich Beck, the International Monetary Fund is an international risk community combating the threat of a global financial crisis.

[edit] Criticism

The role of the two Bretton Woods institutions has been controversial to some since the late Cold War period. Critics claim that IMF policy makers deliberately supported capitalistic military dictatorships friendly to American and European corporations. Critics also claim that the IMF is generally apathetic or hostile to their views of democracy, human rights, and labor rights. The controversy has helped spark the anti-globalization movement. Others claim the IMF has little power to democratize sovereign states, although that is not its stated objective, which is to advise and promote financial stability. Arguments in favor of the IMF say that economic stability is a precursor to democracy.

Two criticisms from economists have been that financial aid is always bound to so-called "Conditionalities", including Structural Adjustment Programs. Conditionalities, it is claimed, retard social stability and hence inhibit the stated goals of the IMF, while Structural Adjustment Programs lead to an increase in poverty in recipient countries.^[2]

Typically the IMF and its supporters advocate a Keynesian approach. As such, adherents of supply-side economics generally find themselves in open disagreement with the IMF. The IMF frequently advocates currency devaluation, criticized by proponents of supply-side economics as inflationary. Secondly they link higher taxes under "austerity programmes" with economic contraction.

Currency devaluation is recommended by the IMF to the governments of poor nations with struggling economies. Supply-side economists claim these Keynesian IMF policies are destructive to economic prosperity.

That said, the IMF sometimes advocates "austerity programmes," increasing taxes even when the economy is weak, in order to generate government revenue and balance budget deficits, which is the opposite of Keynesian policy. These policies were criticised by Joseph E. Stiglitz, former chief economist and Senior Vice President at the World Bank, in his book Globalization and Its Discontents.^[3] He argued that by converting to a more Monetarist approach, the fund no longer had a valid purpose, as it was designed to provide funds for countries to carry out Keynesian reflations.

Complaints are also directed toward International Monetary Fund gold reserve being undervalued. At its inception in 1945, the IMF pegged gold at 35 dollars per Troy ounce of gold. In 1973 the Nixon administration lifted the fixed asset value of gold in favour of a world market price. Hence the fixed exchange rates of currencies tied to gold were switched to a floating rate, also based on market price and exchange. This largely came about because Petrodollars outside the United States were more than could be backed by the gold at Fort Knox under the fixed exchange rate system. The fixed rate system only served to limit the amount of assistance the organization could use to help debt-ridden countries. Current IMF rules prohibit members from linking their currencies to gold.

Most altermondialists, like ATTAC, believe that IMF interventions aggravate the poverty and debt of Third World and developing countries. According to the analysis by Yves Engler, the IMF is considered to be responsible for worsening or actually creating famine in Malawi (2002), Ethiopia (2003) and Niger (2005).^[4] The IMF, in turn, has documented evidence to the contrary.^{[citation needed]}

Opposition to the IMF is often fragmented. For instance, advocates of supply-side economics would generally regard the policies advocated by ATTAC to be little different in form to the ideas peddled by the IMF. In other words, they would see ATTAC tax-and-spend policies and the IMF's austerity policies as being fundamentally similar.

Argentina, which had been considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions, experienced a catastrophic economic crisis in 2001, generally believed to have been caused by IMF-induced budget restrictions — which undercut the government's ability to sustain national infrastructure even in crucial areas such as health, education, and security — and privatization of strategically vital national resources. The crisis added to widespread hatred of this institution in Argentina and other South American countries, with many blaming the IMF for the region's economic problems.^[5] The current — as of early 2006 — trend towards moderate left-wing governments in the region and a growing concern with the development of a regional economic policy largely independent of big business pressures has been ascribed to this crisis.

Another example of where IMF Structural Adjustment Programmes aggravated the problem was in Kenya. Before IMF got involved in the country, the Kenya central bank oversaw all currency movement in and out of the country. IMF mandated that Kenya central bank had to allow easier currency movement. However, the adjustment resulted in very little foreign investment, but allowed Kamlesh Manusuklal Damji Pattni, with the help of corrupt government officials, to siphon out billions of Kenya shillings in what came to be known as the Goldenberg scandal, leaving the country in a state worse than that which it was in before the IMF reforms were implemented.

That the IMF is perceived to intervene only in countries that experience years of dire economic conditions has certainly hurt its reputation. The financial collapses it intervenes in are products of uneven capitalist development sometimes exacerbated by government mismanagement, but mismanagement is often cited by rich nations as the source of the financial crises. These collapses tend to lead to years of economic difficulty that can be addressed in various ways, but IMF Structural Adjustment Policies consistently serve to open up or "liberalize" economies to foreign capital rather than provide for economic recovery through statist policies such as government financed projects to achieve full employment. Thus, IMF policies further the notion that economic development in underdeveloped countries is dependent on attracting foreign investment rather than through a state-managed approach centered on full employment and progressive taxation. It is also true that politicians have used the IMF as an easy target for blame when they themselves have erred, using nationalism to gain easy political points.

Overall the IMF success record is perceived as limited. While it was created to help stabilize the global economy, since 1980 critics claim over 100 countries have experienced a banking collapse that they claim have reduced GDP by four percent or more, far more than at any time in Post-Depression history. The considerable delay in IMF response to a crisis, and the fact that it tends to only respond to rather than prevent them, has led many economists to argue for reform, they claim. In 2006, an IMF reform agenda called the Medium Term Strategy was widely endorsed by the institution's member countries. The agenda includes changes in IMF governance to enhance the role of developing countries in the institution's decision-making process and steps to deepen the effectiveness of its core mandate, which is known as economic surveillance or helping member countries adopt macroeconomic policies that will sustain global growth and reduce poverty.

Whatever the feelings people in the Western world have for the IMF, research by the Pew Research Center shows that more than 60 percent of Asians and 70 percent of Africans feel that the IMF and the World Bank have a positive effect on their country.^[6] This may largely be due to the fact that the media and textbooks in developing countries' schools describe the IMF as having a positive role in their countries, despite claims that there has been an increase in poverty, increase in the debt-burden, and a reduction of economic growth that IMF opponents argue its policies have resulted in.^{[citation needed]} In 2005, the IMF was the first multilateral financial institution to implement a sweeping debt-relief program for the world's poorest countries known as the Multilateral Debt Relief Initiative. By year-end 2006, 23 countries mostly in sub-Saharan Africa and Central America had received total relief of debts owed the IMF.

The documentary Life and Debt deals with the IMF's policies' influence on Jamaica and its economy, from a critical point of view.

[edit] Past managing directors

An unwritten rule establishes that the IMF's managing director must be European and that the president of the World Bank must be from the United States. Executive Directors, who confirm the managing director are voted in by Finance Ministers from countries they represent. The First Deputy Managing Director of the IMF, the second-in-command, has traditionally been (and is today) an American.

The IMF is for the most part controlled by the major Western Powers, with voting rights on the Executive board based on a quota derived from a monetary stake in the institution. Rarely does the board vote and pass issues contradicting the will of the US or Europeans. There have been some exceptions in the past. Dr. Mohamed Finaish from Libya, the Executive Director representing the majority of the Arab World and Pakistan, was a tireless defender of the developing nations' rights at the IMF. He stood steadfast in his beliefs and principles for fourteen years until his defeat in the 1992 elections to an Egyptian IMF Staff Member.

Dates	Name	Country
May 6, 1946 - May 5, 1951	Camille Gutt	Belgium
August 3, 1951 - October 3, 1956	Ivar Rooth	Sweden
November 21, 1956 - May 5, 1962	Per Jacobsson	Sweden
August 12, 1962 - April 30, 1963	David Collett	Switzerland
September 1, 1963 - August 31, 1973	Pierre-Paul Schweitzer	France
September 1, 1973 - June 16, 1978	Johannes Witteveen	Netherlands
June 17, 1978 - January 15, 1987	Jacques de Larosière	France
January 16, 1987 - February 14, 2000	Michel Camdessus	France
May 1, 2000 - March 4, 2004	Horst Köhler	Germany
June 7, 2004 - present	Rodrigo Rato	Spain

[edit] Footnotes

1. ^ Barnett, Michael and Finnemore, Martha. Rules for the World: International Organizations in Global Politics. Ithaca: Cornell University Press, 2004.
2. ^ Hertz, Noreena. The Debt Threat. New York: Harper Collins Publishers, 2004.
3. ^ Stiglitz, Joseph. Globalization and its Discontents. New York: WW Norton & Company, 2002.
4. ^ http://www.zmag.org/content/showarticle.cfm?SectionID=2&ItemID=8494
5. ^ http://www.serendipity.li/hr/imf_and_dollar_system.htm
6. ^ http://people-press.org/reports/pdf/185topline.pdf

[edit] See also

• Third world debt
• Economics
• Special Drawing Rights
• Development aid
• Bretton Woods Institutions
• Organisation for Economic Co-operation and Development
• Globalization and Its Discontents
• Bancor
• Bank for International Settlements
• World Bank

[edit] External links

• International Monetary Fund website
• Global Banking: The International Monetary Fund
• Finance & Development - A quarterly magazine of the IMF
• Annual Reports of the Executive Board
• World Economic Outlook Reports
• IMF Publications
• Kenneth Rogoff - The sisters at 60
• How the IMF Props Up the Dollar System
• IMF’s Origins as a Blueprint for Its Future, Anna J. Schwartz, National Bureau of Economic Research
• Center for International Finance & Development University of Iowa research center, includes a 300 page E-book on the IMF and World Bank.
• Political Forecasting? The IMF’s Flawed Growth Projections for Argentina and Venezuela by David Rosnick and Mark Weisbrot, Center for Economic and Policy Research

[edit] References

• Jan Joost Teunissen and Age Akkerman (eds.) (2005). Helping the Poor? The IMF and Low-Income Countries. FONDAD. ISBN-10: 90-74208-25-8. 
• Axel Dreher (2002). The Development and Implementation of IMF and World Bank Conditionality. HWWA. ISSN 1616-4814. 
• Dreher, Axel (2004), A Public Choice Perspective of IMF and World Bank Lending and Conditionality, Public Choice 119, 3-4: 445-464.
• Dreher, Axel (2004), The Influence of IMF Programs on the Re-election of Debtor Governments, Economics & Politics 16, 1: 53-75
• Dreher, Axel (2003), The Influence of Elections on IMF Programme Interruptions, The Journal of Development Studies 39,6: 101-120.
• The Best Democracy Money Can Buy by Greg Palast (2002)
• The IMF and The World Bank: How do they differ?[4] by David D. Driscoll
• Rivalries between IMF and IBRD, "Sister-talk", The Economist 3/3/07 [5]
• George, S. (1988). A Fate Worse Than Debt. London: Penguin Books.
• Hancock, G. (1991). Lords of Poverty: The Free-Wheeling Lifestyles, Power, Prestige and Corruption of the Multi-billion Dollar Aid Business. London: Mandarin.

view	Topics in Trade
Definitions	Balance of payments · Current account (Balance of trade) · Capital account · Foreign exchange reserves · Comparative advantage · Absolute advantage · Import substitution · International trade
Organizations & Policies	World Trade Organization · International Monetary Fund · World Bank · International Trade Centre · Trade bloc · Free trade zone · Trade barrier · Import quota · Tariff
Schools of Thought	Free trade · Balanced trade · Mercantilism · Protectionism
Related Issues	Globalization · Outsourcing · Trade justice and fair trade

	Preceding:	Bretton Woods system
	Subsequent: