BIC's IMF Program supports and assists global civil society in informed engagement on macroeconomic policies supported by the IMF. The program aims to stimulate wider public debate on the IMF’s new priorities as well as existing and future operations with a particular focus on identifying opportunities for reform.
The IMF: A brief history
The International Monetary Fund was established in 1944 at the Bretton Woods conference. It was conceived alongside the World Bank, to provide a framework for international economic cooperation.
IMF operations include surveillance of both member countries and the global economy; technical assistance; and financial support.
Period of Declining Relevance
Between 2000 and 2007, the IMF’s lending activity sharply declined. Countries with outstanding loans rushed to repay them and few others sought new loans, relying instead on alternative arrangements and heavy buildup of reserve currencies. Many interpreted this distancing from the IMF partly as a consequence of years of unreliable advice and the imposition of stringent loan conditionality. The demand for IMF services dwindled to the point (just 13 lending operations in FY2006) that the organization’s long-term relevance was called into question.
IMF & the Financial Crisis
All of this changed in fall 2008 when the global financial crisis hit the developing world. Alternate arrangements to secure liquidity were no longer sufficient, and since then a number of countries have sought new loans and stand-by agreements in order to prevent further losses. Despite claims of having learned from their past, however, the IMF is still placing strongly pro-cyclical conditions on its agreements, forcing countries to slash spending and raise taxes at precisely the most harmful time to do so. These punitive conditions are poorly received by recipient countries due to the fact that the crisis did not originate in the developing world; rather it was a result of irresponsible policies of developed countries that are able to spend themselves out of the recession while others must adopt austerity and turn to the IMF.
New Special Drawing Rights: Liquidity for Whom?
The IMF’s other response to the crisis has been to issue new Special Drawing Rights (SDRs), the first such occurrence since 1981. Originally created as a mechanism to support the Bretton Woods fixed exchange rate system, SDRs had fallen into relative obscurity since countries began floating their currencies in 1973, merely serving as an official denomination for IMF loans but not much else. SDRs are not a currency, per se, but are assigned value based upon the dollar, pound, euro, and yen. They are created by fiat of the board of the IMF and are placed in the accounts of member countries. Countries holding SDRs in their account can convert them to hard currencies, condition-free, by voluntary agreement with other governments.
The issuance of new SDRs ($250 billion worth as agreed upon at the G-20 summit in April 2009) could be an innovative and valuable way of increasing global liquidity with no direct associated cost, though the devil is in the details. Under current regulations, general allocations of SDRs are distributed based on countries’ quotas in the IMF, giving the G7 countries more than 45% of the total and all of Africa less than 5%. This means that of the $250 billion SDRs that are to be allocated, only $81 billion will go to developing countries and $19 billion for low income countries. The board can change this setup by amending its Articles of Agreement to allow special allocations to countries that most need them, though this step would require action from the legislatures of major countries, including the U.S. Congress where action can come at an onerously slow pace.
Read more about the IMF's Medium-Term Strategy on the IMF - policies webpage.
This page was last modified on August 7, 2009