What is the International Monetary Fund (IMF)?
The International Monetary Fund (IMF) is an institution of the United Nations that sets standards for the global economy with the aim of strengthening its member countries economically. The organization currently lists 189 member countries that are represented on the IMF Executive Board. The ratio of board members from each member country depends on the country’s economic muscle, with the economic giants getting the highest representation. The same applies to the voting powers of member countries, where big economies like the United States, Japan, China, Britain, Germany, France, and Italy hold superior voting power when making decisions.
Although the International Monetary Fund and the World Bank perform related functions, they are two independent institutions. The IMF focuses on providing short-term loans to member countries to help turn their economies around and reinstate their financial structure. The World Bank, on the other hand, is focused on providing long-term economic solutions to member countries and is funded by member contributions and bonds.
Joining the International Monetary Fund
Any country can apply to join the International Monetary Fund and be accepted by the majority of existing countries. In the early years of the IMF formation, the rules for membership were relatively relaxed, making it easy for countries to join. Members needed to abide by the Code of Conduct, refrain from currency restrictions, provide their national economic information, and make periodic payments to a quota. However, the IMF imposed onerous regulations for countries that joined the organization to get funding.
Upon joining the IMF, a member gets an initial quota that corresponds to the quotas of existing member countries of comparable economic size. The quotas are larger for more powerful countries with strong economies, and their contributions form a pool from which other member countries in need can borrow loans. Apart from getting funds from the International Monetary Fund, member countries also have access to the economic records of all member countries. They also get technical assistance on fiscal affairs, increased trade and investment opportunities, as well as the opportunity to influence other member country’s economic policies.
The voting power of each member country is based on a quota system, with each member having a specific number of basic votes that represent 5.502% of the total votes. Further, there is one additional vote for each Special Drawing Right (SDR) of 100, 000 out of a member’s quota. The SDR represents a claim of currency, and it is the unit of account of the International Monetary Fund. Any changes to the voting power of member countries requires approval by over 85% of the voting power.
There are suggestions to reform the representation of developing and emerging economies within the International Monetary Fund. Although these countries represent a larger portion of the world economic activity, they have a minimal voice in the IMF decision-making process. Wealthier economies that contribute more money to the IMF have more influence in decision-making, revision, and the making of rules, and this may not reflect the wishes of the developing nations. For example, the top 10 member countries in terms of quota allocations hold more than 50% of the voting power while the other 178 countries share the other 50% of voting power.
The leadership of the International Monetary Fund comprises the Managing Director, Board of Governors, the Executive Board, and the Ministerial Committees. The Managing Director is the head of staff and chairman of the Executive Board, while the Board of Governors is the topmost decision-making body in the IMF.
Board of Governors
The Board of Governors is the highest decision-making body of the IMF and comprises one governor and one alternate governor from each member country. The Board is responsible for electing or appointing directors of the Executive Board, and the voting takes place by mail-in ballot. Although the board delegates some of its functions to the Executive Board, it retains some functions such as the admission of new members, SDR allocations, approval of quota increases, compulsory withdrawal of members, and the amendments to the Articles of Agreement. The board also serves as the ultimate arbitrator on the interpretation of the IMF’s Articles of Agreements.
The Board of Governors of the International Monetary Fund and the World Bank hold an annual meeting during the IMF-World Bank Spring and Annual Meetings. The meetings are chaired by the governors of both institutions, where they make decisions on the management of current international monetary issues and pass resolutions.
The Executive Board comprises 24 Executive Directors, representing all the 189 member countries. The eight large economies appoint one Executive Director each, while the other 16 Directors represent the remaining countries, grouped into constituents of 4 to 24 countries. The large economies that have the power to appoint their own Directors include the United States, Japan, Russia, Saudi Arabia, China, Germany, France, and the United Kingdom.
The Executive Board conducts meetings several times a week. The board discusses matters ranging from economic policy issues to annual health checks of its member’s economies. The board members make decisions through consensus or formal voting.
The IMF has two ministerial committees, i.e., the Development Committee and the International Monetary and Finance Committee (IMFC). The IMFC comprises 24 members drawn from the list of governors of member countries, with large economies appointing a representative just as is the case in the Executive Board. The committee monitors the development of the global economy and also advises the Board of Governors on important issues.
The Development Committee comprises 24 members, and it is tasked with advising the Board of Governors of IMF and World Bank on matters related to economic development in developing and emerging economies. The committee also advises both institutions on trade and financial resources required to promote development in developing countries.
The Managing Director leads the International Monetary Fund and is also the head of staff and Chairman of the Executive Board. The Managing Director appoints the First Deputy Managing Director and three other Deputy Managing Directors who assist him or her in undertaking their responsibilities. The Managing Director performs the ordinary business of the IMF under the direction of the Executive Board. The Executive Board appoints the Managing Director for a renewable term of five years.