On June 30th, 2015, Greece missed a major loan-repayment deadline to the International
Monetary Fund.
The IMF provided 32 Billion Euros in emergency loans to keep the Greek economy from collapsing.
So why did the IMF take a risk on such an unstable economy?
What exactly is the IMF?
The IMF was created alongside the World Bank in 1945, as overlapping finance arms of the
United Nations.
The World Bank focuses on financing and investing in developing countries, as well as eliminating
poverty.
The IMF primarily monitors exchange rates, stabilizes international monetary systems
and fosters global financial cooperation.
Well since World War 2, the world’s economies have become interdependent on each other through
trade and investment.
While this helps strengthen the global financial system, it also creates weaknesses in the
economic chain.
When an unforeseeable crisis, like a recession or a natural disaster, destabilizes one nation’s
economy, it can severely affect dependent countries.
The balancing force of the IMF prevents any potential “domino effect” in collapsing
economies.
The IMF is one of several global banks that provides loans to troubled economies to promote
a stable WORLD economy.
The IMF, and its sister organisation, the World Bank, tend to serve more Western interests,
like the US and the EU.
While other global banks, like the New Development Bank and the Asian Infrastructure Investment
Bank serve Chinese and Russian interests more.
In total, the IMF has 188 member states.
After the global financial crisis of 2008, African countries were hit hard.
The demand for imported goods from Africa declined, and international growth rates slowed.
In response, the IMF proactively made billions of dollars available to places like Ghana,
at extremely low interest rates.
With this support, Ghana’s growth rate increased to over 9% in 2011, and remains one of Africa’s
frontier emerging markets.
Currently, the IMF’s biggest borrowers are Portugal, Greece, Ireland and Ukraine.
The IMF also gives “precautionary” loans as a sort of preventative measure before things
get too bad.
Receivers of precautionary loans include: Mexico, Poland, Colombia and Morocco.
Despite their support, the IMF has been widely criticized for allowing disparate levels of
influence.
This is because member nations which invest more money in the IMF get more voting rights.
The US comprises nearly a fifth of all available votes because they are the largest contributor.
Additionally, since the IMF is somewhat of a last resort, countries in trouble have no
choice but to agree to significant austerity measures that may not necessarily be in their
best interests, or agree with their ideologies.
While the IMF is a powerful force within the world economic balance, it also openly serves
the interests of its member countries.
With so much influence in the political policies of struggling countries, it is dangerous to
try and treat domestic problems with simple cash infusions and austerity measures.
However, without it, countries like Greece may face worse alternatives.
If Greece leaves the eurozone over money woes, it would be devastating to all of Europe.
The European Union is also at risk after Greece’s refusal to accept a bailout.
To learn more about the future of the EU, check out our video now.
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