let's look at the International Monetary
Fund or as it's often called for short
the IMF the IMF was planned by the
United States in Great Britain during
World War two and it started immediately
in the post-war era the original goal of
the IMF was something quite different
from what it does today under the
so-called Bretton Woods system of the
post-war economic order the major
economic powers in the world were tied
together by fixed exchange rates and the
role of the IMF was to oversee and
administer those fixed exchange rates
and make sure that countries were able
to keep their commitments see Bretton
Woods fixed exchange rate system ended
in the 1970s and over time the roles of
the IMF have evolved the IMF still
assists financially troubled nations but
very often it has nothing to do with the
country having a fixed or floating
exchange rate the IMF has the power to
lend money to nations in order to
improve their financial prospects one
thing the IMF does is simply to oversee
and study the global economy and issue
proclamations about what is going wrong
what is going right and what could be
done better the IMF is a fair amount of
influence in this regard the most
significant and also the most
controversial role of the IMF has to do
with its programs of conditional
assistance when the IMF lends money to
countries it typically insists that
those countries change their economic
policies in some very particular ways
the IMF does not require collateral for
its loans but it does require a new and
different approach to economic policy
the conditional assistance typically
requires some kind of move toward a
balanced budget or a sound or fiscal
position and it also requires some kind
of liberalisation of the underlying
economy when it comes to the underlying
fiscal position typically the IMF will
require that countries do something to
cut government spending and also perhaps
that countries in some way raise taxes
when it comes to liberalizing the
economy the IMF may typically require
greater openness toward foreign
investment freer trade less regulation
of business and lower levels of
corruption
of course the country is receiving IMF
money can only satisfy these demands to
varying degrees depending upon both
their willingness and their own internal
politics but at some point the IMF will
say if you don't institute something
like these policies we will stop lending
you money two of the classic cases of
IMF conditional assistance are argentina
and indonesia sub-sahara sub-saharan
African nations are very poor but often
they have less to do with the IMF
because they tend to have lower levels
of indebtedness you can think about the
governance of the IMF at a few different
levels first there is a managing
director by convention that individual
is typically chosen from a European
Union nation second there are 24
executive directors who serve a board
like role but the most fundamental
source of governance has to do with the
individual country quotas the country
quotas are determined by a formula and
they are the ultimate source of voting
rights within the IMF the formula has to
do with how large an economy is of a
country and how open that economy is and
overall the country quotas have
allocated quite a bit of influence in
the IMF to the United States the
European Union and Japan for instance
the country quota of the United States
it's somewhat above seventeen percent
and the country quote is of the European
Union nations taken together are
slightly below forty percent so if you
take just the United States and the EU
together that's about fifty-seven
percent right there for purposes of
contrast under the current system the
country quota for China is in the
neighborhood of six percent this has
proven controversial and as you can
imagine there are frequent calls to
alter or somehow change the quota system
so that developing nations have more
influence within the IMF there are a few
different ways conceptually to try to
think about what it is the IMF is
actually doing with conditional
assistance and its other policies one
way to think about it is to consider
cases where a lot of countries in the
world simply have very bad policies of
course that's likely to be the case if
these countries are getting in financial
trouble and
maybe they simply need a spur to
institute better policies and sometimes
the IMF does that another possibility is
that often a country's leaders or a lot
of people or interest groups in a
country know what should be done but
they can't quite make it happen
politically and when the IMF comes along
and demands those policies it gives them
a kind of cover where they can say I'm
sorry it's not my fault the IMF is
making me do this even though it's
something they have wanted to do all
along or knew was necessary critics will
more likely charge that the IMF is
forcing developing nations or nations in
trouble to institute policies which are
more in the interests of wealthy nations
so the IMF in this view is forcing
nations to internalize a lot of the
costs of their own policy mistakes so
for instance a country might end up
cutting its expenditures on education or
on health care to make sure it moves
toward a balanced budget and this does
in fact make sure that the country's
problems don't spill over into the
broader global economy but it may not
actually be better for a lot of the
individuals living in that country and
this view the IMF is a kind of tool of a
power based global economic order and
sometimes it does some good but a lot of
times it does some bad and precisely
because it's controlled by the wealthier
nations it tends to push her policies in
the interests of the wealthier nations
in my personal view there's some truth
to all of these hypotheses d roles and
functions of the IMF are still evolving
over time if you pick a year like 2006
when the global economy appeared to be
doing very well the IMF actually wasn't
up to very much right now as of 2012 the
IMF has been quite active and it is
taking on a growing role in Europe with
the euro crisis this is somewhat of a
deviation from the IMF's traditional
role which postulated a set of wealthier
nations who were backing the IMF and
then a series of poorer nations who
needed IMF aid all of a sudden it seems
that a lot of the nations in the
european union may in fact be requiring
IMF aid we're in this funny situation
where the major backers of the IMF the
year
peon nations are in fact using it to
bail out their own project namely the
eurozone one way to read more about the
IMF is simply to google of course
International Monetary Fund but often
one gets a better sense of what's going
on by reading about the IMF in the news
today and to do that go to news google
com and in the search box enter
International Monetary Fund and see
what's going on right now