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 and 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.
The 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 has 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 sounder fiscal position,
and it also requires some kind of liberalization 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 countries 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-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 17 %.
And the country quotas of the European Union nations,
taken together, are slightly below 40 %.
So, if you take just the United States and the EU together,
that's about 57 % right there.
For purposes of contrast under the current system,
the country quota for China is in the neighbourhood of 6%.
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.
In 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.
The 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 European nations,
are in fact using it to bailout 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.