International Monetary Fund
In July 1944, delegates from forty-five governments gathered inside the Mount Washington Hotel in Bretton Woods, New Hampshire. They sought to rebuild a shattered global economy after years of war and depression. Harry Dexter White, an American delegate, envisioned an institution that functioned like a bank to ensure borrowing states could repay debts on time. British economist John Maynard Keynes imagined a cooperative fund where member states could draw resources to maintain economic activity during crises. The agreement created two new organizations: the International Monetary Fund and the World Bank. US Treasury Secretary Henry Morgenthau Jr. initially wanted them located in New York but was overruled by his successor Fred M. Vinson. Vinson decided they would be headquartered in Washington, D.C., arguing that placing them in New York would subject them to the taint of international finance. The IMF formally came into existence on the 27th of December 1945, when twenty-nine countries ratified its Articles of Agreement. By the 1st of March 1947, the organization began its financial operations. France became the first country to borrow from the IMF on the 8th of May 1947. For three decades, the institution oversaw a system of fixed exchange rates designed to prevent competitive devaluations. This arrangement collapsed in August 1971 when the United States government suspended the convertibility of the dollar into gold.
The collapse of the Bretton Woods system forced the IMF to shift its focus from currency stabilization to managing balance-of-payments difficulties. In the mid-1980s, the organization moved beyond simple oversight to promote market-liberalizing reforms through structural adjustment programs. This change occurred without a formal renegotiation of the charter or operational guidelines. Treasury Secretary James Baker and his assistants David Mulford and Charles Dallara pressured the fund to attach these reforms to conditional loans. The IMF shifted its position on capital controls, moving from permitting restrictions at its founding to favoring free capital movement by the 1980s. Staff hired in the 1940s and 1950s retired and were replaced by individuals exposed to new economic thinking. By 2003, the Exceptional Access Framework was created to place rules on lending to governments with debt problems. John B. Taylor served as Under Secretary of the US Treasury for International Affairs when this framework was established. The framework became fully operational in February 2003 and applied to decisions regarding Argentina and Brazil. In 2010, the framework was abandoned so the IMF could make loans to Greece during an unsustainable political situation. The staff proposed reprofiling operations that would extend maturities rather than reduce debt upfront. These operations aimed to be less costly to both debtors and creditors relative to bailouts followed by debt reduction.
Each member country is assigned a quota that reflects its relative size in the global economy. This quota determines both financial contributions and voting power within the organization. A country receives five point five zero two percent of total votes plus one additional vote for each special drawing right of one hundred thousand of its quota. Changes in voting shares require approval by a super-majority of eighty-five percent of voting power. Wealthy countries provide more money and therefore hold more influence over decision-making processes. Poorer members contribute less but still possess basic votes that generate a slight bias in their favor. Currently, reforming representation has been suggested because developing countries represent a large portion of world economic activity since 1944. In December 2015, United States Congress adopted legislation authorizing the 2010 Quota and Governance Reforms. All one hundred ninety members quotas increased from about XDR two hundred thirty-eight billion to about XDR four hundred seventy-seven billion. More than six percent of quota shares shifted to dynamic emerging market and developing countries. Four emerging market countries including Brazil, China, India, and Russia became among the ten largest members. The United States retained its share at over sixteen percent despite repeated criticism. Emerging markets were not well-represented for most of the IMF history even though China is the most populous country. Brazil's vote share was smaller than Belgium's until reforms took effect.
In May 2010, the IMF participated in the first Greek bailout totaling eleven hundred billion euros. This intervention addressed the great accumulation of public debt caused by continuing large public sector deficits. The Greek government agreed to adopt austerity measures reducing the deficit from eleven percent in 2009 to well below three percent in 2014. A second bailout package of more than one hundred billion euros was agreed upon between October 2011 and February 2012. During this time Prime Minister George Papandreou was forced from office. Private bondholders took a haircut of upwards of fifty percent under the program approved on the 15th of March 2012. In March 2013, a ten billion euro international bailout of Cyprus was agreed by the Troika. Cypriots had to close their second-largest bank and impose a one-time bank deposit levy on uninsured deposits. No insured deposit of one hundred thousand euros or less was affected under the novel bail-in scheme. By early 2012, private banks of Holland, France, and Germany reduced exposure to Greek debt from two hundred twenty-two billion euros to sixty-six billion euros. Greece, Portugal, Ireland, Romania, and Ukraine became the largest borrowers from the IMF. In November 2020, the fund expected the global economy to shrink by four point four percent due to the coronavirus pandemic. Kristalina Georgieva announced that the IMF stood ready to mobilize one trillion dollars as its response to COVID-19.
Critics argue that the Fund's policies limit economic sovereignty and harm vulnerable populations through imposed austerity measures. Joseph Stiglitz wrote in Globalization and Its Discontents that modern economic management allows officials to callously impose policies without feeling the consequences. He argued that the IMF reflects interests and ideology of the Western financial community rather than participating in a conspiracy. Countries charge that with excessive conditionality they do not own the programs and links are broken between people and goals being pursued. Jeffrey Sachs stated that the usual prescription is budgetary belt tightening for countries too poor to own belts. Structural adjustment programs often reduce public spending on health, education, and social services disproportionately affecting women and marginalized communities. A 2009 study concluded strict conditions resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care weakened. Tuberculosis deaths rose by sixteen point six percent in the twenty-one countries to which the IMF had given loans. The IMF sometimes advocates cutting public spending and increasing taxes even when the economy is weak. This approach reduces government services and increases unemployment while exacerbating income inequality. Gini coefficient data shows countries with IMF policies face increased income inequality compared to those without such interventions.
Christine Lagarde served as managing director from the 5th of July 2011 until the 12th of September 2019. She was convicted of giving preferential treatment to businessman-turned-politician Bernard Tapie during her time as French economic minister. Within hours of her conviction she escaped any punishment and the fund's executive board praised her outstanding leadership. Former Managing Director Rodrigo Rato was arrested in Madrid in April 2015 for alleged fraud, embezzlement, and money laundering. In 2017, the Audiencia Nacional found Rato guilty of embezzlement and sentenced him to years imprisonment. The Supreme Court of Spain confirmed this sentence in 2018. Dominique Strauss-Kahn resigned on May 18 after being arrested in connection with charges of sexually assaulting a New York hotel room attendant. The charges were later dropped but his tenure ended abruptly. Kristalina Georgieva became the current managing director on the 1st of October 2019. She is a Bulgarian economist who has held the position since that date. The IMF removed the age limit of sixty-five or over for its managing director position in August 2019.
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Common questions
When was the International Monetary Fund officially established?
The IMF formally came into existence on the 27th of December 1945 when twenty-nine countries ratified its Articles of Agreement. The organization began its financial operations by the 1st of March 1947.
Where is the headquarters of the International Monetary Fund located?
Fred M. Vinson decided that the International Monetary Fund would be headquartered in Washington, D.C. This decision overruled US Treasury Secretary Henry Morgenthau Jr.'s initial preference for New York to avoid subjecting the institution to the taint of international finance.
Who became the managing director of the International Monetary Fund after Christine Lagarde left office?
Kristalina Georgieva became the current managing director of the International Monetary Fund on the 1st of October 2019. She is a Bulgarian economist who has held the position since that date following the removal of the age limit for the role in August 2019.
What happened to the Bretton Woods system in 1971 regarding the International Monetary Fund?
This arrangement collapsed in August 1971 when the United States government suspended the convertibility of the dollar into gold. The collapse forced the IMF to shift its focus from currency stabilization to managing balance-of-payments difficulties and promoting market-liberalizing reforms.
Which countries were the largest borrowers from the International Monetary Fund during recent crises?
Greece, Portugal, Ireland, Romania, and Ukraine became the largest borrowers from the International Monetary Fund. In May 2010 the fund participated in the first Greek bailout totaling eleven hundred billion euros to address public debt accumulation.