Overview of International Monetary Fund

International Monetary Fund has a near-global membership of 185 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities—and manage the challenges—posed by globalization. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties.

The IMF supports its membership by providing:

• policy advice to governments and central banks based on analysis of economic trends and cross-country experiences;
• research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets;
• loans to help countries overcome economic difficulties;
• concessional loans to fight poverty in developing countries; and
• technical assistance and training to help countries improve the management of their economies.

Each member of the IMF is assigned a quota, based broadly on its relative size in the world economy, which determines its maximum contribution to the IMF’s financial resources. Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely accepted foreign currencies (such as the U.S. dollar, euro, yen, or pound sterling) or Special Drawing Rights (SDR’s). The remaining three-quarters is paid in the country’s own currency. Quotas are reviewed at least every five years. (source)

Establishment of International Monetary Fund

In 1944, the US currency was still backed by gold, to the tune of $35 to the ounce, and was seen as the strongest currency in the world.

“At bottom, the Bretton Woods system rested on one simple assumption — that economic policy in the United States would be stabilizing,” writes Benjamin Cohen, a professor of international political economy at the University of California in Santa Barbara.

The Bretton Woods agreement also set up the International Monetary Fund (IMF) and the predecessor of the World Bank to carry out the agreement and regulate the international monetary system.

While the IMF and World Bank continue to operate, the fixed currency system fell apart as the US increased its deficit spending during the Vietnam War and Great Society years of social outlays of the 1960s.

It became ever clearer that the US could no longer back the dollar with gold, and Washington suspended the gold standard in 1971 to allow it to float to its own level. By 1973, industrialized countries  agreed to let their currencies also float free. (source)

Conditionality of Loans

When a country borrows from the IMF, its government makes commitments on economic and financial policies—a requirement known as conditionality. Conditionality is a way for the IMF to monitor that its loan is being used effectively in resolving the borrower’s economic difficulties, so that the country will be able to repay promptly, and make the funds available to other members in need. In recent years, the IMF has worked to focus and streamline conditionality, in order to promote national ownership of strong and effective policies. (source)

Board of Directors

Dominiqu Strauss-Kahn, Executive Director , IMF: Dominique Strauss-Kahn was born on 25 April 1949 to a Jewish family from mixed Askhenazi and Sephardi origins, in the wealthy Paris suburb of Neuilly-sur-Seine. He spent part of his childhood in Agadir, Morocco, which he left after the 1960 earthquake to go to Monaco.

In high school, he earned top grades and entered the prestigious school Hautes Études Commerciales (HEC) and then studied political science at Sciences Po. Furthermore, he obtained a degree in public law, as well as a Ph.D and an agrégation in economics.Strauss-Kahn sought the nomination for the Socialist candidacy in the 2007 presidential election On October 18, 2008, the IMF announced it would conduct an investigation into an allegation reported by a long-standing governing board member, Shakour Shaalan of Egypt, that Strauss-Kahn had an affair with Piroska Nagy, a Hungarian-born senior economist at the IMF who subsequently left the IMF with a severance package. [12] On October 25, 2008, the IMF Board issued the findings of the investigation. While noting that the affair was “regrettable and reflected a serious error of judgment on the part of the managing director,” the Board cleared Strauss-Kahn of harassment, favoritism or abuse of power, and indicated that he would remain in his post.

John Lipsky, First Deputy Managing Director, IMF:  Before coming to the Fund, Mr. Lipsky was Vice Chairman of the JPMorgan Investment Bank. In this position, he advised the firm’s principal market risk takers, published independent research on the principal forces shaping global financial markets, was actively engaged with JPMorgan’s key clients, and represented the firm around the world with senior public and financial sector decision makers.

Previously, Mr. Lipsky served as JPMorgan’s Chief Economist, and as Chase Manhattan Bank’s Chief Economist and Director of Research. He served as Chief Economist of Salomon Brothers, Inc. from 1992 until 1997. From 1989 to 1992, Mr. Lipsky was based in London, where he directed Salomon Brothers’ European Economic and Market Analysis Group.

Before joining Salomon Brothers in 1984, he spent a decade at the IMF, where he helped manage the Fund’s exchange rate surveillance procedure and analyzed developments in international capital market. He also participated in negotiations with several member countries and served as the Fund’s Resident Representative in Chile during 1978-80. (Ed. Note: It’s interesting to note that all three companies, JP Morgan / Chase Manhattan Bank and Salomon Brother’s have either collapsed, been bailed out or have been part of ongoing illegal activites: Salomon Brother’s Illegal Actions , JP Morgan , Chase Manhatten Bank)

Takatoshi Kato, Deputy Managing Directior, IMF: Born in 1941, Mr. Kato has a B.A. from Tokyo University (1964) and M.P.A. from Princeton University (1968). Prior to taking up his current position, he was Advisor to the President, Tokyo-Mitsubishi Bank and a Visiting Professor at Waseda University. He was also a Visiting Professor at Princeton University (1998-99).  

Murilo Portugal, Deputy Managing Director, IMF: Between 1996-2000, Mr. Portugal was an Executive Director at the World Bank Group. Before that, he served in senior positions in Brazil, including as the Secretary of the National Treasury, in the Office of the President, and at the Ministry of Finance and the Ministry of Planning. He has also served as member of the board of the Banco do Brasil and on various corporate boards  

(source)

IMF in Today’s Economy 

Iceland and Hungary are the first recipients of IMF loans as a result of the current global financial crisis.

In a sign of what’s to come, the Fund is already demonstrating its continued willingness to impose policy conditionalities on borrower states.

The Guardian has the story in Hungary:

This week the International Monetary Fund stepped in to stop any more investors from pulling their funds out of the country altogether. Hungary is now set to become the first EU state to receive an IMF lifebelt - of around €12.5bn.

The bail-out announcement received a mixed response in Budapest yesterday. “We have a credit noose around our necks,” declared the rightwing daily Magyar Hirlap, while another paper showed bundles of forint notes being sucked up by a cyclone.

“This is going to be tough,” said the tabloid Blikk, pointing out that a condition of the loan would be a 300bn forint cut in public spending, which will likely lead to high inflation and attacks on social benefits.

And the Financial Times covers Iceland:

The application will be presented to the IMF’s board on Thursday and the central bank said a condition attached to the loan was for a rate rise to 18 per cent.

The move reversed a 3.5 per cent rate cut announced just two weeks ago by David Oddsson, central bank governor, underlining the influence the IMF now has over policymaking in Iceland.

Brian Coulton, managing director at Fitch Ratings, the credit rating agency, said Iceland’s central bank had “no choice but to work very closely with the fund”.

(source)

IMF Support for Dictatorships

After the Second World War, in a growing number of Third World countries, political outlooks diverged from the former colonial powers. This trend encountered firm opposition from the governments of the major industrialised capitalist countries whose influence held sway with the World Bank (WB) and the IMF. WB projects have a strong political content: to curtail the development of movements challenging the domination/rule of major capitalist powers. The prohibition against “political” and “non-economic” considerations into account in Bank operations, one of the most important provisions of its charter, is systematically circumvented. The political bias of Bretton Woods institutions is shown by their financial support to dictatorships ruling in Chile, Brazil, Nicaragua, Congo-Kinshasa and Romania. (source)

Hidden Taxpayer Cost of IMF Membership

For many years, a reluctant Congress has been persuaded to approve IMF funding withthe comforting fiction that this largest of the international financial institutions costs usnothing and does not divert scarce resources from other deserving projects.In fact, the United States now supplies $27 billion of funds to the IMF at an annual costto the taxpayer of $1.9 billion–an expenditure conspicuous by its absence in the Federalbudget and a hidden element in our deficit and debt. The funding is said to be costlessand originally it was. But as IMF lending has moved from one end of the spectrum to theother–from short term and low risk to long term and high risk–only the fiscal accountingremains from a global financial system that no longer exists. (source)

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”  - Thomas Jefferson

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