Introduction
Illustrated as a raptor which feeds from low-income countries. It is referred to as a deceptive financial establishment that hacks nations’ sovereignty and devotes efforts to shock their economic stability. Is the international Monetary fund a loyal guard who secures financial stability across nations ? or an economical mercenary who distorts countries' hope ? An economic and social crisis landed in Uruguay early 2002, a small country that had been relying for years on IMF arrangements. This last caused a massive withdrawal of bank deposits which overexposed the Uruguayan financial system. The year of 2001, an economic collapse in Argentina and the government announced a national deficit and its inability to pay billions of dollars of debt to the IMF. A famine occurred in the country of Malawi, in the far southeast of Africa, which caused the sale of its entire stock of grain in 2001 to pay part of its debts to the IMF. Three experiences discern that this financial corporation is feral.
Early the 21 century, Turkey paid all her debts to the IMF while it’s growing as an industrialised power in the G20. Serbia successfully closed a 1.32 billion dollars three-year arrangement with the IMF in 2017 boasting outperformance on several of its macroeconomic goals. These experiences are telling us that there is some hope in this financial structure but surprisingly most countries and their respective policy makers that dealt with the IMF whether they successfully paid the whole debts or not, are telling us DON'T !
Birth of the IMF
Whilst the lineaments of triumph were looming for the allies during the last days of World War two, economists were greatly devastated and alarmed by the effects of the great depression of 1929. In this context appeared the idea of the necessity of an international financial system to rebuild suffering economies. The United states of America initiated a worldwide call for countries to gather with a singular global aim, to set up a new horizon of economic stability characterised by revolutionary key parameters for an international monetary system. Several propositions were presented but only two plans drew attention: the American plan headed by the economist Harry Dexter White and the British plan proposed by the economist John Maynard Keynes.
In 1944, the state of New Hampshire witnessed this global gathering where 44 countries were represented, to both discuss and bless the birth of a new political and economical era, the Bretton woods agreement in which a patchwork of monetary directives came to define the main future lines of the next centuries. That period introduced multiple political and economical entities to the world. Political, such as the United Nations, and economical, such as the World Trade Organisation, the World Bank, and the International Monetary Fund (hereafter called the Fund).
What is the IMF ?
As its primary mission is to support countries which were affected by war and avoid major economic crises such as those that erupted in 1929. The fund presents the central institution in the world monetary system and it determines how the payments flow between nations. In addition, the fund supervises the administration of exchange rates for different currencies on the basis of the US dollar.
The Fund's objective is to boost international monetary cooperation and prevent global economic crises. It also provides member countries consulting, training, loans on demand, and monitors their macroeconomics indicators. Thus, it’s a multinational moneybox, but where does the money come from ?
Financing of the IMF
Quotas, Multilateral borrowing and bilateral borrowing are the IMF's three main channels of financing or lines of defence as they prefer to define it. Each member country contributes with Quota, which is a calculated amount of money and payments made in the form of Special Drawing Rights (hereafter called SDRs) which is the official currency of the fund. In 2008, the fund updated the Quota formula to become “(0.50 * GDP + 0.30 * Openness + 0.15 * Variability + 0.05 * Reserves)compression factor”. Even Though, there is no argued socioeconomic explanation for this formula, Quotas define the borrowing capacity and voting power of each member state as well as reveal a glance of their ranking in the global economy race. The IMF’s second line of defence is the New Arrangements to Borrow (hereafter called NAB). As a multilateral borrowing regime, its only mission is to remain on standby and in demand, support the fund primary account to stabilise the global monetary atmosphere by injecting additional resources. Unless certain conditionalities are met, the NAB gets activated and needs approval from thirty eight (38) member countries and monetary establishments in order to lend supplement finances for the fund.
Beside quotas and NAB, the third and final resort for the fund to get access for extra funds, is the Bilateral Borrowing Agreements (hereafter called BBA). On exceptional occasions where the fund is unable to deliver requested credits, it solicits the executive board for an activation for the BBA. In 2022, the fund holds 477 Billion SDRs from quotas, 361 Billion SDRs from the NAB and 135 Billion SDRs from the BBA. Thus, the IMF has a lending capacity of a total 973 Billion SDRs which is equal to nearly 1341 Billion dollar, 35 times the GDP of Tunisia. Nevertheless, the supreme authority of the IMF is divided between 190 voting capacity of member countries but its reglementations and verities disclose also that whoever commands the fund, is the member country that lends the largest amount of financial resources and the answer here is the United States of America. SO, is the US managing the IMF discreetly ?
Gouvernance & Decision making
Similarly to all major international geo-politico-economic pillars, the headquarters of the International Monetary Fund is located in Washington DC. It has 190 member countries and is administered by two supreme councils. The board of governors is the superior decision making entity, it delegates authority to the executive board and meets once per year. It is composed of 190 governors appointed by each member country along with an alternate. Generally, member states choose the minister of finance or the head of the central bank to represent them. Its main duties are to endorse quota variation, allocations,membership and amendments to the Articles of Agreement. Broadly, governors are advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee. The executive Board consists of 24 directors elected by members or groups of countries. Its main duty is to handle day to day operations of the IMF. The 24 directors monitor countries' micro and macroeconomics indicators, control monetary policies and track the global economy fluctuations. Usually, their decision making process is based on consensus and votes in case. Seemingly, decisions in the fund are collective, meaning that each decision requires the approval of 85 percent of the members’ quotas to be issued, and there is no American VETO? Yes, even in the IMF...there is a VETO, because of the large American quota, which is approaching the 17 percent barrier. Thus, there is no approval for any type of loan without the consent of the USA. Inwardly, there is a large disparity in the distribution of quotas between member countries. The Group of Seven industrialised countries, which are the United States, Germany, Japan, France, the United Kingdom, along with Italy and Canada, control nearly half of the quotas, compared to 25 % for the European Union countries, 7 % for the African Union countries and nearly 6 % for the League of Arab States .
The invisible dependence
Hence, theoretically, the International Monetary Fund is an independent establishment but at any moment its decisions can be detained to the forces that own the major quotas. As a matter of fact, the IMF has always been influenced by US instabilities and the correlation between worldwide currencies and the US dollar. Here is the butterfly effect, actually, there is a sensitive dependence between them in which a small economic change in the USA may change the function of the IMF later. From the earlier startup of the fund, it was designated to oversee the exchange rates of global currencies in terms of the US dollar. Until the seventies of the last century, the US dollar was directly linked to the gold reserve, meaning that all fiduciary money at that period was matched with a certain volume of gold. Anyhow, by the year of 1970, the world witnessed a major collapse of the Bretton Woods system of fixed exchange rates and the USA has decided to untie its currency to the gold and all other currencies will be determined based on supply and demand in the market, which is now known as the Nexon chock.
In 1976, various European countries headed by the Belgian minister Willy De Clercq, advocated for an urgent need for reform in the international financial system in order to define a new approach to ensure the stability of their currencies. Thus, the Board of Governors held a conference in Jamaica in which the Bretton Woods Agreement was amended and new provisions for a new financial system were put in place, the most important of which are; firstly, giving liberty to countries to select their own currency exchange system which is now known as the floating exchange rate regime. Here, central banks are given more flexibility to control interest rates and define suitable monetary policies. Secondly, dispensing the gold as a reserve cover and making the Special Drawing Rights units as the main reserve assets in the international monetary system.
Conclusion
Overall , the IMF physiology has been continuously revised following each universal crisis. From Jamaica until today, the fund has turned into an economic lab, a fund for, and the first door that gouvernments have to go through before talking to any of the other international financial institutions. Multiple senior economic policy makers draft financial plans based on a deep belief that the fund will support their visions. While others capitalise their political base by announcing that IMF loans are an unacceptable financial step to make. Yet, the impact of the fund interventions, conditionalities and remedies has been broadly debated. The famous structural adjustment plan isn’t evantually adequate to re-stabilise each country's unique economic, social and political atmosphere.
