International Monetary Fund

It is common to hear, especially in the international news, about different organizations that help the world economy , however, their meaning or the reasons for these institutions are not well known. The International Monetary Fund is one of these types of organizations, an institution of great importance both for the national and international politics of a country and for its economic stability .

Characteristics of the International Monetary Fund

The main characteristics of the International Monetary Fund are the following:

• It is an intergovernmental body .
• Seeks measures to reduce poverty globally.
• Stabilize exchange rates internationally.
• It offers cheap loans , mainly to those countries in a state of poverty.
• Its headquarters are located in Washington DC .
• It is a specialized agency of the United Nations.

Source

The origin of the International Monetary Fund has its roots in the 1940s, specifically in 1945 when, through an international treaty , a way was sought to create an entity in charge of monitoring and protecting the economy worldwide. It was created by the UN and was based on a series of agreements known as Bretton Woods .

History

This body was created in 1945 by the UN at the United Nations Monetary and Financial Conference, which was held in Bretton Woods , United States and was created with the aim of promoting a series of sustainable policies worldwide. Initially, it was made up of 45 members and began to function in the month of December of the aforementioned year when an agreement was signed for the first time in which the stabilization of exchange rates was established in order to improve the international payment system .

What is your function

The main function of the International Monetary Fund is to prevent countries from entering a crisis in their monetary systems through the adoption of different types of economic policy measures. It also helps the countries that are its members so that they can overcome economic and payment problems on a temporary basis. It is responsible for promoting cooperation between countries at the international level with respect to international monetary systems in order to make trade easier. Finally, it seeks to maintain stability in these systems to avoid exchange rate depreciations at all costs.that are competitive advising governments and banks so that they can develop better public accounting systems .

Objectives of the International Monetary Fund

There are several important objectives of the International Monetary Fund, among which the following are mentioned:

• Carry out the necessary supervision of all countries in order to act as a mediator between their economies.
• It encourages monetary cooperation worldwide.
• Provides greater financial security to countries.
• Makes international trade can be carried out more easily.
• It produces better and more jobs .
• Through it, economic growth is more sustainable.
• It seeks to reduce the poverty of nations.

How does it work

The International Monetary Fund works by providing financial aid to those countries that are experiencing financial difficulties and uses the funds that are deposited in the organization by the 187 countries that are its members. The country that has a serious economic problem can go to the institution and request a loan and in return, the countries will have to follow some reforms that have been imposed by the IMF.

In general , before requesting a loan, the country has direct access to 25% of the participation quota that it gives to the IMF, however, when a larger amount of money needs to be withdrawn, which usually happens , a stabilization plan must be negotiated in which the measures that the country will adopt in order to improve and solve its problems are established.

Generally, the nation is given a period of between 3 and 5 years to be able to return the money that has been loaned, but there have been cases where countries have even taken up to 15 years to make the return.

Managing Directors

For many years, the managing director of the International Monetary Fund has been of European origin , however, this option is currently open to any nationality as long as it is shown that the person is qualified for the position. The managing director has a series of executive directors who guide and assist him and are elected by the finance ministers of those countries that are part of the organization.

Performances

Among its main actions of the International Monetary Fund the following are mentioned:

• Promotes and facilitates international trade .
• Provides loans to members in serious financial distress.
• Corrects imbalances in payment balances .
• Favor the multilateral system of payments.
• Promote exchange rate stability .
• Facilitates and improves growth and balance in trade between countries.

Member countries

The International Monetary Fund is made up of all those countries that are members of the UN, except Cuba, North Korea, Nauru, China , Andorra, Vatican City, Monaco and Liechtenstein. It should be mentioned that Kosovo is part of the fund, however, it is not part of the UN.

How it differs from the World Bank

Among the main differences we can mention that the purpose of the IMF is to maintain the global monetary system while the World Bank is to finance developing countries so that they can be developed in their economies. The IMF focuses mainly on seeking economic stability while the World Bank on the growth of the economy .

On the other hand, the main objective of the IMF will always be to cover matters that are related to the financial sector and the macroeconomy, while the World Bank will have the objective of promoting the economy in the long term in order to reduce poverty rates.

Criticism of the International Monetary Fund

The main criticism made of the organization is related to the conditions it imposes on countries for the payment of the debt they acquire or, when they need to apply for a new loan. This criticism arises mainly from the regressions that occur in the distribution of income and in a series of damages suffered by social policies . In addition, a primary fiscal surplus is generally criticized, which is adequate to cover all the commitments generated by the external debt .

The IMF has eliminated subsidies in production activity and social services , while reducing tariffs, a situation that has also been widely criticized. Experts also criticize the restructuring that the tax system has undergone in order to increase tax collection, the elimination of exchange barriers and the implementation of the free market in goods and services, without the intervention of the State.

Importance

The International Monetary Fund is considered one of the most important organizations worldwide since it is the entity in charge of promoting businesses and carrying out a series of political steps through which it is possible to meet the needs of improving the economy that it exists among the countries of the world.

It is the entity in charge of giving resources to countries that have difficulties in payments or finances so that they can get out of their economic problems and at the same time achieve better levels of employment and more real income .