THE INTERNATIONAL MONETARY FUND (IMF)

The International Monetary Fund was established by international treaty in 1945 to help promote the health of the world economy. Headquartered in Washington, D.C., it is governed by its almost global membership of 190 countries.

The IMF is the central institution of the international monetary system—the system of international payments and exchange rates among national currencies that enable business to take place between countries.

It aims to prevent crises in the system by encouraging countries to adopt sound economic policies; it is also — as its name suggests — a fund that can be tapped by members needing temporary financing to address balance of payments problems.

The IMF works for global prosperity by promoting:

• the balanced expansion of world trade,
• stability of exchange rates,
• avoidance of competitive devaluations, and
• orderly correction of balance of payments problems

The IMF’s statutory purposes include promoting the balanced expansion of world trade, the stability of exchange rates, the avoidance of competitive currency devaluations, and the orderly correction of a country’s balance of payments problems.

To serve these purposes, the IMF:

• Monitors economic and financial developments and policies, in member countries and at the global level, and gives policy advice to its members based on its more than fifty years of experience. For example: In its annual review of the Japanese economy for 2003, the IMF Executive Board urged Japan to adopt a comprehensive approach to revitalize the corporate and financial sectors of its economy, tackle deflation, and address fiscal imbalances.
  
  The IMF commended Mexico in 2003 for good economic management, but said structural reform of the tax system, energy sector, the labor market, and judicial system was needed to help the country compete in the global economy.
  
  In its Spring 2004 World Economic Outlook, the IMF said an orderly resolution of global imbalances, notably the large U.S. current account deficit and surpluses elsewhere, was needed as the global economy recovered and moved toward higher interest rates.
• Lends to member countries with balance of payments problems, not just to provide temporary financing but to support adjustment and reform policies aimed at correcting the underlying problems. For example, during the 1997-98 Asian financial crisis, the IMF acted swiftly to help Korea bolster its reserves. It pledged $21 billion to assist Korea to reform its economy, restructure its financial and corporate sectors, and recover from recession. Within four years, Korea had recovered sufficiently to repay the loans and, at the same time, rebuild its reserves.
  
  In October 2000, the IMF approved an additional $52 million loan for Kenya to help it cope with the effects of a severe drought, as part of a three-year $193 million loan under the IMF’s Poverty Reduction and Growth Facility, a concessional lending program for low-income countries.
• Provides the governments and central banks of its member countries with technical assistance and training in its areas of expertise. For example:
  
  Following the collapse of the Soviet Union, the IMF stepped in to help the Baltic states, Russia, and other former Soviet countries set up treasury systems for their central banks as part of the transition from centrally planned to market-based economic systems.

As the only international agency whose mandated activities involve active dialogue with virtually every country on economic policies, the IMF is the principal forum for discussing not only national economic policies in a global context, but also issues of importance to the stability of the international monetary and financial system. These include countries’ choice of exchange rate arrangements, the avoidance of destabilizing international capital flows, and the design of internationally recognized standards and codes for policies and institutions.

By working to strengthen the international financial system and to accelerate progress toward reducing poverty, as well as promoting sound economic policies among all its member countries, the IMF is helping to make globalization work for the benefit of all.