International Monetary Fund review

Most of readers have probably already heard about the International Monetary Fund. The IMF is a global organization which recently came under close observation when the managing director Dominic Strauss-Kahn was arrested and charged with sexual assault on a room attendant.

The well known director lost most of the member countries support as a result, many of which called for his instant resignation. Strauss-Kahn eventually resigned his position on May 18, 2011, and opened the door for the next managing director. The fierce race for the influential position ended June 28, when Christine Lagarde was confirmed as the new head of IMF for the five-year term.

New leadership with the strong support from the United States, European Union and growing economies such as Brazil, Russia, India and China, has the opportunity to take once again an important role in economy stabilization processes throughout the world. In order to look the future role of the International Monetary Fund, one must first take a glance at the history of the organization.

IMF origins and history
In July of 1944, representatives of 45 countries joined a meeting in the town of Bretton Woods, forming the framework for future international economic cooperation. Following the Great Depression when protectionism destroyed world trade and massive currency devaluations occurred, combined with the Second World War effect on economies and an unstable international environment which threatened the stability, they formed a simple plan to create an institution charged with task of overseeing the international monetary system.

The supervision was intended for the system of exchange rates and international payments, as well as for identifying and removing trade barriers among member countries. The headquarters of International Monetary Fund are set in Washington, from where the organization holds a relatively high influence in the economic development of the world. There are three major roles of modern IMF in the global monetary system. In addition to stabilizing exchange rates and monitoring the balance of payments, International Monetary Fund also facilitates development through loans, debt relief or aid with varying levels of conditionality. Providing technical assistance and training for troubled countries is one of the most common practices, upon which further actions are determined.

Modern day IMF role
Currently, the International Monetary Fund has 187 member countries. Approximately 2,500 people from 160 countries work daily to find solutions for different economical problems. The global economic crisis that started with subprime mortgage crisis in the United States in 2007 and spread worldwide in 2008 created large imbalances in global capital flow. In comparison, global capital flow has risen to 15 percent of world GDP while the historical numbers fluctuated between 2 and 6 percent.

The most rapid increase has been experienced by advanced economies, but emerging markets and developing countries have become more financially integrated since. In order to stabilize the national economies, many countries turned to IMF for funds and advice. In 2011 the biggest borrowers are European countries like Greece, Portugal and Ireland.

Although everyone agrees of the necessity of such an international institution, there have been many criticisms pointed at the International Monetary Fund. Main issues are economic performance targets established as a precondition for loans, also called conditionalities. According to some economists, they tend to underestimate the social stability and can lead to an increase in poverty in recipient countries.

Other controversial measure often recommended are austerity programs, which in essence means cutting public spending and increasing taxes despite the weak economy status in order to balance the national budgets. Most noted opponents are South American countries, such as Argentine. In any case, after taking into account relevant facts a prospect of globalization surely demands strong international organizations to counter the negative effects. The IMF with all the good and bad sides is without a doubt a major figure in the modern financial world and will probably keep the role for many years to come.

Related: Argentina economy crisis