With its near-global membership of 187 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities—and manage the challenges—posed by globalisation and, more generally, economic development. 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 currently has a near-global membership of 187 countries. To become a member, a country must apply and then be accepted by a majority of the existing members. In June 2009, the former Yugoslav Republic of Kosovo joined the IMF, becoming the institution's 186th member.
Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in the world economy. The IMF's membership agreed in May 2008 on a rebalancing of its quota system in order to reflect the changing global economic realities, especially the increased weight of major emerging markets in the global economy. (For more on the quota and voice reform, please go to the section on Country Representation in the Governance section).
A member's quota delineates basic aspects of its financial and organisational relationship with the IMF, including:
A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency, called Special Drawing Rights (SDRs), or widely accepted currencies (such as the dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member's own currency.
The quota largely determines a member's voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota. Accordingly, the United States has 371,743 votes (16.77 percent of the total), and Palau has 281 votes (0.01 percent of the total). The newly agreed quota and voice reform will result in a significant shift in the representation of dynamic economies, many of which are emerging market countries, through a quota increase for 54 member countries. A tripling of the number of basic votes is also envisaged as a means to give poorer countries a greater say in running the institution.
Access to financing
The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. Under Stand By and Extended Arrangements, which are types of loans, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.
Allocations of SDRs, the IMF's unit of account, are used as an international reserve asset. A member's share of general SDR allocations is established in proportion to its quota.
The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.
Marked by massive movements of capital and abrupt shifts in comparative advantage, globalisation affects countries' policy choices in many areas, including labour, trade, and tax policies. Helping a country benefit from globalisation while avoiding potential downsides is an important task for the IMF. The global economic crisis has highlighted just how interconnected countries have become in today’s world economy.
The IMF supports its membership by providing:
- policy advice to governments and central banks based on the analysis of economic trends and cross-country experiences;
- research, statistics, forecasts, and analysis based on the tracking of global, regional, and individual economies and markets;
- loans to help countries overcome economic difficulties;
- concessional loans to help fight poverty in developing countries; and
- technical assistance and training to help countries improve the management of their economies.
IMF and the global financial crisis
The IMF was founded more than 60 years ago, towards the end of World War II. The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed.
Since then, the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty, especially in Asia. In many ways, the IMF's main purpose—to provide the global public with financial stability—is the same today as it was when the organisation was established. More specifically, the IMF continues to
- provide a forum for cooperation on international monetary problems;
- facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction;
- promote exchange rate stability and an open system of international payments; and
- lend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.
In response to the crisis, the IMF has rethought its operations in several ways:
- By enhancing IMF lending facilities. The IMF has upgraded its lending facilities to enable it to better serve its members. It has created a new Short-Term Liquidity Facility designed to help emerging market countries with a track record of sound policies address fallout from the current financial crisis. To make its financial support more flexible and tailored to the diversity of low-income countries, it has established a new Poverty Reduction and Growth Trust, which has three new lending windows. As part of a wide-ranging reform of its lending practices, the IMF has also redefined the way it engages with countries on issues related to structural reforms of the economy.
- By strengthening the monitoring of global, regional, and country economies. The IMF has taken several steps to improve economic and financial surveillance, which is its framework for providing advice to member countries on macroeconomic policies. It is emphasizing research into the links between the financial sector and the real economy and the sharing of cross-country experiences. It has published new guidance on how to analyse and advise on exchange rates, and it is paying more attention to the impact of the world's most important economies on other countries' economies. Finally, it is improving its ability to warn member countries of risks and vulnerabilities in their economies.
- By helping resolve global economic imbalances. The IMF's analysis of global economic developments, contained in its World Economic Outlook, provides finance ministers and central bank governors with a common framework for discussing the global economy. The IMF now has also the ability to call for multilateral consultations to discuss specific problems facing the global economy with a selected group of countries—an innovative way of facilitating collective action among key players in the global economy. The first of such consultations took place in 2006. It sought to reduce global payments imbalances and it involved China, the euro area, Japan, Saudi Arabia, and the United States.
- By analyzing capital market developments.The IMF is devoting more resources to the analysis of global financial markets and their linkages with the macroeconomic policy. Twice a year, it publishes the Global Financial Stability Report, which provides an up-to-date analysis of developments in global financial markets. IMF staff also work with member countries to help them identify potential risks to financial stability, also through the Financial Sector Assessment Program (described in more detail below). The IMF also offers training to country officials on how to manage their financial systems, monetary and exchange regimes, and capital markets. The IMF is currently facilitating the drafting of voluntary guidelines for Sovereign Wealth Funds and works closely with the Financial Stability Board to promote international financial stability.
- By assessing financial sector vulnerabilities. Resilient, well-regulated financial systems are essential for macroeconomic stability in a world of ever-growing capital flows. The IMF and the World Bank jointly run the Financial Sector Assessment Program, aimed at alerting countries to vulnerabilities and risks in their financial sectors. IMF and World Bank staff also advise on how to strengthen oversight and supervision of banks and other financial institutions.
- By working to cut poverty. At present, more than a billion people are living on less than $1 a day, and more than three-quarters of a billion people are malnourished. The IMF's role in low-income countries is changing as these countries grow and mature. But its central goal remains the same: to help promote economic stability and growth, laying the groundwork for deep and lasting poverty reduction. Its current main priority is to help low- and middle-income countries cope with the adverse effects of the global economic crisis. To that effect, it is stepping up by lending to low-income countries in order to combat the impact of the global recession.
- By improving IMF governance. In May 2008, the IMF's membership approved a two-year package of reforms to improve representation of members at the Fund. For the IMF to be fully effective in its role, it must be perceived as representing all countries in a fair manner. With that in mind, governance reform is being accelerated to ensure a decision-making structure that reflects current global realities. The IMF is also becoming leaner and more efficient. It is trimming expenditures and reorganizing the way it earns revenue to pay for its operations.
- By greater accountability and transparency. The IMF publishes almost all of its annual economic health checks of member countries, updates about its lending programs, and a wealth of other information on its website. The IMF's performance is assessed on a regular basis by an Independent Evaluation Office.
Editor: Chiara OLDANI
© 2011 ASSONEBB