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IMF Paper


									Management Strategies for a Global Society – Winter 2003        Maty Brimmer, Elyse May,
                                                                      Lateisha Robinson,
                                                            Jacob Stewart, Rokaih Vansot

            “Should the Values of the United States be reflected in
              the conduct of the International Monetary Fund?”

        When examining the policy issues and challenges facing the International

Monetary Fund, a fundamental question that arises is the amount of influence

that the United States should have in determining the values and conduct of IMF.

Even the most ardent observers of international politics can find this question

vexing in some regards. Several recent high profile IMF failures and continuing

problems with kleptocratic or corrupt governments that may misrepresent their

government‟s internal policies and stability are also used as arguments that the

United States should not only take a leading role, but should no longer

participate in the IMF unless the United States can more forcefully dictate policy.

Additionally, loans from the fund to countries with continuing human rights

violations might trouble Americans and cause them to think that the US should

act in a paternal manner toward these countries, rather than as only one voice in

a global financial marketplace.

IMF Historical Background

        The International Monetary Fund (IMF) is an organization of 184 member

nations that works to establish and maintain an efficient system of international

payments and trade. It seeks to help its members achieve rapid economic

growth, a high level of employment, and improved standards of living. The IMF

serves as an agency for consultation on world monetary and debt problems. Its

                                               Page 1
Management Strategies for a Global Society – Winter 2003          Maty Brimmer, Elyse May,
                                                                        Lateisha Robinson,
                                                              Jacob Stewart, Rokaih Vansot

members cooperate to maintain orderly currency exchange arrangements

between nations.

        The IMF was established after the Bretton Woods Conference of 1944

held in New Hampshire. Representatives of 44 countries attended the

conference. They made plans to stabilize the world financial system and foster

the growth of trade after World War II. The representatives hoped to remove

obstacles to long-term lending and international trade and payments.

        The Bretton Woods Conference drew up the plans for two international

organizations the International Monetary Fund and the World Bank. The fund,

primarily through lending to individual member states, strives to promote

international financial stability by providing short-term assistance to help its

members meet problems regarding balance of payments or debt repayment.

The World Bank makes long-term international loans especially to those less

developed countries.

        The IMF began operating in 1947 with a fund of $9 billion in gold and

currency, of which the United States contributed about a third. The IMF has

since used the fund to help member nations meet problems regarding balance of

payments and to help foster orderly international monetary exchange. In 1969,

the IMF created a type of reserve asset accounting called Special Drawing Rights

(SDR‟s) to supplement international reserves of gold and currencies. By the

                                               Page 2
Management Strategies for a Global Society – Winter 2003         Maty Brimmer, Elyse May,
                                                                       Lateisha Robinson,
                                                             Jacob Stewart, Rokaih Vansot

early 1980‟s, the IMF had assets of about $50 billion. Today the IMF has $265

billion US dollars in reserve assets.

        The IMF is a specialized agency of the United Nations. The agency is

closely connected with the World Bank. A nation must be a member of the IMF

before it can belong to the bank. The IMF has it‟s headquarters in Washington



        The mission of the International Monetary Fund is to achieve international

monetary cooperation, economic growth, financial assistance to countries in

need, and multilateral system of payments. The IMF is in charge of keeping the

international financial system stable and responsible for not repeating the

economic policies that created the Great Depression of the 1930‟s. This stability

is accomplished through strategic loans to developing economies, especially

those economies that may be facing financial crises.

        Secondary to the mission of the IMF, and in support of its lending

activities, is policy advisement to developing nations on macroeconomic issues.

Keeping a countries economy transparent and stable in order to keep investor

confidence high, and hopefully avoid the type of rapid capital outflow that was

indicative of the Asian financial crisis of 1997-1998. Figure 1 below illustrates

this economic technical assistance granted to member nations in the year 2001,

divided by region.

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Management Strategies for a Global Society – Winter 2003         Maty Brimmer, Elyse May,
                                                                       Lateisha Robinson,
                                                             Jacob Stewart, Rokaih Vansot

        Figure 1 (From

Scope and Jurisdiction

        The International Monetary Fund has jurisdiction over the lending of IMF

funds to member countries, or the draws that countries take from their Special

Drawing rights (SDR). The IMF also sets the quotas (or dues if you will,) of each

member country and any quota increases during periodic reviews. Quotas and

SDR‟s will be discussed in more detail later in this essay. Each member country

has voting rights based on its amount of quotas.

        The IMF will determine if a country is taking a loan, which must be repaid,

or a draw on their SDR‟s, which is not a loan and does not need to be paid back

as it is a tap in to your own countries‟ reserves.

        One of the goals of the IMF is to lend money to developing nations and

assist those nations in economic recovery. To this end the IMF adopted

guidelines in the late 1990‟s to allow it to halt loans to nations whose

governments were guilty of corruption or the misuse of IMF funds.

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Management Strategies for a Global Society – Winter 2003          Maty Brimmer, Elyse May,
                                                                        Lateisha Robinson,
                                                              Jacob Stewart, Rokaih Vansot

        In 1997 The IMF halted loans to Kenya because of that government‟s

bribery and self-enrichment. The halt of the loans to Kenya were put in place at

the same time as the new guidelines and the move to halt the loans was


        In addition the IMF voting members can vote against loans to countries

that are guilty of human rights violations although they rarely do.

        The IMF works in close proximity with the World Bank, and it has been a

long-standing rule that these organizations are not to dictate domestic or foreign

policy to the member countries. These new guidelines are seen as being

intrusive by some member countries, whose direction and culture may not be

reflected by US values.

        The IMF has many critics who feel that the IMF should narrow it‟s scope

to short term loans to countries in a financial crisis or during a time of crises or

conflict (such as war), and that it should leave additional long term lending for

the purpose of supporting developing economies to the World Bank.

Membership and Governance of the IMF

        The International Monetary Fund is an international organization chartered

by the United Nations currently consisting of 184 member countries. The

organization‟s authority runs from the governments of member countries to the

IMF, under the umbrella of the United Nations.

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Management Strategies for a Global Society – Winter 2003       Maty Brimmer, Elyse May,
                                                                     Lateisha Robinson,
                                                           Jacob Stewart, Rokaih Vansot

Board of Governors

        The Board of Governors is composed of ministers of finance or heads of

central banks from each of the IMF's 184 member countries. Apart from those

Governors that are represented on the International Monetary and Financial

Committee (see below), the Governors gather only on the occasion of the IMF-

World Bank Annual Meetings to deal formally with IMF matters. During the rest

of the year, they communicate the wishes of their governments for the IMF's

day-to-day work through their representatives on the Executive Board (see


The International Monetary and Financial Committee

        The International Monetary and Financial Committee consists of 24

Governors representing constituencies or groups of countries, corresponding to

those of the Executive Board (see below). It meets twice a year, on the occasion

of the IMF-World Bank Annual and Spring Meetings, to advise the IMF on the

functioning of the international monetary system

Executive Board

        The Executive Board consists of 24 Executive Directors representing the

IMF's 184 member countries. The Board, which is based at IMF headquarters in

Washington, D.C., is responsible for conducting the day-to-day business of the

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Management Strategies for a Global Society – Winter 2003           Maty Brimmer, Elyse May,
                                                                         Lateisha Robinson,
                                                               Jacob Stewart, Rokaih Vansot

IMF and meets at least three times a week in formal session. At present, eight

Executive Directors represent individual countries: China, France, Germany,

Japan, Russia, Saudi Arabia, the United Kingdom, and the United States. The 16

other Executive Directors each represent groupings of the remaining countries.

They executive directors hold voting power based on a complex system of share

allocation based on each country‟s quota in the fund. This system rewards the

larger developed economies with more power in determining how things are run,

due to a larger allocation of shares.(See Figure 2) This system thus allows the United

States the greatest say in policy and decision-making. The current US

representative on the executive board, Nancy Jacklin, wields 17% of the voting

power individually, as a representative of only one country. Several directors,

who represent from two to thirty member nations, hold between 1% and 5%

each in voting shares. However, the Executive Board rarely makes its decisions

on the basis of formal voting, but relies instead on the formation of consensus

among its members, following the United Nations model.

         Figure 2 (From

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Management Strategies for a Global Society – Winter 2003        Maty Brimmer, Elyse May,
                                                                      Lateisha Robinson,
                                                            Jacob Stewart, Rokaih Vansot

Managing Director

        The Managing Director is Head of IMF staff and Chairman of the Executive

Board. The Managing Director position is filled through appointment by the IMF

Executive Board and is responsible for managing the agency‟s staff, and

providing direction to the Executive Board. The Managing Director is roughly the

IMF equivalent of the office of the „Secretary General‟ in the United Nations.

Financial Overview

        The IMF's resources are acquired through payments of capital (or Quotas)

that member states pay when they join the IMF, or following periodic reviews in

which quotas are increased. Countries pay 25 percent of their quota

subscriptions in Special Drawing Rights (SDR), which is the IMF‟s standard

monetary unit, made up of the conglomeration of cash reserves of hard tradable

currencies, such as U.K. Pounds, U.S. dollars or Japanese yen, gold, and a

smaller percentage being paid in the member nation‟s own currency. The SDR

value is calculated through current exchange rates to reach a “basket” price.

The SDR current unit value as of January 31, 2003 is roughly equivalent to $1.37

US Dollars.

        As mentioned above, IMF quotas determine not only a country's

subscription payments, but also its voting power, the amount of financing that it

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Management Strategies for a Global Society – Winter 2003                 Maty Brimmer, Elyse May,
                                                                               Lateisha Robinson,
                                                                     Jacob Stewart, Rokaih Vansot

can receive from the IMF, and its share in SDR allocations. The quotas are

intended broadly to reflect members' relative size in the world economy: the

larger a country's economy in terms of output, and the larger and more variable

its trade, the higher its quota tends to be. The United States of America, the

world's largest economy, contributes most to the IMF, 17.6 percent of total

quotas; Seychelles, the world's smallest, contributes 0.004 percent. Recent

quota adjustments in January 1999, raised IMF quotas for the first time in a

decade by about 45 percent to SDR 212 billion (about $290 billion).

        If necessary, the IMF has the ability to borrow funds to supplement the

resources available from its quotas. The IMF has two sets of standing

arrangements to borrow if needed to cope with any threat to the international

monetary system:

           The General Arrangements to Borrow (GAB), set up in 1962, which has 11
            participants (the governments or central banks of the Group of Ten industrialized
            countries and Switzerland), and
           The New Arrangements to Borrow (NAB), introduced in 1997, with 25 participating
            countries and institutions.

        Under both arrangements combined, the IMF has up to SDR 34 billion

(about $46 billion) available to borrow.


                                               Page 9
Management Strategies for a Global Society – Winter 2003           Maty Brimmer, Elyse May,
                                                                         Lateisha Robinson,
                                                               Jacob Stewart, Rokaih Vansot

        With the worldwide scope and stated mission of helping all member states

achieve financial stability by fostering proper economic conditions regarding

balance of payments, foreign currency exchange, and financial transparency

while stimulating growth, the IMF has a difficult role to fill in today‟s global

economy. Given that the name of the organization in question is the

International Monetary Fund, and it operates under a United Nations charter, it

would be wrong for the values and conduct of the IMF to be solely influenced by

the policy and values of the United States Government. It is not within the

scope of the fund or it‟s mission, nor should it be, for the United States

Government to dictate policy to the one hundred and eighty-three other

sovereign countries that currently comprise the IMF‟s member nations. Instead

the US should help guide the IMF by encouraging “best practices” in member

state‟s domestic economic policies. The IMF charter and the corresponding

distribution of voting power ensure that the United States has the largest single

voice, and that they will continue to be the driving force behind decision-making

and policy formation.

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