International Monetary Fund (IMF) is an organization that oversees the international financial system. It has more than 180 member nations. The IMF regularly reviews global and regional economic and financial developments. The IMF also conducts reviews of each member country’s economic situation. The results of these reviews are shared with member nations to help them improve their economies. The IMF also provides short-term loans when a member nation encounters financial difficulty.
To receive IMF loans, members usually must change their economic policies. For example, the IMF may insist that the borrowing country reduce its budget deficit and sharply raise interest rates to reduce inflation. It may also suggest that a member devalue its currency to make its exports more competitive in world markets.
Policies required by the IMF often cause short-term political unrest or economic hardship within the country that adopts them. However, these policies usually offer important longer-term benefits. They generally stabilize the nation’s economy, reduce inflation, and eventually create an economic environment favorable to growth.
By lending money to a member, the IMF reassures private banks and investors that it is safe for them to put money in the country. IMF loans often encourage the extension of existing bank loans and other private credits.
The IMF was created in 1944 to develop international economic cooperation that might avoid a repetition of the circumstances that led to the Great Depression, a worldwide economic slump of the 1930’s. In the 1970’s, the IMF began focusing on the problems of less developed nations. In the 1990’s, the IMF became heavily engaged in addressing financial crises in Mexico, East Asia, and countries of the former Soviet Union. During the credit crisis that began in 2007, leaders of more developed economies committed more than $1 trillion to the IMF to fight the global economic recession.
Officially, the IMF is a specialized agency of the United Nations. Its member nations are assigned quotas based on their size and relative importance in the world economy. The quotas determine the amount of money each country contributes to the organization, as well as their number of votes. The IMF is headquartered in Washington, D.C.
The fund is closely connected with the World Bank, the international agency that offers long-term credit to its member nations. A country must be a member of the IMF before it can belong to the World Bank.
