Internal Monetary Fund, “Bretton Woods Institution” - Nahid Bhadelia

Principles of Foundation

  • Based on an agreement at the end of WWII signed by 29 initial member countries at United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, United States, on July 22, 1944 and became a functioning organization in December, 1945.
  • Created as a response to the growing mercantilist/protectionist policies adopted by countries in response to declining economic activities in major industrial countries.
  • Was meant to oversee the newly formed fixed exchange rate/ serve as the global ‘credit card.’ It helps countries with balance of payment problems.
  • Follows a Keynesian approach to economics, based on its principle architect John Keynes, the US economist.

    • Membership and Policies

  • A country’s level of membership decided by the ‘membership quota’ or the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of special drawing rights (SDRs).
  • Made up of all UN states with the exception of North Korea, Cuba, Liechtenstein, Andorra, Monaco, Tuvalu and Nauru.
  • After the collapse of the fixed exchange rate system in the 1970s and the increasing worldwide economic interactivity, role of IMF has expanded.
  • In the last three decades, it has become a lender to struggling economics in the developing world.
  • Institutes Structural Adjustment Programs (SAPs) which largely function to bring foreign investment into borrower countries and institute stricter economic standards.

    • Criticisms

  • Criticized for the conditionality attached to its aid meant to ‘open countries to international trade.’ Structural Adjustment Programs (SAPs) are a set of requirements which IMF used in the 1980s and early 1990s to create ‘austerity programs’ and force higher tax rates, undercutting social services in poor countries.
  • Has been accused of supporting military and undemocratic dictatorships which are friendly to US corporations.
  • Is criticized of reactive rather proactive action against collapse of economies.
  • Argentinean crisis of 1999-2002 as an example of the failure of these policies. Did IMF policies worsen famines in countries such as Ethiopia and Malawi?
  • Kenya, Kamlesh Manusuklal Damji Pattni, and the Goldenberg scandal of late 1990s.

    • The Way Ahead?

  • Poverty Reduction Strategy Papers (PRSP): A way to democratic participatory decisionmaking or the new SAPs