Operation And The Main Interventions Of The IMF In The World

ANNUAL MEETING OF THE IMF BUREAU                


         
                     FUNCTIONING

  The IMF is governed by its members[18], as of October 2020, each having one vote weighted by its financial participation in the organization (its “quota”).  190 countries take many decisions in consultation with the World Bank within the “Development Committee”.  Its day-to-day management is entrusted to a board of directors made up of the president of the organization and 24 administrators, each representing a nation.  Eight of them in 2020 have a permanent representative (United States, United Kingdom, France, Germany, Japan, People's Republic of China, Russia and Saudi Arabia), the other 16 are elected by member countries.

 

 Most decisions are effectively made unanimously.  However, given the decision-making methods within the IMF, which assume a qualified majority corresponding to 85% of the voting rights, the United States, or the European Union as a whole, have a de facto right  of veto on the decisions of the IMF since they each have more than 15% of the voting rights.  However, EU countries are not always coordinated.

 

 The resources of the IMF linked to the quotas are approximately 210 billion SDR (i.e. 300 billion US dollars), to which is added the possibility for the IMF to resort to borrowing from the major economic powers (these credits are  around $50 billion).  During the G20 summit in London on April 2, 2009, it was decided to significantly increase the resources of the IMF to the tune of 1,000 billion dollars to better face the global crisis.  Emerging countries feel that they are under-represented in existing financial institutions.  The reform will have increased China's voting rights from 4% to 6.4%, which would have placed it just behind Japan but still far behind the United States, whose share would have only slightly decreased  from 17.7 to 17.4%.  This reform would have allowed the BRICS countries to be among the 10 countries with the highest quota, to the detriment of Canada in particular.  In August 2010, 181 countries eligible to vote representing 99% of the quota had approved this increase[19].  Although signed by US President Barack Obama in 2010, Republicans in the United States Congress refused to ratify this project to reform the International Monetary Fund[20].

 

 The IMF has approximately 2,700 employees.

 

 

 THE MAIN INTERVENTIONS OF THE IMF ON ALL CONTINUANTS

 During the 1980s, several countries in Africa (including Ghana, Uganda, Tanzania and Zimbabwe) and Latin America experienced debt crises requiring the intervention of the International Monetary Fund (IMF).  From the 1990s, the succession of international financial crises (Asian crisis in 1997, Russian crisis in 1998) led the IMF to increasingly play the role of “lender of last resort” at the global level.

 

 Overview of the main interventions of the IMF during the onset of financial crises from the beginning of the 1980s.

 

 Mexico, 1982

 In 1981, the price of oil fell sharply causing a significant drop in revenue from exports from Mexico.  The country's economy, which is largely dependent on these oil exports, is shrinking.  Tax revenues are declining while the deficits accumulated since the mid-1970s continue to widen.

 

 On August 22, 1982, unable to meet the end-of-month payment deadline for its debt, Mexico demanded a six-month moratorium from its creditors.  The country's total debt amounts to 86 billion dollars or 70% of its gross domestic product (GDP).  It is mainly owned by foreign banks.

 

 The IMF and the Bank for International Settlements (BIS) agree to lend eight billion dollars in emergency on two conditions that:

 

 this money is used to repay foreign private banks;

 Mexico adopts adjustment measures.

 Mexico accepts, devalues ​​its currency, increases interest rates, reduces public spending and saves the country's private banks from bankruptcy by nationalizing them.

 

 Mexico, 1994

 In December 1994, the Mexican authorities devalued their currency, the peso, leading to capital flight which seriously destabilized the Mexican currency and caused an economic crisis in the country.  The IMF intervenes and grants a loan of 18 billion dollars.

 

 Southeast Asia, 1997

 At the beginning of 1997, the bursting of the financial bubble in Thailand caused the stock market to fall and the flight of capital from the country.  In response, the Thai authorities decided to let their currency float, which until then had been pegged to the US dollar.  This decision leads speculators to attack the other currencies of Asian countries that are pegged to the US dollar (Philippines, Malaysia and Indonesia).  In the absence of immediate intervention from the US Treasury and the IMF, investor distrust of all currencies of Southeast Asian countries is spreading.  South Korea, Singapore, Taiwan and Hong Kong are affected in turn.  Capital flight is accelerating and the economies of Asian countries are falling into recession due to the succession of bank failures and large companies that had gone into debt in dollars.  The IMF intervenes after several months of crisis.  It grants loans totaling $37 billion to Thailand, South Korea, Indonesia and the Philippines.

 

 Russia, 1998

 After the outbreak of the Asian crisis, the Russian economy suffered both from lower demand for raw materials in connection with the global economic slowdown, and from an overvaluation of the ruble - which was due to fixed interest rates  at a high level to fight against inflation - which penalized the competitiveness of the country's products.  In this context, tax revenues, already insufficient, have diminished and a situation of budgetary impasse has emerged.  The IMF (loan of 22.6 billion dollars) and the World Bank intervened to lend to Russia, but these interventions caused the mistrust of international investors and a flight of capital.  The authorities reacted by devaluing the ruble and declaring their country in default on its debt.

 

 Brazil, 1998

 The impact of the Asian crisis reverberated in Brazil from October 1997 and intensified during 1998. The ensuing flight of capital reduced the country's reserves, forcing the government to devalue the real  in January 1999. Previously, the IMF had granted a rescue plan of 41.5 billion dollars in December 1998.

 

Türkiye, 2000

 The Turkish Central Bank is intervening to avoid the bankruptcy of several banks affected by the sharp drop in the Treasury bond market, itself caused by massive sales by the Demirbank, which was short of liquidity.  This intervention raised fears among international investors about the soundness of the Turkish banking system and capital outflows accelerated, prompting the authorities to request assistance from the IMF, which granted it aid of 11 billion dollars.

 

 Argentina, 2001

 As of January 1, 1992, the external value of the peso is aligned with that of the US dollar in order to fight against hyperinflation and the State can no longer resort to advances from the Central Bank to finance its deficit.  The results are immediate: the inflation rate falls below 10% in 1992 and the growth of the gross domestic product (GDP) exceeds 10% in 1991 and 1992, and remains very strong until 1998. The chosen exchange rate system is favorable  as long as the dollar does not appreciate against the currencies of the countries with which Argentina trades.  But the sudden rise of the dollar in 1998, following the outbreak of the Asian crisis, shook the Argentine economy.

 

 The sudden devaluation of the Brazilian real in January 1999 and the constant rise of the dollar quickly caused a collapse in exports.  Argentina is dragged into deflation as business inventories swell and activity contracts.  The government then appealed to the IMF, which lent it $21.6 billion.

 

 Greece, 2010 and 2011

 Upon coming to power in October 2009, Prime Minister Georges Papandreou discovered a public deficit of 12.9% and a public debt equivalent to 115% of GDP, levels which are well beyond the convergence criteria required for member countries.  of the euro zone but which until then had been masked by the Greek authorities.  This discrepancy is the result of massive tax evasion, an underground economy which represents a fifth of the GDP, and public spending well above the means of the State.  The executive undertakes to reduce its public deficit to 8.7% by the end of 2010 but is struggling to convince its European partners.  In order to avoid default on its debt, Athens must turn to the European Union and the IMF.  In May 2010, they granted Greece financial aid of 110 billion euros over three years, including 30 billion from the IMF (only 20 billion will be used).

 

 In May 2011, it appeared that Greece would not be able to borrow on the markets in 2012 and that new financing had to be found.  Indeed, the country is unable to reduce tax evasion and sees its recession worsened by austerity.  The Europeans and the IMF who fear that a default by Greece will cause a new financial turmoil are ready to come to the aid of the country.  The IMF grants a new loan program of up to 28 billion euros over 4 years.

 

 Portugal, 2011

 Portugal saw its borrowing rates increase following the downgrading of its sovereign debt rating by the rating agencies.  In 2010, the country's external debt (private and public) reached a high level (93% of GDP) and its public deficit amounted to 9.8% of GDP.  Having growing difficulties in obtaining financing on international markets, the Portuguese government reached an agreement on May 17, 2011 with the European Union, the European Central Bank and the IMF for an aid program of 78 billion euros.  In this context, the IMF will grant it loans totaling around 26 billion euros between 2011 and 2014.

The financing conditions of the International Monetary Fund are the most important in the non-repayable financing procedure and this is applied to all beneficiaries. Any beneficiary wishing to subscribe to financing must be at least 18 years old. This condition must not be respected by the beneficiary due to finance laws. The beneficiary must have a document containing detailed plans for his investment project which he must submit to the file manager. All beneficiaries must have an active bank account, only bank accounts are accepted for the transfer of financing funds. After obtaining the financing funds by the beneficiary, a visit is made to the beneficiary's investment site to verify whether the funds are actually invested in the project listed in the financing contract. The personal contribution of the beneficiary is required when drawing up the financing contract: the International Monetary Fund does not cover the costs of the notary's fees. After signing the financing contract, the financing funds will be credited to the beneficiary's bank account. The conditions are applied to all beneficiaries.

 

 

 

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