International Monetary Fund (IMF)

UN specialized agency established in 1944 under Bretton Woods system to help prevent unstable exchange rates and competitive devaluations of pre-Second World War Western economies. It has since evolved into an organization of 184 countries focused on preventing crises in international monetary system via (1) surveillance through monitoring of national economies and economic policies, (2) medium-term loans to tide over balance-of-payment problems, and (3) technical assistance in formulating and administering monetary, exchange rate, and taxation policies, central bank operations, etc. Governed by a board of governors drawn from each member country, its day to day decisions are taken by a 24-member board who have voting-power in proportion to their respective country's economic strength (and not on the basis of one-country, one-vote practice). The US (with about 18 percent of the voting-power), UK, France, Germany, and Japan are the most prominent members, followed by China, Russia, and Saudi Arabia. The other 16 members are elected from groups of countries called constituencies. IMF operates more like a credit union than an investment bank because its capital (currently about $300 billion) is contributed by its members based on a quota proportional to the member's economic strength. Members can borrow against this contribution, but lending is conditional on the borrower's pledge to follow certain hard choices such exchange rate devaluation, cuts in social spending, control on wages, and removal of price controls. Except in case of the poorest nations, loans are advanced on market interest rates (currently about 3 percent) and, if the borrowing exceeds the member's quota, more onerous conditions (called conditionalities) are imposed. Unlike the World Bank, IMF does not provide project-specific loans but only temporary lending (up to 10 years) for rebuilding of foreign exchange reserves, stabilization of the currency, and payments for imports.