How Does the International Monetary Fund Function?

Intergovernmental organizations (IGOs) have always played a very important role in the global economy. These groups are generally created through the enactment of a treaty and are composed of a group of member states. The goals of individual IGOs depend on their function and membership. Some of the most common and widely known IGOs include the United Nations, the World Bank, and the International Monetary Fund (IMF). This article looks closely at the IMF and its three main functions.

What Is the International Monetary Fund (IMF)?

The International Monetary Fund (IMF) is an international organization that aims to accomplish a number of different goals. These include reducing global poverty, encouraging international trade, and promoting financial stability and economic growth.

The organization was created in 1945 and is based in Washington, DC. There are a total of 190 member countries, each of which is represented on the group's board. This representation is based on how important its financial position is in the world, so stronger, more powerful countries have a greater voice in the organization than nations which are much weaker.

The IMF functions in three main areas:

• Overseeing the economies of member countries
• Lending to countries with balance of payments issues
• Helping member countries modernize their economies

Monitoring Member Country Economies

The International Monetary Fund's primary job is to promote stability in the global monetary system. So, its first function is to monitor the economies of its 190 member countries. This activity, known as economic surveillance, happens at both the national and global levels. Through economic surveillance, the IMF monitors developments that affect member economies as well as the global economy as a whole.

Member nations must agree to pursue economic policies that coincide with the IMF's objectives. By monitoring the macroeconomic and financial policies of its member countries, the IMF sees stability risks and advises on possible adjustments.

Lending

The IMF lends money to nurture the economies of member countries with balance of payments problems instead of lending to fund individual projects. This assistance can replenish international reserves, stabilize currencies, and strengthen conditions for economic growth. The IMF expects the countries to pay back the loans, and the countries must embark on structural adjustment policies monitored by the IMF.

Lending through the IMF takes two forms. The first is at non-concessional interest rates, while the other comes with concessional terms. The latter is advanced to countries with low income, and bears very low or no interest rates at all.

Technical Assistance

The third main function of the IMF is through what it calls capacity development by providing assistance, policy advice, and training through its various programs. The group provides member nations with technical assistance in the following areas:

• Fiscal policy
• Monetary and exchange rate policies
• Banking and financial system supervision and regulation
• Statistics

The organization aims to strengthen human and institutional capacity. This is very important for countries with previous policy failures, weak institutions, or scarce resources. Through capacity development, member nations can help strengthen and improve growth in their economies and create jobs.