ESAN UNIVERSITY

FACULTY OF LAW AND SOCIAL SCIENCES

THE INTERNATIONAL MONETARY FUND

Research paper present by:

Nicanor Nalvarte Jeri

2020
Historical background:

Once World War II was over, one of the first initiatives by the winning countries was the creation
of institutions to help preserve world peace, as well as promote the development of piases
internationally, within these institutions is the International Monetary Fund, whose first
confirmatory meeting was held in Bretton Wonds USA , having as the first time the participation of
44 countries that would initially make up it, the objective of this institution was to form an
international institution "that will oversee the international monetary system and encourage the
elimination of exchange rate restrictions on trade in goods and services, as is the case with
exchange1 (free translation by author),, with respect to the exchange rate it is emphasized that
"the countries that entered the IMF between 1945 and 1971 agreed to determine the exchange rate
rate of its currencies , which in fact represented the value of the currency against the US dollar. The
U.S., and, in the case of the United States, the value of the dollar relative to the value of gold, with
2
the intention of forming a link that can be adjusted only to correct balance-of-pay imbalances," it
should also be emphasized, that currency convertibility management over the gold standard comes
to an end in 1971 under President Richard Nixon's government.

The success of the creation of the International Fund resulted in more and more countries being part
of this organization, becoming a member country today, becoming a very important international
entity, because it has the function of promoting the development and well-being of the countries
that make up it, seeking this end by providing the money that applicant countries need to develop
their economies , on the other hand, it should be emphasized the financial advisory work that this
entity provides to the countries that request it, with the intention that they can adopt the
improvement of financial practices and be able to improve the development of countries, it should
be emphasized that in order for the Monetary Fund to enter into a credit, applicant countries must
agree to meet a number of budget management requirements in their countries , such as reducing
public spending with the intention that the country will have higher revenues to carry out economic
revival, as well as that the credit given by the International Monetary Fund takes precedence in
being paid, the latter with the intention that the Monetary Fund will continue to have resources in
time to continue to help countries that need a loan for the development of their economies.
Formation and organization of the International Monetary Fund.

1
Fondo Monetario Internacional, ¿Que es el fondo Monetario Internacional? (Washington: Fondo
Monetario Internacional, 2004), 6
2
Lelart Michel, El sistema Monetario Internacional, (Madrid: Acento editorial, 2004), 36
First of all, it should be noted that the International Monetary Fund is a multilateral institution
because its composition is made up of several countries, although at first there were only 44
countries today, now each country that is a member of the International Monetary Fund must pay a
fee for its permanence, money that goes directly to the agency's funds as a budget for lending to
countries that request it , on the other hand, it should be emphasized that the decisions taken by this
institution will be subject to a vote by member countries on the subject to be dealt with, however,
the strength of the votes that countries have, is conditioned on the participation quotas they give to
the International Monetary Fund, a clear example on this, is the interference that the United States
has on the decisions that are made in this institution , because its contributions represent 17.5% of
the International Monetary Fund's budget, the countries of Japan, Germany, France, the United
Kingdom and China are similarly characteristic. Although there are situations in which the actions
that the International Monetary Fund performs are carried out by taking the agreement unanimously
from its members, it is latent to criticize it on how to direct the policies governing this institution
based on the voting preferences that the countries that contribute the most to the fund of this
institution,

However, the International Monetary Fund is accountable to its member countries, in this regard the
work of leading the entire IMF rests with the Executive Director, who represents "the 188 IMF
member countries, and the internationally recruited staff under the Managing Director and three
Managing Assistant Directors who will hold office for a period of five years; the senior
management team comes from different regions of the world. The powers of the Executive Board
for imf management have been delegated by the Board of Governors, on which final oversight
rests." 3 (free translation by author),

However, within the characteristics of the Executive Board, it is made up of 24 EXECUTIVE

Directors and chaired by the Director-General of the IMF, and the agenda of these officials is to
meet three times a week at the IMF's central headquarters in Washington where imf management
issues are discussed.

However, with regard to the Board of Governors, it must be borne in mind that it "represents all
IMF member countries and is also its maximum authority, on the other hand, it must be borne in
mind that each member, elises a governor to represent him on the board of Governors", and that this

3
Alicia Giron, Fondo Monetario Internacional: De la estabilidad a la Inestabilidad, el consenso de
Washington y las reformas estructurales de América Latina, (Buenos Aires: Clasco, 2008), 50.
position falls often to state officials such as the Ministers of Economy and Finance or the officials
who manage the country's central bank. "It is important to note that the Board of Governors decides
on all important policy issues handled at the IMF yet delegates all day-to-day efforts to the
Executive Board. On the other hand, key policy aspects related to the international monetary system
are discussed twice a year in a committee of governors called the International Monetary and
Financial Committee or4" (free translation by author),

On the other hand, it should be noted that the international monetary fund has a staff of 2800
employees who come from different parts of the world, so too, the IMF is headquartered in
Washington, has offices in Tokyo, Paris, New York and Geneva; another interesting point about the
IMF's structure is that it has 26 departments each chaired by a director who has the Director-
General as his superior.

On the income of the International Monetary Fund.

As mentioned above, the main source of IMF revenue comes from the capital participation of the
member countries that make up it, even having the effect that the voting rights of certain countries
are greater based on their share of participation in the IMF, clear examples of this are the
COUNTRIES. , France, Japan, Germany, England and China, being the first one of the largest
bringers to this fund.

On the other hand, it is important to note that the IMF not only derives its income from only the
contributions of the member country, but can also when it "needs the IMF I can borrow through two
types of permanent agreements, which it can turn to if it needs to deal with any kind of threat in the
International Monetary System , which are :
 The General Agreements for The Obtaining of Benefits (GPA), established in 1962,
covering 11 participants (the governments or central banks of the Group of Ten
industrialized countries and Switzerland)
 The new Loan Agreements (NATs) established in 1997, with 25 participating countries
and5 institutions"6,

4
Fondo Monetario Internacional, ¿Que es el fondo Monetario Internacional?, 18
5

6
Fondo Monetario Internacional, ¿Que es el fondo Monetario Internacional?, 20
On the services provided by the International Monetary Fund.
Among the services provided by the IMF can be found "(i) to review and monitor national and
global economic and financial developments and advise member countries on the economic means
they implement, (ii) it lends them hard currency in support of the policy of adjustments and reforms
that serve to correct the balance of payments and that promote sustainable growth , (iii) offers a
wide range of technical assistance, and training to public officials and central banks, in the field of
their specialty. " 7 (free translation by author),

With respect to the first point, the IMF is responsible for ensuring that the international monetary
system is in optimal condition and this is achieved on the basis of monitoring and monitoring of the
monetary policies adopted by member countries, on the other hand, it should be emphasized that
when a country is part of the IT IMF is obliged to follow guidelines that this institution establishes
on the management of the country's monetary policy.

It follows that "Member States agree to steer policy measures towards the objective of orderly
economic growth with reasonable price stability, as well as to promote orderly fundamental
economic and financial conditions and to avoid exchange rate manipulation in order to gain
competitive unfair advantages. Member countries are also committed to providing the IMF with the
information needed to enable it to carry out its follow-up work. Member countries have agreed that
IMF oversight of national exchange policy should be conducted as part of a comprehensive analysis
8
of the overall economic situation and each member country's strategy for its economic policy."
(free translation by author),
With regard to the IMF's role in balance-of-payments stability, it must first be understood to be the
balance of payments, which is defined as "The balance of payments is a macroeconomic indicator
that provides information on the country's economic situation in a general way. That is, it allows to
know all the revenue that a country receives from the rest of the world and the payments made by
that country to the rest of the world due to imports and exports of goods, services, capital or
transfers in a period of time." 9(free translation by author), IMF support to countries that struggle

7
Fondo Monetario Internacional, ¿Que es el fondo Monetario Internacional?, 22
8
Lelart Michel, El sistema Monetario Internacional, (Madrid: Acento editorial, 2004), 41.
9
Sánchez Galán Javier, Crisis de la balanza de pagos. Recuperado de:
https://economipedia.com/definiciones/crisis-balanza-pagos.html#:~:text=Una%20crisis%20de
%20balanza%20de,decisiones%20de%20los%20agentes%20econ%C3%B3micos.&text=Esta
%20situaci%C3%B3n%20provoca%20que%20los%20agentes%20econ%C3%B3micos%20var
%C3%ADen%20su%20toma%20de%20decisiones.
with the balance of payments isin this situation the IMF can provide a loan to help solve this
problem.

Finally, with respect to the third point, the IMF provides great technical assistance to the member
countries that make up it, with the intention that its economic policies will be aligned according to
imf recommendations,it is also necessary to emphasize thatfor the IMF to provide a credit to a
country, it must comply with the monetary policies that the IMF demands of it.

One fact that highlights the IMF's support is that at first the aid provided was given to developing
countries, however, over time, technically most loans have been granted to developing countries,
highlighting the IMF's very important role in the global economic system as an International
Agency that preserves the global monetary and economic system, try thusing to avoid economic
crises at the international level.

Key features of IMF credit

First, it should be noted that imf credits cannot be compared as development or project credits, as if
they would be granted their similar which is the World Bank, in this sense the credits provided by
this Agency is contributed to "to member countries overcoming problems with the balance of
payments and thus restoring sustainable economic growth, in this sense, the currencies it delivers, in
amounts that are determined by the country's share complement to the country's international
reserves and thus obtain general support. Unlike loans provided by development agencies, funds
provided by the IMF are not allocated to the financing of specific activities "10,

Another characteristic of the credits provided by the International Monetary Fund is that it is
conditioned, in the sense that credit-acquiring countries have to submit to the conditions set by the
IMF, and this has to do, as mentioned above, that the credit beneficiary country has to follow the
fund's economic suggestions (mostly aimed at macroeconomic policies), as well as return the loan
in time established by this agency.

IMF credit is temporary in that short-term loans must be reimbursed by the beneficiary country
between a period of time of three to five years; on the other hand, in the case of long-term loans the
estimated time is 4 to 10 years.

10
Lelart Michel, El sistema Monetario Internacional, (Madrid: Acento editorial, 2004),48
With respect tore-pocketing credit, the IMF "TheIMF expects the borrowing country to prioritize
repayment of the loan granted to it. The borrowing country is required to reimburse the IMF on
time, so that resources are available to be loaned to other countries that need balance-of-payments
financing. The IMF has established mechanisms to deter the accumulation of arrears, or overdue
repayments and interest. However, the most important aspect is the weight of the international
community for the IMF to enjoy preferential creditor status. It thus ensures that the IMF will be
among the first to be reimbursed"” 11 (free translation by author),

While you may see serious criticism of imf management, it should be noted that since its formation
in 1945, it has been a decisive international body in international economic policy, in the sense, of
trying to agree on member countries' economic decisions and thus promoting international trade
development and promotion, benefiting both developed and developing countries.

11
Fondo Monetario Internacional, ¿Que es el fondo Monetario Internacional?, 27
 Bibliographic.

 Lelart Michel, El sistema Monetario Internacional, Madrid: Acento editorial, 2004.

 Fondo Monetario Internacional, ¿Que es el fondo Monetario Internacional? (Washington:

Fondo Monetario Internacional, 2004), 6

 Sánchez Galán Javier, Crisis de la balanza de pagos. Recuperado de:

https://economipedia.com/definiciones/crisis-balanza-pagos.html#:~:text=Una%20crisis
%20de%20balanza%20de,decisiones%20de%20los%20agentes%20econ
%C3%B3micos.&text=Esta%20situaci%C3%B3n%20provoca%20que%20los%20agentes
%20econ%C3%B3micos%20var%C3%ADen%20su%20toma%20de%20decisiones.

 Alicia Giron, Fondo Monetario Internacional: De la estabilidad a la Inestabilidad, el

consenso de Washington y las reformas estructurales de América Latina, Buenos Aires:
Clasco, 2008),