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The IMF

In Background on May 26, 2011 at 12:04 pm

The IMF (International Monetary Fund) is an international monetary institution, which was set up after the end of the Second World War. It was conceived at the Bretton Woods Conference which took place in New Hampshire (USA) in July 1944 and it  began operations in March 1947. Originally, it started with 29 member states, but there was a great expansion of its membership during the 1950s and 1960s. The IMF’s initial aim was to promote international economic stability and oversee the international monetary system i.e. the system of exchange rates and international payments through which countries trade with each other.

This aim was also compatible with the “par value system” (also known as the Bretton Woods system) which meant that the countries that joined the IMF up to 1971 agreed to keep their exchange rates pegged at specific rates. In particular, the member countries agreed to keep the value of their currencies pegged in terms of the U.S. dollar and the United States agreed to retain the value of the dollar pegged in terms of gold. These rates could be adjusted only to correct a “fundamental disequilibrium” in the balance of payments, and only with the IMF’s agreement. This system collapsed in 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold.

Since the 1970s the IMF took on a new role, that of a lender to governments that could not borrow from the international markets. However, as it usually goes with borrowing and lending, the IMF lends funds under specific conditions. The measures that the IMF usually requests of the government-borrower, also known as Structural Adjustment Policies (SAPs) include trade liberalization, currency devaluation, privatization, reduction of government deficits, reduction of the role of the government in the economy, all with the aim of attracting FDI (Foreign Direct Investment) i.e. long-term capital investment from multinational companies. Most of the time, the results are a decrease in the provision of the provision of health care services and education (also known to economists as merit goods), a fall in real wages, and an increase in unemployment. To find out more about the IMF, you can visit its website. For a critique of the IMF, you can visit Naomi Klein’s website.

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