Most Powerful Groups in the World - International Monetary Fund Part 1
About the history of the organization known as the International Monetary Fund or IMF bank which helps oversee the global economy.
WHO'S IN CHARGE?--SIX POSSIBLE CONTENDERS
INTERNATIONAL MONETARY FUND
The Enterprise: Acting arbitrarily as global overseer of the world's economy, the International Monetary Fund's realm of influence extends over the finances of dozens of industrialized nations and developing countries. In addition to forcing fiscal cooperation between countries, the IMF functions as a short-term lending bank and doles out economic "advice" to its member nations. That advice has often taken the form of harsh preconditions which governments must meet before loans are granted. Three times the IMF refused to grant Italy a loan. There was speculation that the Italian government would fall if the IMF continued its financial squeeze play. Italy apparently capitulated to Fund pressures, and the loan finally went through. Similar situations have occurred in Mexico, Portugal, and Zaire. And in 1980 the IMF approved a $1.6 billion loan to Pakistan. It was the largest single loan ever made by the organization.
History: Founded along with the World Bank in 1944 at a U.N. conference at Bretton Woods, N.H., the IMF's initial job was to stabilize exchange rates and expand the international flow of currency. At its inception, IMF helped trigger an open international economy, as member nations agreed not to alter the exchange value of their currencies without permission from the IMF. Membership in the IMF expanded from 29 countries which signed the original agreement to more than 141 in 1980. Each nation's voting power is determined by its "quota," that is, the amount of its contribution to the Fund in gold and paper money. Historically, the IMF has been dominated by Western nations, with the largest 10 industrialized countries jointly controlling the majority of votes. As the chief Fund contributor, the U.S. controls about 20% of the IMF's vote, giving it veto power over Fund policy. Twenty executive directors, of whom five are appointed by the U.S., Great Britain, France, Germany, and Japan (the nations with the largest quotas), oversee a staff of 1,400 based at IMF headquarters in Washington.
Besides acting as an exchange-rate enforcer, the IMF empowered itself with the authority to make short-term balance-of-payments loans to member nations. Traditionally, the Fund would attach conditions to its loans, requiring that borrowers take IMF-prescribed steps to reduce their payment imbalance. But, never intended as a major lending institution, the IMF simply didn't have assets to sustain such loans, and began to lose its influence in the 1950s, overshadowed by its sister organization, the World Bank. Then, deprived of its original role of managing international exchange rates in 1973 when major industrialized nations abandoned fixed rates and began to allow their currencies to float, the Fund's future looked dim. Eventually the IMF's lending began to pick up again when it rushed in to help countries buffer OPEC price hikes in the mid-1970s, but its power remained in a decline. In fact, so few conditions were attached to IMF loans that a West German finance minister remarked that the IMF had become a "self-service supermarket, where the customers just help themselves to the products on the shelves." But then, as even developed countries reeled under quadrupled OPEC price increases in late 1973, IMF began experiencing a rebirth. As private banks reached the hilt of their lending capacity, IMF stepped in to fill the void. U.S. Treasury and Federal Reserve officials decided the IMF was the agency to act as the world's financial "big brother," and IMF's lending capacity was expanded. In 1976 the Fund conducted the first gold sale in its history, with much of the money going for low-interest loans to poorer nations with international payment difficulties. As a consequence, countries with ongoing deficits have gotten further into debt. IMF's influence rapidly reached such a peak that it gained the title of "the most powerful supranational government in the world."
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