IMF International Monetary Fund (IMF)

IMF International Monetary Fund (IMF) is a global organization that encourages monetary and financial stability among nations. It is an arm of the United nations with more than 187 countries as its members. Today, it is the world's premier organization for financial cooperation and stability with its headquarters in Washington DC (IMF, 2009). It is ruled by a board of governors with one representative from each of the member nations.

The executive board is responsible for the day-to-day operations and it has 20 members from different nations who are elected to be on the board for a stipulated period of time. The IMF was established on December 27, 1945 right after the Second World War. According to International Monetary Fund (2010), it was formulated during the Bretton Woods conference that took place in New Hampshire, United States and attended by 730 delegates from 44 countries.

The reason behind forming an international organization was to ensure financial order among the member nations and to act as an overseer of all financial irregularities and monetary issues. Since then it has played an active role in member countries with numerous programs and assistance to encourage growth and development and at the same time maintain the stability of the country's exchange rate (Ferdous, 2008).

Role and operations The role of the IMF is far reaching and it plays an important role in the financial aspects of each and every member country. It is responsible for lending money to under-developed and developing countries to reduce poverty and boost their economic growth and development. During the third world debt crisis of the 1980s, it actively provided financial assistance to many countries in Latin America, Africa and Asia to help them to reduce poverty.

It has a poverty reduction scheme approach that is different for each country and at the same time, it is comprehensive (International Monetary Fund, 2010). It includes the Federal and local Government of each region along with private players to bring about a long-term and sustained decrease in poverty. It also offers economic advice and suggestions to the Governments of member nations to help them to cope with the latest economic trends and to have a favorable balance of payments.

It steps in and offers assistance to countries struggling with their balance of payments and trade deficits. "It also encourages countries to liberalize trade by providing technical assistance to member countries in its areas of expertise that lay the groundwork for the increased trade and by providing financial support for countries developing more open trade regimes"(International Monetary Fund, 2002, p.8). Besides offering direct financial assistance, it also provides a forum for discussing and formulating monetary policies that can have a profound impact on the economies of many countries.

It also aims to promote world trade which can lead to the creation of more jobs and bring about the overall development of a country. Another important role of the IMF is to facilitate exchange rate stability and ensure that there is an open and visible system for making and receiving international payments. "The IMF has the mandate under its Articles of Agreement to oversee the exchange rate policies of its member countries to ensure the effective operation of the international monetary system."(International Monetary Fund, 2002, p.8).

It even has the right to decide the par value of a country's currency to ensure that international trade is fair and equitable for all parties concerned. "The organization, using a fund subscribed by the member nations, purchases foreign currencies on application from its members so as to discharge international indebtedness and stabilize exchange rates. The IMF currency reserve units are called Special Drawing Rights (SDRs); from 1974 to 1980 the value of SDRs was based on the currencies of 16 leading trading nations.

Since 1980 it has been reevaluated every five years and based on the relative international economic importance of the British pound sterling, the European Union euro (formerly the French franc and German mark), the Japanese yen, and the U.S. Dollar." (2010, p.1). All these roles make it one of the most important player in the global financial market. Criticism in the wake of the current global financial crisis The IMF has been criticized for its role through most of the major financial crises that have taken place in history.

One such example is the Asian financial crisis of 1998 when the fund required the Asian countries to keep the interest rates at extremely high levels. Also, the IMF provided loans to developing countries to the tune of $100 billion and this exacerbated the crisis. "Considerable concern has been expressed about the prolonged use made of International Monetary Fund (IMF) resources by a number of member countries.

Some commentators have seen this as being fundamentally at odds with the role of the IMF as a source of temporary balance of payments support and as one aspect of mission creep by the Fund." (Bird, 2004. p. 1). This prolonged presence within a country's economy is viewed as detrimental for the development of the economy, thereby negating the positive impact of its role in the financial aspect of the country.

Many economists argue that the current economic crisis could have been avoided if the IMF had paid closer attention to what was happening in the U.S. housing market. Its role is to act as a watchdog of economies and it is thought that the IMF has failed in this role. Another side of looking at this argument is that the IMF simply oversees economies with a perspective of international trade and balance of payments. It does not pay close attention to every event that.