The IMF was created in 1945 after WWII to prevent another Great Depression and promote international monetary cooperation. It is governed by 188 member countries and led by a Managing Director. The IMF aims to facilitate balanced global economic growth and make resources available to countries experiencing financial crises. It provides loans with conditions requiring economic reforms. While the IMF helped stabilize economies like China, programs in countries like Venezuela failed due to public backlash against imposed austerity measures, demonstrating how IMF involvement can infringe on national sovereignty.

2. History
 Created formally in 1945 by 29 member countries just after WWII; planned in the
Bretton Woods System altogether with the World Bank.
 Wanted to prevent another great depression as the one lived in the USA from 1929
until 1939.
 Headquarters located in Washington DC.
 Sought the reconstruction of the international payment system.
 Grew stronger after the “Fall of Berlin” (1989) and the disbandment of the Soviet
Union (1991). It became an Universal Institution and member countries grew to
172.

3. Members and leaders
 188 countries represented by 24 Directors.
 Consists of a management team and 17 departments that carry out its
country, policy, analytical, and thecnical work. One of these departments is in
charge of the management of its resources.
 Said management team has a Managing Director, who is head of the overall
staff and Chairperson of the Executive Board. The Managing Director is
appointed by the Executive Board for a renewable term of five years and is
assisted by a First Deputy Managing Director and three Deputy Managing
Directors.
 IMF’s managing director is Christine Lagarde (France) since 2011.

4. Aims and practice
Original aims (as in the end of WWII):
 Promote international monetary cooperation.
 Facilitate the expansion and balanced growth of international trade.
 Promote exchange stability.
 Assist in the establishment of a multilateral system of payments.
 Make resources available to members experiencing balance of payments difficulties.
 Prevent the repetition of the currency chaos which is usually followed in the wake of
war.
Modern aims:
 Promote high employment.
 Sustainable economic growth.
 Reduce poverty around the world.

5. Democracy and finance in the IMF
 Based on a quota system, where members have a fixed and equal amount of
basic votes, plus one additional vote for each Special Drawing Right (SDR) of
100,000 of a member’s country quota.
 The Special Drawing Right is the unit of account of the IMF and represents a
claim to currency.
 Each member country has to pay a monetary quota as a “subscription” to the
IMF, which guarantees the sustainability of the IMF’s resources. This quota is
set specifically for each country depending on its relative position in the
world economy.

6. Effects and global impact
 Since its foundation during the end of WWII in 1945, the IMF has given a
considerable amount of financial aid to countries undergoing financial crises.
 Advices many countries around the world on how they should manage their
economies in order to overcome a financial crisis. This gives a “second
chance” to failed economic systems to reform themselves into more stable
and sustainable ones.
 Had more weight in international affairs before the gold standard economic
system was abandoned by most of the countries around the world, before the
existence and usage of fiat money.
 Many economists consider the IMF to be slowly making the USD a “new gold
standard”, for it now loans USD as in the it used to loan gold.

7. Examples and studies of past cases
Succesful case: Asia
 Because of their communist national policies, China was regarded
as a weak ground for investors.
 They had fixed exchange rates that didn’t relate to the actual
supply and demand relationship at the time.
 As the IMF gave China strong financial support, private investors
saw themselves more attracted to investing opportunities in the
country. This financial support required previous changes in their
economic – and therefore political - policies.
 This has led to the economic growth and private investment not
only in China but in other Asian countries as well.

8. Examples and studies of past cases
Unsuccesful case: Venezuela
 Because of the sudden fall in oil prices since 1983, Venezuela fell in a
deep economic crisis.
 The IMF agreed to make a loan to the venezuelan government worth
$4.5 billion after 3 years of heavy modifications in the country’s
economy -known as “el paquetazo” (the big package).
 These compulsory modifications included incresing the price of public
services, petroleum derivated products, doubling the price of gasoline
and a 30% increase in the fixed price of public transport.
 Such sudden and harsh reforms to their economy by a “foreign
power”, plus the general discontent generated by scarcity, lead to a
series of riots and sackings called “El Caracazo”. This made the loan
impossible.

9. The Gold Standard and the IMF’s validity
 The gold standard was a monetary system used through the 19th and 20th
century where each unit of a country’s money would have a fixed value in
gold. For example, until the abandonment of the gold standard in the United
States in 1971, 35 USD could be exchanged by an ounce of solid gold at a bank
at any time.
 This economic system prevented Central Banks from “overprinting” money.
 In 1934 the private ownership of gold (if not jewelry) was made illegal in the
USA, forcing every person to sell their gold to the Treasury in exchange for
bank notes.
 On the early days of the IMF, loans to countries would be made in the form of
solid gold, therefore allowing them to print more money.
 As of today, every country in the world has abandoned the gold standard and
is able to print money at will. The usage of fiat money also allows states to
get loans from private investors and sources others than the IMF. This has led
economist throughout the world to wonder if the existence of the IMF is still
necessary.

10. How does the IMF affect national
sovereignty?
 Under their “Surveillance” policy, they prevented a lot of countries from
making the economic decisions or reforms they wanted to.
 Countries have to change economic policies in order to get aid from the IMF,
therefore forcing the state to do things they wouldn’t have done otherwise.
 For example, in the Greece case the IMF required them to include notable
additional fiscal measures on the tax and expenditure side, legislation on
early retirement as well as an extensive set of actions in relation to the
financial sector and product markets. This forced the Greek state to start
giving a stop to corruption.