Although the IMF is a specialized agency of the United Nations and participates in the Economic and Social Council of the UN, it operates independently and has its own charter, governing structure, rules, and finances.
The IMF currently has 184 member countries, 7 fewer than the United Nations. The difference is accounted for by Cuba, the Democratic Peoples Republic of Korea, and five very small countries: Andorra, Liechtenstein, and Monaco in Europe, and the island countries of Nauru and Tuvalu in the Pacific Ocean. Cuba was an original member of the IMF but withdrew in 1964; the other six countries have not applied. To become a member, a country must apply and then be accepted by a majority of the existing members. Political oversight of the IMF is primarily the responsibility of the International Monetary and Financial Committee (IMFC), whose 24 members are finance ministers or central bank governors from the same countries and constituencies that are represented on the Executive Board (see organizational chart, page 33). The IMFC meets twice a year and advises the IMF on the broad direction of policies.
Most IMFC members are also members of the Board of Governors, on which every member country has a Governor. The Board of Governors meets once a year and votes on major institutional decisions, such as whether to increase the IMF’s financial resources. The Development Committee, which, like the IMFC, also has 24 members of ministerial rank, advises the Board of Governors of the IMF and the World Bank about issues facing developing countries. It meets twice a year.
The chief executive of the IMF is the Managing Director, who is selected by the Executive Board (which he chairs) to serve a five-year term. The Managing Director (traditionally a European) is assisted by three deputies: the First Deputy Managing Director (always a U.S. national) and two other deputies (from various other countries). The Executive Board, which sets policies and is responsible for most decisions, consists of 24 Executive Directors. The five countries with the largest quotas in the IMF—the United States, Japan, Germany, France, and the United Kingdom—appoint Directors. Three other countries—China, Russia, and Saudi Arabia—have large enough quotas to elect their own Executive Directors. The other 176 countries are organized into 16 constituencies, each of which elects an Executive Director. Constituencies are formed by countries with similar interests and usually from the same region, such as French-speaking countries in Africa (see table on page 15).
The IMF has about 2,700 employees from more than 140 countries, most of whom work at the IMF’s headquarters in Washington, DC. A small number of staff members work at regional or local offices around the globe. The IMF staff is organized mainly into departments with regional (or area), functional, information and liaison, and support responsibilities. The staff tracks global, regional, and country-specific economic developments and conducts the analysis of economic developments and policies that forms a basis for the IMF’s operational work of policy advice, lending, and technical assistance.
Where does the IMF get its money?
The IMF is a financial cooperative, in some ways like a credit union. On joining, each member country pays in a subscription, called its “quota.” A country’s quota is broadly determined by its economic position relative to other members and takes into account the size of members’ GDP, external current account transactions, and official reserves. Quotas determine members’ capital subscriptions to the IMF and the limits on how much they can borrow. Quotas also help determine members’ voting power.
The combined capital subscriptions of the IMF’s members form a pool of resources, which the IMF uses to provide temporary assistance to countries experiencing financial difficulties. These resources allow the IMF to provide balance of payments financing to support members implementing economic adjustment and reform programs.
At regular intervals of not more than five years, the IMF’s Executive Board reviews members’ quotas and decides—in light of developments in the global economy and changes in members’ economic positions relative to other members—whether to propose an adjustment of their quotas to the Board of Governors. To ensure fair voice and representation of all member countries, the distribution of quotas is currently under review to reflect important changes in the weight and role of countries in the world economy. The Managing Director is working with the IMFC and Executive Board to come forward with concrete proposals for agreement at the 2006 Annual Meetings in Singapore.
Countries pay 25 percent of their quota subscriptions in reserve assets, defined as Special Drawing Rights (SDRs, the IMF’s unit of account), or the major currencies (U.S. dollars, euros, Japanese yen, or pounds sterling); the IMF can call on the remainder, payable in the member’s own currency, to be made available for lending as needed. The IMF’s total quotas are equivalent to SDR 213.5 billion (about $324 billion). Each country’s voting power is the sum of its “basic votes” and its quota-based votes. Each IMF member has 250 basic votes (which were set in the Articles of Agreement as equal for all countries) plus one additional vote for each SDR 100,000 of quota.
If necessary, the IMF may borrow to supplement the resources available from its quotas. The IMF has two sets of standing arrangements to borrow from member countries, if necessary, to cope with any threat to the international monetary system. Under the two arrangements combined, the IMF has up to SDR 34 billion (about $49 billion) available to borrow.
Concessional loans and debt relief for low-income countries come from trust funds administered by the IMF.
Paying for the IMF
The IMF, like other financial institutions, earns income from the interest charges arid fees levied on its loans and uses the income to meet funding costs, pay for administrative expenses, and build up precautionary balances. In the financial year 2006, interest arid charges received from borrowing countries and other income totaled $2.5 billion, while interest payments on the portion of members’ quota subscriptions used in IMF operations amounted to $1.2 billion. Administrative expenditures (including staff salaries, pensions, travel, and supplies) totaled $1 billion. The remainder of $0.3 billion was added to the IMF’s reserves.
The current income framework relies heavily on income from lending. A priority for the IMF in the period ahead will be to establish a new framework that generates other steady and reliable long-term sources of income. As an initial move, the IMF Executive Board approved the creation of an $8.7 billion investment account that is expected to boost the IMF’s income over the medium term. In May 2006, the IMF appointed an external committee of “eminent persons” to provide the IMF with an independent assessment of the options available to finance its running costs in the future.