Mandate

The IMF is an independent international organization. It is a cooperative of 185 member countries, whose objective is to promote world economic stability and growth.¹ The member countries are the shareholders of the cooperative, providing the capital of the IMF through quota subscriptions (Box 1.1 and the Appendix). In return, the IMF provides its members with macroeconomic policy advice, financing in times of balance of payments need, and technical assistance and training to improve national economic management.

The IMF is one of several autonomous organizations designated by the United Nations (UN) as “Specialized Agencies,” with which the UN has established working relationships.² The IMF is a permanent observer at the UN.

The Articles of Agreement that created the IMF and govern its operations were adopted at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, on July 22, 1944, and entered into force on December 27, 1945.³ Article I sets out the mandate of the IMF as follows:

• To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems;

• To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy;

• To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation;

• To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade;

• To give confidence to members by making the general resources of the IMF temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity; and

• To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

This mandate gives the IMF its unique character as an international monetary institution, with broad oversight responsibilities for the orderly functioning and development of the international monetary and financial system.

Functions

The IMF pursues the various facets of its mandate in a number of ways. These are summarized below, and described more detail in later chapters.

Medium-Term Strategy

In light of the economic transformation wrought by 21^st century globalization, the IMF embarked on a review of its future direction, publishing the Managing Director’s Report on Implementing the Fund’s Medium-Term Strategy (MTS) in April 2006. The strategy concluded that the emergence of new economic powers, integrated financial markets, unprecedented capital flows, and new ideas to promote economic development required an updated interpretation of the IMF’s mandate as the steward of international financial cooperation and stability. Without new focus and carefully chosen priorities, the institution risked being pulled in too many directions and losing its relevance to large parts of the membership.

The proposals put forward in the MTS cover the following issues:

• New directions in surveillance. The difficulties in tackling unprecedented global imbalances, and the challenges facing individual countries, underscore the need for stronger exercise of surveillance by the IMF. At the global level, the MTS calls for efforts to identify—and promote effective responses to—risks to economic stability, including from payments imbalances, currency misalignments, and financial market disturbances. At the country level, the MTS calls for efforts to choosing focus and effectiveness over comprehensiveness, with deeper analysis of financial systems, a greater multilateral perspective to surveillance, and more regional context and outreach.⁵ In this context, discussions are ongoing about the introduction of a new surveillance remit—understood as a statement of objectives, priorities, and responsibilities—to strengthen the effectiveness of surveillance.⁶

• The changing role of the IMF in emerging market countries. In the many countries that have already emerged to become major global players, the MTS calls for efforts to augment candid and focused macroeconomic analysis with enhanced surveillance over financial and capital markets. At the same time, the MTS calls for efforts to improve crisis prevention and response.

• More effective engagement in low-income countries. The MTS calls for efforts to marshal the expected rise in aid flows, including from debt relief, to achieve higher growth and the Millennium Development Goals. Helping countries do so requires a deeper but more focused engagement by the IMF, including new understandings with the World Bank and other agencies on the division of labor.

• Governance. Quota and voice reform is central to the legitimacy and effectiveness of the IMF. During the 2006 Singapore Annual Meetings, a two-year package was initiated with, as a first step, an ad-hoc increase in quotas for four countries. The MTS calls for efforts to address other aspects of governance, including transparent selection of management and better definition of the role of the Board.

• Capacity building. The MTS calls for targeted efforts in this area to help members implement reforms. Capacity building also needs to be part of the strategy to address vulnerabilities identified in surveillance. The IMF’s efforts to build macroeconomic institutions can be strengthened with better prioritization and country ownership.

• Streamlining. The MTS calls for action to control procedure and documentation, lest the work, messages, and governance of the institution are lost in a sea of paper, and to enable management and the Board to shift attention from routine and detail to broader, strategic issues.

• Medium-term budget. The MTS calls for these efforts to be reconciled within a medium-term budget that deals with the projected fall in the IMF’s income. But even with a decline in real spending, the MTS notes that a new business model is needed to finance IMF activity in the future, with less reliance on margins from lending and more on steady, long-term sources of income.

A number of initiatives derived from the MTS have already been put in place or are near-completion. These include the ad-hoc changes in the quotas of four member countries or initiatives such as the streamlining of consultations.

Origins of the IMF

The origin of the IMF lies in the experience of countries during the inter-war period, including the Great Depression. In the 1920s and 1930s, many countries attempted to maintain domestic income in the face of shrinking markets through competitive devaluation of their currencies and resort to exchange and trade restrictions. Such measures could achieve their objectives only by aggravating the difficulties of trading partners who, in self-defense, were led to adopt similar policies, leading to a destructive vicious cycle. There was growing recognition of the largely self-defeating nature of these policies at the country level and the increasing global welfare losses, resulting in a widening acceptance of the need for a globally agreed code of conduct in international trade and financial matters.

It was in this context that representatives of 45 countries reached an agreement in Bretton Woods, New Hampshire during July 1-22, 1944, on the constitution and functions of an international institution to supervise and promote an open and stable international monetary system.⁷ The IMF came into existence on December 27, 1945, when 29 countries signed the Articles of Agreement.⁸ The inaugural meeting of the Board of Governors was convened in Savannah, Georgia, on March 8, 1946, and the first meeting of the Executive Board was held in Washington, D.C. on May 6, 1946. The IMF began its operations on March 1, 1947, and France became the first country to draw funds from the IMF in May 1947.

Size and Membership

Since its inception, the IMF’s size and structure, responsibilities and priorities, and mode of operations have undergone considerable expansion or transformation in response to changes in the world economic environment. To continue to fulfill its core mandate as set out in the Articles of Agreement, the IMF has continuously adapted to meet new challenges in the evolving world economy.^* In this context, it is important to bear in mind that this Handbook presents a snapshot of the IMF today, and today’s IMF is the product of historical forces that will continue to evolve and to shape the future of the institution. Its present governance and organizational structures are described in more detail in Chapter 10.

Since 1945, membership has expanded steadily to include nearly all countries in the world today. Eligibility for membership is based on three basic requirements: the applicant must be a country; it must be in control of its foreign affairs; and it must be willing and able to fulfill the obligations of membership. Informal inquiries and discussions usually precede the formal membership process, while the operational procedure of the formal membership process is: (i) an application is submitted to the Managing Director; (ii) the Executive Board decides whether to proceed with a formal investigation of an application for membership; (iii) a staff membership mission produces a report that contains quota recommendations; (iv) an ad hoc membership committee considers the staff report to determine the terms and conditions of membership and the quota; (v) the chairman of the ad hoc committee ascertains whether the proposed terms and conditions and quota are acceptable to the applicant; (vi) the Executive Board considers the ad hoc committee’s report, and, if the recommendations are acceptable, the draft membership resolution is submitted to the Board of Governors for adoption; and (vii) the Board of Governors may adopt a membership resolution with a simple majority, provided the requisite quorum is achieved.

Members also have the right to withdraw from the IMF at any time by transmitting a notice in writing to the IMF. Article XXVI also makes provision for the compulsory withdrawal of a member that fails to fulfill its obligations under the Articles of Agreement, and sets out a procedure for compulsory withdrawal. However, compulsory withdrawal is a last resort and the member is given ample opportunities to correct its policies and fulfill its obligations to the IMF.

The size of the IMF is often also viewed in terms of the total quota of all its members. In nominal (SDR) terms, the total quota has expanded significantly over time, reflecting the growth in membership, in the size of the world economy, and in the financing needs of the membership (Box 1 and Appendix). However, the total quota has been declining relative to world GDP.

Staff

As the membership has expanded, so has the size and diversity of the staff of the IMF. In September 1946, about 100 staff members from 15 countries worked in five Divisions: a Research Division, an Operations Division, a Legal Division, the Secretary’s Office, and an Administrative Services Unit. At end-2006 there were about 2,800 staff members, from more than two-thirds of the member countries, and a much more elaborate organizational structure, as described in Chapter 10.

The IMF staff comprises mainly economists, but also includes financial specialists, accountants, statisticians, lawyers, linguists, writers, editors, and support personnel. Most staff members work at the IMF’s headquarters in Washington, D.C., USA. The IMF currently maintains small offices in Paris, Brussels, Geneva, and Tokyo, and at the United Nations in New York. In addition, the IMF has resident representative offices in many member countries and a number of regional technical assistance and training centers.

The Articles of Agreement state that the IMF staff should be of the highest caliber in terms of standards of efficiency and technical competence, while the appointments should also pay due regard to the importance of recruiting personnel on as wide a geographical basis as possible.⁹ Furthermore, the Articles of Agreement indicate that the staff of the IMF, in the discharge of their functions, shall owe their duty entirely to the IMF and to no other authority, and require each member country to respect the international character of this duty and to refrain from all attempts to influence any of the staff in the discharge of their functions. Staff are immune from legal process with respect to acts performed by them in their official capacity, except when the IMF waives this immunity.