1. IMF origins

a.     July 1944

44 countries sign the Articles of Agreement at United Nations (at time this was the US allies – not the UN that we know today) Monetary and Finance Conference in Bretton Woods, New Hampshire to create foundations of the international monetary system after Second World War.

b.     IMF was created as a result in December 1945.

c.     184 members as of Fall 2002.

d.     IMF objectives include:

                                       i.     Promoting international cooperation on international monetary system by providing a forum for consultation – collaboration.

                                         ii.     Facilitate international trade.

                                          iii.     Fostering exchange rate stability.

                                          iv.     Lending international reserves.

2. IMF Structure/Organization

a.     Board of Governors – has one governor from each member – usually the Minister of Finance or the Head of the Central Bank – meets once or twice a year (they do not run everyday events).

b.     Executive Board – meets several times each week – in permanent session. There are 24 members:

                                       i.     Eight are appointed – US, Japan, Germany, UK, China, Russia, France, and Saudi Arabia.

                                         ii.     Sixteen are elected by groups of countries to two-year terms.

3. Managing Director – in charge of staff. He chairs Executive Board – selected by Executive Board to five-year term. Unwritten agreement – Americans always President of the World Bank and Managing Directors are Europeans.


SDR – special drawing rights – called so because when you borrow from IMF it is known as “drawing” – it is a way of paying debt.

SDR valuation basket (as of 11/27/01):

1 SDR =          .426 Euro        29.7%

                        21.0 Yen          13.4%

                        .0984 Pound    11.0%

                        .577 Dollar      45.8%

SDR created by IMF and allocated to its members.

SDRs serve as an international reserve asset for use in payments among Central Banks and international financial institutions. Sometimes referred to as “paper gold.”

4. IMF gets/obtains its resources from membership fees that are called “quota subscriptions.”

Total SDRs are approximately 212 billion, which is obtained by:

-       membership fees

-       and what is available to lend

Members pay when they join and then pay additional amounts when quotas are raised.

5. Quotas

a.     Each member is assigned a quota when it joins –determined by the size of its economy, international trade, etc. Level of international reserves.

b.     Quotas are revised at least every five years under General Review of Quotas to reflect changed conditions.

c.     Special quota adjustments are always possible.

d.     When a country joins the IMF, the new member contributes an amount equal to the quota to the IMF:

                                                              i.     75% can be paid in own currency

                                                               ii.     25% is paid in an international reserve asset

e.     Votes of members equals 250 + 1 per SDR 100,000 of quota. Major decisions, such as accepting new members, raising quotas, SDR allocations requires 85% majority vote. The US has 17.11% of votes.

f.      IMF loans are regarded as a certificate of creditworthiness by private sector lenders (kind of like the Good Housekeeping Seal of Approval). So are more important than indicated by amounts involved, as they are key to obtaining private sector loans.

g.     “Conditionality” refers to the policy requirements imposed by the IMF in order to get its loads. Conditionality is controversial because:

                                                              i.     It infringes on national sovereignty

                                                               ii.     It causes hardship for the poor and so is anti-development.

Conditionals are specified in “Structural Adjustment programs (SAPs).


Domestic (internal economy) – economic policy conditions may include:

1. Fiscal policy measures to reduce public sector borrowing; ie to reduce government budget deficit.

a.     Cut government spending on social programs; education and health.

b.     Cut government spending on environmental programs.

c.     Cut government spending on subsidies for basic goods and services.

d.     Raise prices of basic goods and services provided by state owned enterprises (SOEs) – electricity and bus service.

e.     Increase “user fees” for basic goods and services – textbook fees. Ironically, user fees may fail to generate additional government revenues because poor cannot afford to pay fees.

2. Privatize state owned enterprises.

3. Monetary policy measures to:

a.     Reduce credit and money stock growth rates (anti-inflation policy).

b.     Raise interest rates.

4. Eliminate price controls (hurts poor).

5. Shift agriculture to growing “cash crops” for export rather than food crops for domestic consumption – leads to hunger.


International Economic policy conditions may include:

6. Reduce import restrictions and trade barriers, such as tariffs, to increase access to LDC markets for multinational corporations (MNCs).

7. Currency devaluation (to promote exports) – this is very inflationary.

8. Encourage and promote foreign direct investment (FDI) – establish a climate conducive to FDI.

a.     Reduce restrictions on foreign ownerships.

b.     Offer tax break for FDI.

c.     Exemptions from or lax enforcement of: labor standards and environmental regulations.

d.     Promote labor market “flexibility” – reduce or eliminate mandatory severance pay and other job security measures.

e.     Eliminate currency exchange controls.

8. Why are these measures required by IMF?

a.     Reallocate government funds to debt repayment.

b.     To earn hard currency from exports for debt repayment.

c.     Ideology – promote private sector at expense of public sector.

9. How do SAPs obstruct development?

a.     Higher prices and therefore reduced access for the poor to basic goods and services: food, education, health care, clean drinking water. Examples: child immunizations, textbook fees, prenatal care, medicine, basic foods.

b.     Increased unemployment from public sector job cuts.

c.     Reduced food production and increased dependence on food imports.

d.     More difficult for LDC businesses to compete with MNCs.

e.     Control over LDC economy shifts to MNCs.

f.      Environmental degradation from:

                                       i.     Relaxed environmental restrictions on mining and logging to earn hard currency from exports.

                                         ii.     Reduced government spending on pollution control.


World Trade Organization (WTO):

1. WTO began operations January 1995 as successor to GATT (General Agreement on Tariff and Trade), which was established in 1948. GATT was supposed to be interim until the WTO was established. WTO promotes trade by:

a.     Reducing tariffs and other trade barriers

b.     Sponsoring multilateral trade agreements/negotiations

c.     Mediating trade disputes

2. Issues such as:

a.     Agricultural export subsidies – French wheat farming

b.     Government procurement policies – who is hired for huge government projects – national firms only…

c.     Intellectual property rights – patents, copyrights, trademarks – reduce pirating and counterfeiting

d.     Access to developed country markets for LDC – textiles

e.     Drug patents – AIDS drugs, etc.


The Anti-Globalization Movement

- The anti-globalization movement is a loose political alliance of at least three communities that share a critical view of globalization. These include labor unions, environmental groups, and human rights organizations.

1. Globalization is supported by an economic model that is based on premises that are not accepted as valid by the anti-globalization forces:

a.     Belief in the efficiency of markets – “market fundamentalism”

b.     Belief in the efficiency of the private sector producers

c.     Belief in the mutual benefits of international trade

2. Globalization is seen by its opponents as:

a.     Helping

                                       i.     Transnational corporations (TNCs)

                                         ii.     Private sector financial institutions in North

                                          iii.     Corrupt LDC officials

b.     Hurting

                                       i.     Poor of South

                                         ii.     DC workers

                                          iii.     The environment

3. Opposition to the IMF’s “Structural Adjustment Programs” (SAPs) that are required of LDCs in return for loans and debt relief.

4. World Bank (WB) criticized for loans supporting environmentally destructive projects such as:

a.     Dams

b.     Natural Resource Extraction – logging, strip mining

c.     Power plants (air pollution, global warming)

5. WTO and “Free” Trade opposed by:

a.     Union/Organized labor:

                                                     i.     Corporations use threat of relocation to suppress wages in DCs

                                                      ii.     DC jobs are lost when corporations relocate

                                                        iii.     TNCs evade national labor standards by shifting production

b.     Environmentalists: TNCs circumvent national environmental regulations by shifting production.

6. Human Rights”

a.     IMF/WB loans to repressive regimes assist their violations of human rights – lending policies ignore human rights record of borrow (should have a human rights criteria applied before making loans). Dams – forcibly relocate people.

b.     Certain projects financially supported by WB loans entail human rights violations – forced resettlements for dams.

7. Demands of the anti-globalization include:

a.     Transparency – open meetings to the media and the public

b.     Cancel LDC debt – justification is that:

                                       i.     Banks lent irresponsibly (banks made error in loaning out in the first place)

                                         ii.     “Odious Debt” accumulated by undemocratic governments no longer in power (banks made loans to repressive regimes – in essence supporting them).

                                          iii.     Debt crises precipitated by factors beyond the control of LDCs such as:

                                                     i.     Falling prices of export commodities – cocoa and coffee prices fell)

                                                      ii.     Increased oil price

                                                        iii.     Increased interest rates in DCs

c.     Eliminate SAPs

d.     Bring human rights considerations into the lending criteria

e.     End funding of environmentally destructive projects