The IMF (which stands for International Monetary Fund on Abbreviationfinder) was founded in 1944 with the aim of promoting monetary cooperation to create stability in the world market. This is done through monitoring and the offer of short-term loans to member countries which have problems with the balance of payments. Its current issues include establishing rules for foreign exchange cooperation, monitoring foreign exchange and financial markets and providing financial support to countries in acute economic crisis. Christine Lagarde, CEO, took office in 2011. The IMF currently has 189 member countries.
Since the Second World War, the world economic order has been largely organized through the financial bodies that the victorious countries laid the foundations for in the final stages of the war: the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO).
The three intergovernmental organizations together form three pillars of global economic cooperation and in that capacity have great power over economic development in the world.
The foundations for the three international financial institutions were laid in connection with the end of World War II. The background was the perception that the severe economic crisis of the 1930’s had been exacerbated by individual countries’ fiscal policies. Higher import tariffs, devalued currencies and limited opportunities for citizens to buy foreign currency were considered to be contributing factors to the outbreak of World War II.
When the leaders of the Western powers felt confident of eventually defeating Germany and Japan, they began planning for how to prevent new world wars in the future. The main architects behind a proposal for expanded international economic cooperation were two economists, the American Harry Dexter White and the Englishman John Maynard Keynes. Their proposal was the basis for a conference held in July 1944 in Bretton Woods, a small town in the US state of New Hampshire.
The 44 Allied countries that participated in the Bretton Woods Conference wanted to create the conditions for a rapid reconstruction of the war-torn countries, and to establish a regulatory framework that would ensure future peace and stability. The common belief was that the recipe was rapid growth and high employment, which would be created through trade and economic cooperation. This required common regulations and strong organizations that could monitor them.
At the conference, the participating countries agreed to set up an organization, the IMF, which would work on issues related to monetary cooperation, and another, the World Bank, which would lend money to various reconstruction projects. The basic plan also included the idea of establishing an international trade organization, but such did not really come into being until half a century later, when the WTO was formed in 1995.
The basis for the work of the IMF and the World Bank is the same as when they were formed. The IMF shall promote stability and cooperation in the international monetary system by providing short-term loans to countries in acute crises and ensuring that the economic policies of the member countries comply with the common rules. The World Bank works with international economic development through more long-term loans and technical assistance to low- and middle-income countries. The World Bank’s loans are mainly used for concrete projects, while the IMF’s loans are intended to alleviate temporary financial crises. The WTO’s goal is to promote world trade by removing tariffs and other barriers to trade. The same objective was the basis for the GATT General Trade Agreement, which was in force between 1948 and 1994 and which preceded the formation of the WTO.
However, the conditions for the organizations’ work have changed since they were founded. From the beginning, the focus was on reconstruction and economic cooperation in the Western world, but gradually the need for support in other countries also became more and more noticed. With the rapid decolonization in the decades after World War II, the number of independent states in the world also increased rapidly. When the Cold War ended, a large number of states that had previously been outside international economic cooperation were added. Today, the IMF and the World Bank cover almost all countries in the world (among those outside are Cuba and North Korea, as well as some small states). WTO membership is growing rapidly; In 2009, four out of five nations in the world were members. It contributes to the fact that decisions made in organizations affect almost the entire world.
The severe debt crisis in the third world in the 1980’s helped financial organizations to find new ways of working. As a result, they began to impose greater conditions on how a country’s economic policy should be formulated. The organizations’ work gradually became more and more focused on reducing world poverty. With the UN Millennium Development Goals at the turn of the millennium, poverty reduction officially became the most important goal of the activity.
The global financial crisis that almost exploded in 2008 exposes the three organizations to new trials. Not least the IMF is radically affected: suddenly country after country knocks on the door in need of urgent emergency loans. At the beginning of 2009, the question was how the IMF would manage the financing in the new situation. The World Bank sent warning signals that poverty was now once again threatening to grow among the world’s already most vulnerable populations. Within the WTO, negotiations on new trade agreements had once again stalled, and the prospects for starting new talks were, to say the least, bleak when the nations of the world suddenly found themselves forced to look after their own house. The risk of increased protectionism was considered imminent.