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The International Monetary Fund (IMF): History & Purpose

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  • 0:01 IMF Defined
  • 0:47 History
  • 1:32 Surveillance
  • 3:18 Technical Assistance
  • 4:05 Lending
  • 4:50 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
International stability requires economic stability. In this lesson, you'll learn about how the International Monetary Fund helps establish economic stability by examining its history and purpose. A short quiz follows.

IMF Defined

Meet Quame. He is the leader of a lesser-developed country (LDC), and like many leaders of LDCs, Quame's country has a problem. His country is having trouble developing economically because it simply doesn't have the resources and money available to make necessary investments to develop, such as investments in infrastructure and education. Quame, like many leaders of LDCs, decides to turn to the International Monetary Fund for help.

The International Monetary Fund, commonly referred to as the IMF, is an intergovernmental organization that focuses on maintaining international economic stability. It consists of nearly all sovereign states in the world today and is headquartered in Washington, D.C.

History

The International Monetary Fund was legally established in 1945 and started with 29 members. More members joined as time passed, but the Cold War did prevent potential membership growth, as the Soviet Union, many of its allies and its client states did not join. In the 1970s, the IMF started to assist poor countries with concessional financing, offering financing terms more favorable than what the private market offers. The fall of the Soviet Union and dissolution of the communist bloc resulted in the ability of more states to join the IMF, and it achieved nearly universal membership in the 1990s. Today, the IMF is attempting to help create stability during the ongoing globalization process. Let's see how.

Surveillance

The IMF's overall goal is to help encourage economic growth and stability on a global basis. It does this through three primary activities. Let's take a look at each.

The IMF engages in surveillance of the economic and financial policies on a national, regional and global basis to track the economic stability of the international system. It helps identify problems so they can ideally be handled by the member states before they develop into crisis.

As part of its membership obligations, Quame's country has agreed to allow the IMF to review the country's economic and financial policies. Member states also agree to pursue policies that cultivate disciplined growth, avoid currency rate manipulation and provide the IMF with data sufficient to fulfill its surveillance role. In fact, member states undergo annual consultations with the IMF to examine their policies, and its findings are shared with the country being reviewed.

The IMF also engages in surveillance at the regional and global level. In conducting regional surveillance, the IMF examines polices of regional currency unions. For example, members of the European Union use a regional currency, the Euro. Aside from monitoring regional currencies, the IMF also monitors the economic outlook for specific regions and important economic issues. Regions include Asia Pacific, Europe, Middle East and Central Asia, Sub-Saharan Africa and the Western Hemisphere. Global monitoring is based on three reports: the World Economic Outlook reports, Global Financial Stability Reports and the Fiscal Monitor reports.

Technical Assistance

The IMF also provides technical assistance to middle-and low-income countries, which involves help with macroeconomic policies. Macroeconomic policies are concerned with the big economic picture of an economy, such as a state's unemployment, growth rate, GDP and inflation. Technical assistance is also provided to help create and implement programs to reduce poverty, manage and reduce debt and spur economic growth.

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