Image Credit: World Economic Forum
THIS WEEK THE IMF published its economic assessment report for the third quarter of the year, in it the IMF has warned of increasing risks to global financial stability due to what it termed “high financial risk taking, encouraged by historically low global interest rates”. This report represents just a modicum of the economic influence and advisory role that the IMF undertakes in the global economic community in order to ensure greater global market stability and security. Both knowing that IMF stands for the International Monetary Fund and that it plays a role in lending capital to developing countries, I found myself unsure of what it really is, what it does, and why it matters? I therefore thought it inappropriate to write an article commenting on such a report without examining what the IMF is and how it effects the global political economy on a foundational level.
The idea of the IMF was first formed in 1944 as part of the Brenton Woods agreements and was primarily the idea of two economists, Harry Dexter White and John Maynard Keynes. The need for the IMF was created 15 years earlier with the outbreak of the Great Depression in 1929, the economic catastrophe resulting in nations sharply raising their barriers to trade in an attempt to improve domestic consumption and fix their failing economies. The result however that all mercantilist trade policies and the global economy stalled and resulted in economic stagnation that prolonged the effects of the crash until 1939. This breakdown of international cooperation created a need for non-governmental oversight of the global economy and a need to build a framework for international economic co-operation after the end of the Second World War.
The two architects of the IMF therefore argued that the inter - national economic organisation should have two essential roles. Firstly the US delegate at the Breton Woods conference Harry Dexter White asserted that the IMF would act as an international bank, providing the necessary funding to European nations post the end of the war to allow them to rebuild their economic infrastructure so that they would recover at a faster rate and resume global economic trade. He, however, also stated that the IMF could not function as a charity and it was essential to the stability of the system that nations were held to account and made to remunerate their loan as soon as they were able. The British delegate John Maynard Keynes on the other hand, adopted a far more neo-liberal opinion of the IMF. He imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. It would therefore be an institution based upon the principles of economic statism, aiding the economy through periods of economic slumps by direct interventionism.
The IMF came into existence formally on 27 December 1945 when the first 29 countries ratified its articles of agreement; by the end of 1946 the IMF had grown to 39 member states. The IMF became one of the key organisations of the international economic system in the 20th century; its design allowed the system to balance the rebuilding of international capitalism while maintaining a level of independent economic sovereignty for the nations that borrowed from it.
However, what relevance does the IMF bear today within the con - text of the contemporary global political economy? Today the IMF now consists of 189 member nations, has the ability to lend up to one trillion US dollars to its members and provides interest rates of 0 percent low income countries to foster economic development and integration. In 2018 Argentina received the largest loan in the IMF’s history at $57bn (£44.5bn.) Since its creation in 1945, the IMF’s principal activities have included stabilising currency exchange rates, financing the short- term balance-of-payments deficits of member countries, and providing advice and technical assistance to borrowing countries.
It is debatable what degree of success the international organisation had played in stabilising the global economy in the last 74 years. While many nations now associate the IMF with negative connotations of failing economic performance, commonly refer - ring to it as “the lender of last resort”, it has played an undeniable role in supporting the global economy in the last three quarters of a century. Most notably this has been after sup - porting Mexico in the early 1980s when it defaulted on its debts and more recently in 2002 when Brazil was forced to obtain a loan from the IMF to avoid also defaulting on its debts. However the organisation’s methods and conditions it enforces as a precondition of bailouts have been described as “stringent” and “restrictive” on recipient states. In the past, these have included lower government borrowing, cutting corporate taxes and opening up their economies to foreign investment. Greece was the progenitor of the Eurozone crisis in 2009 and the worst affected economy, after it received bailout loans from the IMF, Greece was forced to adopt more stringent lending laws and was forcibly made to accept certain streams of foreign direct investment. Critics say the austerity in - tended to get government borrowing needs down was excessive and did damage to the economy and society. The unemployment rate in Greece today still remains high at 17 per cent, down from a peak at over 27 per cent in 2013.
The IMF plays a crucial role in providing stability to the international economy. Since its formation in 1944, it has provided aid to the global economy, from stabilising currency exchange rates to financing the short-term balance of payment deficits of member countries; its interventions may have helped avert numerous global economic crashes and downturns. Since 1944 there has only been one significant global economic crash and it was not as a result of international mercantilist trade policy but of private corporate banking irresponsibility and greed. The IMF is therefore, an international non-governmental organisation that provides assistance to the global economic community when it’s needed.