The International Monetary Fund: An Overview of Its Mission and Operations (CRS Report for Congress)
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| Release Date |
June 6, 2000 |
| Report Number |
RL30575 |
| Report Type |
Report |
| Authors |
J.F. Hornbeck, Foreign Affairs, Defense, and Trade Division |
| Source Agency |
Congressional Research Service |
Summary:
The International Monetary Fund (IMF) is the institution designed to support global trade and
economic growth by helping maintain stability in the international financial system. Originally
created to finance short-term balance of payments deficits during the Bretton Woods era of
gold/dollar fixed exchange rates (1944-1971), in the current world where flexible exchange rates
dominate in the industrial economies, it has focused on developing countries where ever larger
financial crises have erupted. As part of the periodic IMF quota review process, the U.S. Congress
in October 1998 appropriated funds to increase the IMF quota at a time when many challenged the
IMF's abilities to help resolve these financial crises. Congress attached a number of conditions,
including a call for major reevaluation of the IMF. This report supports congressional interest in the
IMF by providing a basic understanding of its mission and operations, and how they may have
evolved.
The permanent assets of the IMF used for lending ($283 billion) are provided by the member
countries, which join the Fund by making a capital subscription (quota) and agreeing to abide by
rules of the charter. The quota also determines a country's voting power and borrowing capacity.
The IMF also maintains two borrowing arrangements with selected member countries for times when
the Fund may not be sufficiently liquid to meet all borrowing needs. The General Arrangements to
Borrow (GAB) is a $23 billion credit line established with 11 industrialized countries in 1962. The
New Arrangements to Borrow (NAB) was established following the 1994-95 Mexican peso crisis
as a supplemental line of credit with 25 member countries, adding another $23 billion of borrowing
authority.
The IMF provides hard currencies to member countries with balance of payments problems
based on need, willingness to adjust economic policies, and ability to repay. Under the general
resources account there are three types of financing facilities: 1) stand-by arrangements; 2) extended
arrangements (these two constitute most IMF assistance); and 3) special facilities. Two programs
created since December 1997, the Supplemental Reserve Facility (SRF) and the Contingent Credit
Line (CCL), amount to special access policies and limits to stand-by and extended arrangements
under extenuating circumstances. As part of the IMF's evolving sense of mission, it has developed
lending facilities to address the needs of the poorest developing countries: the Poverty Reduction and
Growth Facility (PRGF) -- renamed in November 1999 from the Enhanced Structural Adjustment
Facility (ESAF); and the Heavily Indebted Poor Countries (HIPC) initiative.
Many view events in the 1990s as evidence of the IMF's limitations to predict and ameliorate
financial panics. The central question remains, what role should or can the IMF play in reducing
instability in an increasingly liberalized and, at times, volatile international financial system. The
debate has at least two key focal points: 1) rethinking what should be expected from national policies
and institutions, particularly financial market regulation and oversight in developing countries, to
help reduce the frequency and extremity of financial panics; and 2) rethinking how the IMF should
operate in numerous functional areas.
