EPIL International Monetary Fund IMF

International
Monetary Fund (IMF)

Sabine Schlemmer-Schulte
Content Product: Max Planck

type: Encyclopedia entries Encyclopedia of Public
Article last International Law [MPEPIL]
updated: October 2014
Subject(s):
International monetary law — Practice and procedure of international organizations
Published under the auspices of the Max Planck Foundation for International Peace and the Rule of Law
under the direction of Rüdiger Wolfrum.
From: Oxford Public International Law (http://opil.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved. Subscriber:
Symbiosis Law School; date: 15 March 2018
A. Historic Origins and Dynamic Evolution
1 The International Monetary Fund (‘IMF’; ‘Fund’) is, together with the → International Bank for
Reconstruction and Development (IBRD) (‘World Bank’; → World Bank Group), a product of efforts
led by the United States and the United Kingdom to rebuild the international economy after World
War II. In its original design, the IMF was established to govern international monetary relations and
provide an enabling framework for international trade and commerce, whereas the IBRD was
supposed to catalyse private capital in support of the reconstruction of a war-torn Europe and the
development of economically less advantaged nations. The constituent charters of both
Washington, DC-based international financial institutions (‘IFIs’; → Financial Institutions,
International) represent the core sources of law governing their actions. Based primarily on
amendments to its IMF Articles, the IMF, initially a purely monetary institution, has evolved over the
past 60 years into a major policy-maker in → developing countries, while its monetary function was
significantly reduced. In performing the role of policy-maker, the IMF created a vast body of law
consisting of individual financial arrangements with borrowing members with numerous lending
conditionalities inserted into these arrangements based on general lending policies
(→ Conditionality). This body of law is, by and large, a new and independent source of
international law separate from traditional sources of international law, such as the IMF’s founding
charter, a classical treaty of international law entered into by States. The IMF’s evolution into a
global policy-maker is traced below. The major legal and policy issues this evolution raises are
noted.
1. The Experiences of the ‘Great Depression’

2 Forty-four allied nations gathered at the → Bretton Woods Conference (1944). Following three
weeks of deliberations, the founding charters of the IMF—the Articles of Agreement of the
International Monetary Fund (‘IMF Articles’) and the Articles of Agreement of the International Bank
for Reconstruction and Development—were signed as a modern response to the negative
experiences of the ‘great depression’ in the interwar period in order to avoid a reoccurrence
following World War II. The interwar period great depression consisted of monetary chaos because
many countries had disconnected their currencies from reserves, such as gold, as well as taking
direct control over the conversion of domestic currency into foreign currency. Government
manipulation of the domestic currency—eg by virtue of devaluation of the domestic currency to
increase the competitiveness of the country’s exports and avoid the most typical forms of a
balance of payments deficit, ie the situation in which the value of a country’s imports exceeds the
value of its exports—mushroomed. Instead of generating growth of the respective domestic
economy, as contemplated, exchange controls coupled with the erection of barriers to international
trade such as high tariffs and quotas to reduce costly imports (→ Non-Tariff Barriers to Trade), the
subsidization of exports (→ Subsidies, International Restrictions), and the substitution of imports
with domestic goods, led to the phenomenon of ‘beggar thy neighbour’. The protectionist monetary
and trade policies resulted at home and abroad in rapidly declining national incomes, shrinking
demand, mass unemployment, deflation, and an overall decline in world trade which became
largely restricted to currency blocs. The planners at Bretton Woods sought to make a repetition of
the great depression of the interwar period impossible by setting up the first multilateral monetary
system as a necessary prerequisite for and corollary to liberal trade among nations.
2. Bretton Woods Conference

3 All Bretton Woods Conference participants favoured a liberal international economic system that
relied on open markets with a minimum of barriers to the flow of private trade and capital between
participating countries and that was to be managed by an international organization. However, the
chief leaders of the Bretton Woods Conference disagreed on the details of the new international
institution. Their disagreement stemmed mostly from the greatly differing economic situation
between the US and the UK at the time. The US, as the biggest and strongest industrial power, held
about 60% of the world’s gold reserves, possessed the largest portion of the world’s investment
capital, had tremendous manufacturing capacity, and was the world’s champion in exports. It
produced half of the world’s coal, two-thirds of its oil, and more than half of its electricity. Being the
number one economic power, the US was interested in the establishment of an international
stabilization fund with a relatively modest capital of US$5 billion based on quota contributions by
member governments representing ownership interest in the fund. Country quotas were to be
calculated based on a country’s economic strength at the time of joining the fund: 25% of each
government’s quotas were payable in gold, another 25% were payable in foreign currency, and
50% were payable in government-issued paper. According to a plan authored by Harry D White,
only 50% of the quota was to be paid in immediately by member governments; the remaining 50%
was only callable. The fund would supervise a system of pegged currencies and have the power to
→ veto parity changes. In the instance of balance of payments deficits, fund members could
purchase foreign currency in exchange for domestic currency of up to 200% of the member
country’s respective quota in the fund for a short term. The fund would repurchase the currency at
the end of the term. In exceptional cases, the purchase of foreign currency could exceed 200% of
a member country’s quota. Such a purchase would, however, require a decision by four-fifths of
the members, their votes measured based on quotas. During the period of temporary holding of
foreign currency, the fund would request policy measures by the purchasing member to assist it in
dealing with the balance of payments crisis. The fund would introduce the ‘Unitas’, a new currency
unit, representing US$10 or 8.8867 grammes of fine gold. Countries with continued balance of
payments surpluses would be required to consider policy suggestions made by the fund, but the
fund would not impose any policy measures on these countries.
4 The UK plan, authored by John Maynard Keynes, was geared towards the fast recovery of Britain
and its European allies. In particular, the British plan focused on quickly repaying the → debts
incurred vis-à-vis the US during World War II. In this vein, the plan contemplated the creation of a
clearing union which was to lend to member countries in balance of payments deficits from a
resource pool of about US$26 billion. The member countries’ maximum lending volume would be
determined on quotas in the clearing union primarily based on the member countries’ economic
data of the last three pre-World War II years, later to be adjusted to post-war activity. The country’s
quota was not supposed to be actually paid in. Rather, a new international currency, the ‘Bangor’,
whose value was to be expressed in gold, would be introduced and could be borrowed by member
countries on paper but was not to be actually paid out either. A member country’s domestic
currency would be tied to the Bangor but countries would still enjoy significant exchange rate
flexibility. In balance of payment difficulties, member countries were automatically allowed to
borrow up to a quarters of their quota without any conditions. Borrowing up to half of their quota
would trigger instructions by the clearing union to devalue the borrowing member’s currency
and/or implement further monetary policy measures including the use of gold reserves to cover the
balance of payments deficit. Borrowing up to three-quarters of their quota could possibly lead to
the end of any borrowing by members. The clearing union would have been empowered to request
policy changes from member countries with a continued balance of payments surplus as well. This
would indirectly but effectively ease the burden for members with balance of payments deficits, by,
for example, requesting the surplus country to revalue its currency, borrow money, increase
demand in imports, or export capital. The clearing union would have been in a position ultimately to
write off debts of member countries suffering from chronic balance of payments deficits.
5 The publication of the White and Keynes plans in spring 1943 stimulated efforts to draft an
acceptable compromise. Ideas were advanced by other countries such as Canada, France, and
the Soviet Union. However, the crucial decisions continued to be made in bilateral negotiations
between the US and the UK. These two countries were bound to be the dominant members of the
new financial system. They were also the main sources of the expert manpower needed to devise
the system and make it work. In September 1943, the US and British financial experts met in
Washington, DC. In the following months, the expert delegations headed by White and Keynes
produced a compromise which was presented to the public as the Joint Statement by Experts on
the Establishment of an International Monetary Fund. The key provisions of this document were
embodied, with minor changes, in the IMF Articles adopted in July 1944 by the United Nations
Conference at Bretton Woods, New Hampshire. In substance, the compromise adopted mostly the
features of the US plan due to the stronger bargaining power of the US. Nevertheless, in return the
British delegates could convince the US to increase the amount of their financial commitment from
US$2 billion to US$3.2 billion out of the total US$8.8 billion contributions to the Fund.
3. Establishment of the Fund and Beginning of Operations

6 The IMF, as finally agreed upon at Bretton Woods, by and large reflects the US plan for an IFI that
primarily relies on the use of real money based on the gold standard. The Bretton Woods
Agreement also gives the new institution powers to extend a limited amount of short-term credit to
members with balance of payments deficits. The IMF lacks powers to sanction members with
balance of payments surpluses, a feature suggested by Keynes in the UK plan. The Bretton Woods
Agreement on the IMF is centred on an international monetary system linking member countries’
currencies for purposes of enabling trade and connected financial flows across borders. Bretton
Woods also resulted in the establishment of the IBRD, but failed to establish the contemplated
International Trade Organization (‘ITO’). Instead of the ITO, the GATT was concluded in 1947
(→ General Agreement on Tariffs and Trade [1947 and 1994]; → World Trade Organization
[WTO]). The IMF navigated the financial and monetary waters, while GATT operated to introduce
free trade among contracting parties. The IMF Articles entered into force on 27 December 1945. IMF
operations began in March 1947.
4. From Monetary Institution to Major Global Policy-maker

7 The IMF effectively exercised its function as a monetary institution, securing exchange rate
stability based on the gold standard and open payments systems, for the first 25 years of its
existence until the US abandoned the gold standard on 15 August 1971 in order to deal with its own
balance of payments deficit, a situation that had resulted from the expensive military involvement
by the US in → Vietnam, massive rises in imports from Japan, and the US’s unwillingness to
intervene to counter the pressures on the fixed gold standard by rising prices for gold on the
private market which made the new issue of US dollars more expensive. The IMF lost its monetary
function de facto at the moment the US chose to stop buying gold for the purposes of issuing new
US dollars and when it stopped exchanging dollars for gold. Whether or not the US was in breach of
its international obligations under the IMF Articles was debated at that time. Under Art. IV (4) (b) IMF
Articles, the maintenance by the US of the gold window was not an absolute requirement but rather
an option permitted by the second sentence of that article. While the option had not been designed
exclusively for the US, no other country had taken it up. On the other hand, many countries had
held their reserves in US dollars in reliance on the undertaking of the US around which the par
values system was devised. Nevertheless, once the US had renounced the option of buying and
selling gold at a fixed rate, it became subject to the requirement in Art. IV (3) IMF Articles to maintain
the exchange rate for its currency within the prescribed margins, and it did not honour that
requirement. The IMF lost this function of monetary institution de iure when its IMF Articles were
amended effective in 1978, and a flexible exchange rate regime, including freely floating exchange
rates, was introduced in lieu of the earlier gold standard. By contrast, the IMF’s financing function
grew exponentially from the 1970s onwards.
8 A number of factors contributed to the phenomenon of increased demand in IMF resources by

developing countries, among them the decline in monetary stability in developing countries due to
the new flexible exchange rate regime, the adverse impact of the oil crises on developing
countries, the oil import dependency of many developing countries, and their lack of economic
growth. Indeed, the IMF turned primarily into a creditor to its members from developing countries
and ceased to lend to industrial nations which remained legally eligible for IMF resources but had
virtually stopped requesting IMF credits since the 1980s until the recent global financial crisis (US
sub-prime mortgage crisis and the Eurozone debt crisis) led a number of developed countries to
request IMF financial support again, long after they had last done so. The IMF responded to the
developing nations’ increased demand for IMF capital by establishing several low-income countries’
facilities starting with the Trust Fund (→ Trust Funds) created in the mid-1970s and continuing with
the Poverty Reduction and Growth Facility (‘PRGF’) created in 1999 and renamed Extended Credit
Facility (‘ECF’) in 2010. Parallel to the change in the IMF’s clientele—from financing all members to
exclusively financing developing countries—the IMF expanded its list of lending conditions. By
virtue of these expanded conditionalities, the IMF turned de facto into the major policy-maker in
developing countries, requesting recipients of its credits to undertake a) numerous macroeconomic
policy changes (also called ‘Washington Consensus’ conditionalities or adjustment programmes),
and b) governance or institutional reforms (→ International Monetary Fund, Structural Adjustment
Programme [SAP]). Altogether, these reforms created imbalances in the global economy as they
established a one-way road for economic players from the Northern hemisphere to enjoy a free
ride into the South and have priority over players from the Southern hemisphere without reciprocal
rights for drivers from the South into the North.
9 In connection with the recent global financial crisis, the first wave of IMF supported programs in
the format of front-loaded, flexible, and high-level financing went to advanced and emerging
European countries including Hungary, Iceland, Latvia, and Romania. Further financial support went
to Bosnia and Herzegovina, Kosovo, Romania, Lodova, and Poland as well as the notorious
Eurozone members of Greece, Ireland, and Portugal, while IMF advice on Spain’s bank
recapitalization program financed by the EU was given. IMF financial support in Europe focused on
structural reforms to boost economic growth, such as product and services reforms, as well as
labour and pension reforms. It also underscored the importance of adequate safety nets to protect
those most vulnerable during these difficult adjustments. It, last but not the least, recommended
strengthening financial sector regulation, completion of the monetary union, and deeper integration
of banking regulation, supervisory frameworks, and fiscal integration.
B. Structure
1. Membership
(a) Intergovernmental Organization

10 Out of 44 countries that had participated in the Bretton Woods Conference, 37 plus Denmark
had joined the IMF by June 1946; 29 of the 38 IMF Member States were Western European, North
American, and Central and Latin American countries. In addition, three African countries (Ethiopia,
Liberia, and South Africa), three Asian countries (China, India, and the Philippines), and three
Arabic countries (Egypt, Iran, and Iraq) joined. Bretton Woods participants that did not join by June
1946 included Australia (joining in 1947), Columbia (joining later in 1946), Cuba (joining in 1947 but
withdrawing in 1960), Haiti (joining in the 1950s), New Zealand (joining in the 1960s), the Soviet
Union (never joined before it collapsed at the end of the → Cold War [1947–91] and Russia and
further ex-Soviet republics joined in the 1990s), and Venezuela (joining later in 1946). The East–
West divide of the Cold War era also caused Poland, a Bretton Woods participant, to withdraw in
1950. Equally, Czechoslovakia, a Bretton Woods participant which had originally joined the Fund,
withdrew in 1954. China was represented by the government of Taipei, Taiwan, until Beijing, China
(mainland), resumed representation in 1979. West Germany joined the IMF in 1952 and Switzerland
joined in 1992. Today, 188 countries are IMF members. In chronological terms, the IMF membership
has jumped twice since the IMF’s inception as a result of a) decolonization, and b) the fall of the
Berlin wall in 1989 (→ Germany, Unification of) leading, inter alia, to the membership of Russia, the
successor to the Soviet Union, an original Bretton Woods participant that had stayed out of the IMF
entirely and caused other satellites of the Soviet empire to withdraw.
11 The single formal membership requirement is that an applicant must be a → State in the sense
of public international law (Art. II IMF Articles). United Nations membership is not a prerequisite for
IMF membership despite the IMF’s status as a specialized UN agency based on a Relationship
Agreement concluded between the IMF and the UN in 1947 (→ United Nations, Specialized
Agencies). Substantive IMF membership requirements include the purchase of quotas in the IMF and
the endorsement of a liberal monetary regime, typically not exhibited by planned economies. Until
the East-West divide ended with the fall of the Berlin Wall, IMF Articles provisions added to tensions
between East and West. Art. XI (1) IMF Articles binds IMF members to not engage in undertakings
with non-members that would be contrary to provisions of the IMF Articles. Art. XI (2) IMF Articles
states that members are not prohibited from imposing restrictions on exchange transactions with
non-members. Obviously, Art. XI (1) IMF Articles does not seek to impose direct obligations on non-
members, but it binds members to avoid relations with non-members that would be contrary to
provisions or purposes of the IMF Articles. On monetary and financial matters, this provision was
intended to have a broad effect in controlling the conduct of non-members through members in
connection with international transactions. It operated in tandem with a broad interpretation of Art.
IV (4) (a) IMF Articles regarding premium gold transactions throughout the gold standard/par value
time. It continued to operate for transactions between members and non-members after the gold
standard was abandoned, causing difficulties only in connection with transactions between IMF
members and non-members with planned economies trying to impose unilaterally set exchange
rates on IMF members. Art. XI (2) IMF Articles merely recaps the classical principle that the benefits
of a treaty are not accorded to third parties. One of the most noteworthy positive developments in
relationships between the IMF and non-members is the 1964 agreement between the Fund and
Switzerland allowing the IMF to borrow from Switzerland in order to lend on to IMF members under
the General Arrangements to Borrow (‘GAB’) before Switzerland became a member in the 1990s.
(b) Members and Quota Holdings

12 Upon joining the IMF, each member is assigned a quota and pays a capital subscription to the
IMF that is equal to its quota (Art. III IMF Articles). Quotas are supposed to reflect the relative size
and importance of a member’s economy in the global economy. Operationally, the determination of
a member’s quota has been made based on quota formulas. Initially, the quota was determined
according to the so-called Bretton Woods formula. The Bretton Woods formula calculated IMF
members’ quotas based on gross domestic product (‘GDP’) in a year, gold and foreign exchange
reserve holdings in a year, current payments (goods, services, income, and private transfers) over
several years, and current receipts over several years. A multi-formula approach was adopted in
the early 1960s, when the Bretton Woods formula was revised and supplemented by four additional
formulas containing the same basic variables but with larger weights for external trade and export
variability. The Bretton Woods formula, with its relatively high weight for national income, has
generally favoured large economies, while the additional formulas have tended to produce higher
quotas than the Bretton Woods formula for smaller open economies.
13 The IMF conducts general reviews of all members’ quotas at five-year intervals (Art. III (2) (a)
IMF Articles). Such reviews allow for adjustments of members’ quotas to reflect changes in their
relative positions in the world economy. A general review also allows the IMF to assess the
adequacy of quotas in terms of members’ needs for conditional liquidity and the IMF’s ability to
finance those needs. Of the general reviews conducted to date, only one (in 1958–59) was outside
the five-year cycle. Since the IMF’s inception, 14 general quota reviews have been completed. The
14th general review was completed in December 2010 with the proposal to increase IMF quotas by
100% and realign quota shares. The 15th general review is expected to be completed in January
2015.
14 Recently, the relative positions of members in the world economy as well as dramatically
increased financing needs in response to the global financial crisis required major action by the
IMF. On 28 April 2008, the IMF Board of Governors adopted, by a large margin, a package of
important governance reforms proposed by the IMF Executive Board. The reforms are aimed at
better aligning the quotas of Fund member countries with their weight and role in the global
economy and, equally important, enhancing the participation and voice of low-income countries, in
which the Fund plays an important financing and advisory role. The main elements in the reform
package are as follows. The reform is based on a simpler, more transparent quota formula than the
previous system of five formulas. The new quota formula contains four variables: GDP, openness,
variability, and reserves—with weights of 50%, 30%, 15%, and 5% respectively. The GDP variable
is a blend of 60% of GDP at market exchange rates and 40% of GDP at purchasing power parity
exchange rates. The ‘compression factor’ raises the formula by a power of 0.95 with the effect of
reducing the share calculated under the formula for the largest members and raising those for all
other countries. As a result of the 2008 quota and voice reform, ie changed quota calculation
formulas and ad hoc quota increases, 54 countries will receive an increase in the nominal quotas,
ranging from 12% to 106% each, with some of the largest gains going to the dynamic emerging
market economies. The combined increase in quota shares for these 54 countries is 4.9
percentage points.
15 On 5 November 2010, the Executive Board of the IMF approved another proposal to overhaul
the Fund’s quotas to strengthen the Fund’s → legitimacy, ensure a fairer allocation of quotas to
better reflect the members’ economic importance, and ensure the Fund’s ability to serve its
membership in times of global crisis (Sixth Amendment of the Articles of Agreement of the
International Monetary Fund). The proposal recommends a doubling of the quotas to approximately
476.8 billion in Special Drawing Rights (‘SDRs’; about US$706.9 billion at October 2014 exchange
rates) and a major realignment of quota shares among members from SDR238.4 billion agreed
under the 2008 quota and voice reform. The proposal will result in a shift of more than 6% of quota
shares to dynamic emerging market and developing countries and more than 6% from over-
represented to under-represented countries, while protecting the quota shares and voting power of
the poorest IMF members. The November 2010 quota and voice reform proposal also proposed an
amendment of the IMF Articles eliminating the category of Executive Directors appointed by the five
largest quota holders and instituting instead an all-elected Executive Board. On 15 December 2010,
the Board of Governors approved the package of far-reaching reforms of the Fund’s quotas and
governance. The amendment will become effective when three-fifths of the members representing
85% of the total voting power accept the amendment.
16 An IMF member can request an adjustment of its quotas at any time (Art. III (2) (a) IMF Articles).
Ad hoc quota increases can occur both within and outside the context of a general review. They
have usually tended to occur within a general review, with the exception of the 2006 ad hoc quota
increase. In 2006, ad hoc increases in quotas were agreed for China, Korea, Mexico, and Turkey,
four of the Fund’s most clearly under-represented member countries. This ad hoc increase was the
first step in the 2008 quota and voice reform. As a result of the 2008 quota and voice reform,
another round of ad hoc quota increases is scheduled. Together with the earlier 2006 round, the
cumulative increase in quotas under the 2008 reform is 11.5%. All members under-represented
under the new formula are eligible for a quota increase under the reform. To reinforce the
objectives of the reform, several advanced, but equally under-represented, countries (Germany,
Ireland, Italy, Japan, Luxembourg, and the US) agreed to forgo part of the quota increases for which
they are eligible. Under-represented emerging markets and developing economies with actual
quota shares substantially below their share in global GDP in terms of purchasing power parity
received a minimum nominal quota increase of 40%. The four members that received quota
increases in 2006 remain substantially under-represented and are to receive a minimum nominal
further increase of 15%.
17 Originally, membership quotas were expressed in US dollars. The US dollar, in turn, had, at the
time, been tied to gold. Since the demise of the gold standard and the Second Amendment of the
Articles of Agreement of the International Monetary Fund, quotas have been expressed in SDRs.
The creation of the SDR as a gold-based reserve asset was agreed upon in September 1967. The
SDR was effectively introduced in 1969 when the First Amendment of the Articles of Agreement of
the International Monetary Fund entered into force. However, when the Bretton Woods-fixed
exchange rate arrangements finally collapsed in 1973 and gold no longer played a central role as
the anchor of the international monetary system, the SDR was redefined in 1974 as a basket of
currencies. Initially, the currencies of 16 IMF members with at least 1% of world trade were included
in the basket. In 1981, the valuation of the SDR was a simplified to a five-currency basket. Formally,
the selection criterion for inclusion in the valuation basket was changed to the currencies of the
five member countries with the largest exports of goods and services over the previous five years.
These changes resulted in a unification of the SDR valuation and a basket composed of the five
freely usable currencies recognized by the IMF: the US dollar, the Japanese Yen, the Deutsche
Mark, the French Franc, and the Pound Sterling. With the introduction of the Euro in 1999, the
Deutsche Mark and French Franc in the SDR basket were replaced with equivalent amounts of Euro
without changing the relative weight of the continental European currencies in the basket.
18 At all times, ie when quotas have been expressed in US dollars as well as when they began
being expressed in SDRs, quotas not only constituted the financial base of the IMF and their size
determined the extent of members’ ownership in the IMF, they also served several other important
functions. Quotas determine a) a member’s voting power in the IMF (Art. XII (5) (a) IMF Articles); b)
the amount of financing that a member can receive from the IMF (Art. V (3) (b) (iii) IMF Articles); and
c) a member’s share in the general allocation of SDRs (Art. XV (2) IMF Articles).
19 Unlike traditional international intergovernmental organizations whose decision-making rests on

the principle of ‘one state, one vote’, decision-making in the IMF is based on members’ quotas (Art.
XII (5) (a) IMF Articles). Prior to the 2008 quota and voice reform, a member’s voting power in the
IMF used to be equal to 250 basic votes plus one additional vote for each SDR100,000 in quota.
The 2008 and 2010 quota and voice reforms will enhance the voice and participation of low-
income countries through a measure requiring amendments of the IMF Articles. A tripling of the
basic votes of all members since the Fund’s inception was achieved by the 2008 reform. While the
2008 and 2010 quota and voice reforms boost developing countries’ quota holdings in the IMF via a
changed quota calculating formula and ad hoc nominal quota increases, economically strong
nations, as before the reform, shall still own more of the IMF and still have more voting power than
economically weaker countries. Advanced economies will still hold a total of 55.3% of all quotas,
while emerging market and developing countries’ quotas will increase to 44.7%. The move to an
all-elected board of directors is not expected to overcome the de facto dominance of advanced
economies based on their holdings of a majority of quotas either, in particular because Executive
Board decisions are normally not taken by casting votes, although weighted voting, or quota-based
voting, is de iure the norm for decision-making at the level of both collective organs of the IMF, the
Board of Governors and the Executive Directors.
20 Quotas continue to play a crucial role in determining the demand for IMF resources. Quotas
serve as the basis for access to such resources in the great majority of IMF-supported
programmes, subject to limits set by the IMF Articles and its Executive Board. While a member’s
access to IMF credits is restricted to no more than 200% of quota (Art. V (3) (b) (iii) IMF Articles),
this limit is routinely waived (→ Waiver).
(c) Withdrawal and Suspension

21 As is common within the realm of traditional international organizations, the IMF Articles allow
for the voluntary withdrawal of a member at any given time on simple notice (Art. XXVI (1) IMF
Articles). As noted earlier, members (Cuba, Czechoslovakia, Poland) have on occasion made use
of their withdrawal rights. Given the possible practical implications of a member’s non-fulfilment of
obligations—these are primarily financial in nature, such as long-overdue arrears—the IMF Articles
permit the ‘compulsory withdrawal’ or expulsion of a member (Art. XXVI (2) (c) IMF Articles).
Expulsion, however, is ultimately the last measure to be used by the IMF only after other, less
drastic measures have been exhausted. Measures to be taken before expelling a member in
arrears include: a) declaring this member ineligible to use the general resources of the Fund (Art.
XXVI (2) (a) IMF Articles); and b) suspending the member’s voting rights in the Fund (Art. XXVI (2)
(b) IMF Articles). The measure of suspension of voting rights was introduced by the Third
Amendment of the Articles of Agreement of the International Monetary Fund, which became
effective in 1992. The latter two measures have, in practice, been taken on occasion when the
IMF’s usual cooperative strategy in dealing with a member did not succeed in bringing a respective
member back on track in meeting its financial obligations. No IMF member has ever been forced to
withdraw from IMF membership, however.
2. Status, Privileges, and Immunities

22 In performing its functions, the IMF enjoys full juridical personality. It has freedom to contract, to
acquire and dispose of property, and to institute legal proceedings. It also enjoys absolute immunity
based on an explicit charter provision (Art. IX (3) and (4) IMF Articles). Consequently, the IMF
cannot be challenged in any member’s national court, and is not subject to local law enforcement
actions, taxation, or customs. Moreover, there is no international court or → arbitration forum that
has jurisdiction over the Fund. In particular, the → International Court of Justice (ICJ) does not
entertain challenges brought by or against international organizations, including the Fund. The
Fund’s assets, archives, and communications are protected against interference. The Fund
developed special procedures that are intended to ensure the physical safety of Fund staff and
other officials and their families. As the Fund became a specialized agency of the UN by virtue of
the 1947 Relationship Agreement, it also enjoys the protections coming with the UN Convention on
the Privileges and Immunities of the Specialized Agencies ([approved 21 November 1947, entered
into force 2 December 1948] 33 UNTS 261). In connection with this UN convention only, the IMF
accepted the notion to be bound by ICJ → advisory opinions issued on questions of interpretation
of the convention, although not on its IMF Articles.
3. Special Interpretation Powers

23 In addition to the general international law rule that considers all actions of an international
organization interpretative (Art. 31 → Vienna Convention on the Law of Treaties [1969] [‘VCLT’;
1155 UNTS 331] codifying → customary international law), the IMF Articles accord special
interpretation powers to the IMF’s own organs. Art. XXIX (a) IMF Articles provides that ‘[a]ny
question of interpretation of the provisions of this Agreement between any member and the Fund or
between any members of the Fund shall be submitted to the Executive Board for its decision’. The
procedure further provides for an appeal to the Board of Governors, assisted by a Committee on
Interpretation, whose decision shall be final. This explicit interpretation procedure has been used
not more than a dozen times, while the Executive Board has taken over 13,000 decisions
interpreting the IMF Articles and secondary law on a basis other than invoking the formal
interpretation powers. The explicit interpretation powers vested in the Fund’s own organs sound
exclusive. Yet, the IMF’s 1947 Relationship Agreement with the UN integrating the IMF into the UN
system by formally giving it specialized agency status without, however, subjecting it to any real
substantive duties which would reduce the IMF’s powers of independent decision-making and
assumption of its role under the IMF Articles (Art. XXIX IMF Articles), allow the IMF to request
advisory opinions from the ICJ, for example, in order to solve issues arising under the IMF Articles.
In practice, the IMF has never used the ICJ advisory opinion vehicle. Rather, the IMF relied on the
mechanism for interpretation outlined in Art. XXIX IMF Articles. The IMF Articles include a device
unique to IFIs as it doubles the IMF organs’ powers by according them not only the power to
manage IMF resources and advise its members in order to pursue global monetary and economic
stability, but also to authoritatively interpret the IMF Articles, ie to decide on the question to what
extent the IMF’s actions approved of earlier by the very same organs may have exceeded the
Fund’s powers.
4. Amendments
24 The IMF Articles provide for an amendment procedure by which at least three-fifths of the
members, having 85% of the voting power, must have accepted a proposed amendment (Art. XXVIII
IMF Articles). The IMF Articles provisions on acceptance of amendments by a percentage of voting
powers grant a de facto veto power to the biggest IMF quota holder/member, ie the US. Proposals
for an amendment may be introduced by a member, a governor or a representative of a member,
or the Executive Board. The IMF has discussed several amendments since its inception. The First
Amendment, which became effective in 1969, introduced the SDRs. The Second Amendment,
which became effective in 1978, eliminated the original fixed exchange rate system and introduced
a floating rate/pegged rate system. The Third Amendment, which became effective in 1992, allowed
the IMF to suspend a member’s voting rights in the instance of the member’s failure to fulfil its
obligations to repurchase its own currency after borrowing other currency from the Fund’s general
resources account. A Fourth Amendment concerning a 1998 special allocation of SDRs became
effective in 2009. A Fifth Amendment, proposed in 2002, related to the establishment of a Sovereign
Debt Restructuring Mechanism (‘SDRM’). The IMF governors rejected that proposal in 2003. The
successor Fifth Amendment proposed in 2008, which became effective in February 2011,
authorized the expansion of the IMF’s investment authority. A Sixth Amendment, proposed by the
Executive Board in November 2010, will, if accepted by IMF members, bring about a fundamental
change in the IMF governance scheme by turning the Executive Board into an all-elected board.
This pending amendment will also double the IMF’s current quotas to approximately SDR 477 billion.
5. Organization and Management

25 The IMF has three organs: a) the Board of Governors; b) the Executive Board; and c) the
managing director (Art. XII (1) IMF Articles).
(a) Board of Governors

26 The Board of Governors is composed of a representative of each member country (Art. XII (2)
(a) IMF Articles). In other words, today there are 187 governors. In order to exercise the functions
explicitly conferred upon it (Art. XII (2) (c) IMF Articles), the Board of Governors meets twice a year,
once in the autumn (annual meetings) and again in spring (spring meetings) every year. The IMF
By-Laws Rules and Regulations detail, among others, the formalities to be followed for the meetings.
Typically, members send their secretary of the treasury, finance minister, or head of central bank
to the annual meetings. In cases where the governor himself or herself is unable to attend these
meetings, his or her alternate will attend.
27 The Board of Governors is, based on the IMF Articles, vested with all powers—expressed or
implied—of the institution, except those which have been specifically given to another organ (Art.
XII (2) (a) IMF Articles). In practice, however, the Board of Governors has delegated most of its
powers to the Executive Board, except those that have been explicitly assigned to it by the IMF
Articles. Hence, the only functions the Board of Governors performs include: a) the decision to
liquidate the SDR department (Art. XXV (a) IMF Articles); b) the decision to suspend the Fund’s
operations and transactions (Art. XXVII (1) (b) IMF Articles); c) the decision to liquidate the entire
Fund (Art. XXVII (2) IMF Articles); d) approval of amendments to the IMF Articles (Art. XXVIII IMF
Articles); e) the final decision on an appeal of an Executive Board’s interpretation of the IMF Articles
(Art. XXIX (b) IMF Articles); f) the decision on terms and conditions of membership in the Fund (Art. II
(2) IMF Articles); g) the adjustment of quotas of members in the Fund (Art. III (2) IMF Articles); h) the
decision on additional payments by members whose quotas were adjusted (Art. III (3) IMF Articles);
i) the decision to admit new members to the Fund (Art. II (2) IMF Articles); and j) the decision on
allocation or cancellation of SDRs (Art. XVIII (4) IMF Articles).
28 The Board of Governors established two committees to assist it with some of the core aspects
of its work (Art. XII (2) (j) IMF Articles). Both committees meet twice a year prior to the Board of
Governors’ annual and spring meetings. The first committee is composed of 24 IMF governors or
representatives of members of equal ranking; the second equally consists of 24 members but also
includes World Bank governors. The first committee is the International Monetary and Finance
Committee—until September 1999 known as the Interim Committee. This committee is charged with
matters of international monetary policy including global liquidity. It also advises the Board of
Governors in the event of emergencies threatening the international monetary order, such as
global financial crises. It further advises the Board of Governors on the amendments to the IMF
Articles submitted by the Executive Board. The second committee is the Development Committee.
Co-established by the IMF and the World Bank, the Development Committee advises the Board of
Governors of both the IMF and the World Bank on issues of development.
(b) Executive Board

29 The Executive Board of the IMF consists of 24 Executive Directors (Art. XII (3) (b) IMF Articles).
The Executive Directors meet three times a week on a regular basis—even more frequently, if
necessary—at the IMF’s headquarters in Washington, DC. According to the IMF Articles, the IMF’s
five biggest quota holders/members—the US, Japan, Germany, France, and the UK—appoint their
own Executive Director (Art. XII (3) (b) (ii) IMF Articles). China, Russia, and Saudi Arabia equally
appoint their own Executive Director as a matter of practice. The remaining 16 Executive Directors
represent so-called constituencies of members, ie groupings of members that include several of the
remaining 178 members with each grouping electing their Executive Director for a period of two
years (Art. XII (3) (b) (ii) and (d) IMF Articles). Every Executive Director’s office has an alternate
Executive Director to act on behalf of the Executive Director in his absence (Art. XII (3) (e) IMF
Articles). The recent quota and voice reform approved by the IMF Board of Governors in 2008
added a second alternate Executive Director to Executive Director chairs representing a large
number of countries, a measure from which the African constituencies benefited. The
constituencies, grouping several member countries, evolved as Fund membership grew. They bring
together countries which do not necessarily have a lot in common from a political, economic,
social, cultural, or historic perspective. For example, members of the European Union, members
without a separate seat on the Board, are spread out in different constituencies. Most seats also do
not group countries by region. If the November 2010 proposed quota and governance reform is
accepted by the IMF members, the five largest quota holders in the IMF will no longer be granted the
privilege of appointing their own Executive Director. The board will instead be composed of elected
directors only. While the IMF’s board is supposed to maintain its size of 24 directors after the move
to an all-elected board, there will be further scope for appointing a second alternate director for
multi-country constituencies is meant to ensure representation as well as forming constituencies.
While that reform, if accepted by members under the amendment requirements of the IMF Articles,
will inevitably—under simulated board elections—lead to a loss of two smaller European nations’
director posts, it will hardly break up the original paradigm of rich quota holders still controlling the
institution at least in theory. As emphasized below, however, most decisions in the board are taken
by → consensus.
30 The Executive Board decides on the IMF’s credit business as well as the lending conditions
attached to IMF credits (Art. XII (3) (a) IMF Articles). The Executive Directors also formally appoint
the IMF Managing Director (Art. XII (4) (a) IMF Articles). Based on long-standing practice, however,
European IMF members nominate the Managing Director, while the US, in turn, nominates the World
Bank President. The Executive Directors of the respective IFI will then typically ‘rubberstamp’ the
European/US choices to head the respective IFI.
(c) Managing Director
31 The Managing Director chairs the Executive Board meetings but has no vote except the
deciding vote in case of an equal division (Art. XII (4) (a) IMF Articles). The Managing Director is
chief of the operating staff and conducts, under the direction of the Executive Board, the ordinary
business of the IMF (Art. XII (4) (b) IMF Articles). He appoints and dismisses the staff of the Fund who
assist him in the Fund’s operations (Art. XII (4) (b) IMF Articles). Staff are appointed on the basis of
competence with due regard to the importance of recruiting personnel on as wide a geographical
basis as possible (Art. XII (4) (d) IMF Articles).
(d) Decision-Making
32 As noted earlier, decision-making in both collective organs of the IMF, ie the Board of
Governors and the Executive Board, follows the principle of weighted voting based on the quotas
standing behind a governor or director representing one or more members/quota holders (Art. XII
(5) (a) IMF Articles). Most operational, ie financing and principal policy decisions of the IMF require,
once the quorum is met and a majority of Executive Directors having no less than one-half of the
total voting power is present at the Board meeting, a simple majority of the votes in the Executive
Board. Given the distribution of quotas, the quotas of all → Organization for Economic Co-operation
and Development (OECD) countries would have theoretically sufficed to cast a simple majority
vote prior to and after the 2008 quota and voice reform, and even the 2010 reform as current
simulation of the all-election of the Board exercise shows as of October 2014. However, because of
the existence of constituencies, which in reality did and do not consist of OECD countries on the
one hand and developing countries on the other, such a majority vote remained purely
hypothetical. In practice, most decisions in the Executive Board are taken based on consensus
rather than formal vote. This extends even to decisions which require a qualified majority of either
70% or 85% of the total vote. It should be noted that the decision to amend the IMF Articles requires
a simple majority in the Executive Board if the amendment emanates from within this Board. Any
proposed amendment, including proposals originating with the Executive Board, a member, or
governor, requires a simple majority of the votes cast by the Board of Governors. However, as
noted earlier, an amendment finally becomes effective when three-fifths of the members having
85% of the total voting power accept the amendment (Art. XXVIII (a) IMF Articles) with the US
enjoying de facto veto power as the biggest IMF quota holder/member.
6. Finances
(a) Capital
33 Unlike other IFIs, such as the World Bank or the → regional development banks, the IMF is, in
effect, a repository for its members’ currencies and a portion of their foreign exchange reserves.
The IMF is, however, like other IFIs and unlike most traditional international organizations, owned by
its members and hence in general not dependent on regular financial contributions by members
(→ International Organizations or Institutions, Financing of).
34 The original working capital of the IMF consisted of quotas in the amount of US$8.8 billion with
US$1 representing 0.888671 grammes of fine gold, ie the gold value assigned to the US dollar on 1
July 1944 by the US government (Schedule A annexed to the IMF Articles). As noted earlier, IMF
members were assigned quotas based on economic criteria reflecting their relative economic
strength. Upon joining the IMF, members initially had to pay 25% of their quotas or 10% of their
official gold reserves in gold (Art. III (3) IMF Articles). The remainder of the quotas could be paid by
the member in its domestic currency in cash or by deposit of notes denominated in the member’s
currency (Art. III (3) IMF Articles). Hence, only a quarter, or even less, of the total payment by a
member was to be made directly in gold, in fact the total payment would represent gold by virtue of
the par value mechanism. The par value system tied a member’s domestic currency directly or
indirectly to gold. Under the par value system, currencies other than the US dollar were pegged to
the US dollar on the basis of fixed exchange rates, and the US dollar, in turn, was firmly tied to gold
on the basis of the US commitment to give, in exchange for every US dollar, 0.888671 grammes of
fine gold, the par value or gold value of the US dollar.
35 The composition of the IMF paid-in capital changed in 1969 when the IMF introduced the SDRs
as a new additional reserve asset and established an SDR account via the First Amendment of the
Articles of Agreement of the International Monetary Fund. The SDR was, like the US dollar, initially
defined as equivalent to 0.888671 grammes of fine gold. Members could subscribe to the SDR pro
rata based on their quotas held in the IMF’s original capital account, ie the General Resources
Account (‘GRA’). Similarly to the distribution of quotas, general allocations of SDRs have been
made for successive basic periods of up to five years. In 1998, a special one-time allocation of
SDRs was agreed upon to equalize all members’ ratios of cumulative SDR allocations to quotas.
That special SDR allocation triggered the Fourth Amendment of the Articles of Agreement of the
International Monetary Fund. It became effective in August 2009.
36 When the US dollar was devalued against gold in 1971, the SDR retained its nominal gold value
and was referred to as ‘paper gold’. In connection with the changing reference points for a
member’s quota in the IMF, the SDR was redefined in 1974 as a basket of initially 16 currencies,
then five (US dollar, Japanese Yen, Deutsche Mark, French Franc, and Pound Sterling), and finally
four currencies (the Euro replaced the Deutsche Mark and the French Franc in 1999) after gold had
lost its meaning as a central figure in the international monetary system upon the abandonment of
the gold standard by the US. With the Second Amendment of the Articles of Agreement of the
International Monetary Fund, which became effective in 1978, the SDR became, in addition to its
role as a reserve asset, the monetary unit in which members’ quotas/paid-in capital (or GRA) would
be expressed. The currencies that determine the value of the SDR, and the amount of each of
these currencies in the basket, are reviewed every five years, while the actual weight of each
currency in the value of the SDR changes on a daily basis as a result of changes in the exchange
rate under the current system of floating exchange rates of the currencies participating in the
basket.
37 Both the GRA and the SDR reserve asset accounts have, over time, increased. As of 1 October
2014, total quotas of all IMF members amounted to SDR238.12 billion; net cumulative allocations to
members participating in the SDR account totalled SDR182.637 billion, with SDR161.18 billion
representing a general allocation effective August 2009 and SDR21.45 billion representing the
special one-time allocation of the Fourth IMF charter amendment. The 2010 quota and governance
reform will increase the IMF quotas to approximately SDR476.8 billion.
(b) Borrowing
38 The IMF can borrow to supplement its quota resources (Art. VII (1) (i) IMF Articles). It maintains
two standing borrowing arrangements with official lenders. The IMF can also borrow from private
markets, although it has not done so to date. Replenishment of the Fund’s resources is realized
based on two arrangements to borrow. Both are meant to enable the Fund to counteract the
difficulties caused by capital movements, which were made possible by a) convertibility of
currencies—an obligation imposed on IMF members by virtue of the IMF Articles—and b) the
removal of restrictions on capital transfers—either unilaterally undertaken, eg by the OECD
countries, or promoted by IMF conditionalities and implemented by developing countries in
connection with their borrowing from the IMF. The GAB have been in place since 1962. Under the
GAB, the main industrial countries (‘G10’) agreed to stand ready to lend specified amounts of their
currencies to the IMF when supplementary resources were needed. In 1997, the New Arrangements
to Borrow (‘NAB’) were concluded with the G10, and 15 further countries, to deal with financial
crises. NAB effectively doubles the resources available to the IMF under GAB. While GAB remains in
force, the NAB became the first and principal recourse in the event of a need to provide
supplementary resources to the IMF. In April 2009, the Group of Twenty (‘G20’) industrialized and
emerging market economies agreed to triple the Fund’s lending capacity. This expanded NAB,
which became effective in March 2011, can provide up to SDR366.5 billion in supplementary
resources. The total amount of resources available to the IMF under the GAB and NAB combined is
SDR387 billion. Since the onset of the global financial crisis, the IMF has signed a number of
bilateral note and purchase agreements with official lenders to supplement its quota resources and
standing borrowing arrangements. The first round of bilateral borrowing took place in 2009 and
2010. In June 2012, the Executive Board approved modalities for this bilateral borrowing that
envisaged that the IMF were to draw on the new agreements only after it had committed most of its
existing resources available through quotas or the NAB. Against the background of worsening
economic financial conditions in the Euro area, 38 countries committed during the year to increase
IMF resources further by US$461 billion through bilateral borrowing agreements. As of 30 April
2013, the Executive Board had approved 21 of these agreements of which 18 had been finalized
and were effective for a total amount of US$350 billion. There is an additional SDR1.5 billion
available under an associated agreement with Saudi Arabia. These arrangements have been
activated by the IMF a number of times, invariably in connection with IMF bailout measures in
financial crises. All borrowing arrangements have been renewed for another five years from
December 2013. At 30 April 2014, the IMF’s combined outstanding borrowings under GAB, NAB, and
bilateral agreements amounted to SDR47.3 billion.
(c) Further Resources

39 Virtually all of the IMF’s operational income is derived from the charges that are levied on the
outstanding use of credit in the GRA (Art. V (8) IMF Articles). In addition to the basic charge, the use
of IMF credit from the GRA is, under certain circumstances, subject to surcharges, and to service
charges, commitment fees on credit lines, and special charges. A small amount of income is also
generated by receipts of interest on the IMF’s SDR holdings.
40 Operational expenses consist of: a) interest paid on remunerated reserve tranche positions, ie
IMF holdings of members’ foreign exchange reserves the use of which is not qualified as a credit;
b) allocations made to special contingent accounts, ie the IMF’s accumulated reserves for its own
protection against borrowing members’ arrears; and c) the payment of interest on outstanding IMF
borrowing, if any, and administrative expenses.
41 In the light of momentarily decreasing demand for its resources by borrowers and a parallel
decline in operating income in the form of interest paid by borrowers, the IMF recently decided to
increase its capital by opening an investment account (Art. XII (6) (f) IMF Articles). In 2006, the IMF
decided to establish an investment account. Subsequently, the IMF transferred currencies in the
amount equal to US$5.9 billion from the general resources account, an amount equal to the IMF’s
total reserves at the time. The investment account funds were used to invest in bonds and
marketable obligations issued by certain members and certain international financial organizations.
In April 2011, an amendment of the IMF Articles became effective that allows the Fund to expand its
investment authority. The Fund can now invest in riskier instruments. The amendment also
established an endowment funded by the profits from the sale of one-eighth of the IMF’s gold
holdings for investment purposes. The Executive Board adopted a new set of rules and regulations
for the investment account in January 2013, which provides the framework for the implementation
of the expanded investment authority. They essentially establish three separate accounts within
the investment account: the fixed income, the endowment, and the temporary windfall profits
subaccounts (each with a different investment objective).
42 With a quarter of capital subscriptions in the IMF having originally been made in gold, charges
originally levied in gold, and members’ ability to pay for the use of general resources in gold
instead of using currencies, the IMF accumulated significant holdings in gold throughout its first 25
years. While it sold some of its holdings, it also reacquired some. Hence, the IMF never lost its
position as the third-largest official holder of gold, after the US and Germany, with holdings of
around 100 million ounces of fine gold. The IMF’s gold holdings were valued on the IMF’s balance
sheet on the basis of historical cost with a book value of SDR3.1 billion in the financial year 2013.
Valued at market prices, the IMF’s holdings probably amount to about SDR88.1 billion. In the past 15
years, the IMF sold substantial amounts of its gold. The proceeds generated from off-market
transactions in gold were primarily used as the IMF’s contribution to the special debt relief for the
heavily indebted poor countries (‘HIPC’) under the HIPC initiative, establishing the HIPC trust fund
administered by the IMF and the World Bank (→ Debt Crisis) and to support the Poverty Reduction
and Growth Trust (‘PRGT’) under which the IMF operates its low-income-countries facilities.
(d) Preserving Liquidity

43 Liquidity risk is the risk of non-availability of resources to meet the IMF’s financing needs and
obligations. Not all of the IMF resources are immediately available for lending, especially when they
concern holdings of currencies of economically weak members. The IMF’s usable resources
consist of currencies of IMF members with a strong balance of payments position and SDRs which
stem mainly from quota payments, as gold is not used in lending operations. While the IMF’s
resources are revolving, uncertainties in timing and amount of credit extended to members expose
the IMF to liquidity risk on a day-to-day basis, and more so during financial crises. Moreover, the
IMF must always stand ready to meet the potential demands from members in drawing upon their
reserve tranche positions, which have no fixed maturity and are part of members’ reserves.
44 The IMF manages its liquidity risk not by matching the maturity of assets and liabilities but by
closely scrutinizing developments in its liquidity position, especially as they relate to the adequacy
of quota-based resources to meet liquidity needs. In the medium term, quota reviews are
conducted, which—as noted earlier—serve the purpose of adjusting quotas to the changing
economic strength of members. These reviews may consequently lead to a general quota increase
to maintain liquidity. In the short term, close monitoring of its liquidity using objective criteria, such
as forward commitment capacity for the next 12 months updated daily, allows the IMF to prepare for
shortages. Historically, the liquidity ratio of the IMF has never fallen below 25–30%.
(e) Accounting and Auditing

45 The IMF prepares its financial statements in accordance with international accounting
standards (namely with the International Financial Reporting Standards [‘IFRS’]) but is not bound by
specific legal provisions or accounting pronouncements in effect in individual member countries.
The IMF is required to publish an annual report containing audited statements of its accounts and to
issue summary statements of its holdings in SDR, gold, and members’ currencies at intervals of
three months or less (Art. XII (7) (a) IMF Articles). The audit procedures in place call for an external
audit of the IMF’s accounts and activities. The external audit of the financial statements of the IMF’s
General Department managing the GRA, the SDR Department managing the SDR account, the
administered accounts of its low-income countries’ facilities, and the staff retirement plans is
conducted annually by an external private audit firm selected by the Executive Board. The external
private auditors conduct their audit under the general oversight of an External Audit Committee
(‘EAC’). The EAC consists of three persons, each representing a different member country, who are
selected by the Executive Board for an initial term of three years. EAC members may be appointed
for an additional three-year period. The EAC selects one of its members as chairman and
determines its own procedures. It is independent of the management of the IMF in overseeing the
annual audit.
C. Operations
1. Purposes
46 The general mandate of the IMF, since its inception, has remained unchanged to date.
According to Art. I IMF Articles the purposes of the IMF are: a) to promote international monetary
cooperation through a permanent institution which provides the machinery for consultation and
collaboration on international monetary problems; b) to facilitate the expansion and balanced
growth of international trade, and to, thereby, contribute to the promotion and maintenance of high
levels of employment and real income and to the development of productive resources of all
members as primary objectives of economic policy; c) to promote exchange stability, to maintain
orderly exchange arrangements among members, and to avoid competitive exchange
depreciation; d) to assist in the establishment of a multilateral system of payments in respect of
current transactions between members, and in the elimination of foreign exchange restrictions
which hamper the growth of world trade; e) to give confidence to members by making the general
resources of the fund temporarily available to them under adequate safeguards, thus providing
them with the opportunity to correct maladjustments in their balance of payments without resorting
to measures destructive of national or international prosperity; and f) in accordance with the
above, to shorten the duration and lessen the degree of disequilibrium in the international balances
of payments of members.
2. Operational Activities
47 From a day-to-day perspective, the purposes for which the IMF was established translate into a
combination of regulatory, consultative, financial, and knowledge bank functions. While the IMF’s
regulatory function included even the setting of exchange rates under the par value system of
Bretton Woods, the IMF’s regulatory function after the Second Amendment is reduced to jurisdiction
over members’ restrictions of payments and transfers. In lieu of fixed exchange rate regulation, the
IMF acquired a surveillance function with the Second Amendment that translates into members’
obligations to transmit data related to monetary, fiscal, and other policies in connection with regular
Art. IV IMF Articles consultations by the IMF with members. While obliged to allow for consultations,
members are by no means required to follow any of the IMF recommendations that might come out
of the consultations.
(a) Regulatory Function

48 The instruments available to the IMF to assist in the performance of its regulatory function on
monetary matters (→ Monetary Law, International) changed radically after the Fund’s first 25 years
in existence. The changes were realized based on the First and Second Amendments of the IMF
Articles. The former became effective in 1969; the latter in 1978.
(i) Bretton Woods Regime

49 During its first 25 years, the IMF managed an international monetary system, called the Bretton
Woods system. That system consisted of a) a par value system, ie a system of fixed exchange rate
arrangements among all IMF members that either directly or indirectly tied members’ currencies to
gold (Art. IV (1) (a) IMF Articles); b) the convertibility of all IMF members’ currencies (Art. VIII (4) IMF
Articles); c) payment systems that guaranteed transfer of payments among IMF members in
connection with trade of goods and provision of services across borders (Art. VIII (2) IMF Articles);
and d) financial assistance by the IMF to members in the event of balance of payments difficulties
(Art. V (3) (b) (ii) IMF Articles).
50 Under the par value system, the value of every IMF member’s currency was established in
terms of gold (Art. IV (1)–(7) IMF Articles). Thus based on gold, par values determining the
relationship or parity between each pair of currencies were established. Each member was obliged
to either hold gold reserves in the amount equal to all currency issued by it, or hold US dollars in
this amount. In practice, only the US held gold reserves in the amount of all dollars issued by it,
while all other IMF members held US dollar notes instead. The par value was not immutable. While a
member was obliged to adopt appropriate measures to ensure that spot exchange transactions
within its territories that involved its own currency and the currency of another member would take
place at rates of exchange within margins not in excess of 1% of the parity between the currencies
—in some instances within 2%—a member could, in the light of major changes in its economy,
propose a change in par value to correct a fundamental disequilibrium and request the Fund’s
approval for an adjustment of par value to changed circumstances.
51 In principle, the par value system worked well among participants after Europe’s reconstruction
had been completed. However, when the US experienced a long-term balance of payments deficit,
the Bretton Woods system collapsed in August 1971 with the decision of the US to abandon the
gold standard and no longer buy gold matching the issuance of US dollar bills nor to stand ready to
give gold in exchange for US dollars. Since then, IMF member currencies began de facto to float.
While international attempts on the basis of special arrangements among several IMF members
determining broader margins for exchange rates among floating currencies were undertaken for an
interim period of time, these efforts failed with most of them lasting only months. By July 1973, all the
major currencies were floating, ie central banks were not intervening in markets at all or, at any
event, were not intervening to maintain any particular exchange rate. The global volatility of
exchange rates led to further volatility in interest rates, rates of inflation, capital movements, trade
flows, and political expectations. However, the situation triggered regional exchange rate
arrangements in Europe, in particular after the added havoc of the 1973 → Organization of the
Petroleum Exporting Countries (OPEC) oil shock. The European exchange rate arrangements
came with wider margins than the IMF’s par value system. The introduction of the European
Currency Unit (‘ECU’) in 1979—a basket of European currency, used to establish an exchange rate
between participating currencies and prescribing maximum ceilings and minimum floors for
changes in the rates plus obligations for central banks to intervene—paved the way for the
European Monetary Union and the Euro (→ Monetary Law, European; → Monetary Unions and
Monetary Zones). On the international plane, a Second Amendment of the IMF Articles, which
became effective in 1978, officially eliminated the par value system and responded to the view that
a return to a fixed exchange rate system was no longer possible, and probably not necessary as
major internationally traded currencies had allowed countries to avert the worst consequences of
the oil shock without the world economy falling into a deep depression and even enabled the non-
oil-producing developing countries to secure financing for their continued development.
(ii) Post-Bretton Woods Regime

52 In 1978, the Second Amendment of the IMF Articles provided for flexible exchange rate
arrangements among IMF member currencies. Following this amendment, an IMF member could a)
peg its currency to the SDR; b) peg its currency to another unit of account; c) peg its currency to
another member’s currency; d) peg its currency to a self-chosen basket of currencies; e) join a
regional monetary regime; or f) let its currency freely fluctuate on the markets (Art. IV (2) (b) IMF
Articles).
53 Due to the flexibility granted to IMF members with respect to their exchange rate arrangements,
today’s regulatory functions of the IMF are practically reduced to its formal jurisdiction over
measures that have the effect of restricting payments and transfers for current international
transactions connected to trade and provision of services across borders. Member countries are
required to provide the IMF with such information and statistical data as it deems necessary for its
activities, including the minimum necessary for the effective discharge of its watchdog duties as
outlined in Art. VIII IMF Articles.
54 The new flexible exchange rate arrangements led invariably to greater monetary instability as
under the Bretton Woods predecessor, the par value system. Additional pressures on IMF members’
economies, including the oil shocks of the 1970s, led to developing countries’ increasing balance
of payments difficulties and their growing needs in terms of financial assistance. Stripped of its
function managing the par value system, the IMF responded by a) expanding its financial function
in volume establishing low-income countries’ facilities, a decision facilitated by the new trend of
recycling the Petro-Dollar; and b) by making significant changes in the substance of its lending
policies.
(b) Consultative Function

55 The IMF’s consultative function stems primarily from its responsibility to oversee the
international monetary system and to exercise firm surveillance over the policies of its members, a
task entrusted to the IMF following the collapse of the Bretton Woods fixed exchange rate system in
the early 1970s. These activities include regular monitoring and peer review by other members of
economic and financial developments and policies in each of its members, specifically the
country’s exchange rate, monetary, fiscal, and financial sector policies, and other policies such as
those bearing on institutional and structural issues with a direct impact on domestic and external
stability, so-called bilateral surveillance (Art. IV (3) IMF Articles), or ‘Article IV consultations’. These
consultations take place once a year and result in an IMF staff team’s report to the Executive Board
for review and discussion. If the member country concerned agrees, the full Article IV consultation
report and a Public Information Notice summarizing the Executive Board’s discussion are published.
Article IV consultations, while allowing for the IMF’s access to members’ data on exchange
arrangements and data on further macroeconomic policies, do not include hard-core legal
obligations by members to adhere to any policy suggestions that the IMF may come up with in
connection with its surveillance.
56 Given the links between national economies’ financial systems and the international economy
and global financial markets, the IMF monitors world economic and financial market developments
and prospects to help to ensure that the international monetary and financial system is functioning
smoothly and to identify the risks and vulnerabilities stemming from large and sometimes volatile
capital flows that could undermine the system’s stability, so-called multilateral surveillance.
Multilateral surveillance is carried out through the Executive Board’s reviews of the three bi-annual
publications, the World Economic Outlook, the Global Financial Stability Report, and the Fiscal
Monitor.
57 Bilateral and multilateral surveillance are supplemented by regional surveillance of formal

arrangements, such as currency unions whose members have devolved responsibilities over
monetary and exchange rate policies to regional institutions, as well as the preparation of regional
economic outlooks.
58 In July 2012, the Executive Board took a significant step toward modernizing IMF surveillance
and addressing the priorities of the 2011 Triennial Surveillance Review, adopting a decision on
bilateral and multilateral surveillance, known as the integrated surveillance decision. The decision
provides a basis for the IMF to engage more effectively with members, strengthening IMF
surveillance in a number of ways. It provides a conceptual link between the IMF’s assessment of
individual economies and global stability and clarifies that surveillance should focus on economic
and financial stability both at the individual country and global levels. It makes Art. IV consultations
a vehicle not only for bilateral, but also for multilateral surveillance, thus allowing for more
comprehensive, integrated, and consistent spill-over analysis. It promotes a more balanced
treatment of domestic and exchange rate policies by adding guidance on the conduct of member
countries’ domestic policies, while maintaining the existing principles for exchange rate policies. It
also stresses the contribution of the overall mix of policies to a country’s domestic and balance of
payments stability. It defines, for the first time, the scope and modalities of multilateral surveillance,
including by laying out a framework for potential multilateral consultations. In reaching the decision,
the Executive Director agreed that the integration of bilateral and multilateral surveillance would
help fill important gaps in surveillance. The Directors stressed that the decision does not, and
cannot be construed or used to expand or change the nature of members’ obligations under the
IMF articles.
(c) Financial Function

59 Major financial functions of the IMF range from the provision of temporary balance of payments
financing out of the GRA to the extension of medium- and longer-term concessional lending
including special debt relief to the poorest members out of low-income countries’ facilities (Art. V
(2) (b) IMF Articles). Financial functions further include the administration of the SDR Department,
which manages the SDR. Unlike in connection with borrowing out of the GRA or from the low-
income countries’ facilities, IMF members participating in the SDR system as it evolved have a claim
on freely usable currencies without showing a balance of payments-based need. IMF members
have been using their SDRs to obtain foreign exchange from other IMF members and to make
payments to the IMF. Note, however, that the bulk of IMF financing relates to lending out of the GRA
and IMF administered low-income countries’ facilities.
(i) Balance of Payments Difficulties: Prerequisite for IMF Lending

60 The IMF uses the pool of members’ currencies as well as additional funds in its low-income
countries’ facilities to extend credits to member countries when they face economic difficulties as
reflected in their external balance of payments (Art. V (3) (b) (ii) IMF Articles). A country’s balance
of payments accounts keep track of both its payments to, and its receipts from, foreigners. Three
types of international transactions are recorded in the balance of payments. The first type
concerns transactions that involve the export or import of goods or services; they are entered
directly into the current account. The second type concerns transactions that involve the
purchase or state of financial assets, ie any form in which wealth can be held, eg money, stocks,
factories, or government debt; these transactions are recorded in the financial account of the
balance of payments. The third type concerns other activities resulting in transfers of wealth
between countries, which are recorded in the capital account. These activities result from non-
market activities, or represent the acquisition or disposal of non-produced, non-financial, and
possibly intangible assets. They include debt forgiveness. Any transaction resulting in a payment to
foreigners is entered in the respective balance of payments account as a debit and is given a
negative (?) sign. Any transaction resulting in a receipt from foreigners is entered as a credit and is
given a positive (+) sign. Thus, if a country’s value of imports exceeds the value of its exports, the
current account of its balance of payments may turn negative. While the negative current account
may be balanced by a positive financial account, this may possibly actually only be achieved by
the country borrowing more money. By extending short- and medium-term credit to member
countries in balance of payments difficulties, the IMF assists its members in bridging such gaps in
the current account.
(ii) Regular Lending

61 The GRA is the principal account of the IMF. Contrary to the funds of its Bretton Woods sister,
the IBRD, all IMF members, ie rich as well as poor members, have de iure access to the IMF’s GRA in
the instance they face balance of payments difficulties. The core rationale of access to the GRA for
all IMF members is to provide liquidity and ease balance of payments problems. Initially, the IMF
barely attached any other than repayment conditions to access to the GRA. Over time, however,
IMF lending conditionalities evolved into the so-called ‘Washington Consensus’ conditionalities
requiring, from IMF members tapping into the GRA, the implementation of heavy structural
adjustments and governance reforms. Possibly as a result of these heavy conditionalities,
industrialized and developed IMF members virtually stopped requesting IMF financial support in the
1970s, instead turning to the markets when they faced balance of payments difficulties. This
paradigm was discontinued only recently when a number of developed nations experienced
massive problems because of the spill-over effects of the global financial crisis, a situation that left
these countries with no choice other than to swallow some of the IMF’s bitter medicine as, for
example, the EU was not in a position to arrange for support to avert the breakdown of the
economies of several of its Member States alone.
62 The GRA handles the largest share of transactions between the IMF and its membership by far.
The GRA can be best described as a pool of currencies and reserve assets built up from members’
fully paid capital subscriptions in the form of quotas. With quotas having been primarily paid in US
dollars, other reserve assets, as well as the members’ own currency, currencies held by the IMF in
this pool are of two types, ie usable and unusable. A currency is usable if the issuing member’s
external payments position is strong enough for it to be called upon to finance IMF credits to other
members. Other currencies, ie the currencies of financially weak members, are considered
unusable. This leaves the IMF’s effective lending capacity at about half of total quotas. With its
usable resources in the GRA, the IMF provides financing to its members (Art. V (3) (e) IMF Articles).
Members borrow from the GRA under the IMF’s ‘credit tranches’ or under special policies or
facilities (Art. V (3) (a) IMF Articles). The credit tranches provide financing to IMF members for
balance of payments needs arising from almost any cause, whereas credits under other policies
deal with needs arising from specified balance of payments causes. IMF financial assistance is
typically made available in tranches or segments equivalent to 25% of quota that are linked to the
borrowing country’s observance of specific economic and financial policy conditions and its
meeting of structural performance criteria and benchmarks before the next instalment is released
(Art. V (3) (a) IMF Articles). These conditions are agreed with a member under agreements called
‘arrangements’ (Art. V (3) (a) IMF Articles). An important feature of lending under these
arrangements is the phasing of disbursements within a tranche or segment (on a quarterly or semi-
annual basis) with the exception of purchases in the first credit tranche—up to 25% of quota—
which are not phased but do incorporate some policy conditionality. Under these arrangements,
members using IMF resources pay a market-based rate of interest on their outstanding use of credit
from the IMF (Art. V (8) (a) (ii) IMF Articles).
63 Legally, access to GRA resources is structured as purchase/repurchase of currencies under

the IMF Articles. From an economic perspective, these IMF arrangements are similar to a conditional
line of credit associated with the implementation of an economic reform programme in a member
country. The most common types of arrangements are ‘stand-by arrangements’ (‘SBA’ created in
1952) in the credit tranches, or ‘extended arrangements’ under the Extended Fund Facility (‘EFF’
created in 1974). While all IMF members have access to the GRA, there are quantitative limits on
access to those credit tranches and the EFF. The current limits take the form of an annual limit of
200% of quota on purchases over any 12-month period and a cumulative limit of 600% of quota on
the level of the IMF credit outstanding. Average annual access under these lending arrangements
in recent decades has been 40–50% of the quota, excepting the years following the recent global
financial crisis. In addition to balance of payments difficulties, criteria governing members’ access
to GRA resources include a member’s ability to service indebtedness to the IMF, the amount of the
outstanding use of IMF credit, and the record in using IMF resources in the past. Under stand-by
arrangements or extended arrangements, the IMF member purchases usable currencies up to the
quantitative limit to which it is subject in exchange for its own currency (Art. V (3) (a) and (b) (iii)
IMF Articles). Under a stand-by arrangement, the IMF member is obliged to repurchase its own
currency within three and a half to five years held by the IMF with SDRs or the currency of another
member (Art. V (7) (c) IMF Articles). Under an extended arrangement, the repurchase obligation
falls within four and a half to 10 years. An IMF member is free to make advance repurchases at any
time (Art. V (7) (a) IMF Articles). In this way, a member is free to reduce the IMF’s holdings of its
currency corresponding to prior purchases and, thereby, reduce or eliminate its obligation to pay
interest to the IMF. A member obtaining resources from the IMF purchases either SDR or the
currency of another member in exchange for an equivalent amount (in SDR terms) of its own
currency, and later reverses the transaction by a repurchase of its currency held by the IMF with
SDRs or the currency of another member. Members receive a liquid claim on the IMF (called a
reserve, or reserve tranche, position) for the reserve assets they provide to the IMF. This claim
earns a market-related rate of interest—called remuneration—and can be cashed in on demand to
obtain reserve assets from the IMF. In other words, the reserve tranche position held by members
should not be confused with the non-reserve tranche positions available only in balance of
payments needs subject to charges and repurchase obligations. The IMF records note individual
changes in a member’s financial positions in the GRA—reserve tranche versus credit tranches of
quota—and illustrate the revolving character of the IMF-held and -administered currency pool.
64 There are several special facilities that allow IMF members to tap into funds of the GRA to
address specific balance of payments needs. They used to include the Supplemental Reserve
Facility (established 1997), the Compensatory Financing Facility (established 1963), and
emergency assistance given by the IMF to address natural disasters (a policy introduced in 1962)
and post-conflict situations (a policy introduced in 1995). Arrangements under the latter facilities
vary in terms of the purchase and repurchase schedule, and the disbursement instalment
schedule, as well as the conditions borrowers need to meet. In 1999, the IMF added the Contingent
Credit Line as a means of preventing the spread of capital account-driven financial crises. In the
aftermath of the recent global financial crisis, the IMF restructured and streamlined its financing
facilities. In 2009, the IMF introduced the Flexible Credit Line (‘FCL’) to meet the increased demand
for crisis mitigation financing in response to the ripple effects of the global financial crisis. In 2011,
the Precautionary and Liquidity Line (‘PLL’) was added. In the same year, the Rapid Financing
Instrument (‘RFI’) was created as a special facility to provide fast financial assistance to all member
countries facing an urgent need of support and the above noted earlier GRA facilities were
discontinued. There is no pre-set limit if members wish to access the FCL. Access limits for the PLL
are 250% of quota for 6 months, 500% of quota upon approval of 1–2 years arrangements, and a
total of 1,000% of quota after 12 months of satisfactory progress. Access limits for the RFI are 50%
of quota annually and 100% cumulatively.
65 While the use of GRA funds varies from year to year, there has not been a single year in which
the IMF has received no request for funding from the GRA. In fiscal year 2014, for example, the IMF
approved arrangements in the GRA’s non-concessional financing facilities for a gross total of
SDR24 billion (SBA, EFF, and the recently added facilities FCL, PLL, and RFI).
(iii) Concessional Lending

66 Over time, the IMF lending conditionalities resulted in a multiplicity of heavy structural
adjustment policy reforms to be implemented by IMF borrowers in order to address balance of
payments difficulties, also called Washington Consensus conditionalities. Since the 1990s, these
conditionalities have expanded further to include governance or institutional reforms. Quantitative
and qualitative changes in terms of IMF lending conditionalities reflect the change in the IMF
clientele seeking IMF financing. De facto, since the 1980s, only developing countries have sought
IMF financing out of the GRA until the recent global financial crisis hit. When the GRA resources
proved insufficient to meet developing countries’ demands in financing, the IMF responded by
increasing its low-income countries’ facilities’ capacities.
67 In 1976, the first of these low-income countries’ facilities, the Trust Fund, was created. While
access to the IMF’s general resources is open to all IMF members, the funds of the Trust Fund were
accessible only to IMF members eligible for credit from the World Bank’s soft lending arm, the
International Development Agency (‘IDA’) established in 1960. The IDA serves the poorer
developing nations with eligibility of a country to IDA funds on soft terms based on a country’s GDP
per capita, whereas the IBRD extends credits to middle-income countries among developing
nations on less than soft terms. For example, in financial year 2015, a country’s GDP per capita had
to be below US$1,215 in order to be eligible for lending under IDA’s soft terms or for balance of
payments support from IMF’s low-income countries’ facilities. Though similar to the IMF financial
assistance from the GRA, credits from the IMF Trust Fund, and from Trust Fund successors, are only
granted to countries in balance of payments difficulties. In 1986, the IMF reorganized the Trust Fund
as the Structural Adjustment Facility (‘SAF’). A year later, SAF became the Enhanced Structural
Adjustment Facility (‘ESAF’). In 1999, ESAF was incorporated into the newly established PRGF. In
2006, the IMF established the ESF under the PRGT to provide short-term assistance to address a
temporary balance of payments need due to an economic sudden shock. In 2010, in connection
with the streamlining exercise in response to the global financial crisis, the ESF was renamed
Extended Credit Facility (‘ECF’). Two further facilities, the Standby Credit Facility (‘SCF’) and the
Rapid Credit Facility (‘RCF’), were added to the PRGT operations.
68 All successive and existing low-income countries’ facilities have been primarily funded on the
basis of voluntary contributions by wealthy IMF members and windfall profits from IMF sales of parts
of its gold holdings. Lending conditionalities under loans from the IMF’s low-income countries’
facilities include the same range of macroeconomic policy reforms (or Washington Consensus
conditionalities) and governance or institutional reforms as those attached to IMF lending out of the
GRA. Low-income countries’ access to the ECF and SCF is in general limited to 100% of quota
annually, and 300% of quota cumulatively. Access limits to the RCF are 25% of a member’s quota
annually with a shocks window up to 50%, and 100% of quota cumulatively with a shocks window
up to 125%. Loans under the PRGT used to be subject to charges in the amount of 0.5%. However,
the IMF temporarily waived these charges in the wake of the recent global financial crisis, the
waivers being reviewed in December 2014. Loans are to be repaid within five and a half to 10
years. Disbursements are typically made semi-annually and are contingent upon observance of
performance criteria and reviews with respect to the recipient’s implementation of macroeconomic,
structural, and institutional policies.
69 Since 1996, the IMF has also provided special debt relief to the HIPC, ie a group of countries
suffering from extreme debt burdens, under the HIPC initiative, an initiative launched jointly with the
World Bank. In connection with this initiative, the IMF and the World Bank extend credit to HIPCs to
undertake sound economic policy reforms to place these countries on a sustainable external debt
footing. Originally, the HIPC initiative considered a debt burden sustainable when the net present
value of a HIPC’s total external debts-to-exports ratio was 200% to 250%. The initiative was
subsequently revised in 2000 to provide faster, cheaper, and broader debt relief and to strengthen
the links between debt relief, poverty reduction, and social policies, and specifically to aim for a
debt-export ratio of 150%. Countries requesting assistance under the HIPC initiative must adopt
adjustment and reform programmes supported by the IMF and the World Bank. Upon establishing a
satisfactory track record of good performance under these programmes, HIPCs were awarded a) a
debt cancellation of 80% (initial 1996 terms), later 90% (2000 terms) by their bilateral official
creditors organized in the Paris Club; b) comparable treatment by other bilateral and commercial
creditors; and c) relief needed to reduce the HIPC’s debt effectively to the targeted level of
sustainability. In 2005, the HIPC initiative was supplemented by the Multilateral Debt Relief Initiative
to provide additional and full (100%) relief on eligible debts by three multilateral institutions: the IMF,
the World Bank’s soft lending arm the IDA, and the African Development Fund. A fully-fledged
initiative to allow for debt relief in principle to extend to every country, as opposed to the HIPC
initiative which covers only the poorest nations, the so-called SDRM, proposed a Fifth Amendment
of the IMF Articles in 2002. The IMF Board of Governors decided in April 2003 to no longer pursue
the SDRM initiative. Instead the IMF chose to shift its focus towards finding other methods for the
orderly resolution of financial crises including collective action clauses by virtue of which
sovereign debt may be restructured if a critical mass of bondholders is willing to do so and accept
some losses on their investment irrespective of a minority of non-willing bondholders continuing to
insist on a return on their investment in full.
70 Over the years, the volume of concessional lending from the IMF has considerably grown from
around SDR1 billion in 1980 to over SDR6 billion at the end of the 1990s and the first years of the
2000s. In financial year 2014, the IMF committed loans for a total amount of SDR0.14 billion to its
low-income members. At the end of financial year 2014, total concessional loans outstanding
amounted to SDR6.1 billion, an amount considerably larger than in the years before the global
financial crisis happened and hit developing countries worst.
(d) Service and Supplementary Functions
71 Service and supplementary informational functions are voluntary, in contrast to the obligatory
nature of members’ participation in the above three areas of IMF operations. These supportive
functions include a wide-ranging programme of → technical assistance and encompass an array of
statistical and non-statistical activities, most notably the collection and dissemination of economic
and financial data on its member countries, reporting on its country and global surveillance
assessments of risks and vulnerabilities stemming from large and volatile capital flows, and
disseminating its policy and research findings. The IMF also began to develop and monitor
adherence to internationally recognized standards and codes → best practices in several areas,
including timely country economic and financial statistics, monetary and fiscal transparency, the
assessment of financial sector soundness, and the promotion of → good governance, all
endeavours that have been pushing the envelope of the IMF’s financing of structural adjustment
programmes towards a comprehensive approach to economic development.
72 The IMF also offers technical assistance in the areas of its core expertise, ie macroeconomic
policy, tax policy and revenue administration, expenditure management, monetary policy, the
exchange rate system, financial sector sustainability, and macroeconomic and financial statistics.
The IMF delivers technical assistance in various ways. Support is often provided through staff
missions of limited duration sent from the IMF headquarters, or the placement of experts and/or
resident advisers for periods ranging from a few weeks to a few years. Assistance is also provided
in the form of technical and diagnostic studies, training courses, seminars, workshops, and on-line
advice and support. About a fifth of the IMF’s administrative budget accounts for technical
assistance. It is financed by both internal and external resources, the latter comprising funds from
bilateral and multilateral donors. Technical assistance contributes to the → effectiveness of the
IMF’s surveillance and lending programmes, and is an important complement to these core IMF
functions.
3. Financial Instruments
73 The IMF uses two financial instruments in connection with its financial assistance to members
with balance of payments difficulties. When a member requests temporary use of the IMF’s GRA,
the member will, based on explicit charter provisions, buy currencies of other economically strong
members in exchange for an equivalent amount of its own weaker currency for a short-term period
of time not exceeding five years, and will repurchase the Fund’s holdings of its own currency at the
end of this period (Art. V (3) (a) and (b) and (7) (c) IMF Articles). Such an arrangement of the use of
currencies from the pool of currencies the IMF holds is referred to as a stand-by arrangement or
extended stand-by arrangement (Art. XXX (b) IMF Articles). The latter is an off-shoot of the special
instrument of stand-by arrangement developed by the IMF and applies to transactions from the EFF.
Both arrangements begin with an informal request for financial assistance by an IMF member,
followed by an IMF staff preliminary assessment of the request including safeguard assessments
reviewing the governance and control frameworks of the member’s central bank, and listing the
conditionalities—macroeconomic policy reforms and governance reforms—to be met by the
member for the use of IMF funds. Then, the IMF member sends a formal letter of intent, possibly
including attached memoranda on economic and financial policies and a technical memorandum of
understanding detailing acceptable conditionalities typically mirroring IMF-suggested
conditionalities. Upon receipt of the letter of intent, the IMF Executive Board will, based on a
finalized staff assessment, decide on the requested use of the general resources by the member.
Invariably, the use is broken down into successive tranches rather than a single purchase, phased
disbursement within the tranches, and performance reviews accompanying the disbursement of
resources.
74 Stand-by arrangements on the purchase of strong currencies from the Fund and the later
repurchase of a member’s own weak currency may not be legally qualified as contractual
arrangements or loans. The IMF maintains, based on the explicit language of its IMF Articles, that
these arrangements are financial instruments sui generis. While purchase and repurchase
economically resemble a loan and the IMF’s charges on the transaction amount to the interest
usually charged in connection with lending, neither the IMF Articles nor the individual
documentation on the use of funds explicitly refers to the transaction as a loan. Stand-by
arrangements may also not be qualified as binding unilateral declarations. Consequently, non-
fulfilment of lending conditionalities by an IMF member using general resources does not represent
a breach of contract, nor does it represent a violation of a binding unilateral commitment. No
sanctions, such as damages or suspension of rights under the IMF Articles, are available to the
Fund if the member does not meet the lending conditionalities. The single consequence of non-
fulfilment of conditionalities is a rather practical one, ie no funds/strong currencies will be
forthcoming unless the Executive Board decides to waive the conditions that have not been met by
the member. Only the lack of repurchase of the member’s own weak currency at the end of the
period agreed upon for the transaction may be qualified as violation of the IMF Articles and may be
sanctioned by: a) declaring the member ineligible to use the general resources of the Fund (Art.
XXVI (2) (a) IMF Articles); b) if the member persists in its failure to fulfil its obligations of repurchase,
suspending the member’s rights to vote in the institution (Art. XXVI (2) (b) IMF Articles), introduced
by the Third Amendment of the IMF Articles, which became effective in 1992; and, ultimately, c)
forcing the member to withdraw from the IMF (Art. XXVI (2) (c) IMF Articles).
75 Grants of financial assistance extended from the IMF’s low-income countries’ facilities are
explicitly referred to as loans. Their legal structure, however, is similar to stand-by arrangements in
terms of the consequences attached to a non-fulfilment of conditionalities by recipients of funding.
Conditions are formulated as conditions to be met prior to disbursement of money rather than as
contractual obligations of the member. Consequently, the member who does not meet the loan
conditions regarding macroeconomic policy and governance reforms will not have breached the
loan agreement. It will merely not have fulfilled a pre-condition to the agreement and thus, will not
be given any money unless the IMF waives the conditions. No sanctions are available to the Fund
upon the non-fulfilment of preconditions. The economic content of a member’s letter of request for
a loan and the loan documentation under low-income countries’ facilities have in that respect been
qualified as → soft law, as not expressly imposing obligations on the member to abide by the
programme supported by low-income countries’ facilities. Special documentation, ie a Poverty
Reduction Strategy Paper, written up by a member making a policy commitment when requesting
funding under the PRGT, ie the IMF’s major low-income countries’ facility, introduces special
terminology but does not deviate from the IMF’s general approach to lending conditionalities as
described above.
D. Special Legal Problems
1. Lack of Accountability
76 Like other international organizations, the IMF lacks checks and balances—or oversight
mechanisms—that are the recognized cornerstones of State democracies in the absence of
separation of powers, which are known but unusual in the context of international organizations
(→ International Organizations or Institutions, Democratic Legitimacy). The IMF’s organizational
structure features a rudimentary accountability system based on its internal hierarchy (→ Financial
Institutions, International, Accountability Mechanisms). Hence, IMF staff are responsible to the
Managing Director; the Managing Director reports to the Executive Board; and the Executive Board
is watched over by the Board of Governors. While this organizational scheme of responsibility also
resembles the internal governance structure of corporations incorporated under domestic law, it
differs in the final analysis because it does not include checks and balance guaranteeing
mechanisms, such as fiduciary duties of directors and officers resulting in personal liability upon
breach of their duties. The IMF’s governance paradigm is limited to appointment/election of
Executive Directors and appointment of the Managing Director and his or her removal from office
(Art. XII (1)–(4) IMF Articles).
77 In terms of the range of law applicable to IMF action, the IMF Articles are the single body of law
that is part of general international law binding the institution (Art. I IMF Articles), and they are to be
interpreted following general international law principles embodied in the VCLT. Every other legal
commitment binding the IMF has been generated by the institution itself, including the financial
arrangements entered into with its members and the policies adopted by the IMF to guide its staff in
all of the IMF’s operations ranging from surveillance to financial assistance. It should be noted that
the VCLT between international organizations and States, assuming it had entered into force, is not
applicable to the financial arrangements of the IMF and its members because a) the IMF does not
consider the use of general resources to constitute international treaties; and b) the loan
agreements concluded under the low-income countries’ facilities, while called loan agreements, are
not subject to the VCLT between international organizations and States in the absence of the IMF’s
ratification of the convention. Similarly, the International Law Commission’s Articles on
Responsibility of International Organizations, also assuming they would be binding, do not apply
because the IMF has not endorsed them but, under long-standing practice, denied legal
responsibility emanating from its policy advice to borrowing members, is a position that is legally
defensible.
78 In terms of forums—judicial or arbitral—to which the IMF may be subject, it must be noted that
the IMF is immune from the jurisdiction of domestic courts (Art. IX (3) IMF Articles). IMF action may
also not be challenged in international courts or arbitral forums except in two instances—in a
dispute between the Fund and a member a) upon the member’s withdrawal from the IMF, or b)
during liquidation of the Fund based on explicit charter provisions mandating arbitration in these
two instances (Art. XXIX (c) IMF Articles). In particular, the ICJ does not hear cases involving the IMF
for lack of jurisdiction over international organizations. While the IMF, according to the 1947
Relationship Agreement with the UN, may request advisory opinions from the ICJ, eg in order to
solve issues arising under the IMF Articles, it has never used this vehicle. Where the legality of IMF
action is at stake, the problem of lack of accountability of international organizations in general,
and of the IMF in particular, is exacerbated because of an explicit provision in the IMF Articles that
vests powers of interpretation of the IMF Articles, including scrutiny of whether or not the IMF acts
are ultra vires, ie beyond the IMF Articles, in the Executive Board and the Board of Governors. In
other words, the IMF organs deciding on the institution’s course of business in the first place are
also deciding on the legality of a respective course of action (Art. XXIX IMF Articles). It may be
noted that, in contrast to the IMF’s resistance to advisory opinions rendered by the ICJ in general,
the IMF agreed voluntarily to accept the ICJ advisory opinions with respect to the Convention on the
Privileges and Immunities of the Specialized Agencies as binding.
79 Irrespective of some scholars’ views to the contrary and scarce non-IMF-related jurisprudence
by the ICJ and other judicial bodies to the opposite, the IMF maintains, beyond its founding charter,
not to be bound by general international law. Moreover, the IMF has used its powers to interpret its
own charter and justify its own actions frequently, though mostly in an informal way, ie without
explicitly referring to Art. XXIX IMF Articles and the interpretation powers. Over 13,000 formal
decisions taken by the Executive Board and the Board of Governors, including many interpreting
the IMF charter, have been taken since the IMF’s inception. While keeping in line with its official
views on the body of law to which it is bound and the powers of its own organs to decide the
legality of its actions, the IMF, nevertheless, shows increasing sensitivity regarding the issue of
accountability. To date, in addition to the annual reports and quarterly summary statements of its
operations and transactions and its holdings of SDR, gold, and currencies of members—the single
types of documents the IMF is required to make publicly available under Art. XII (7) (a) IMF Articles—
the IMF is moving towards more transparency, ie a first step towards more accountability. Under the
IMF’s transparency policy enacted in 1999 and most recently revised in March 2010, formal
decisions on interpretation, lending-related policies including those on conditionalities, and public
information notices summarizing the Executive Boards’ decisions regarding individual extension of
credit are made publicly available. Moreover, with the consent of the respective member countries,
surveillance reports—or summaries of these reports—are published. Documents authored by either
the borrowing member or IMF staff in preparation for lending from the PRGF are publicly available in
their entirety. IMF assessments of the global economy, such as the World Economic Outlook, the
Global Financial Stability Reports, and others, are also made publicly available.
80 Further moves towards more accountability include the establishment of an External Audit
Committee in 1946 and the creation of an Administrative Tribunal (→ Administrative Boards,
Commissions and Tribunals in International Organizations) to hear complaints by aggrieved IMF
staff in 1992. In 2000, the IMF established the Independent Evaluation Office (‘IEO’), composed of
independent experts who, based on terms of reference laid out by the Executive Board, assess the
quality of IMF programmes and assist the Executive Board with neutral expert advice, possibly
learning from past mistakes, and help to reformulate IMF lending policies. The IEO, unlike the first
independent accountability mechanism of its kind created by an IFI, ie the World Bank Inspection
Panel, does not respond to complaints brought by individuals adversely affected by IMF structural
adjustment programmes. Nevertheless, the IEO’s record of inquiry into IMF structural adjustment
programmes is noteworthy in its lack of bias and degree of thoroughness. In 2004, the IEO issued
the Evaluation Report: The IMF and Argentina 1991–2001 detailing the IMF’s extensive
involvement in the substantive design of Argentina’s macroeconomic policy reforms and pointing
out the defects in the design of these programmes, in other words noting the IMF’s contribution to
the → Argentine debt crisis in 2001. In 2013, the IEO released a volume describing its experience
with independent evaluation of the IMF over the preceding 10 years. The topicalities of its
evaluations (eg IMF performance during the global financial crisis, the role of the IMF as trusted
advisor) as well as the mostly straightforward, yet constructive, criticism expressed by the IEO and
the Board’s appreciation for the evaluations have solidified the IEO’s function.
2. Interference in Members’ Internal Affairs

81 Since the IMF lending conditionalities grew dramatically in quantitative and qualitative terms in
the 1980s, the IMF has been accused of illegally interfering in its members’ internal affairs. While
the accusation may be justified from a policy perspective, given the de facto dependency of many
IMF members on IMF financial assistance to survive economically and maintain access to private
capital, it is unfounded from a legal perspective. First, IMF conditionalities are triggered only by a
member’s initiative, ie upon the member’s formal request for financial assistance. Second, as
members may, at any given time throughout the life of an IMF-financed structural adjustment
programme, choose to abandon the programme and take policy measures that are not in
compliance with IMF conditionalities without being in breach of law, the argument of illegal
interference in members’ internal affairs seems moot. On the contrary, the legal structure of the
IMF’s financial arrangements with its members allows for members’ freedom of choice at any given
moment regarding members’ discretionary powers over policies. In terms of surveillance, no
interference by the IMF occurs either, because surveillance amounts to IMF collection of data
regarding a given member, but IMF recommendations in connection with surveillance need not be
followed by the member under surveillance. In other words, the IMF leaves its members great
flexibility on the direction of its policies and erects no legal impediment for national politicians to
change course.
3. Non-Political Nature of the Institution

82 A special ultra vires issue is the question to what extent IMF as well as World Bank
conditionalities related to financially sponsored structural adjustment programmes, in particular the
governance component, turned the institutions into organizations of a political nature. Both
institutions are, by virtue of a their charters, non-political. Based on explicit charter provisions, the
World Bank is prohibited from taking political considerations into account in connection with its
lending operations. In the absence of a similar explicit provision in the IMF Articles, the IMF
Executive Board authoritatively interpreting its charter, however, implied the Fund’s non-political
character by highlighting that all explicit powers of the Fund served economic, not political,
purposes. Both institutions, when embracing lending in promotion of good governance in borrowing
members, reiterated the non-political nature of their institutions’ endeavours and emphasized that,
as a general rule, they ignore a borrowing member’s political → human rights record in connection
with their lending decisions.
E. Evaluation from Policy Perspective

83 The IMF has received both acclaim and criticism. The institution’s remarkable achievement is to
have promoted international monetary cooperation, exchanged stability, organized a multilateral
payments system, facilitated balanced growth of international trade, and assisted its members in
balance of payments difficulties for over 60 years with political and economic circumstances
changing considerably over time compared those prevailing at the time of the institution’s
inception. The IMF weathered the changing circumstances on the basis of several, often radical
amendments to its charter, with the recent 2010 quota and governance reform illustrating the
institution’s willingness to take note of the changes in the global economy and make adjustments.
The IMF also used broad interpretation of its charter to set up its low-income countries’ facilities to
increase its financial capacities for the benefits of its poorer members. Since the 1970s, the IMF’s
lending to members in balance of payments difficulties has been based on an ever-growing number
of conditionalities requiring recipients of IMF loans to undertake structural adjustments, ie implement
broad macroeconomic and later also institutional reforms. It is these conditionalities which the IMF’s
critics find troublesome.
84 Conservative critics of IMF structural adjustment programmes point at the IMF expansionist
behaviour and its venturing into areas of policy advice to members on numerous issues beyond
the plain wording of its mandate. Hence, in 1999 the US Congress-sponsored Meltzer Commission
advocated the withdrawal from financing a host of causes other than trade deficits and suggested
the IMF’s return to simple current account deficit financing plus simple refusal to lend to countries
with unbalanced budgets, huge public sectors, and an inefficient domestic economy where
guarantees of capitalism—private property; freedom of contract—are lacking and corruption is
rampant (United States House of Representatives ‘Report of the International Financial Institution
Advisory Commission’ [March 2000]). Many → non-governmental organizations (‘NGOs’) and
progressive economists, on the contrary, argue that the IMF does not do enough. More specifically,
they criticize a) the neoliberal content of IMF structural adjustment programmes pertaining to
macroeconomic policies in recipient countries; b) the Western content of its governance and
institutional reforms in its structural adjustment programmes; and c) the low performance of IMF
policy advice, given the growing North-South divide in terms of economic growth and wealth
distribution, to achieve the goals of global monetary stability and global economic prosperity for
which it was created in the first place. Altogether, economists criticize the IMF for having
mismanaged → globalization by creating a global economy without a level playing field for actors
from the North and South alike. Progressive international law scholars qualify the IMF’s
conditionalities as recognizing formal equality of developing countries and rich nations but failing to
follow suit in terms of substantive equality. The lack of substantive equality becomes evident in
particular in the design of lending conditionalities.
1. Economic Policies and Governance for Developing Countries

85 According to prominent economists, IMF-sponsored neoliberal reforms a) resulted in grave
asymmetries, and b) do not address gaps in the framework for a global economy. The liberalization
of trade in goods and services, the liberalization of financial and capital markets, deregulation
within and privatization of many sectors of the domestic economy by developing countries,
coupled with fiscal austerity, led to unhindered access of Northern players to developing countries’
markets. Unfortunately, the policy paradigm does not provide for reciprocity, ie developing
countries do not have similar access to Northern markets. Also, neoliberal policies contributed to
failures of developing countries’ domestic economies due to serious gaps in domestic market
regulation. The most notable gaps include the lack of sound antitrust regulation, robust banking and
capital market supervision, and sustainable environmental, consumer, and labour protection.
Regulation of the latter type is considered a fundamental part of a well-functioning market economy
in the US, Europe, Japan, etc, but has been largely absent in IMF policy advice to the Third World.
For example, IMF-sponsored privatization of former State-owned energy sectors in Russia in the
1990s resulted in private monopolies dictating domestic energy prices to Russian consumers and
allowed Russian monopolists to make profits abroad without sharing any of those profits with the
local economy, due to a combination of tax evasion and reinvestment abroad. Similarly, in the mid-
1990s, speculation on the emerging capital markets in East Asia was possible without the negative
repercussions for the speculators who withdrew their funds in time before the local currencies
crashed as a result of the bursting of the bubble on real estate markets and the collapse of local
banks due to excessive borrowing and lending in the absence of banking and capital market
regulation in East Asia. At the same time, the local population lost their hard savings over night. The
same happened in Argentina at the beginning of the millennium and to several developing nations
during the recent global financial crisis/more regionally contained crises.
86 The IMF is, however, increasingly becoming sensitive to the adverse effects of its structural
adjustment programmes. In order to address asymmetries, the IMF began expanding its
governance/institutional conditionalities further by introducing a voluntary programme of data
collection concerning regulation—or the lack thereof—in its borrowing members of various sectors
and professions against recommendations on the subject by international standard-setting bodies.
In connection with this so-called standards and codes initiative, which may ultimately feed into the
redesign of conditionalities, members are reporting on the observance of standards and codes in
the fields of a) accounting; b) anti-money laundering and anti-terrorism measures (→ Terrorism); c)
auditing; d) banking supervision; e) corporate governance; f) data dissemination; g) fiscal
transparency; h) insolvency and creditor rights system; i) insurance regulation; j) monetary and
financial transparency; k) payments systems; and l) securities market regulation.
87 In the aftermath of the recent global financial crisis, the IMF has, based on its experience with
its interventions in a number of developed countries including Iceland, Greece, Ireland, and
Portugal, further rethought some of its ‘Washington Consensus’ conditionalities (→ International
Monetary Fund, Structural Adjustment Programme [SAP]). Notably, it began to distance itself from
its long-standing tenets on capital controls, financial sector regulation, and labour market flexibility.
IMF support of Iceland showed that responding to a crisis by imposing capital controls could help
countries manage crisis impact. A 2013 Guidance Note on Liberalization and Management of
Capital Flows was issued. While liberalization of capital flows is still endorsed by the IMF under the
note as the general policy goal, ‘management’ of capital flows in specific circumstances is now
equally acknowledged. In terms of financial sector regulation, the IMF unequivocally recommended
strengthening the common supervisory frameworks of the financial sector within the Eurozone and
the introduction of a pan-European deposit guarantee scheme and a pan-European bank resolution
scheme. In terms of labour market flexibility, the IMF accepted the notion that flexible wages and
employment regimes may in crisis times exacerbate problems of unemployment. They will also lead
to restrained consumption which is counterproductive for the recovery of crisis hit economies.
Consequently, the IMF is endorsing measures of labour protection and temporary stimulus to create
jobs and help the overall recovery, while still favouring labour reforms in instances where certain
constituencies of the workforce were disproportionately privileged, such as the public sector civil
servants in Greece.
88 IMF-supported good governance and → rule of law reforms in borrowing members are
frequently Western in design as opposed to local or indigenous. Moreover, common law
transplants, more specifically US American law transplants, are the favourites of IMF- and World
Bank-supported good governance and rule of law programmes. The above-noted trend favouring
common law legal reform programmes drew on World Bank in-house and outside empirical
development studies, which supposed that more positive correlations in terms of economic
outcomes are documented in common law jurisdictions than in civil law jurisdictions. Since follow-
up external research found general methodological weaknesses in many World Bank in-house
empirical studies, it is hoped that the future design of institutional and legal reform programmes may
be more tailored to local needs. The above-noted standards and codes initiative may contribute to
indigenizing governance reforms to the extent that some of the collaborating international soft law
regulating bodies, eg the International Organization and Securities Commissions (‘IOSCO’), are
equipped with a body composed of developing countries’ representatives to target
recommendations to specifically address developing countries’ needs.
2. The Rules of the Game for the Global Economy

89 The de facto dependency of most developing countries on IMF financial assistance puts the IMF
in the unique position of actually being able to change the fate of its individual, economically
weaker members as well as the overall global economic trends. However, the institutional record in
terms of overall monetary stability and prosperity in this respect is mixed, although the IMF is
probably not at fault for all of the negative notes. In terms of global monetary stability, the shift from
the gold standard to flexible exchange rate arrangements under the Second Amendment of the IMF
Articles severely limited the IMF’s powers over the outcomes of members’ monetary policy. The
new exchange rate regime per se implies more volatility and fragility at the expense of
economically weaker nations. The IMF’s push for the liberalization of capital markets under lending
conditionalities, plus its consideration of capital account convertibility before the recent global
financial crisis, were questionable steps beyond its role as explicitly described in its charter.
Fortunately, the IMF backed away from the latter two goals following its experience with
interventions in response to the recent global financial crisis.
90 Despite IMF—and World Bank—intervention, the North-South divide still exists. In fact, it has
been growing rather than declining. The recent US sub-prime mortgage crisis and the Eurozone
crisis, and their spillover into the global markets, jeopardized the IFIs efforts to achieve the
Millennium Development Goals by 2015 (→ United Nations, Millennium Declaration). Of the world’s
6.9 billion people, 2.4 billion live on less than US$2 per day and 1.21 billion live on less than US$1
per day. The average income in the 20 richest countries is about 30 times the average income in
the 20 poorest countries. Most developing countries’ external debt reaches extreme proportions as
their total external debt in relation to their exports of goods and services is frequently in triple digits
percentage-wise. These countries’ debt represents two- to three-digit percentage figures of gross
national income, and total debt service takes up double sometimes three-digit percentage figures of
exports of goods and services. Two major challenges have occupied the IMF and will occupy it in
the future: a) developing countries’ chronic indebtedness; and b) global financial crises triggered
by developing countries’ financial weakness which draws them invariably close to the brink of
insolvency. IMF efforts to reduce the developing countries’ external debt burden together with
bilateral creditors by forgiving major portions of multilateral and bilateral debt owed by the poorer
countries have been a major step in the right direction. Equally, the IMF’s interventions in
international financial crises upon a sovereign debtor’s default on payments owed to private and
bilateral creditors by providing bridge finance is, in principle, laudable as it avoids contagion and
keeps the crises locally/regionally contained. The IMF’s debt relief has reduced many members’
debt burden. Its bridge finance in crises prevented the crises from becoming worse. However, the
right mix of structural adjustment programme conditionalities to achieve the growth in its borrowing
members needed to prevent debt from spiralling again or prevent sovereigns from defaulting on
debt repayment again has yet to be found.
3. Institutional Reform and Future Development Policies
91 The IMF’s 2008 quota and voice reform boosted developing countries’ decision-making power
in the IMF. The 2010 reform, if accepted by the necessary number of IMF members, will, on the
basis of doubled quotas, turn the Executive Board into an all-elected board. More director posts out
of the total of 24 will be occupied by developing countries’ representatives. The increase in voice
of developing countries, albeit falling short of a majority in terms of quotas, may possibly and
hopefully translate into changes in the substance of IMF lending conditionalities.
92 The political momentum for a positive change in terms of the substance of IMF conditionalities
has been growing in the face of the recent US sub-prime mortgage crisis and the Eurozone crisis
that, combined, turned into the worst global financial crisis since World War II. Pressures on major
IMF quota holders, in particular the US, to agree to changes in IMF conditionalities are mounting.
The US sub-prime mortgage crisis was triggered by predatory lending to home owners and an
unprecedented volume in origination and sales of asset-backed securities (‘ABS’ or collateralized
mortgage obligations), which, in turn, were made possible by deregulation and unregulated
government enterprises’ guarantees. The value of ABS evaporated when too many debtors
defaulted and home prices declined starkly, leading to unexpected calls on credit default
swaps/insurance companies in the US. This collapse of the US housing and ABS market led to a
financial crisis in the US and Europe where ABS were primarily held. The Eurozone debt crisis
added to the spilling down of economies. Credit markets dried up, stifling growth and resulting in
unemployment, collapse, and near-bankruptcies of big financial institutions in the US and Europe
had it not been for government bail-outs. Developing countries suffered terribly from the global
financial crisis and its ripple effects as a result of a sudden lock-up in international financial
markets, ie a sudden stop in capital inflows.
93 In the aftermath of the global financial crisis, efforts have been made to rethink the framework
for financial and capital markets. In 2009, the Group of Twenty (‘G20’) was formally established at
the Group of Seven (‘G7’; Canada, France, Germany, Italy, Japan, the UK, and the US) meeting in
1999. The G20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India,
Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK, the US,
and the EU. It designated itself as ‘the premier forum for our international economic cooperation’
(Seoul Summit Document: Framework for Strong, Sustainable and Balanced Growth: Annex I: Seoul
Development Consensus for Shared Growth [February 2011]). The IMF’s Managing Director, the
World Bank’s President, plus the chairs of the International Monetary and Finance Committee and
the Development Committee participate in the G20 meetings on an ex officio basis.
94 At its inception, the G20 launched the Framework for Strong, Sustainable, and Balanced Growth
(G20 Pittsburgh Summit ‘Leaders’ Statement’ [24–25 September 2009]). The backbone of this
framework is a multilateral process through which G20 countries identify objectives for the global
economy and the policies needed to reach them. They have also committed to a mutual
assessment of their progress towards meeting these shared objectives through the Mutual
Assessment Process (‘MAP’). While MAP is gathering data on G20 policy and macroeconomic
frameworks, assesses whether members’ policies are the ones needed, evaluates alternative
policy scenarios, and discusses policy actions, the IMF and the Financial Stability Board (‘FSB’),
created by the G20 in April 2009, are working on policies that might capture systemic risk in the
global financial markets. The FSB has 42 members, consisting of 26 senior representatives of
national authorities responsible for financial stability in 11 significant international financial centres
(Australia, Canada, France, Germany, Hong Kong, Italy, Japan, the Netherlands, Singapore, the UK,
and the US), six representatives of four IFIs (Bank for International Settlement, IMF, OECD, World
Bank), seven representatives of three international regulatory and supervisory bodies (Basle
Committee on Banking Supervision, IOSCO, and International Association of Insurance Supervisors),
a representative each of two committees of central bank experts (Committee on the Global
Financial System and Committee on Payment and Settlement Systems), a representative of the
→ European Central Bank (ECB), and a chairman.
95 As stated in the most recent Communiqué after the meeting of the G20 Finance Ministers and
Central Bank Governors in Washington, DC, in April 2014, the G20 believes it has responded well to
the acute financial crises via reforms of policy frameworks, building resilient financial institutions
across countries, and continuing to remain vigilant to vulnerabilities now that the global economy is
well on its path to recovery. Under its auspices, work continues to end the ‘too-big-to-fail’ problem
posed by global systemically important banks if they fail, in particular the proposals put forward on
the adequacy of gone-concern loss absorbing capacity of global systemically important banks. In
this respect, the G20 supports the cross-border recognition of actions leading to an orderly
resolution of a failing global systemically important bank without exposing taxpayers to loss.
96 With the global financial crises at bay, the G20 is shifting its focus to restoring growth in the
global economy by developing measures to lift and rebalance global demand and achieve
exchange rate flexibility, improve trade, create jobs, and address tax evasion. It is to be hoped that
the continuing collaboration among G20 members, the FSB, the IMF, and the World Bank will result
in global equivalents of recent US and EU legislation dealing with systemic risk in financial markets
with comprehensive, universal coverage. It is also hoped that the impetus for further action on
smart regulation for the global economy, that would minimize the asymmetries, will be given.
Select Bibliography
United States Department of State (ed) Proceedings and Documents of the United Nations
Monetary and Financial Conference, Bretton Woods, New Hampshire, July 1–22, 1944 vols
1–2 (US Government Printing Office Washington DC 1948).
JK Horsefield The International Monetary Fund 1945–1965: Twenty Years of International
Monetary Cooperation vols 1–3 (International Monetary Fund Washington DC 1969).
MG de Vries The International Monetary Fund 1966–1971: The System under Stress vols 1–
2 (International Monetary Fund Washington DC 1976).
J Gold Legal and Institutional Aspects of the International Monetary System: Selected
Essays vols 1–2 (International Monetary Fund Washington DC 1979–84).
RN Gardner Sterling-Dollar Diplomacy in Current Perspective: The Origins and the
Prospects of Our International Economic Order (Columbia University Press New York 1980).
RS Rendell (ed) International Financial Law vols 1–2 (2nd edn Euromoney Publications
London 1983).
MG de Vries The International Monetary Fund 1972–1978: Cooperation on Trial vols 1–3
(International Monetary Fund Washington DC 1985).
F Gianviti ‘The International Monetary Fund and External Debt’ (1989-III) 215 RdC 205–86.
KW Stiles Negotiating Debt: The IMF Lending Process (Westview Boulder 1991).
J Gold Interpretation: The IMF and International Law (Kluwer London 1996).
P Lucke Internationaler Währungsfonds: Strukturen, Finanztransaktionen und
Konditionalität aus völkerrechtlicher Sicht (Lit Münster 1997).
B Eichengreen Globalizing Capital: A History of the International Monetary System
(Princeton University Press Princeton 1998).
K Weigeldt Die Konditionalität des Internationalen Währungsfonds in ihrem Verhältnis zur
Staatssouveränität und zu den Menschenrechten: Zugleich ein Beitrag zu den
Entwicklungen staatlicher Souveränität im modernen Völkerrecht (Shaker Aachen 1999).
K Danaher Democratizing the Global Economy: The Battle against the World Bank and the
International Monetary Fund (Common Courage Press Monroe, ME 2000).
M Giovanoli (ed) International Monetary Law: Issues for the New Millennium (OUP Oxford
2000).
L Gramlich ‘Eine neue internationale “Finanzarchitektur” oder: Der IMF in der Krise?’ (2000)
38 Archiv des Völkerrechts 399–454.
A Rheinisch International Organizations before National Courts (CUP Cambridge 2000).
JM Boughton Silent Revolution: The International Monetary Fund 1979–1989 (International
Monetary Fund Washington DC 2001).
WR Easterly The Elusive Quest for Growth: Economists’ Adventures and Misadventures in
the Tropics (MIT Cambridge 2001).
E Riesenhuber The International Monetary Fund under Constraint: Legitimacy of Its Crisis
Management (Kluwer The Hague 2001).
SI Skogly The Human Rights Obligations of the World Bank and the International Monetary
Fund (Cavendish London 2001).
JN Bhagwati The Wind of the Hundred Days: How Washington Mismanaged Globalization
(MIT Cambridge 2002).
L van Houtven Governance of the IMF: Decision Making, Institutional Oversight,
Transparency, and Accountability (International Monetary Fund Washington DC 2002).
JE Stiglitz Globalization and Its Discontents (Norton New York 2002).
J Tirole Financial Crises, Liquidity, and the International Monetary System (Princeton
University Press Princeton 2002).
K Wellens Remedies against International Organizations (CUP Cambridge 2002).
DD Bradlow and S Schlemmer-Schulte ‘Negotiating: Financial Transactions and Restructuring
Debts: A Guide and Online Course for Developing Countries’ Government Officials’ (2003)
UNITAR Online Training Course Series.
M Darrow Between Light and Shadow: The World Bank, the International Monetary Fund
and International Human Rights Law (Hart Oxford 2003).
A Rigo Sureda ‘The Law Applicable to the Activities of International Development Banks’
(2004/2005) 308 Recueil des Cours 13–251.
D Vines (ed) The IMF and Its Critics: Reform of Global Financial Architecture (CUP
Cambridge 2004).
S Schlemmer-Schulte ‘Die Rolle der Internationalen Finanzinstitutionen im Nord-Süd-Konflikt’
in W Meng and others Das Internationale Recht im Nord-Süd-Verhältnis: Referate und
Thesen (Müller Heidelberg 2005) 149–221.
G Soros George Soros on Globalization (PublicAffairs New York, NY 2005).
W Easterly The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So
Much Ill and So Little Good (Penguin New York, NY 2006).
JE Stiglitz Making Globalization Work (Penguin London 2007).
M Yunus Creating a World without Poverty: Social Business and the Future of Capitalism
(PublicAffairs New York, NY 2007).
JW Head Losing the Global Development War: A Contemporary Critique of the IMF, the
World Bank, and the WTO (Nijhoff Leiden 2008).
JD Sachs Common Wealth: Economics for a Crowded Planet (Penguin New York, NY 2008).
DM Smick The World Is Curved: Hidden Dangers to the Global Economy (Portfolio Hardcover
New York, NY 2008).
K Hudes and S Schlemmer-Schulte ‘Accountability in Bretton Woods’ (2009) 15 International
Law Students Association Journal of International and Comparative Law 501–31.
CA Primo Braga and D Dömeland (eds) Debt Relief and Beyond—Lessons Learned and
Challenges Ahead (World Bank Washington, DC 2009).
S Schlemmer-Schulte ‘Internationales Währungs- und Finanzrecht’ in C Tietje (ed)
Internationales Wirtschaftsrecht (De Gruyter Berlin 2009) 375–431.
HJ Hahn Währungsrecht (2nd edn Beck München 2010).
S Fardoust Y Kim and C Sepúlveda (eds) Post-crisis Growth and Development—A
Development Agenda for the G-20 (World Bank Washington, DC 2011).
M Kawai and ES Prasad (eds) Financial Market Regulation and Reforms in Emerging Markets
(Brookings Institution Press and Asian Development Bank Institute 2011).
CA Primo Braga and GA Vincelette (eds) Sovereign Debt and the Financial Crisis—Will This
Time Be Different? (World Bank Washington, DC 2011).
D Rodrik The Globalization Paradox: Democracy and the Future of the World Economy (WW
Norton New York, NY 2012).
S Schlemmer-Schulte ‘International Investment and Finance Law versus Human Rights’
(2012) 25 Global Business & Development Law Journal 409–24.
B Stell The Battle of Bretton Woods: John Maynard Keynes and Harry Dexter White and the
Making of a New World Order (Princeton University Press Princeton, NJ 2013).
JE Stiglitz The Price of Inequality: How Today’s Divided Society Endangers Our Future (WW
Norton New York, NY 2013).
S Claessens MA Kose L Laeven and F Valencia Financial Crises: Causes, Consequences, and
Policy Responses (IMF Washington 2014).
Select Documents
Articles of Agreement of the International Bank for Reconstruction and Development (adopted
22 July 1944, entered into force 27 December 1945) 2 UNTS 134.
Articles of Agreement of the International Monetary Fund (adopted 22 July 1944, entered into
force 27 December 1945) 2 UNTS 39.
1st Amendment of the Articles of Agreement of the International Monetary Fund (adopted 31
May 1968, entered into force 28 July 1969) 726 UNTS 266.
2nd Amendment of the Articles of Agreement of the International Monetary Fund (adopted 30
April 1976, entered into force 1 April 1978) (1976) 15 ILM 546.
3rd Amendment of the Articles of Agreement of the International Monetary Fund (adopted 28
June 1990, entered into force 11 November 1992) (1992) 31 ILM 1307.
4th Amendment of the Articles of Agreement of the International Monetary Fund (adopted 23
September 1997, entered into force 10 August 2009) reprinted in RC Effros Current Legal
Issues Affecting Central Banks vol 5 (International Monetary Fund Washington DC 1998) 529.
April 2008, never entered into force) [2009] Cm 7618, 3.
May 2008, not yet entered into force) [2009] Cm 7618, 4.
International Monetary Fund (ed) Evaluation Report: The IMF and Argentina 1991–2001
(International Monetary Fund Washington DC 2004).
Joint Statement by Experts on the Establishment of an International Monetary Fund (April
1944) reprinted in JK Horsefield (ed) The International Monetary Fund 1945–1965: Twenty
Years of International Monetary Cooperation vol 3 Documents (International Monetary Fund
Washington DC 1969) 128.
The Keynes Plan (11 February 1942 and April 1943) reprinted in JK Horsefield (ed) The
International Monetary Fund 1945–1965: Twenty Years of International Monetary
Cooperation vol 3 Documents (International Monetary Fund Washington DC 1969) 3.
New Arrangements to Borrow (done 27 January 1997, entered into force 17 November 1998)
in International Monetary Fund Annual Report 1997 (International Monetary Fund Washington
DC 1997) 201.
Relationship Agreement between the United Nations and the International Monetary Fund
(signed 15 August 1947, entered into force 15 November 1947) 16 UNTS 328.
United Nations Monetary and Financial Conference ‘Final Act’ (done 1–22 July 1944) in United
Nations Monetary and Financial Conference: Bretton Woods, New Hampshire, July 1 to July
22 1944: Final Act and Related Documents (Government Printing Office Washington DC
1944) 11 (Bretton Woods Agreement).
The White Plan (April 1942 and 10 July 1943) reprinted in JK Horsefield (ed) The International
Monetary Fund 1945–1965: Twenty Years of International Monetary Cooperation vol 3
Documents (International Monetary Fund Washington DC 1969) 37.

EPIL International Monetary Fund IMF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

EPIL International Monetary Fund IMF

Uploaded by

Copyright:

Available Formats

International

Monetary Fund (IMF)

Content Product: Max Planck

1. The Experiences of the ‘Great Depression’

2. Bretton Woods Conference

3. Establishment of the Fund and Beginning of Operations

4. From Monetary Institution to Major Global Policy-maker

8 A number of factors contributed to the phenomenon of increased demand in IMF resources by

(a) Intergovernmental Organization

(b) Members and Quota Holdings

19 Unlike traditional international intergovernmental organizations whose decision-making rests on

(c) Withdrawal and Suspension

2. Status, Privileges, and Immunities

3. Special Interpretation Powers

5. Organization and Management

(a) Board of Governors

(b) Executive Board

(c) Further Resources

(d) Preserving Liquidity

(e) Accounting and Auditing

(a) Regulatory Function

(i) Bretton Woods Regime

(ii) Post-Bretton Woods Regime

(b) Consultative Function

57 Bilateral and multilateral surveillance are supplemented by regional surveillance of formal

(c) Financial Function

(i) Balance of Payments Difficulties: Prerequisite for IMF Lending

(ii) Regular Lending

63 Legally, access to GRA resources is structured as purchase/repurchase of currencies under

(iii) Concessional Lending

D. Special Legal Problems

2. Interference in Members’ Internal Affairs

3. Non-Political Nature of the Institution

E. Evaluation from Policy Perspective

1. Economic Policies and Governance for Developing Countries

2. The Rules of the Game for the Global Economy

You might also like