IMF: Theories In International Relations (2023)

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Wordcount: 1909 wordsPublished: 9th May 2017

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The first step on analyzing the character of the IMF itself and its behavior when it comes to granting loans should be to do so in accordance to the given commonly approved theories in the field of research on international institutions. The various theoretical approaches provide quite different assumptions and explanations which we are going to need, if the basic questions regarding the IMF shall be answered: What is the purpose of the institution? Why might states have an interest in that kind of organized cooperation at all? And what kind of behavior might we expect from the actors involved – first of all the United States..

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To start with we shall take a look at the Neorealism’s core assumptions, hypotheses and their applicability in case of the IMF. The five core assumptions (Bueno de Mesquita 2005, 126) define states as unitary actors which act rationally in an anarchic international system to maximize their own security. They are also striving for power as long as it is not threatening their security. Based on those assumptions the three hypotheses state that:

This point of view draws a rather pessimistic picture of the international system, where states fear each other and trust is hardly existent. You would therefore derive some expectations for an institution like the IMF. In an neorealistic world international organizations are merely instruments of the most powerful states. Thus it would be hardly surprising if Superpowers like the United States are using the IMF to achieve their own goals and further increase their power.

“By assuming anarchy, neorealism implies that organizations such as […] cannot do much more than provide a means by which individual states can coordinate their activities and help each other on a case-by-case basis. Might, not law, makes right in the anarchic world in which states pursue their own national interest and not the objectives that international law and international organizations set as priorities.” (Bueno de Mesquita 2005, 129).

Adapted to IMF members we would expect them to focus on their personal benefit from that kind of cooperation and participate in it as long as they may expect relative power gains. With the exact distribution of power being uncertain states are furthermore supposed to gather around poles of power which – in terms of the IMF – can only predict an approximation toward the United States.

Considering the Neorealisms favor of bipolarity where two states hold most of the power, you could also expect the IMF to embody such a system. Yet the distribution of power inside the IMF’s decision making structures rather implies a multipolar system since there is not a single one among the 187 members holding 25% of the power. However you could speak of some sort of unipolarity with the United States holding 16.74% of the votes (IMF 2011a) followed by a huge gap until Japan’s 6,01% make up the second most powerful nation. Such being the case Neorealists would ascribe a sense of instability to the IMF resulting from their concept of uncertainty about power distribution. Nevertheless the IMF seems to be stable for over 60 years now. This phenomenon cannot be explained by the neorealist approach and typifies one of its main points of criticism. Another point leading to another approach suggests that the struggle for power in the sense of security is not always the sole ambition of states in the international system.

According to the IMF’s own Articles of Agreement adopted in 1944 its main purposes are “to promote international monetary cooperation through a permanent institution” with goals like “the expansion and balanced growth of international trade” and the promotion of exchange stability (IMF 2011b). When it comes to loans and other forms of financial aid, Article I (V) explicitly states that those measures shall be taken in order to prevent member countries from “resorting to measures destructive of national or international prosperity”.

With that goal declared – hindering states to act in ways that would entail disadvantages for others – we inevitably enter Keohane and Nye’s Realm of Interdependence. Therefore using Keohane’s different forms of international institutions the IMF can clearly be classified as an International Regime which are to be “institutions with explicit rules, agreed upon by governments, that pertain to particular sets of issues” (Keohane 1989, 4). There are stated rules in form of the already mentioned Articles of Agreement and the particular sets of issues would obviously be foreign exchange policy.

With that in mind we should continue to investigate the Neoliberal Institutionalism Point of View. The first core assumption that states strive for wealth just as well as they do for security seems to fit quite well. The second assumption characterizes power as non-transferable and issue-specific. Given the economic nature of the IMF and the way its member’s quotas resemble their actual voting power this assumption also seems to apply since “Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy. A member country’s quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing.” (IMF 2010). This states that power and influence inside the IMF is distributed depending on the nation’s economic power. According to the liberal concept that “a nation’s power is assumed […] to vary from one issue area to another, nations cannot easily capitalize on their influence over one set of problems to exert influence on a different set of problems” (Bueno de Mesquita 2005, 136) one would not automatically expect a powerful IMF-member to be able to use this power to influence decisions beyond the IMF’s field of activity. Whereas “For Neorealists the opposite is true. Power in one domain is power in all domains because the resources that can be used to influence decisions in one area can serve as the basis for tacit or explicit threats in other areas.” (Bueno de Mesquita 2005, 136).

(Video) Classifications of International Relations Theories

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Another assumption of the (Neo)liberal approach states that the international system is characterized by the already mentioned interdependency and collective action problems. The latter “arises when an international organization or regime provides public, or collective goods, which are indivisible and nonexcludable” (Bueno de Mesquita 2005, 137). To which extent or whether at all financial aid measures by the IMF can be seen as such, remains to be examined. Yet the general benefit from a worldwide monetary stability indeed seems to be of an indivisible and at least for the member states nonexcludable.

Further according to Keohane the IMF actually seems to be some kind of paragon for an “organization that sets rules and standards to govern specific sets of activities” as it became “the centerpiece of efforts by the major capitalist democracies to regulate their monetary affairs” (Keohane 1998, 84) already by the 1960’s. When asking for the motivation of sovereign states and the reasons why they should cooperate channeled through institutions at all, he provides a simple answer for the IMF: Triggered by “the exchange rate and oil crises of the early 1970’s” even economic superpowers like the United States “realized that global issues required systematic policy coordination and that such coordination required institutions” (Keohane 1998, 84-85). The IMF itself claims this insight to have occurred even earlier by defining its original aims: “The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed.” (IMF 2011c). Therefore the main reason in participating in the IMF actually seems to be overcoming the economic interdependency in a globalized world.

As the main promoting factor leading to cooperation in form of the IMF liberal theories file the United States as a hegemon. “Under hegemony, a hegemonic, or dominant state is willing to bear the extra burden of providing public goods, such as enforcing a free trade regime, in order that all may benefit.” (Bueno de Mesquita 2005, 140). We would therefore expect the United States to be the actual provider of the stability granted by the IMF and furthermore act and function as “a central authority that is able and willing to enforce agreements and punish cheaters.” (Bueno de Mesquita 2005, 140). Yet, as Bueno de Mesquita (2005, 141) claims, even liberal theorists acknowledge that a hegemon is rather unlikely to provide a public good, “when doing so is contrary to its interests.” Hence, if the United States shall be viewed as the IMF’s hegemon today, there must be some benefit for it in fulfilling this role.

Michael N. Barnett and Martha Finnemore (1999) for example offer a more constructivist or sociological point of view, as they emphasize an autonomous character of International Organizations and institutions. One of their main arguments why we should see IO’s rather as individual actors themselves than as mere frame for state’s interests draws from principal-agent analysis. “The analysis is concerned with whether agents are responsible delegates of their principals, whether agents smuggle in and pursue their own preferences, and how principals can construct various mechanisms to keep their agents honest. This framework provides a means of treating IOs as actors in their own right with independent interests and capabilities. Autonomous action by IOs is to be expected in this perspective.” (Barnett/Finnemore 1999, 705) With this approach we would expect from the IMF that its decisions are not naturally reflecting the states interests but having developed an independent existence following its own purposes. The occurrence of such principal-agent problems is quite conceivable considering the IMF’s structure. Though every member state is represented in the highest decision making body, the Board of Governors by its minister of finance or the head of the central bank (IMF 2011d) yet most of the power is delegated to the Executive Board which only consists of 24 directors. Except the five countries holding the biggest shares of the votes – United States, Japan, Germany, France and United Kingdom – all other members (principals) are represented by common Executive Directors (agents) here which represent up to 22 different countries.

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As fitting as the theory of interdependence might be regarding the IMF’s purpose it can as well be used to level criticism against it. As Kenneth N. Waltz mentions in his work about Neo-Realism interdependence can as well be seen “as an ideology used by Americans to camouflage the great leverage the United States enjoys in international politics by making it seem that strong and weak, rich and poor nations are similarly entangled in a thick web of interdependence” (Waltz 2000, 16)

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What is the IMF in international relations? ›

The International Monetary Fund (IMF) works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.

What are the 3 things the IMF does? ›

Through “surveillance,” the IMF oversees the international monetary system, monitors global economic developments, as well as engages in a health check of the economic and financial policies of its 189 member countries.

What are the 5 purpose of IMF? ›

The IMF works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Why was the IMF important? ›

The IMF promotes global macroeconomic and financial stability and provides policy advice and capacity development support to help countries build and maintain strong economies.

How does IMF help developing countries? ›

The IMF provides broad support to low-income countries (LICs) through surveillance and capacity-building activities, as well as concessional financial support to help them achieve, maintain, or restore a stable and sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.

Does the IMF help or hurt countries? ›

Instead, the IMF provides financial support to countries hit by crises to create breathing room as they implement policies that restore economic stability and growth. It also provides precautionary financing to help prevent crises. IMF lending is continuously refined to meet countries' changing needs.

What are the key elements of IMF? ›

This approach includes establishing dedicated financial stability functions and building internal systems and technical skills. The IMF works with countries on four principal components of an effective financial stability framework: organizational structure, monitoring, analysis, and policy.

How did IMF affect people? ›

The conditions which the IMF imposes on the countries it lends money to have sometimes been criticised for being too harsh. These have included forcing countries to reduce government borrowing, cut corporate taxes and open up their economies to foreign investment.

What happens when a country goes to IMF? ›

In general, IMF-supported programs seek to boost social spending to improve socioeconomic outcomes and help promote inclusive growth. It is important that social spending measures be adequate, efficient, and financed sustainably to achieve this.

What is the function of IMF in globalization? ›

The IMF seeks to mitigate the negative effects of globalization on the world economy in two ways: by ensuring the stability of the international financial system, and by helping individual countries take advantage of the investment opportunities offered by international capital markets, while reducing their ...

Why is the IMF so controversial? ›

The impact of IMF loans has been widely debated. Opponents of the IMF argue that the loans enable member countries to pursue reckless domestic economic policies knowing that, if needed, the IMF will bail them out. This safety net, critics charge, delays needed reforms and creates long-term dependency.

Is the IMF biased against developing countries? ›

It is now well known that policymaking in the IMF is heavily biased by the political and economic interests of a subset of member states, particularly the United States and several major Western European countries. Consequently, we may think of the IMF as a biased global insurance mechanism.

Is the IMF ethical? ›

It meets regularly with government and private-sector representatives to inform and improve its work. To ensure accountability, the IMF relies on internal and external audits, risk management tools, and independent evaluations. IMF staff are subject to strict ethical and workplace standards of conduct.

Why is it called IMF crisis? ›

Due to IMF's involvement in the financial crisis, the term IMF Crisis became a way to refer to the Asian Financial Crisis in countries that were affected.

Who controls the IMF? ›

A country's influence at the IMF is supposed to come from the share of votes it controls, which is pegged to the country's economic size. Voting, however, is rare at the Fund. Rather, the Fund operates by consensus.

What are the main criticisms of the World Bank and IMF? ›

2.1 Structural under-representation of the Global South. 2.2 Undermining democratic ownership. 2.3 Biased and inconsistent decision-making. 2.4 Weak ability to learn from past mistakes.

Does the US benefit from IMF? ›

The IMF plays a crucial role in supporting both fundamental US objectives. When a member country asks the IMF for help to respond to a crisis, the Fund produces two things: financial assistance and policy requirements.

Does the USA control the IMF? ›

With over a 16 percent voting share, the United States is by far the largest single voting bloc. Many major decisions by the IMF require supermajorities of either 85 percent or 70 percent of its membership.

What happens if a country cant pay back IMF? ›

IMF To The Rescue

The defaulting country also approaches its unilateral and bilateral allies to alleviate the economic crisis. Furthermore, the defaulting country can also engage in a debt restructuring plan. This can be done by either extending the date to repay their debts or devaluing their currency.

What are the 4 major types of international monetary regimes? ›

The four major types of international monetary regime are specie standard, managed fixed exchange rate, free float, and managed float. They differ in their solution, so to speak, of the impossible trinity.

What are the 4 main components in the international monetary structure? ›

It consists of four elements: exchange arrangements and exchange rates; international payments and transfers relating to current international transactions; international capital movements; and international reserves.

What is IMF common framework? ›

The Common Framework, designed to allow for speedy debt restructuring, has been widely criticised for its glacial progress. Chad, Ethiopia and Zambia signed up in early 2021. While Chad secured a deal with creditors in November, Zambia is still locked in talks. Ethiopia's progress was held up by civil war.

Has the IMF been successful? ›

Some economists characterize the fund's performance in the Asian financial crisis of 1997–98 as a success. They argue that the economic reforms championed by the IMF allowed the countries involved to recover quickly and laid the foundation for sustained growth during the 2000s.

Who famously criticized the IMF? ›

Stiglitz accuses the IMF of being driven by a belief in the perfection of markets and the imperfection of governments. The accusation is simply wrong. IMF staff are well aware that they owe their jobs to the imperfections of markets. 10.

Why did IMF fail? ›

The IMF lost its primary mission when the international financial system moved away from the gold standard to a floating exchange rate system. It also is clear that the IMF's approach to economic development has been a colossal failure.

What are the four aspects of globalization according to IMF? ›

In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people, and the dissemination of knowledge.

In what way are IMF important to global governance? ›

The IMF promotes good governance in two main areas: i) the management of public resources through reforms covering public sector institutions; and ii) the development and maintenance of a transparent and stable economic and regulatory environment conducive to private sector activities.

How does IMF increase inequality? ›

Pension cuts or freezes, which are frequently included in IMF programs, may also increase inequality. Cuts in public wages could both increase and reduce gross inequality, depending on employment effects and the relation between public wages and median income.

What is the disadvantage of IMF? ›

High interest rates charged on its advances are considered one of the major disadvantages of IMF. So, the debt servicing for the less developed countries is difficult. For example, since 1982 the interest charged for loans out of the ordinary resources of the fund is 6.6 per cent.

Which country has the most influence in IMF? ›

And each quota is meant to reflect a country's relative position within the global economy. The United States has long held the number one spot at the IMF, while Japan has ranked number two.

What is IMF moral hazard theory? ›

"Moral hazard" is a term frequently heard in recent debates over the reform of international financial institutions. In other words, critics argue that the knowledge that IMF financing will be made available in the event of a financial crisis makes the crisis more likely to occur.

Is IMF reliable? ›

The IMF has policies in place to ensure that meaningful and accurate information—both about its own role in the global economy and the economies of its member countries—is provided in real time to its global audiences. Transparency helps economies function better and makes them less vulnerable to crises.

What is the main role of the IMF quizlet? ›

The purpose of the International Monetary Fund is to: promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. The IMF has been criticized for: ignoring the dynamics of a country that they were dealing with.

What is the IMF who controls it what does it do? ›

The International Monetary Fund (IMF) is an organization of 189 countries, working together to: foster global monetary cooperation. secure financial stability. facilitate international trade and sustainable/inclusive economic growth.

What are the basic functions of the IMF quizlet? ›

Major functions of the IMF are: To promote exchange rate stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

What is the role of IMF in globalization? ›

The IMF seeks to mitigate the negative effects of globalization on the world economy in two ways: by ensuring the stability of the international financial system, and by helping individual countries take advantage of the investment opportunities offered by international capital markets, while reducing their ...

What are the major criticisms of the IMF? ›

Opponents of the IMF argue that the loans enable member countries to pursue reckless domestic economic policies knowing that, if needed, the IMF will bail them out. This safety net, critics charge, delays needed reforms and creates long-term dependency.

Is the IMF controlled by the US? ›

The Secretary of the Treasury serves as the U.S. Governor to the IMF, and the U.S. Executive Director of the IMF is one of 24 directors who exercise voting rights over the strategic direction of the institution. The U.S. is the largest shareholder in the Fund.

What power does the IMF have? ›

The IMF monitors the international monetary system and global economic developments to identify risks and recommend policies for growth and financial stability. The Fund also undertakes a regular health check of the economic and financial policies of its 190 member countries.

What are some interesting facts about IMF? ›

Establishment: The IMF was established in July 1944 at the United Nations Bretton Woods Conference in New Hampshire, United States. 3. Total Membership: 189 countries. Generally every member country of the IMF becomes the members of the World Bank.

What are the structure of IMF? ›

The IMF Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee. The IMFC has 24 members, drawn from the pool of 190 governors. Its structure mirrors that of the Executive Board and its 24 constituencies.


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