Posted at 6:00 am
I recently read an article in The press the title of which was: “IMF releases $1 billion to support Ecuador”. Who provides the IMF with the money? Does this money earn interest? How are cash advance decisions made?
The International Monetary Fund (IMF) is one of those organizations that we hear about regularly and think we know, without really asking, about its origins or how it works, including its sources of funding.
First, the IMF was established in 1944 and its primary purpose is to promote international financial cooperation. It wants to contribute to the economic stability of its members.
“It’s a bank whose shareholders are also customers,” summarizes Arthur Silve, associate professor at the University of Laval’s Faculty of Economics, who specifies that the IMF’s mandate is not to make investments that would yield interest, even though they are not is impossible.
So it is its members, 188 countries, that fund it, but of course not all contribute equally. Upon accession, the country agrees to contribute to the fund with a proportion calculated according to the vitality of its economy, which is determined using various criteria including GDP.
In fact, these “quotas” represent the upper limit of the sums that the member country commits to make available to the IMF. In reality, the contributions are not that impressive.
The country’s commitment is reviewed every five years but not changed without its consent. The United States has the largest exposure to the IMF.
It should also be understood that the IMF is not targeting a country’s quota in a situation of economic vulnerability. So we will not find ourselves in this absurd situation where a country benefits from IMF aid that it has funded, even to a very small extent, or that would be funded by a country in a similar economic situation.
The IMF’s working logic can therefore be summarized as follows: when a country’s economy is strong, it contributes; when a country is in distress, it reaps. Likewise, not all IMF loans are created equal, the terms depend on the circumstances of the recipient.
You should also know that the IMF can borrow from its member countries and that it has an impressive gold stock dating back to its inception when countries joining the group had to pay a quarter of their basic endowment.
Finally, the IMF has a Board of Directors and a Board of Governors composed of representatives of all member countries.
In fact, Professor Silve explains, these governors are relinquishing their decision-making authority to the CA, which makes decisions of the IMF, such as the decision to allocate the $1 billion you refer to to Ecuador.