What is the IMF?
The International Monetary Fund (IMF, or Fund) is one of the most important international economic institutions with significant influence in shaping the global financial architecture. Through its research, monitoring, technical assistance, and condition-based loans to governments, the IMF has strong framing and agenda-setting power on macroeconomic policy, using a combination of coercion and persuasion. It essentially acts as the global arbiter of what is considered 'sound economic policy', with ripple effects on countries’ ability to pursue alternative development paths.
Its economic analysis is widely used by governments to make decisions and by other organisations that influence governments’ scope to act (like the UN, public banks and private financial actors, credit rating agencies, and civil society groups like think tanks and NGOs), and it provides loans to countries conditional on implementing a set of IMF-defined policies. That way, the IMF not only frames what is considered 'the right policy' in general but directly intervenes in the sovereignty of countries mostly in the Global South to have those policies implemented.
How was the IMF created?
The IMF and the World Bank Group (WBG) are twin intergovernmental institutions. Also known as the Bretton Woods Institutions (BWIs) (named after a resort in New Hampshire, the location of the United Nations Monetary and Financial Conference where they were founded in 1944), they were initially created with the intention of rebuilding the international economic system following World War II (WWII), with US dominance and geopolitical interest in steering the IMF’s scope of power established early on.
The IMF’s initial purpose was primarily to ensure exchange rate stability, prevent competitive devaluations, and promote economic growth. During the 1950s and 1960s, IMF lending was mainly provided to richer countries, but when the fixed exchange rate Bretton Woods system collapsed in 1973 and IMF membership continued expanding to include many newly independent ex-colonies, the role of the Fund evolved. It shifted its focus from currency problems towards low-interest and often longer-term lending to developing countries facing a wider range of systemic crises, from banking to sovereign debt distress.
How did the IMF become (most) problematic?
In the 1980s and 1990s, the policies championed by the BWIs were inspired in principle by the so-called ‘Washington Consensus’, which focused ideologically on promoting free-market economic policies such as deregulation, privatisation and trade liberalisation, as well as unlimited economic growth, and were implemented primarily through Structural Adjustment Programmes (SAPs). These SAPs required fundamental policy changes as a condition for receiving loans, with economic stagnation, rising inequality and eroded labour rights often the result. Loan durations began to lengthen, with many countries requiring repeated IMF support amid chronic debt crises – questioning the effectiveness of the IMF’s short-term approach.
What is neoliberalism or the Washington Consensus?
Policies traditionally upheld and enforced by the IMF usually combine:
Austerity
Monetarism
Free Trade
Labour Deregulation
Privatization
Considerable research has demonstrated the adverse development, growth, and inequality impacts of this framework. A result of US and Western dominance over the Fund, it is rooted in an ideological adherence to market fundamentalism and “neoclassical” economics, despite a lack of evidence that this actually works for economic development – in fact, successful histories of industrialisation point to the opposite, both in Western advanced economies as well as China and the ‘Asian Tigers’. Civil society, labour unions, academics, and UN bodies and independent experts have long argued that the types of macroeconomic policies the IMF promotes undermine the capacity of states to fulfil their human rights and climate obligations, exacerbate inequalities within and between countries, and disproportionately hurt the poor and marginalised. More broadly, the IMF has faced accusations of promoting Western capitalist interests through neoliberal economic orthodoxy in low-income countries and co-opting elites in these countries, as well as propping up right-wing authoritarian regimes and downright dictatorships considered Western allies through financial support.
The adverse impact of these loan programmes on development and human rights in the Global South, as well as the blatant misuse of BWI policies and financial resources for Western (and primarily US) geopolitical interests prompted huge criticism from social movements and contributed to the push for major debt relief initiatives. Closing down the IMF and World Bank became the subject of widespread campaigns such as the global 50 years is enough movement in the mid-1990s. The credibility of the Fund suffered further during the 1997 Asian Financial Crisis, and in the years after it seemed that its global role would diminish. Many developing countries started accumulating reserves in the 2000s to avoid having to rely on the IMF, and IMF lending volumes dropped very low just before the global financial crisis (GFC) of 2008. The IMF’s failure to predict the GFC – through a combination of “groupthink, intellectual capture, and inadequate analytical approaches” by its own admission – and its problematic role in helping to force a devastating austerity program on Greece during the ensuing Eurozone crisis – called into question its effectiveness as a global stability monitor and further damaged its reputation.
Nevertheless, the IMF’s power has surged again due to the GFC, the eurozone crisis, the Arab Spring, and most recently Covid-19 and the subsequent health-economic-climate-care ‘polycrisis’, as countries scrambling to finance their multiple crises responses were forced to turn back to the Fund as a lender of last resort. Its financial resources were significantly increased by members, and outstanding loans reached a new peak in 2022 at almost 113 billion Special Drawing Rights (SDRs, the Fund-issued international reserve asset; ca. $150 billion) – more than 10 times what they were before the GFC.
Have things changed since then?
Over time, given the increased frequency and global ripple effects of financial crises as the world itself has deepened its economic integration and interdependence, the IMF has moved from initially more national interventions to a greater focus on the global economy and stability. It has also more and more taken on the role of macro-economic crisis manager and intervener beyond mere monitoring and analysis, thus influencing and defining economic policies in dozens of countries – sometimes for decades.
Total IMF conditions, 1980-2019
Source: Kentikelenis & Stubbs: The Origins of Conditionality (2024). Phenomenal World
Even prior to Covid, IMF leadership expressed growing concerns on rising inequality leading to social unrest and the need for a “New Global Economy”, acknowledging at least on paper that neoliberalism has been “oversold”, and increasing efforts to take into consideration country ownership, civil society demands, ‘new’ issues like gender and climate, and countries’ social spending needs, including dedicated strategies on some of these.
During the pandemic, IMF emergency loans came with few conditionalities, the Fund provided some debt relief through the Catastrophe Containment and Relief Trust (CCRT) for 31 countries, and leadership emphasised concerns with an unequal recovery and high debt levels. A general allocation of $650 billion SDRs in 2021 was widely used by over a hundred countries to fight the pandemic, and the IMF created a new lending instrument focused on climate change and pandemic response, the Resilience & Sustainability Trust (RST).
However, critical analysis quickly made clear that little has changed. The IMF’s latest loan programmes and implementation of social spending floors in practice have shown that austerity conditions are still universally widespread, and spending floors have been ineffective and insufficient in ringfencing meaningful social protection. Even during the pandemic, 85% of the 107 loans negotiated between the IMF and 85 countries prescribed austerity. The Fund’s newly established climate work focuses heavily on market-based strategies and carbon pricing, resulting in greenwashing austerity in many countries. They also did not fix more fundamental, structural issues of the IMF – such as its biased governance structure, its institutional group think as ‘global experts’ crowding out more legitimate actors (e.g. on new areas like climate and gender, where expert organisations already exist), its limited willingness to pursue genuinely alternative policies in light of significant negative impacts, and its inability to push for more comprehensive debt workout or to lead in global efforts to reform the financial architecture, instead initiated e.g. by the UN Secretary General, UNCTAD, Barbados’ Bridgetown Initiative, the G77, and the fourth Financing for Development conference.
How is the IMF governed and financed?
The highest decision-making body of the IMF is its Board of Governors, made up of two representatives (usually finance ministers or central bank governors) from each of the 191 member countries. Governors make major (but rare) decisions such as quota increases, SDR allocations, and amending the Articles of Agreement. Most of the day-to-day executive decisions, including signing off on loan programmes and new strategies, lie with the Executive Board, which only has 25 seats. This means that unlike at the UN, where every country has one vote, governance and decision-making power at the IMF is skewed towards rich countries, with outsized vote shares for Europeans and the US at the Executive Board and miniscule representation of lower-income economies. Because there are only 25 seats, the economically largest countries have their own Executive Director (ED) (USA, Japan, China, Germany, France, the UK, Russia, and Saudi Arabia), while the others are grouped into chairs that represent constituencies of several countries. For example, 46 Sub-Saharan African countries are squeezed into just three ED chairs. Relative influence on constituency positions – not only Board decisions – is thus also linked to voting power and the composition and configuration of the chair constituency.
Decision-making power in both bodies is weighted by a quota and therefore skewed in favour of large (advanced) economies, as the quota of voting shares for each chair is based on a mix of an actual formula (that rewards economic size and capitalist ‘openness’) and backroom negotiations. The quota both defines how much (taxpayer) money countries contribute to the core capital of the Fund, and how much they can withdraw in loans. The US holds enough shares to be able to veto decisions on the Board of Governors and have refused to cede votes to large emerging economies like China or India that are currently underrepresented based on the size of their GDP. OECD countries combined hold 63% of the vote. Quotas are reviewed periodically, but those processes are fraught with geopolitics and have so far done little to make decision-making significantly more equitable or responsive to global need.
In terms of senior leadership, the Managing Director (MD) role functions like a CEO, heading all operational and staff matters and acting as the public face, e.g. presenting a twice-annual work programme (Global Policy Agenda), with significant influence over the strategic direction of the Fund. Below the MD sit a group of four Deputy MDs, followed by regional and thematic department Directors. The outsized power of Global North countries at the Executive Board even extends into the selection of the MD, who is supposed to be elected through an “open, merit-based, and transparent” process, but in practice the ‘election’ is pre-cooked through a ‘gentleman’s agreement’ between the US and European countries, in which both blocks vote in a way that ensures the World Bank President is always US American and the IMF MD from Europe.
While the IMF has an Internal Evaluation Office (staffed with IMF staff, often former Executive Directors) that produces reports suggesting areas for improvement which have to be followed up on, it doesn’t have an accountability mechanism or ombudsperson that could receive reports from communities affected by IMF-imposed policies (unlike multi-lateral development banks like the World Bank), and its civil society engagement guidelines are not mandatory. This has led to significant criticism around a lack of transparency, accountability, and democratic representation.
What is the IMF’s mandate and how does climate fit into it?
Since the IMF’s core mandate is to promote economic growth and maintain financial stability, it only works on issues that it considers macro-critical, meaning they have the potential to significantly affect growth and stability. It also acts as a lender of last resort, meaning it lends to countries when they can’t obtain funding from other sources due to economic turmoil. Its lens is also generally short-term, with a 3-5 year horizon – essentially, in the spirit of fixing or preventing an acute or impending crisis, rather than the longer-term perspective that a just transformation, resilience building, and tackling systemic risks like climate change would require.
Thus, the development of dedicated strategies and work programs on ‘new’ issues such as climate and gender, which were long considered outside the scope of the mandate, are usually preceded by several years of internal momentum-building – e.g. through research and working papers that make the case for why the issues matter, country pilots and collections of take-aways, the development of operational guidance notes, and ultimately the leadership of the MD who has significant influence over the policy agenda and internal Fund politics. An evaluation of the decision-making around the expansion of the IMF’s mandate highlighted the top-down and “piecemeal” nature these processes can take, as well as the budgetary constraints and a continued lack of practical understanding on how to apply criteria such as macro-criticality and make informed decisions around short vs. long-term policy trade-offs.
Still, the framing of these issues remains through the lens of economic growth and balance of payment stability – not in the sense of climate-resilient development as set out in the Paris Agreement, nor that of human (and economic, social, cultural) rights obligations as enshrined in international covenants and agreements. The IMF’s lack of Paris alignment and stubborn denial that it should be subject to human rights obligations means that in a crisis situation where countries have to go to the IMF for help, the risk is high that Fund-imposed conditions run counter to those states’ legal climate and human rights commitments under international treaties.
What does the IMF do?
The IMF pursues three main types of activities: Lending to countries in or at risk of crisis, regular policy analysis and advice (called 'surveillance') at global and country levels, and capacity development or through technical assistance and training.
Lending
How does IMF lending work?
The activity for which the IMF is perhaps best known is the provision of loans to countries facing current or likely (short-term) problems with their balance of payments – essentially a record of all the money going in and out of a country – which are often the trigger for a financial crisis. IMF loans may be precautionary or in case of emergency, with emergency financing provided to countries which may have no other possibilities to borrow (e.g. from banks, or by issuing bonds). The necessity to borrow from the IMF may be due to domestic factors, such as a high level of unproductive public debt due to poor governance, low domestic tax collection, or dependence on export of volatile (fossil) commodities. It may also be due to external factors, such as shocks (like a natural disaster), unequal global tax, trade and finance rules that lead to a net outflow of resources from the Global South, a history of colonial extraction that has robbed many Southern countries of their natural resources and indebted them early on, or high USD interest rates (as many low- and middle-income countries are forced to borrow in USD).
IMF loans have to be requested by the government, with most (though not all, especially precautionary and emergency) lending instruments requiring a country to commit to a number of economic policy changes (‘conditionalities’) before financing is provided – basically structural adjustment policies, renamed after the 1990s anti-IMF campaigns. Conditionalities include debt, tax / fiscal policy, labour or social protection, and are negotiated with the Fund’s management and staff, and then signed off by the IMF Executive Board. The set of policy changes is known as a ‘programme’ and generally span between 1 to 5 years, during which the IMF can cut off credit if it considers a country is failing to meet conditionalities. Depending upon a country’s level of income and the nature of the crisis it is facing, different instruments apply: Low-income countries (LICs) tend to receive loans with low or zero interest rates (concessional), while middle-income countries (MICs)’ loans tend to have market-rate interest rates (non-concessional).
Unlike the World Bank and other multilateral development banks, the IMF does not provide financing for specific projects (e.g. infrastructure construction) or private sector investments, but focuses solely on macro-economic (fiscal, monetary) and financial sector policy. It only loans to governments, in return for the structural reforms spelled out in the programme conditionalities.
Types of IMF conditionality
Quantifiable macroeconomic targets, such as monetary and credit aggregates, international reserves, fiscal balances, and external borrowing. These are typically monitored at quarterly intervals and compose the majority of conditionality. These must be met—or otherwise require waivers—for the IMF Executive Board to conclude a review. These targets specify policy ends rather than means, and governments can—in theory—pursue a range of alternative policies to meet them.
Indicative Benchmarks / Targets (IBs/ITs)
Quantifiable macroeconomic targets that cover the same issues as quantitative performance criteria (QPC), monitored at the same quarterly rhythm and intended to supplement QPC for assessing progress on programme goals. Sometimes these targets are set because of data uncertainty about economic trends (e.g., for the later months of a programme) and, as uncertainty is reduced, are con- verted into QPC.
Prior Actions (PAs)
Non-quantifiable microeconomic reforms that alter the underlying structure of an economy and/or specify the policy ‘means’ toward meeting macroeconomic targets and other objectives (e.g. passing new legislation, eliminating trade barriers). These must be undertaken before the IMF Executive Board approves new financing or concludes a review, usually because the IMF has some doubt on the country’s commitment..
Structural Benchmarks (SBs)
Non-quantifiable microeconomic reforms that alter the underlying structure of an economy and/or specify the policy ‘means’ toward meeting macroeconomic targets and other objectives. These are intended as markers for assessing broader progress on programme goals and can turn into Prior Actions in future loans / disbursements.
Reform Measures (RM)
New type of conditionality attached to loans under the RSF specifically, focused on climate action, and similar to Prior Actions (qualitative reforms / policies instead of quantitative targets). They are mandatory to trigger disbursement but have different levels of ‘depth’.
Why is the IMF’s debt sustainability analysis so important?
Countries can only borrow from the IMF as long as their debt is deemed ‘sustainable’, otherwise restructuring is the only option. To assess this, the Fund conducts a debt sustainability analysis (DSA), with different methodologies for middle- and low-income countries. DSAs are crucial to avoid a situation in which IMF loans are merely used to pay off previous debt e.g. from private creditors, although over-optimistic DSAs have in practice sometimes led to this scenario. The IMF very rarely declares debt unsustainable, which would require restructuring and prevent it from lending further. This has regularly prolonged debt crises and led to the bailout of other creditors with IMF loans, with the associated human rights impacts – something widely criticised by civil society, UN independent experts, UNDP and UNCTAD, and noted by IMF staff itself, in addition to internal reviews and evaluations that have pointed out this bias over many years. As both a lender itself and a policy adviser on debt sustainability and lending conditions, the IMF has a clear conflict of interest – especially considering the outsized influence of powerful shareholders like the US that are home to most of global capital, leading to the IMF becoming the enforcer of creditor interests. Research has also shown that DSAs are far from politically neutral: Borrowing countries with high foreign direct investment from Western private lenders face harsher austerity, while those aligned with European trade and diplomacy are treated more leniently.
Why should I care about IMF lending?
All this may sound very technical, so you might be wondering why someone outside the Ministry of Finance or Central Bank should care much about IMF loans. However, through IMF-imposed economic policies, the lives of regular people are impacted in many ways: For example, when public spending on health and education is cut to reduce a fiscal deficit, teachers and nurses lose their jobs and the quality of public services deteriorates. When energy subsidies are eliminated, consumer prices rise, and when taxes are raised from ordinary citizens rather than corporations or high-income groups (often in the form of VAT, which is easier to implement but regressive), it directly impacts income and wealth inequality.
Although the IMF claims that conditions are ‘country-owned’ and mutually agreed-upon with governments, there is a clear power imbalance: The Fund holds outsized policy influence in low- and middle-income countries as a lender of last resort, as usually, countries that seek the IMF’s help are already in a critical situation and have little choice in accepting whatever conditions are put on them, undermining their sovereignty. This is true especially now, when Covid-19 and, increasingly, climate change impacts are leaving governments in the Global South pressed to borrow to protect their citizens from the most adverse impacts and reignite their economies post-pandemic.
Head to our country case page to read up more on how IMF programs are impacting everyday lives across the world.
Surveillance
What is surveillance and why does it matter?
The second function of the IMF is surveillance – Article IV of its Articles of Agreement gives the Fund the mandate to monitor whether its member countries are pursuing economic policies that promote a stable global monetary system and growth. To do this, it conducts annual consultations (‘missions’) with countries and publishes reports on their economic situation and policies as well as IMF staff’s assessment on whether those policies are considered sound or might present a risk to global economic stability – this is called bilateral surveillance. These so-called ‘Article IV reports’ are drafted by country mission teams, gathering data in discussion with governments and central bank officials as well as (not always) other actors like CSOs, parliamentarians, and the private sector. Resulting reports are presented to the IMF Executive Board for discussion.
Although they do not oblige a government to take action, undergoing surveillance is mandatory for all IMF members, and these reports do impact national policy making and development financing strategies – for example, by signalling to financial markets whether a country is considered high-risk or credit-worthy, which in turn impacts that country’s ability and cost of borrowing. Usually, the analysis conducted under surveillance also forms the basis of an IMF program and the attached conditionality. But even countries without a direct IMF lending programme and (binding) conditionalities might feel pressed to implement surveillance recommendations advice to maintain perceptions of creditworthiness and remain in the Fund’s good standing, in case of having to access IMF lending down the road.
In addition to the Article IV country reports, the Fund publicly provides extensive databases and statistics, a series of research and working papers, a quarterly magazine (Finance & Development) as well as annual assessments of the global economic situation through its three flagship reports: The World Economic Outlook, Fiscal Monitor, and Global Financial Stability Report. This is called multilateral surveillance. It also conducts further analyses at regional and global levels, such as Regional Economic Outlooks and missions to the different currency / monetary unions like the Eurozone. Every year, the findings from all the multilateral reports are collated into the IMF Managing Director’s Global Policy Agenda, which proposes responses to perceived challenges for the IMF and its member states.
How has the IMF’s analysis adapted to changing contexts?
The IMF reviews its surveillance methodology every three years, and in 2021 it conducted a Comprehensive Surveillance Review (CSR) meant to fundamentally modernise IMF policy advice for the post-Covid-19 world, which included a dedicated background paper on climate as well as a priority on ‘economic sustainability’. The next CSR is scheduled for 2025-26. Thus, over time, the topics covered under surveillance have expanded to include new issues like climate change, inequality, social spending and gender, as the Fund broadened its concept of what it considers macro-critical – realising that these issues impact global financial stability and growth and thus are relevant to its mandate. Different strategies were developed on specific ‘structural’ topics through the years, as well as attached ‘guidance notes’ that are meant to help operationalize how IMF staff integrates them into their country analyses.
However, this expansion has led to increased complexity and contradictions due to the long-term nature of these issues and their inherent trade-offs with an orthodox neoliberal agenda. Time horizons for IMF analyses are usually not more than 3-5 years, which makes it difficult to adequately capture climate risks or investment benefits that are much more long-term. Staff also lack clear decision-making criteria on potential trade-offs, e.g. if short-term fiscal consolidation advice has significant long-term gendered impacts or undermines countries’ ability to invest in climate action, there are no frameworks to properly evaluate these trade-offs.
Technical Assistance
What is technical assistance and why does it matter?
The third function of the Fund is providing technical assistance (TA) to government authorities to build up a country’s economic and financial management capacity. It focuses on strengthening economic institutions, structures, and processes, rather than developing the skills of people staffing them. TA accounts for about one-third of the IMF’s operating budget and is provided largely free of charge, initiated upon the request of member countries. This non-binding advice is delivered to country officials (about half from low-income countries) through a combination of short-term staff missions from the IMF’s headquarters, long-term in-country placements of resident advisors, and through a network of regional capacity development centres. Topics include tax administration, fiscal data management, public investment and procurement, gender budgeting, national statistical systems, legal frameworks, and more. On climate, this may cover carbon and energy pricing, environmental taxes, disaster resilience and climate risk monitoring.
This area has received the least attention by advocates, as it is less transparent (only about 5% of reports are published), less overtly prescriptive, and assumed to follow the same policy line as lending and surveillance. However, technical assistance is an important part of the IMF’s “soft power” in influencing the understanding and practical operationalisation of issues such as green or gender budgeting within governments, where the IMF is often considered a bigger or more “neutral” expert than e.g. national civil society groups that may be offering similar trainings.