INTERNATIONAL MONETARY FUND (IMF)

Description of the Committee

Founded in 1945 with 29 initial member countries, the primary
goal of the International Monetary Fund was to rebuild the
worlds international payment and trade systems in the wake of
World War II.1 The IMF worked to facilitate trade and loan
systems that jump-started the post-war global economy.
Today, the International Monetary Fund (IMF) is a global
economic development institution headquartered in Washington,
DC. Its membership comprises 188 of the worlds economies
who work together to ensure financial stability, promote
international trade, promote sustainable economic growth, and
reduce poverty around the world.2
The main goals of the IMF are to promote economic development through policy
recommendations and advice, and to provide economic assistance to member countries with
balance of payment problems.
TOPIC: LOAN REFORM AND FORGIVENESS
FOR DEVELOPING COUNTRIES
Introduction
The International Monetary Fund is one of the most important organizations in the world for
helping developing countries. The IMF allows for developed countries to make loans to developing
countries, who can use the funding to stabilize their economies, build roads and schools, and invest
in their people.
However, the IMF was established following the end of World War II, and the world has changed
much since then. Today, the IMF faces criticism for how it makes loans; developed countries can

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attach conditions to the loans called conditionality which forces developing countries to adopt
unpopular policies. Many developing countries are struggling under the weight of all their loans,
and they are seeking loan forgiveness or debt relief permission to not repay their loans from
the IMF and developed countries.
Over the past decade, the IMF has discussed various reforms around conditionality and loan
forgiveness. But these discussions are complicated by the fact that developed countries have
greater voting rights in the IMF than developing countries; voting is weighted based on
contributions to the IMF.
The IMF is still an important organization that helps developing countries, but if it does not address
these criticisms, it will lose its credibility and standing in the international community, and will be
unable to make as much of an impact. Delegates must address these issues of conditionality, loan
forgiveness, and voting reform if the IMF is to further its mission of international development.
Background
The International Monetary Fund was born out of the end of World War II, and the instability of
the global economic system caused by the War. Before World War II, the international monetary
system was far less stable than it is today. During World War II and years prior, countries were
more likely to keep up trade barriers in order to keep domestic employment high and keep
domestic markets functioning at optimal rates.
Another main consequence of keeping up trade barriers was the devaluation of national
currencies, which took place worldwide during the Great Depression. This lead to a decline in
global trade and economic growth, the opposite of the policy intentions the countries that put the
limiting trade barriers in place. While there were many reasons for the outbreak of World War II,
economic disparities in currency markets is often overlooked as a contributor to the conflict. In
fact, economic turbulence is a major factor in how the Axis regimes gained power and support.
In 1944, towards the end of World War II, various countries met in in Bretton Woods, New
Hampshire, at the United Nations Monetary and Financial Conference, to plan the post-war
international monetary and financial system. A major outcome of the conference was the
establishment of the International Monetary Fund and the World Bank. The conferences
outcomes and impact on the international monetary and financial system following World War II
would become known as the Bretton Woods system.
Originally born to help developing economies grow and monitor currency markets, the IMF grew
to become a primary lender to member countries with balance of payment problems, or problems
paying the bills and expenses countries incurred. Balance of payments problems occur when a
country has more expenditures than revenue in a given fiscal year, creating a deficit. Balance of
payments (BOP) problems have to be remedied by either loans taken out by a national
government, or domestic spending changes to align with revenue.

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In 1971, the Bretton Woods system was suspended

when United States President Nixon suspended the
convertibility of gold to the US Dollar. At the time,
the global currency markets went into disarray but
eventually stabilized. Since 1971, the IMFs
primary role has been to provide loan assistance to
member countries in need with short-term balance
of payment problems.
Conditional to the loans are usually a required
series of mandates, meant to improve member
countries macro-economic policy and equality in
the domestic economy. Loans normally come in the
form of credit instruments incrementally, with
fairly short-term repayment periods. However, these are not often seen as fair.3
Current Situation
After 1971, the focus of the International Monetary Fund has shifted from the Bretton Woods,
par-system bank model of the post-war era into a structured institution for economic development
and cooperation. With the worlds brightest economic minds at its helm, it is one of the leading
economic development organizations at the international level.
Though a UN specialized agency, the IMF is largely independent, with its own charter, Board of
Directors, governing structure and finances. There is a weighted voting system within the
organization, and those member countries that contribute the largest amounts are able to have the
most number of votes determining the conditions and terms of the loans given out to member
countries in need. The countries that contribute the most to the IMF have the most in economic
clout in development terms, and because of this are able to impose their will on developing
member countries when they come before the IMF for funding.
Terms of loans for the IMF member states are often deemed unfair towards debtor countries, or
those taking out loans. When a country contributes to the IMF, it has the ability to take out loans
should it have a balance of payment problem (when it has problems paying its bills). Balance of
Payments problems come when a government has a loss in tax revenue, has social spending
obligations to keep up, or another expenditure that it is required to upkeep for the country at large.
In Egypt, for example, with its continued uprisings and regime changes, the nation has seen a
decrease in much needed tourism revenue and faces significantly increase costs in defense and
civil services. In such a situation, its difficult for the borrower nation to maintain basic services
and to draw on external creditors such as international banks or foreign governments. In this case
a nation could turn to the IMF. These loans are meant to correct short-term problems, but often
there are larger issues that face a countrys economy that cannot be corrected with one loan. When
a debtor country cannot pay on its loans, it is obligated to either default or borrow more to finance
its expenditures. Both of these are poor choices for a national economy because it is not a stable
or sustainable solution for growth.

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In recent years, the debate has been sparked for reforms within the IMF to re-structure the
distribution of member countries and their benefits. The reforms largely fall in the areas of the
loan process and voting reform. Within the organization, the amount of votes granted depends on
the monetary contribution to the fund at large. Because of this, developed countries are able to
contribute more and as a result, have more influence in the fund. Within the fund, there are calls
to change how the voting system is run, and to change fiscal requirements for membership. The
original intention of the IMF was to provide sound economic and development advice to countries
in need and emergency funding, which some experts are now questioning the modern day
intentions of the IMF. Some members of the international community are calling for a major
reform of the IMF, to display the changing map of economic development and reflect middleincome countries in the 21st century global economy.4
Another challenge facing the IMF is crippling debt owed
by the worlds poorest and least developed countries. For
these nations, the cycle of debt and repayment is
preventing sustainable domestic economic development.
Because the IMF is considered a lender of last resort most
nations try to pay their loans from the IMF first. Often
times the nations need to take more loans, from the IMF
and other creditors, in order to pay off the loans owed to
the IMF. Over the last decade, forgiveness of IMF debt has
been discussed as a means of breaking this unsustainable
development cycle.5
International Action
The largest year in terms of reform in the International Monetary Fund took place in 2010. After
calls from the international community to change the structure in the fund, the board of Directors
met and deliberated on the structure and function of the fund going forward in the 21st century.
The objective of these deliberations was to change the fund to make it more equitable in
representation and voting rights to developing economies and member countries.6
The largest changes came in the distribution of voting rights and privileges, with growth coming
to over 100 member countries, meaning that over 100 of the 187 member countries saw their
voting share increase. Overall, 6% of the voting quota had changed within the organization, going
almost exclusively to developing market economies and emerging member countries. Developed
economies and oil producing member countries were the primary relative losers in the reform.
With these changes in 2010, the 10 largest members in the Fund were the US, Japan, France, Italy,
Germany, the United Kingdom, China, Brazil, India and the Russian Federation. The Executive
Board kept the same number of seats, but the advanced European economies lost two seats. This
was an attempt to calibrate the fund to demonstrate the changes in the global economy.

Case Study: Tunisia

Since the toppling of its former regime in January of 2011, Tunisias economic growth has been
stunted, youth unemployment reached new highs, and the new government was unable to keep
Tunisias economy balanced. As a result, the IMF is in the midst of an extensive loan

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disbursement with Tunisia in order to relieve the nations extensive budget deficit and continuing
lack of economic growth.
The IMF is currently withholding the majority of a $1.74 billion dollar loan from the Tunisian
government until they put into action all of the political and economic reforms that were outlined
in the terms of Tunisias loan. An initial $150 million dollar disbursement was given to Tunisia
in June of 2013. The loan agreement will support the implementation of the Tunisian authorities
reform program to promote private investment, foster sustainable job-creation, reduce economic
and social regional disparities, and strengthen social policies to protect the most vulnerable.7
However, Tunisia did not meet the
benchmarks set by the IMF in order to
receive its second tranche. The IMF asks
that Tunisia make progress in closing
banking vulnerabilities, reduce external
debt, and generate rapid growth to begin
to absorb increasing unemployment.8
Until these reforms are implemented, the
IMF refuses to completely disburse
Tunisias loan, leaving its population at
further risk of increased poverty,
joblessness, and access to capital resources.

Case Study: Turkey

Turkey is being hailed as one of the success stories of the IMFs loan program. The IMFs loan
disbursements are believed to be a contributing factor in Turkeys extraordinary economic growth
over the last decade. In May of 2013, Turkey paid its final loan installment to the IMF. Over a
decade, its debt was reduced from 78 percent of its GDP to only 41 percent. Though there has
been an increase in private sector lending, Turkeys payment to the IMF makes it the first time
since 1994 that the nation has no outstanding debt owed to the fund.9
Though it took over 50 years from the disbursement of Turkeys first IMF loan (in 1961) until
2013 to decrease its spiraling debt, Turkey can now be counted amongst one of the IMFs creditor
nations rather than a borrowing state.10 This development includes an increased quota in the bodya much-needed boost for Turkish participation in the IMF. Turkeys success makes the case that
IMF conditions are not insurmountable; rather they are the keys to the start of sustainable growth.

Case Study: Germany

On the opposite end of the spectrum, Germany, one of the IMFs most powerful members, sits on
one of the worlds most stable economies. After suffering crippling debt, reparations, and
extensive policy reform in the course of the twentieth century, Germany has emerged as one of
the worlds economic strongholds.
However, despite her troubled past Germany has also become one of the IMFs strictest creditors,

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most notably in the case of Greece.11 Greeces debt burden is of the highest priority to the IMF
not only because of its effects on that nation but because of its greater effect on the Euro Group
and the European Union.
Christine Lagarde, president of the IMF, believes that creditors will have to forgive the majority
of Greeces debt and that nothing else will work.12 Germany, however, refuses to allow that to
happen. Writing off the loans Germany has made to Greece would cost German taxpayers money,
an occurrence which is unfamiliar and uncomfortable to the German government.13
Despite Germanys resistance to complete debt relief, progress has been made amongst the Euro
Zone countries.14 Theyve agreed to mild debt relief terms to be put in place in early 2014. German
Chancellor Angela Merkel however refuses to give any further aid to Greece without any reforms
made or proven economic growth- a position that many member states have balked at.15

Civil Society Action

The Jubilee movement mobilized enormous
amounts of support for loan forgiveness. Its main
backers were largely churches that saw loan
forgiveness as a moral imperative rather than solely
a matter of economics. Prior to 2000, qualifying for
loan forgiveness through the IMF required meeting
a series of targets, many of which most highly
indebted countries did not meet. However, with the
support of large swaths of civil society as well as with pressure from member nations, the IMF
became more lenient with its position on loan forgiveness. Over 70,000 people descended upon
the G8 Summit in Birmingham to ensure that the debt of the 40 most indebted nations in the world
was a part of the Summit Agenda. They succeeded; the IMF loosened some of its requirements
allowing for 24 Heavily Indebted Poor Countries (HIPCs) to immediately qualify for some debt
forgiveness. However, the loans forgiven by the IMF in the early 2000s make for a miniscule
portion of international loan debt. 16
Recommendations for Creating a Resolution
A committee meeting on IMF Loan Forgiveness would need to address several issues that
challenged the Fund in 2013. In particular, there is no apparatus to dispute loans made to member
countries or to examine the terms on which it was made after the loans have been agreed to and
distributed. Terms of IMF loans are often deemed onerous by the recipient member countries,
which have no choice but to accept them. 17 Alternatively, if a nation is seeking to have its loan
burden forgiven, it must also reach near impossible targets to see even a portion of their debts
forgiven. These targets include opening trade, tightening banking regulations, create a suitable
track record of reform through IMF and World Bank programs, and maintain macroeconomic
stability.
The changes that were made in 2010 and 2012 have made the Fund closer to equitable in
representation in the general body and in executive directorship, but there is more work that can
be done. For the International Monetary Fund to remain as much of global force for development

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as it has been in the 20th century, it will need reform to match the economic realities of the 21st
century- that includes making debt forgiveness a viable option for member states in need.
Delegates should consider their nations position within the IMF. As either a developed or
developing country, your countrys economic position in the global market affects its influence
and quota in the IMF. Determine if your country makes loans or takes loans. Consider how loan
forgiveness will affect your country.
When writing a resolution, delegates should consider the following points:

First, in reforming the quota system, pinpoint a level at which participation of member
states is its fullest advantage. Does that mean that every member state ends up with
equitable voting power or do you maintain a hierarchy based on economic stability? Or
should the IMF consider another system altogether?

Second, identify a way for borrowing nations to be more involved in the loan agreement
process and especially around conditionality. Can the process be fairer?

Third, consider whether or not debt forgiveness should be a greater part of IMF policy.
Looking at this option means considering the impact of debt forgiveness on both the
borrowing nations and creditors (international banks, individual national treasuries, the
World Bank etc.).
Questions to Consider

1. What is your countrys standing with the IMF? Are they a borrower or creditor of the institution?
2. What are the benefits and risks of the IMF vacating loans of lesser-developed countries?
3. Does the IMFs roots in the Bretton Woods system help or hinder its progress as an institution?
4. What are the key instruments the IMF uses to support nations in need of loans to improve their
balance of payments?
5. What are some of the reforms that the IMF has made to its quota and voting systems so far? Can
those mechanisms be improved?
6. Should wide scale debt forgiveness be a common policy of the IMF? Is it a panacea for global
development that is namely hindered by lack of economic growth in HIPCs?
7. How can the IMF safely use debt relief as part of its mandate?

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Research Guide
Start with the IMF website to gain a better understanding of the organizations history, purpose,
structure, and work:
International Monetary Funding About the IMF,
http://www.imf.org/external/about.htm
Explore these pages on how the IMF makes loans to countries:
International Monetary Fund Lending,
http://www.imf.org/external/np/exr/key/lending.htm
International Monetary Funding Factsheet: IMF Lending,
http://www.imf.org/external/np/exr/facts/howlend.htm
Read these pages to understand current challenges facing the IMF and the need for reform:
International Monetary Fund Reforming the International Financial System,
http://www.imf.org/external/np/exr/key/quotav.htm
Use this page to find your countrys interaction with the IMF, including policies, speeches, and
outstanding loans:
International Monetary Fund Countries,
http://www.imf.org/external/country/index.htm

Terms and Concepts

Quota: How much money countries are obligated to provide to the IMF. This also determines
their voting power in the IMF.
Balance of Payments: The difference between how much a country spends (for example, on
military programs and social programs) and how much a country earns (through taxes) and
borrows (through loans).
Loan Forgiveness or Debt Relief: When the IMF no longer requires a government to pay back
part or all of its debt.
Conditionality: The conditions and adjustments that governments agree to when they seek
loans from the IMF and the World Bank.
Least Developed Countries (LDC): Countries with very low incomes levels and high poverty
rates (including high levels of hunger and child mortality, and low levels of literacy and school
enrollment).

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References
1

International Monetary Fund, "History of the Fund." Last modified 2013. Accessed December 10, 2013.
http://www.imf.org/external/about/history.htm.

International Monetary Fund, "History of the Fund." Last modified 2013. Accessed December 10, 2013.
http://www.imf.org/external/about/history.htm.

International Monetary Fund, "History of the Fund." Last modified 2013. Accessed December 10, 2013.
http://www.imf.org/external/about/history.htm.

"Bad Loans Made Good." The Economist, September 29, 2005. http://www.economist.com/node/4462735
(accessed December 11, 2013).

"Bad Loans Made Good." The Economist, September 29, 2005. http://www.economist.com/node/4462735
(accessed December 11, 2013).

International Monetary Fund, "Reforming the IMF's Governance." Last modified 2013. Accessed December 12,
2013. http://www.imf.org/external/np/exr/govern/.

http://english.alarabiya.net/en/business/2013/04/20/IMF-reaches-framework-agreement-on-Tunisia-loan-.html

http://english.alarabiya.net/en/business/economy/2013/12/03/IMF-says-Tunisia-needs-urgent-reforms-.html

http://www.hurriyetdailynews.com/turkey-a-success-story-for-the-troubledimf.aspx?pageID=238&nID=47180&NewsCatID=344

10

http://www.bloomberg.com/news/2013-05-13/erdogan-s-imf-triumph-masks-surge-in-private-debt-turkeycredit.html

11

http://www.spiegel.de/international/europe/germany-remains-adamant-in-refusal-to-forgive-greek-debt-a869300.html

12

ibid

13

ibid

14

http://articles.chicagotribune.com/2013-08-01/news/sns-rt-us-imf-lagarde-greece-20130801_1_debt-relief-greekdebt-further-measures-and-assistance

15

http://articles.chicagotribune.com/2013-10-08/opinion/ct-edit-greece-20131009_1_greek-debt-third-bailout-debtrelief

16

http://www.moyak.com/papers/third-world-debt-forgiveness.html

17

International Monetary Fund, "IMF Board Approves Far-Reaching Governance Reforms." Last modified 2013.
Accessed December 11, 2013. http://www.imf.org/external/pubs/ft/survey/so/2010/NEW110510B.htm.

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