The International Monetary Fund: What does the world’s ‘financial firefighter’ do?

This article was first published in October 2022. It was updated in April 2024.

“In a fast-changing and more turbulent world, bringing countries together to tackle challenges and pursue opportunities is more important than ever.”

So said the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva on the eve of the institution's Spring Meetings with the World Bank from 17 to 19 April.

Against a backdrop of escalating tension in the Middle East, Georgieva said the pandemic, wars and geopolitical tensions had changed the playbook for global economic relations.

But "foundational reforms" – from strengthening governance to increasing women’s participation in labour markets, and improving access to capital – could boost productivity and growth, she said.

The IMF advances its mission of promoting economic stability worldwide. Most often, this entails monitoring the economic health of countries and, when economic turmoil erupts, stepping in to provide loans and other forms of assistance to stabilize the situation and prevent the contagion of financial unrest.

Speaking to the World Economic Forum's Annual Meeting in Davos in January, Georgieva urged caution around monetary policy as some central banks were still walking a tightrope between inflation and interest rates.

She echoed the sentiment ahead of the Spring Meetings, saying: "Where necessary, policymakers must resist calls for early interest rate cuts. Premature easing could see new inflation surprises that may even necessitate a further bout of monetary tightening.”

Here's what to know about the IMF's role in the world.

The first half of the 20th century can be characterized by enormous international upheaval. Two world wars devastated Europe and parts of Asia while an unprecedented economic downturn in the 1930s caused financial pain worldwide.

Yet in the 1940s, on the heels of the Great Depression and World War II, more than 40 countries met in the US to develop a new, rules-based world order that would be facilitated by a series of international institutions. Recognizing that economic instability poses a major threat to global security, the governments created the IMF and a partner organization, the World Bank.

The IMF, which is based in Washington, DC, began operating in 1944 with 44 member countries. In the subsequent decades, the IMF would step into several crises, providing loans and mandated financial adjustment plans in efforts to restore financial stability and prevent the spread of economic turbulence. Such crises include the OPEC oil embargo in the 1970s, the collapse of the Soviet Union in the 1990s, the Asian financial crisis in 1997 and the COVID-19 pandemic in 2020, to name a few.

Today, the IMF has 190 member countries. Each government contributes to the financing of the International Monetary Fund through a quota system that is based on a country's relative size in the global economy. The IMF can also boost funding through multilateral and bilateral borrowing programmes. The organization consists of a Board of Governors and is led by a 24-member Executive Board, which is headed by a managing director. By tradition, the managing director has always been European; many, however, are pushing to end this practice.

In the early decade of the IMF, the organization was focused on monitoring and facilitating the world’s monetary system. This largely entailed managing exchange rates and international payment systems. In the early 1970s, however, the global system of fixed exchange rates dissolved after the US government suspended the US dollar’s convertibility into gold. Since then, countries have been allowed to freely establish exchange rates, with many governments maintaining free-floating currencies.

The shift in global monetary policy also shifted the IMF’s role. In more recent decades, the organization has increased its role as an international lender, stepping in to provide funding to stabilize debt-ridden countries and support development projects. Given its focus on economic crises, the IMF is often referred to as the world’s “financial firefighter”.

First, the IMF tries to promote financial stability through surveillance mechanisms. This entails the monitoring of debt levels, fiscal policies and overall economic health in member countries. It can provide policy advice to governments or regional blocs. In 2022, for instance, the IMF urged El Salvador to suspend its use of Bitcoin as a legal tender.

When economic crises do occur, the IMF often steps in to provide loans to unstable governments. In 2010, for example, Greece – like several other eurozone countries – was faced with soaring debt and a deteriorating economic situation. Over the next several years, the IMF and European Union financial institutions would provide several loans to Greece that totalled roughly $298 billion.

Other noteworthy IMF loans include $50 billion to support Mexico in the 1990s, $37 billion provided to help stabilize the Middle East during the Arab Spring in the 2010s and a record-breaking $57 billion to Argentina in 2018.

IMF loans are often accompanied by mandated economic reforms. These conditions can include controversial adjustments like fiscal austerity measures, privatization and interest rate hikes. Many of the mandated reforms have been criticized, with detractors arguing that the conditions can harm the public and are not fair to developing countries. For instance, in April 2022, Oxfam called on the IMF to suspend austerity requirements, which included measures like tax hikes, for countries that received loans during COVID-19.

Aside from loans, the IMF also provides technical assistance to countries in economic distress. This includes the sharing of best practices for finance ministries, central banks and tax authorities.