International Monetary Fund Was Created in 1945

International Monetary Fund was created in 1945 with the purpose of facilitating trade, improving capital flows, controlling exchange rates and basically helping Europe reconstruct its economy after the devastation of the Second World War. However over the decades, the role expanded and changed considerably as IMF became a financial institution that advises countries on economic policies, acts like a development agency and also steps in during times of financial crisis to maintain and reestablish order. In this way IMF has been doing something which is not consistent with its original role as mandated by the Articles of Agreement of 1944.

With the end of the Bretton Woods era, IMF's role expanded considerably and it has now become the main economic regulations body of the United Nations. It plays an important in regulating world economies by offering members advice on the issues of monetary and fiscal significance. Though often seen in a negative light by the developing countries, IMF has played a critical role in stabilizing and improving the financial health of many world economies in crisis. The work of IMF is closely tied to the aid given by the World Bank and this is where the conflict arises. IMF would often ask the member countries to follow its advice or forget about the aid.

Conditionality is seen as central to IMF lending, meant to assure a borrowing country that if it takes certain well-specified actions, continued financing will be forthcoming. It is thus seen as following the country to invest in longer term policy adjustment by assuring them that if they do so, IMF financing will not cut off. (Ranis et al., 2006, p. 53)

This has been a major bone of contention and has given a negative shade to the role and functions of IMF. IMF itself has now become an aid agency, a role inconsistent with the original responsibilities assigned to it. Originally it was only allowed to lend small loans to member countries in order to correct any problems in the balance of payments statement. However over the years, this role expanded to the extent that IMF itself has become a major source of aid to many countries in crisis. Peet (2003) writes:

Today IMF policies directly affect the economies of 184 countries and influence, sometimes drastically and often disastrously, the lives of the vast majority of the world's people. Today the IMF is probably the single most powerful non-state (governance) institution in the world. Publicly, governments have to praise the IMF, while complaining privately about the policies imposed on them. By contrast, workers and students demonstrate against the IMF, in many cases losing their lives in the process (p.56).

There are many ways in which IMF can control and regulate world economies. Its role is more pronounced in the developing world where financial system is often in crisis. IMF would focus on such important issues as lending and borrowing in the country, taxation, interest rates and government spending for improvement of business activity. IMF would form economic policies that it expects the member countries to follow in order for them to qualify for aid. But over the years, it has received more criticism than positive feedback for its actions and its involvement in the development world. The latest case of criticism emerged when Latin American countries declared their inability to repay IMF loans. It must be understood that loans or debt situation of developing countries is the very reason for their continuous backwardness.

The countries have been unable to repay the loan and those who are trying are giving a very big part of their GDP to debt settlement. This is permanently affecting the progress and growth of developing countries and hence IMF has come under fire for its role in regulating world economies. IMF has become so powerful that many believe that it no longer is accountable to any agency for its activities. Power without accountability only tends to corrupt as former World Bank director Sitgtliz (2002) notes: