What is the IMF? The International Monetary Fund explained

The IMF, or International Monetary Fund, is an organization of 191 member countries that pools money from its members and lends it to those that run short of foreign currency, usually in a crisis, on condition that they change their economic policies. It also monitors every member's economy and the world's, and advises governments. It was created at the Bretton Woods conference in 1944 and is based in Washington, DC. It is not a bank for development projects; that is the World Bank.

In short

• The IMF is a crisis lender of last resort for governments: it lends when a country can't pay for its imports or debts in foreign currency.
• Each member pays in a quota, which sets its votes and how much it can borrow; the United States holds enough votes to block major decisions.
• Its loans come with conditions, which supporters see as the price of stability and critics as austerity imposed from outside.

Why was the IMF created?

Because the 1930s showed what happens without one. During the Great Depression, countries devalued their currencies and raised tariffs to grab trade from each other, and world trade shrank. In July 1944, delegates from 44 countries met at Bretton Woods, New Hampshire, to design a postwar system that would prevent a repeat. According to the IMF's own summary, the aim was to stop the competitive devaluations that had worsened the Depression. The same conference also created the bank that became the World Bank.

Under the Bretton Woods system, currencies were pegged to the US dollar, and the dollar to gold, a story told in the reserve currency note. A country with a temporary shortage of foreign currency could borrow from the IMF instead of devaluing or cutting imports. When fixed exchange rates broke down between 1971 and 1973, the IMF stayed and its role shifted: it became the lender countries turn to in debt and currency crises, from Mexico in 1982 to Asia in 1997 to Greece in 2010.

What does the IMF actually do?

It has three main jobs, and only one of them is lending.

• Surveillance. IMF staff visit each member, usually once a year, and publish an assessment of its economy and policies, known as an Article IV consultation. The IMF also publishes world forecasts, such as the World Economic Outlook, which other notes in this library use for figures like GDP and national debt.
• Lending. Loans to members with a balance of payments problem: not enough foreign currency to pay for imports or to service foreign debts.
• Capacity development. Technical help and training, for example on running a tax office or a central bank.

It also issues a reserve asset called the Special Drawing Right, or SDR, whose value is set by a basket of five major currencies. Members can swap SDRs among themselves for currencies. Total allocations stood at about SDR 204.2 billion, about $293 billion, when the IMF last updated its factsheet in April 2025.

How do quotas and votes work?

Every member pays in a quota, sized roughly to its weight in the world economy. The quota is the IMF's version of a membership share: it sets how much a country pays in, how many votes it has, and how much it can borrow. Quotas are the IMF's main source of money, backed by borrowing arrangements with members worth hundreds of billions of dollars more.

Votes follow quotas, plus a small number of basic votes every member gets. Big decisions, including any change in quotas, need 85% of the total voting power. The United States has held about 16.5% of the votes since the last reform of quotas and votes took effect in 2016, more than the 15% needed to block those decisions on its own; no other country can. In December 2023 the members approved a 50% increase in quotas, which takes effect only once enough members consent to their increases. By a long-standing informal deal, the IMF's managing director has always been European and the World Bank's president American.

How does an IMF loan work? Korea in 1997

The steps are set out in the IMF's lending factsheet, and South Korea's loan in the 1997 Asian financial crisis shows them with real numbers.

1. The crisis. In late 1997, foreign lenders stopped rolling over Korea's short-term loans, highly indebted conglomerates were going bankrupt, and the won fell sharply. Korea was running out of the dollars it needed to pay its foreign debts.
2. The request and negotiation. Korea asked for help. IMF staff and the government agreed a program, set out in a letter of intent from the government.
3. Approval. On 4 December 1997, the IMF's Executive Board approved a three-year loan of SDR 15.5 billion, about $21 billion. Korea's quota was SDR 799.6 million, so the loan was 1,939% of its quota, far beyond normal limits, under emergency procedures.
4. Money in installments. SDR 4.1 billion, about $5.6 billion, was available at once; SDR 2.6 billion more after a first review on 18 December; SDR 1.5 billion after a second review on 8 January 1998; the rest only as targets were met.
5. The conditions. Korea agreed to raise interest rates sharply, tighten its budget by about 1.5% of GDP in 1998, restructure and recapitalize its banks, and rely less on short-term foreign debt.
6. Repayment. IMF loans are repaid over a few years, with interest set at the SDR interest rate plus a margin, and surcharges on very large loans. Korea finished repaying in 2001, ahead of schedule.

Every program follows that pattern: money released in tranches, each tied to conditions such as actions taken before approval, numerical targets for reserves or the budget deficit, and structural reforms, all checked at regular reviews. The IMF's stated aim is to make sure the country can repay, so the money is there for the next member that needs it.

IMF vs World Bank

The two were born at the same conference and sit across the street from each other in Washington, which is why they are easy to confuse.

	IMF	World Bank
Main job	Keep the international monetary system stable; help countries through currency and debt crises	Reduce poverty and fund long-term development
What it lends for	A country's overall balance of payments, usually over a few years	Specific projects and programs, such as roads, schools and power, often over decades
Who it lends to	Any member in difficulty, rich or poor	Mainly developing countries
What else it does	Monitors every member's economy and publishes world forecasts	Research, data and advice on development
Who leads it	By convention, a European	By convention, an American

What are the main criticisms?

The criticism heard most often is austerity. Conditions that cut budgets and raise interest rates in a slump can deepen it, critics say, and fall hardest on the poor; the 1997 Asian programs and the Greek program from 2010 are the usual examples. The IMF's own economists have conceded part of this. In 2013, Olivier Blanchard and Daniel Leigh found that forecasters had underestimated how much budget cuts would shrink advanced economies, most of them in Europe, early in the crisis that began in 2008. In 2016, three economists in its research department wrote that the short-run costs of cutting deficits "have been underplayed."

The second is power. Votes follow economic weight, so the United States and Europe hold much of the say, and large emerging economies have long argued their share is too small; the 2010 reforms that shifted some votes toward them took until 2016 to come into force, waiting on the US Congress.

Still argued

Economists and governments disagree about how far the IMF's conditions help or harm. Defenders, including the IMF, argue that a country in crisis has to adjust either way, that IMF money makes the adjustment slower and less painful than it would be without a lender, and that conditions protect the money of all members. Critics on the left argue the conditions impose spending cuts and market reforms that hurt the poor and override elected governments. Critics on the right argue that bailouts reward reckless borrowers and their lenders, encouraging the next crisis. The evidence varies by program, and the IMF has softened some of its practices since the 2000s. This note explains; it isn't financial advice.

The IMF is a specialized agency of the United Nations, but it runs independently, with its own members, money and votes. For the ideas underneath, start with what economics is.

Check yourself

• Explain what a balance of payments problem is and why an IMF loan helps with it.
• How do quotas link what a country pays in, how many votes it has and how much it can borrow?
• Walk through Korea's 1997 loan from request to repayment, and say why it was paid out in installments.

Sources

• IMF at a Glance — International Monetary Fund, 2025
• IMF Quotas — International Monetary Fund
• IMF Lending — International Monetary Fund, 2025
• IMF Approves SDR 15.5 Billion Stand-by Credit for Korea — International Monetary Fund, 1997
• Neoliberalism: Oversold? — Jonathan D. Ostry, Prakash Loungani and Davide Furceri, IMF Finance and Development, 2016
• History of the World Bank — World Bank