The International Monetary Fund (IMF) is a global financial institution that provides financial support to countries in crisis. Its role is to help restore economic stability and growth after a shock or crisis. The IMF has 190 members and its headquarters are located in Washington, DC, United States. India is a founder member of IMF.
The IMF typically summons a country, its 190 members as of 2023, to a “bailout” when the country’s economy is deteriorating rapidly and it can no longer finance imports or pay off debts to creditors. The fund offers the country a loan, or a program of loans and policies to boost economic recovery, if the government agrees to certain conditions.
Those conditions include policies such as balancing budgets, cutting welfare spending and privatizing state enterprises. Critics say those conditions are harsh and may impose unpalatable trade-offs on the population. They also say that the IMF’s conditions often do not address structural problems such as weak productivity and high inequality, and that the fund is influenced by geopolitics.
The IMF’s financial model is based on pooling resources from its creditor members, who give it an interest-bearing claim in their foreign currency reserves. For example, for every dollar the US makes available for IMF lending, it leverages four dollars from other creditor members. This enables the IMF to provide its borrowers with reasonable financing rates that are far lower than those they would face in international capital markets.