US Edition 
What is the IMF?
The International Monetary Fund has become the latest forecasting body to slash its growth outlook for the UK this year in the wake of the austerity cuts. Here, we look at how the IMF was formed and what it has done for global economics.
During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts proved to be self-defeating. World trade declined sharply, and employment and living standards plummeted in many countries.
This breakdown in international monetary cooperation led the IMF's founders to plan an institution charged with overseeing the international monetary system - the system of exchange rates and international payments that enables countries and their citizens to buy goods and services from each other. The new global entity would ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade.
The IMF was conceived in July 1944, when representatives of 45 countries meeting in the town of Bretton Woods, New Hampshire, US, agreed on a framework for international economic cooperation, to be established after the Second World War. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression (pictured).
The IMF came into formal existence in December 1945, when its first 29 member countries signed its Articles of Agreement. It began operations on March 1, 1947. Later that year, France became the first country to borrow from the IMF.
The IMF's membership began to expand in the late 1950s and during the 1960s as many African countries became independent and applied for membership. But the Cold War limited the Fund's membership, with most countries in the Soviet sphere of influence not joining.
The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (the value of their currencies in terms of the US dollar and, in the case of the US, the value of the dollar in terms of gold) pegged at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement. This par value system - also known as the Bretton Woods system - prevailed until 1971, when the US government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold.
The oil shocks of the 1970s, which forced many oil-importing countries to borrow from commercial banks, and the interest rate increases in industrial countries trying to control inflation led to an international debt crisis. When a crisis broke out in Mexico in 1982, the IMF coordinated the global response, even engaging the commercial banks. It realised that nobody would benefit if country after country failed to repay its debts.
The fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991 enabled the IMF to become a (nearly) universal institution. In three years, membership increased from 152 countries to 172, the most rapid increase since the influx of African members in the 1960s.
In order to fulfill its new responsibilities, the IMF's staff expanded by nearly 30pc in six years. The Executive Board increased from 22 seats to 24 to accommodate Directors from Russia and Switzerland, and some existing Directors saw their constituencies expand by several countries.
During the 1990s, the IMF worked closely with the World Bank to alleviate the debt burdens of poor countries.
For most of the first decade of the 21st century, international capital flows fueled a global expansion that enabled many countries to repay money they had borrowed from the IMF and other official creditors and to accumulate foreign exchange reserves.
The global economic crisis that began with the collapse of mortgage lending in the US in 2007, and spread around the world in 2008 was preceded by large imbalances in global capital flows. The international community recognized that the IMF’s financial resources were as important as ever and were likely to be stretched thin before the crisis was over. With broad support from creditor countries, the Fund’s lending capacity was tripled to around $750bn. To use those funds effectively, the IMF overhauled its lending policies, including by creating a flexible credit line for countries with strong economic fundamentals and a track record of successful policy implementation.
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