The IMF: A Quarter-Century of Change

• Pages: 252-254

Page 252

This August marks the IMF Survey's twenty-fifth anniversary. To commemorate the event, Margaret Garritsen de Vries, former Historian of the IMF, traces the main developments in the IMF's evolution in the 25 years since 1972.

The IMF Survey came into being at a time of momentous change in the international monetary system. Monetary officials, under the leadership of Managing Director Pierre-Paul Schweitzer, were trying to save the ailing par value system, whose implementation had been a central reason for the IMF's creation in 1944. A special committee of experts (the Committee of Twenty) was just being established to work out a reformed system-also, presumably, to be based on "stable but adjustable par values."

The ensuing 25 years have witnessed large changes in the international monetary system, in the rest of the world economy, and in the world itself. One crisis after another burst on the world economic scene. These crises and other changes in global economic and monetary conditions have led to evolutionary change in the IMF-affecting its functions, activities, and policies- all within the context of its basic mandate, as laid out in the IMF's Articles of Agreement.

1973: A Pivotal Year

The Committee of Twenty had barely begun to meet in March 1973 when the par value system collapsed, and floating exchange rates were instituted by some large countries, including the United States. Some observers questioned whether the IMF had outlived its usefulness; even IMF officials had some doubts about the institution's future role.

More economic turmoil was on the way. By midyear, inflation in the industrial countries had surged to several times the rates prevailing in the 1950s and 1960s, signaling the onset of double-digit inflation that persisted throughout the 1970s. Then, at year's end, oil producing countries, acting in unison as the Organization of Petroleum Exporting Countries, announced a quadrupling of oil prices, triggering sudden unprecedented disequilibria in international payments. The "oil crisis" was at hand.

The IMF's reaction to the oil crisis initiated an approach that has continued ever since. H. Johannes Witteveen took over as Managing Director in September 1973. Fearing that inflation and massive oil-related payments deficits would result in large and destabilizing swings in exchange rates-and even in competitive depreciations and a return to trade and payments restrictions on a scale reminiscent of the 1930s-the IMF set up a special, temporary facility to help channel financing to member countries with oil-related deficits. Through the oil facility, the IMF began lending quickly and on a large scale. Overall lending during 1974-78 expanded substantially, averaging SDR 3.5 billion a year, compared with SDR 808 million annually in the previous five-year period.

Under Witteveen, the IMF took on added responsibilities. With the world economy in trouble-both from inflation and much slower growth rates than the average 5-6 percent a year in the 1950s...