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The IMF is expecting a challenging time ahead amid signs of a global slowdown

Transcript

With signs of a slowdown, it's a tough time for the International Monetary Fund and its 190 member countries. Planet Money's The Indicator explains what the IMF is and what it does.

A MARTINEZ, HOST:

The International Monetary Fund - or IMF - is bracing for a challenging time amid signs of a global slowdown. The organization and its almost 200 member countries have been meeting in Washington this week to address this uncertainty. But what does the IMF do exactly? Adrian Ma and Paddy Hirsch from our daily economics podcast the Indicator explain.

PADDY HIRSCH, BYLINE: The International Monetary Fund is a bit like one of those old pieces of furniture that you've had in your family for ages. You know, it was in your grandma's house. And then it was in your mom's house. And now it's in your house. And it's a great piece, but you don't really know that much about it.

ADRIAN MA, BYLINE: The IMF has been part of the furniture since 1944.

REX GHOSH: Originally, it was a kind of regulatory sort of body that would police the system...

HIRSCH: This is Rex Ghosh. He's the official historian of the IMF.

GHOSH: ...To make sure everyone played by the rules of the game.

MA: The game, of course, was the international financial system. And the IMF was basically given three tasks to sort of police this system. First, it had to monitor the health of member countries. Second, it had to provide training and technical assistance. And finally, it was supposed to lend money to countries when they needed it.

HIRSCH: But the most important role envisioned by the IMF's founders was the monitoring function. Every year, the IMF visits every one of its member nations. Daniel Bradlow is a professor in the Centre for Human Rights at the University of Pretoria in South Africa. He says these so-called Article IV visits are a bit like an annual physical.

DANIEL BRADLOW: If you think of it in terms of health, they'd say, maybe you need to change your diet, start exercising more. And that's - improves your health. And that's sort of what the IMF likes to think it's doing.

MA: And to maybe stretch the metaphor a little more, the money that the IMF gives out is kind of like medicine, the good medicine, that is. But it's contingent on countries following doctor's orders.

BRADLOW: The IMF is not a project lender. When the IMF gives money to a country, it goes just into the budget of the government. And it can be used for almost any purpose.

HIRSCH: Of course, just like a needy student who gets a big birthday check from an overbearing aunt, if a country wants to come back to the well for more IMF money down the line, it would be well-advised to follow the IMF's policies.

GHOSH: Countries only come to the fund when they have an external deficit or debt problem. And so almost by definition, they're going to have to do, if you like, austerity policies.

MA: Basically, we're talking about slashing budgets, yanking subsidies, cutting spending. This philosophy of deploying austerity as a response to economic crises has given the IMF kind of a bad name in the past.

HIRSCH: Austerity isn't the only reason the IMF is a somewhat controversial organization. It's been accused of bias, of a lack of transparency, of undermining democracy and of charging interest rates that only exacerbate the troubles of borrower countries. But Daniel says the organization is changing.

BRADLOW: It's recognized that its policies from the 1980s and 1990s has had very devastating and negative effects in many countries, particularly in Africa.

MA: The IMF was designed to keep the global financial system spinning on its axis. But you can kind of see why this is kind of a mission impossible. The organization has to make controversial decisions about which of almost 200 member countries it's going to lend to, and how much money they're going to get and under what conditions.

HIRSCH: But it's been 78 years now. The global financial system is still spinning. And the IMF is still part of the furniture. So I guess it must be doing something right.

MA: Adrian Ma.

HIRSCH: Paddy Hirsch, NPR News.