The International Monetary Fund today enters its eightieth year of operation. It began its financial operations on March 1, 1947, although the decision to establish it was made back in July 1944, and it was founded on December 27, 1945.
The IMF and the International Bank for Reconstruction and Development (later the World Bank) are the cornerstones of the Bretton Woods system. The rules of the post-war monetary order were agreed upon at this American resort.
Establishment and Abolition of the Gold Standard
Member states committed to maintaining stable exchange rates of their currencies linked to the US dollar, which was convertible into gold. The IMF acted as a sort of overseer that monitored violations.
US President Richard Nixon in 1971 abolished the dollar’s link to gold, thereby dismantling the fixed exchange rate system established at Bretton Woods and initiating a period of floating currency regimes.
Global Economic Policeman
However, the IMF survived. It continued to engage in monitoring, financing, and providing technical assistance, especially to countries in crisis. It transformed from a guardian of exchange rates into an overseer of economic policies. Specifically, IMF funds would be disbursed if a country adhered to the ‘agreed’ policies of adjustment and reform. In this role, the IMF acted as a global economic policeman.
This was particularly evident during the debt crisis of the 1980s, in transition countries after 1990, during the global crisis of 2008, and later in the eurozone crisis.
The Collapse of Yugoslavia
In this region, the IMF played a significant role in the 1980s. After Tito’s death and the rise of global interest rates, Yugoslavia entered a severe debt crisis. The IMF intervened with stand-by arrangements and was then perceived as a symbol of ‘external coercion,’ although there were very few alternative options.
The key prescribed measures – fiscal austerity, wage growth restrictions, import reductions, and the devaluation of the dinar – were economically painful and politically sensitive, contributing to rising social discontent, leading to the conclusion that the IMF also contributed to the disintegration of the federation.
In independent Croatia, during the hyperinflation period (until October 1993), the IMF advocated for strict fiscal discipline and a more flexible exchange rate to aid exports, while warning about rising public spending, the costs of war reconstruction, and increasing expenditures for healthcare and the pension system.
Three Stand-By Arrangements
After 2000, Croatia entered into three stand-by arrangements with the IMF – 2001-2002, 2003-2004, and 2004-2006. All were political and reform-oriented, without financing. They related to the stabilization of fiscal policy, maintaining the stability of the external position and budget, and reducing external vulnerability, fiscal consolidation, and preparation for the EU.
After 2006, cooperation with the IMF was reduced to regular consultations and IMF recommendations. The latest recommendations date back to July 2024. It was recommended to reduce the deficit, broaden the tax base, control expenditures, strengthen financial stability, address labor shortages and low productivity, and accelerate the green transition and reforms in the public sector.
IMF Recommendations and Croatian Measures
Among specific measures mentioned are the introduction of a property tax based on value and the limitation of preferential taxation of short-term rentals, stricter monitoring of credit risks, especially in the real estate market, and increasing the supply of housing for affordability.
When these recommendations are translated into later adopted measures, it is clear that the IMF still influences economic flows and life in Croatia.
