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international monetary fund

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Transcript of "international monetary fund"

  1. 1. INTERNATIONALMONETARY FUND(IMF)
  2. 2. IMF or International Monetary Fund was established way back in 1944 with avision to improve as well as stabilize world economy. Keeping in mind theeconomic crisis that the world has experienced during the Great Depressionand World War II, the representatives of 45 countries assembled in BrettonWoods, New Hampshire in the United States to create a new economicframework to avoid such crisis in future. The International Monetary Fund was established by an internationaltreaty in 1945 to help promote the health of the world economy. Headquarteredin Washington,D.C.,it is governed by its almost global membership of 184countries. The IMF is the central institution of the international monetary system-the system of international payments ands exchange rates among nationalcurrencies that enable business to take place between countries.
  3. 3. The Origins of the IMFThe new monetary system initiated at the conference became knownas Bretton Wood system. International Monetary Fund, the brainchild of this conference came into being in July, 1944, and started itsoperation in 1947 with the membership of 30 countries. ThoughBretton Wood system collapsed, IMF is still instrumental in carryingout its financial operation, and is headquartered in Washington, D.C.,USA.
  4. 4. OBJECTIVES OF IMF (PURPOSES)International Monetary Fund (IMF) is an international financial institution thatpromotes economic cooperation among the member countries for ensuringrapid economic development throughout the world. The purposes of theInternational Monetary Fund are: 1.To promote international monetary cooperation through a a permanentinstitution which provide the machinery for consultation and collaboration oninternational monetary problems.2. Another important objective is the expansion of global trade, which in turnwill not only promote high level of employment and income, but would also beable to sustain it. IMF also intends to promote international trade by removingforeign exchange restrictions. It aims at maintaining balanced growth of theworld economy. 3.To provide confidence to members by making general resources of the Fundtemporarily available to them under adequate safeguards, thus providing themwith an opportunity to correct maladjustments in their balance of paymentswithout resorting to measures destructive of national or international prosperity.
  5. 5. INTERNATIONAL MONETARY FUND ORGANISATION CHARTInternational Joint IMF-WorldMonetary and Board of Bank DevelopmentFinancial Governors Committee1Committee Independent Executive Evaluation Office Board MANAGING DIRECTOR Investment Office- Office of Deputy Managing Staff Retirement Office of Budget & Internal Audit Directors Plan and Inspection Planning
  6. 6. Organization of IMFThe IMF is accountable to its member countries, and thisaccountability is essential to its effectiveness. The day-to-day work of the IMF is carried out by an Executiveboard, representing the IMF’s 184 members, and an internationallyrecruited staff under the leadership of a Managing Director andthree Deputy Managing Directors – each member of thismanagement team being drawn from a different region of the world.The powers of the Executive Board to conduct the business of theIMF are delegated to it by the Board of Governors, which ultimateoversight rests.
  7. 7. Board of GovernorsThe Board of Governors are represented by all membercountries and it is the highest authority governing theIMF . It usually meets once a year, at the AnnualMeetings of the IMF and the World Bank. Eachmember country appoints a Governor – usually thecountry’s minister of finance or the governor of itscentral bank – and an Alternative Governor. The Boardof Governors decides on major policy issues but hasdelegated day-to-day decision-making to the ExecutiveBoard.
  8. 8. Executive BoardIt consists of 24 Executive Directors, with theManaging Director as Chairman. The Executive Boardusually meets three times a week, in full-day sessions,and more often if needed, at the organization’sheadquarters in Washington, D.C. The IMF’s fivelargest shareholders-the United States, Japan,Germany, France, and the United Kingdom-along withChina, Russia, and Saudi Arabia, have their own seatson the Board. The other 16 Executive Directors areelected for two-year terms by groups of countries ,known as constituencies.
  9. 9. Managing DirectorThe Executive Board selects the Managing Director, who besides serving asthe chairman of the Board, is the chief of the IMF staff and conducts thebusiness of the IMF under direction of the Executive Board. Appointed for arenewable five-year term, the Managing Director is assisted by a First DeputyManaging Director and two other Deputy Managing Directors. IMF employees are international civil servants whose responsibility is to theIMF, not to the national authorities. The organization has about 2,800employees recruited from 141 countries. About two-third of their professionalstaff are economists. The IMF maintains offices in Paris and Tokyo forliaison with other international and regional institution, and withorganizations of civil society. It also has offices in New York and Geneva,mainly for liaison with other institutions in the UN system.
  10. 10. Key IMF activitiesThe IMF supports its membership by providingpolicy advice to governments and central banks based onanalysis of economic trends and cross-country experiences;research, statistics, forecasts, and analysis based on trackingof global, regional, and individual economies and markets;loans to help countries overcome economic difficulties;concessional loans to help fight poverty in developingcountries; andtechnical assistance and training to help countries improve themanagement of their economies.
  11. 11. Financing of theIMFThe IMF’s resources come mainly from the quota (or capita) subscriptionthat countries pay when they join the IMF, or following periodic reviews inwhich quotas are increased. Countries pay 25% of their quota subscriptionin Special Drawing Rights (SDR’s) or major currencies, such as U.S. dollarsor Japanese yen; the IMF can call the remainder, payable in the member’sown currency, to be made available for lending as needed. Quotasdetermine not only a country’s subscription payments, but also the amountof financing that it can receive from IMF, and its share in SDR allocations.Quota also are the main determinant of countries’ voting power in the IMF. Quotas are intended broadly to reflect members’ relative size in theworld economy: the larger a country’s economy in terms of output, and thelarger and more variable its trade, the higher its quota tends to be.
  12. 12. Cont………..Example: The United States of America, theworld’s largest economy, contributes most tothe IMF, 17.5% of the total quotas; palau, theworld’s smallest, contributes 0.001% . Ifnecessary, the IMF may borrow tosupplement the resources available from thequotas .
  13. 13. Determination of Member Country’s QuotaA member quota is broadly determined by its economic position relative toother members . When a country joins the IMF , it is assigned an initialquota in the same range as the quotas of existing members considered bythe IMF to be broadly comparable in economic size and characteristics.Quotas are denominated in Special Drawing Rights (SDR’s).Functions of QuotasA member’s quota delineates basic aspect of its financial and organizationalrelationship with the IMF, including:1. Subscriptions: A member’s quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF.A member must pay its subscription in full upon joining the Fund; 25 % must be paid in SDRs or widely accepted currencies (such as US dollar, the euro, the yen, or the pound sterling), while the rest paid in the member’s own currencies .
  14. 14. Cont…………2. Voting power: The quota largely determines a member’s voting powerin IMF decisions. Each IMF member has 250 basic votes plus oneadditional vote for each SDR 100,000 of quota.Example: Accordingly, the United States has 371,743 votes(17.1% of thetotal) and Palau has 281 votes (0.013% of the total)3. Access to Financing: The amount of financing a member can obtainfrom the IMF (its access limit) is based on its quota.4. SDR allocation : A member share of the general SDR allocationsestablished in proportion to its quota.
  15. 15. Role of IMF in serving its Members 1.Advice in Policies and Global oversight: The IMF’s Articles of Agreement calls for it to oversee the international monetary system, including by exercising firm ―surveillance‖ – that is , overlooking – over its member countries’ exchange rate policies. It conducts three ways: (a) Country surveillance (b) Global surveillance (c) Regional surveillance2.Lending to Help Countries in Difficulty: The IMF lends foreign exchange tocountries with balance of payment problems.3. Technical Assistance and Training: The IMF shares its expertise withmember countries on a regular basis by providing technical assistanceand training in a wide range of areas.4. Reducing Debt Burdens: In 1996, the world bank and the IMFunveiled the HIPC initiative to reduce the debt burdens of the world’spoorest countries.
  16. 16. Criticism of IMFIt is said that IMF policy makers supportcapitalist dictatorship, and is friendly toAmerican and European corporations. TheIMF frequently advocates currencydevaluations, criticized by proponents ofsupply – side economics as inflationary .Secondly, they link higher taxes under―austerity program’s ― with economiccontraction.
  17. 17. Relationship Between IMF AndIndia India & IMF Relations: India joined International Monetary Fund (IMF) on 27 December, 1945. The relationship between India and the IMF dates back to the time when India needed economic reform packages to strengthen its international reputation and fiscal policy. It is among one of the developing economies that effectively employed the various Fund programmes to fortify its fiscal structure. Through productive engagement with the IMF, India formulated a consistent approach to expand domestic and global assistance for economic reforms. Whenever India underwent balance of payments crises, it sought the help of IMF and in turn the internationally recognized reserve willingly helped India to overcome the difficulties.
  18. 18. The Current RelationshipBetween IMF and IndiaThe relationship between the IMF and Indiahas grown strong over the years. In fact thecountry has turned into a creditor to the IMFand has stopped taking loans from it. Indiaand IMF must continue to boost theirrelationship this way, as it will prove to beadvantageous for both.
  19. 19. International Bank For Reconstruction and Development (World Bank)The world bank is one of the world’s largest sources of finance and knowledgeto its member countries to improve the condition of health centers, providewater and electricity , fight disease , and protect the environment. In June 1994, 17 countries met in Atlantic City, USA to prepare the agendafor the Bretton Woods Conference, and 44 countries which signed the finalagreement established the bank. India was one of the 17 countries and one ofthe 44 countries which signed the agreement. It was India which suggested thename ―International Bank For Reconstruction and Development‖ (IBRD) to thedrafting committee . The India delegation was led by Sir Jeremy Raisman,Finance Member of the GOVT. of India and included Sir C.D. Deshmukh , SirTheodore Gregory , Sir R.K. Shanmugan Chetty, Mr. A.D. Shroff and Mr. B.K.Madan. Besides , it also has three affiliates named : 1. The International Finance Corporation ( IFC) . 2. The International Centre For Settlement of Investment Disputes (ICSID). 3. The Multilateral Investment Guarantee Agency (MIGA).
  20. 20. IBRDThe IBRD is the main lending organization of the World Bank Groupand, like its sister institution, the International Monetary Fund (IMF),was born of the Allies realization during World War II thattremendous difficulties in reconstruction and development would facethem in the postwar transition period, necessitating internationaleconomic and financial cooperation on a vast scale. The IBRD,frequently called the "World Bank," was conceived in July 1944 at theUnited Nations Monetary and Financial Conference in BrettonWoods, New Hampshire, US.
  21. 21. IBRD (World Bank)All five of these institutions together make up the World Bank Group. Totalmember countries in each institutions : 1. The International Bank for Reconstruction and Development (IBRD) = 184 2. The International Development Association(IDA) = 165 3. The International Finance Corporation (IFC) = 178 4. The Multilateral Investment Guarantee Agency (MIGA) = 167 5. The International Centre For Settlement Of Investment Disputes (ICSID) =142
  22. 22. Purpose of Organization UNBALANCEDCOMMON LOGO SCALEAlthough one of the Banks early functions was to assist in bringing about asmooth transition from wartime to peaceful economies, economic developmentsoon became the Banks main object. Today, the goal of the World Bank is topromote economic development that benefits poor people in developingcountries. Loans are provided to developing countries to help reduce povertyand to finance investments that contribute to economic growth. Investmentsinclude roads, power plants, schools, and irrigation networks, as well asactivities like agricultural extension services, training for teachers, andnutrition-improvement programs for children and pregnant women. SomeWorld Bank loans finance changes in the structure of countries economies tomake them more stable, efficient, and market oriented. The World Bank alsoprovides technical assistance to help governments make specific sectors oftheir economies more efficient and more relevant to national developmentgoals
  23. 23. Organization of World Bank (Structure)Board of Governors :All powers of the Bank are vested in its Board of Governors, composed of one governor andone alternate from each member state. Ministers of Finance, central bank presidents, orpersons of comparable status usually represent member states on the Banks Board ofGovernors. The board meets annually.The Bank is organized somewhat like a corporation. According to an agreed-upon formula,member countries subscribe to shares of the Banks capital stock. Each governor is entitledto cast 250 votes plus 1 vote for each share of capital stock subscribed by his country.Executive DirectorsThe Banks Board of Governors has delegated most of its authority to 24 executivedirectors. According to the Articles of Agreement, each of the five largest shareholders—the United States, Japan, Germany, France and the United Kingdom—appoints oneexecutive director. The other countries are grouped in 19 constituencies, each representedby an executive director who is elected by a group of countries. The number of countrieseach of these 19 directors represents varies widely. For example, the executive directorsfor China, the Russian Federation, and Saudi Arabia represent one country each, whileone director speaks for 24 Francophone African countries and another director represents22 mainly English-speaking African countries.
  24. 24. Cont…….President and StaffThe president of the Bank, elected by the executive directors, is also their chairman,although he is not entitled to a vote, except in case of an equal division. Subject to theirgeneral direction, the president is responsible for the conduct of the ordinary business ofthe Bank. Action on Bank loans is initiated by the president and the staff of the Bank. Theamount, terms, and conditions of a loan are recommended by the president to theexecutive directors, and the loan is made if his recommendation is approved by them.According to an informal agreement, the president of the Bank is a US national, and themanaging director of the IMF is a European. The presidents initial term is for five years; asecond term can be five years or less. Past presidents of the Bank include Robert S.McNamara (1968–81), A. W. Clausen (1981–86), Barber B. Conable (1986–91), andLewis T. Preston (1991–95). James D. Wolfensohn became president on 1 June 1995.On September 27, 1999, Mr. Wolfensohn was unanimously reappointed by the BanksBoard of Executive Directors to a second five-year term as president beginning June 1,2000. He is the third president in World Bank history to serve a second term. He heads astaff of more than 8,000 persons from over 130 countries.The IBRDs headquarters are at 1818 H Street, N.W., Washington, DC 20433 .
  25. 25. Basics Facts about WorldBankEstablished on: July, 1944,BrettonWoods, New HampshireHeadquarters: Washington DCPresident : Paul WolfowitzMembership: 184Affiliates: IDA, IFC, MIGA, ICSID
  26. 26. Budget :A total administrative budget of US $1,924 million wasapproved for fiscal year 2002 .
  27. 27. ActivitiesA. FUND GENERATION: IBRD finance by selling AAA-rated bonds in the world’s financial markets . While IBRD earns a small margin on this lending, the greater proportion of its income comes from lending out its own capital. The capital consists of reserves built up over the years and money paid in the bank’s 184 member country shareholder. Additional funds are regenerated through repayments of loan principal on 35- to- 45 year, no interest loans, which are then available for relending. IDA accounts for nearly 40 %of our lending.B. LOANS: IBRD offers two basic types of loans and credits.Investment loans are made to countries for goods, works and services in support of economic and social development projects in a broad range of economic and social sectors.Development policy loans provide quick-disbursing financing to support countries’ policy and institutional reforms. The Bank may guarantee, participate in, or make loans to any member or any political sub-division thereof and any business, industrial, and agricultural enterprise in the territories of a member.
  28. 28. C. GRANTS: Grants are given for development projects by encouraginginnovation, co-operation between organization and local stakeholders’participation in projects. In recent years, grants have been used for numerouspurposes . Some of them are:1.Relieve the debt burden of heavily indebted poor countries.2. Improve sanitation and water supplies.3. Support civil society organization.D. ANALYTIC AND ADVISORY SERVICES: IBRD also provides analysis,advice and information to member countries. IBRD has a big knowledge bankwhich contains wealth of contacts, knowledge , information and experience thatit has acquired over the years, country by country, and project by project. Following are some ways through which it provides analyses, advice andknowledge to members:1. Sector Reports2. Poverty Assessment3. Knowledge Sharing4. Public Expenditure Review
  29. 29. International Development Association(IDA)The IDA is the soft loan section of the World Bank established in 1960. Itsloans are different from World Bank loans in several manners. It providesconcessional loans which have maturity of up to 40 years compared with 15 to25 years maturities of IBRD. The IDA can also grant grace period of 10 yearsbefore repayment of principal or interest begins, whereas the grace period ofWorld Bank usually does not exceed 5 years.
  30. 30. International Finance Corporation (IFC) IFC was established in July 1956 to help strengthen the private sector indeveloping countries, through the provision of long term loans, equityinvestment, guarantees, risk management and quasi- equity instruments such assubordinated loans, preferred stock and income notes, through advice andtechnical assistance to business and government.
  31. 31. Multilateral Investment GuaranteeAgency(MIGA)It was established in 1988, with an objective to create an attractive investmentclimate and to encourage equity investment and other direct investment flows todeveloping countries . To promote FDI, MIGA provides three services:1. Political Risk Insurance: To promote foreign investment in developing countries.2. Technical Assistance: To promote and create conducive climate for foreign investment and to established new investment opportunity in developing countries.3. Dispute Mediation: It provides dispute mediation services to remove obstacles and to unlock bottlenecks in the way of foreign investment.
  32. 32. International Centre Of Settlement ofInvestment Disputes(ICSID)It comes into existence in 1996 with an objective to work as a facilitator insettlement of investment disputes between government and foreign investors.ICSID has an Administrative Council and Secretariat. The President of theWorld Bank is also the chairpersons of Administrative Council. All themembers of ICSID are also the member of World Bank.
  33. 33. Asian Development Banks(ADB)The ADBs equivalent of the World Bank’s concessionary – finance arm IDA iscalled the Asian Development Fund(ADF) and the Bank is known as AsianDevelopment Bank. ADBs development work is aimed at improving the welfare of thepeople of Asia and the Pacific, especially of the 690 million poor living on lessthan a dollar a day.ADB has the following objectives:1. Economic Growth2. Human Development3. Gender and Development4. Environment Protection and so on.
  34. 34. The South Asian Association for RegionalCooperation(SAARC)The South Asian Association for Regional Cooperation(SAARC) wasestablished on December 8, 1985. It involves seven states of the Indian sub-continent- Bangladesh ,Bhutan, India, Maldives, Nepal, Pakistan and SriLanka.AREAS of Cooperation: SAARC seeks cooperation in the following thrust areas:1.Energy2. Tourism3.Transport4. Women, youth and Children and so on.
  35. 35. The Association of Southeast AsianNations (ASEAN)The Association of Southeast Asian Nations (ASEAN) is a primarymultinational trade group of Asia. The goals of this group are economicintegration and cooperation through complementary industry programmes. It was established on August 8,1967 in Bangkok by the five originalmember countries, namely, Indonesia, Malaysia, Philippines , Singapore andThailand.
  36. 36. South Asian PreferentialArrangement(SAPTA)South Asian Preferential Arrangement(SAPTA) was signed by SAARCmembers on April 11, 1993 and came into force in December 1995. Theobjective of SAPTA is the creation of trade among the SAARC countriesthrough the reduction of tariffs and on preferential basis. Basic principles underlying SAPTA are:1. recognition of the special needs of the Least Developed States and agreement on concrete preferential measures in the favour ;and2. Inclusion of all products, manufactures and commodities in their raw, semi- processed and processed forms.
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