IMF is the intergovernmental organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rate and the balance of payments. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development through the enforcement of liberalising economic policies on other countries as a condition for loans, restructuring or aid.
IMF is a forum of national economic policies, international monetary and financial systems, which involves active dialogue with each member country. Total quotas of $312 billion; outstanding loans of $71 billion to 82 countries (According to the report of August 31, 2005). Five largest shareholders:United States, Japan, Germany, France, United Kingdom.
The IMF was created to support orderly international currency exchanges and to help nations having balance of payment problems through short term loans of cash. Its headquarters are in Washington, United States.
The International Monetary Fund was conceived in July 1944 originally with 45 members and came into existence in December 1945 when 29 countries signed the agreement IMF started to make service with IBRD in 1947. The IMF works to improve the economies of its member countries
o Promote international monetary cooperation.o Expansion and balanced growth of international trade.o Promote exchange rate stability.o The elimination of restrictions on the international flow of capital.
o Help establish multilateral system of payments and eliminate foreign exchange restrictions.o Make resources of the Fund available to memberso Shorten the duration and lessen the degree of disequilibrium in international balances of payments
o Promote international monetary cooperation, exchange stability, and orderly exchange arrangements.o Foster economic growth and high levels of employment.o Temporary financial assistance to countries to help the balance of payments adjustments
In the beginning 29member countries Today,187 memberCountries Staff of about 2680Persons
Focusing on its core macroeconomic and financial areas of responsibility. Working in a complementary fashion with other institutions established. Collection and allocation of reserves. Rendering advice to member countries on their international monetary affairs.
Promoting research in various areas of international economics and monetary economics. Providing a forum for discussion and consultation among member countries. Being in the center of competence.
Surveillance (like a doctor) Gathering data and assessing economic policies of countries. Technical Assistance (like a teacher) Strengthening human skills and institutional capacity of countries. Financial Assistance (like a banker) Lending to countries to support reforms
Monitoring economic and financial developments and policies, in member countries and at the global level, giving policy advance to its members based on its more than fifty years of experience. Lending to member countries with balance of payments problems, supporting adjustment and reform policies aimed at correcting the underlying problems. Providing the governments and central banks of its member countries with technical assistance and training in its areas of expertise.
IMF looks at the performance of the economy as a whole (macroeconomic performance) Focuses also on the financial sector policies Ex: regulation and supervision of banks and other financial institutions. Pays attention to structural policies that affect macroeconomic performance. Ex: labor market policies (affect employment and wage behavior)
… in their headquarters in Washington: The Executive Board meets three times a week, maybe more. The Board has a voting system:- The larger the economy, the more voting power it has - But, most decisions are based on consensus
Most loans are provided by member countries, determined by their quota, which is calculated based upon a country’s relative size in the world economy. For a closer look at the Member Quotas we can reference the IMF website. Upon joining, the 25% of the quota is paid in some major currency US Dollar, British Pound, Yen while the remaining 75% is paid in their own currency.
IMF can only borrow from financially strong economies to finance lending. The IMF Board selects these “strong currencies” every three months, which make up its “usable” resources.
India and the IMF has a positive relationship. The IMF has provided financial assistance to India, which has helped in boosting the countrys economy. The IMF praised the country for it was able to avoid the Asian Financial Crisis in 1999 and was also able to maintain the average rate of growth of its economy. In 2005, the IMF said that the budget of India is very positive for it points that the economy of the country will grow at the rate of 6.7%.
The Managing Director of International Monetary Fund Rodrigo De Rato visited India in May 2005. International Monetary Fund said that the reasons behind the economy growth of India are that the RBI has been able to control inflation and has also handled its monetary policies very skillfully. The IMF has suggested that India can become a financial super power by bringing in more reforms in its economic policies that will increase its growth rate to 8%.
The IMF collaborates with ◦ the World Bank, ◦ the regional development banks, ◦ the World Trade Organization, ◦ United Nations agencies, and ◦ other international bodies. Each of these institutions has its own area of responsibility and specialization and its particular contribution to make to the world economy.
I. Monitoring national, global, and regional economic and financial developments and advising member countries on their economic policies (“surveillance”).II. Lending members hard currencies to support policy programs designed to correct balance of payments problems.III. Offering technical assistance in its areas of expertise, as well as training for government and central bank officials.
Bretton woods system The Bretton Woods system of monetary management established the rules for commercial and financial relations among the worlds industrial states. independent nation-states. Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.
The SDR, or Special Drawing Rights, is an international reserve asset that member countries can add to their foreign currency and gold reserves and use for payments requiring foreign exchange. Its value is set daily using a basket of four major currencies: the euro, Japanese yen, pound sterling, and U.S. dollar. The IMF introduced the SDR in 1969 because of concern that the stock and prospective growth of international reserves might not be sufficient to support the expansion of world trade. (The main reserve assets at the time were gold and U.S. dollars.)
The SDR was introduced as a supplementary reserve asset, which the IMF could "allocate" periodically to members when the need arose, and cancel, as necessary. IMF member countries may use SDRs in transactions among themselves, with 16 "institutional" holders of SDRs, and with the IMF. The SDR is also the IMFs unit of account. A number of other international and regional organizations and international conventions use it as a unit of account, or as the basis for a unit of account.
Most comes from the quota subscriptions ◦ the money each member contributes when joining the IMF General Arrangements to Borrow (1962) ◦ line of credit set up with several governments and banks throughout the world
A country that had not taken in enough foreign currency to pay the other countries for what they have bought ◦ spends more money than it takes in IMF will lend foreign exchange to that member ◦ hoping to stabilize its currency which will strengthen its trade
P Most of the IMFs loans to low-income countries are made on concessional terms, under the Poverty Reduction and Growth Facility.2. Under a mechanism introduced by the IMF in 2005— the Policy Support Instrument—countries can request that the IMF regularly and frequently review their economic programs to ensure that they are on track.
Ð The success of a countrys program is assessed against the goals set forth in the countrys poverty reduction strategy, and the IMFs assessment can be made public if the country wishes.f The IMF also participates in debt relief efforts for poor countries that are unable to reduce their debt to a sustainable level even after benefiting from aid, concessional loans, and the pursuit of sound policies.n To ensure that developing countries reap full benefit from the loans and debt relief they receive, in 1999 the IMF and the World Bank introduced a process known as the Poverty Reduction Strategy Paper (PRSP) process.
25% of the country’s quota may be used If this is not sufficient, then members can borrow up to 3 times the amount of its quota ◦ present plans for reform to Executive Directors If these plans are sufficient for the Executive Directors, the IMF grants the member a loan
India’s current quota in the IMF is SDR 4158.2 millonin the total quota ofSDR 213 billion, giving it a shareholding of 1.95 per cent. India’s relativeposition based on quota is 13th. However, based on voting share, India(together with its constituent countries, viz., Bangladesh, Bhutan and SriLanka) is ranked 21st in the list of 24 constitutencies.The IMF members can either retain SDRs, use them in payments etc. orsell them to other member countries.IMF has played an important role in Indian economy. IMF has providedeconomic assistance from time to time to India and has also providedappropriate consultancy in determination of various policies in the country.Till 1970, India was among the first five nations having the highest quotawith IMF and due to this status India was allotted a permanent place inExecutive Board of Directors.In July 2004, India and IMF joint training programme at the NationalInstitute of Bank Management, Pune was established.
The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.