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  • 2. ORIGIN OF I.M.F. The international monetary fund has been the centrepiece of the world monetary order since its creation in 1944, though its supervisory role in exchange rate has been considerably weakened after the advent of floating rates of 1973.I.M.F was established by 44 nations under the bretton woods agreement 1944. The principal aim was to avoid the economic mistakes created of 1920s and 1930s.The attempts of many countries to return the old gold system after the first world war failed miserably. The world depression of 1930s forced every country to abandon the gold standard which led to the adoption of purely nationalistic policies whereby almost every country imposed trade restrictions, exchange controls and resorted to exchange depreciation in order to encourage its exports .This further brought a marked decline in world trade and extension of depression. It was against this background that 44 nations assembled at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire(U.S.A.) from July1 to July 22,1944. I.M.F. was established to promote economic and financial co-operation among its member in order to facilitate the expansion and balanced growth of world trade. It started its functioning from March1,1947. At present, the fund had 188 countries.
  • 3. MEMBERSHIP OF I.M.F.The IMF currently has a near-global membership of 188 countries. To become a member, a country must apply and then be accepted by a majority of the existing members. In April 2012, Republic of South Sudan joined the IMF, becoming the institutions 188th member. Upon joining, each member country of the IMF is assigned a quota, based broadly on its relative size in the world economy. The IMFs membership agreed in November 2010 on a major overhaul of its quota system to reflect the changing global economic realities, especially the increased weight of major emerging markets in the global economy. A member countrys quota defines its financial and organizational relationship with the IMF, including: Subscriptions A member countrys quota subscription determines the maximum amount of financialresources the country is obliged to provide to the IMF. A country must pay its subscription in full upon joining the IMF: up to 25 percent must be paid in the IMFs own currency, calledSpecial Drawing Rights (SDRs) or widely accepted currencies (such as the dollar, the euro, the yen, or pound sterling), while the rest is paid in the members own currency.
  • 4. ORIGINAL AIMS Original aimsThe IMF was founded more than 60 years ago toward the end of World War II (see History). The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed. Since then the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty,especially in Asia. In many ways the IMFs main purpose—to provide the global public good of financial stability—is the same today as it was when the organization was established. More specifically, the IMF continues to provide a forum for cooperation on international monetary problems facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction; promote exchange rate stability and an open system of international payments; andlend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.
  • 5. The IMF has evolved along with the global economy throughout its 65-year history, allowing the organization to retain its central role within the international financial architectureAs the world economy struggles to restore growth and jobs after the worst crisis since the Great Depression, the IMF has emerged as a very different institution. During the crisis, it mobilized on many fronts to support its member countries. It increased its lending, used its cross-country experience to advise on policy solutions, supported global policy coordination, and reformed the way it makes decisions. The result is an institution that is more in tune with the needs of its 188 member countries.Stepping up crisis lending. The IMF responded quickly to the global economic crisis, with lending commitments reaching a record level of more than US$250 billion in 2010. This figure includes a sharp increase in concessional lending (that’s to say, subsidized lending at rates below those being charged by the market) to the world’s poorest nations. Greater lending flexibility. The IMF has overhauled its lending framework to make it better suited to countries’ individual needs. It is also working with other regional institutions to create a broader financial safety net, which could help prevent new crises. Providing analysis and advice. The IMF’s monitoring, forecasts, and policy advice, informed by a global perspective and by experience from previous crises, have been in high demand and have been used by the G-20. Drawing lessons from the crisis. The IMF is contributing to the ongoing effort to draw lessons from the crisis for policy, regulation, and reform of the global financial architecture. Historic reform of governance.The IMF’s member countries also agreed to a significant increase in the voice of dynamic emerging and developing economies in the decision making of the institution, while preserving the voice of the low-income members.
  • 6. OBJECTIVES OF I.M.F. To help member nations tide over their balance of payments difficulties of short run and long term character. To promote in the exchange rate stability and avoid competitive exchange rate depreciation. To re-establish multilateral trade among the member countries. To determine the primary objectives of economic policy of all members:- according to article I ,THE following should be the primary objectives of economic policy of all member countries: To facilitate the expansion and balanced growth of international trade. To contribute to the promotion and maintenance of high level of employment. To contribute to the development of the productive resources.• To establish and maintain currency convertibility To promote exchange stability To maintain orderly exchange arrangements among members. To avoid competitive exchange depreciation. To lend confidence to members To shorten the duration and lessen the degree of disequilibrium in the international balance of payments.
  • 7. FUNCTIONS OF I.M.F.To lay down grounds for the conduct of international finance.To provide short and medium term assistance for overcoming short-termbalance of payments deficits(disequilibrium)Creation and distribution of reserves in the form of special drawingrights.To provide technical experts to member countries having B.O.P.difficulties and other problems.To render technical advice to its members on monetary fund and fiscalpolicies.To conduct research studies and publishes them in I.M.F.staff papersand other problems.
  • 8.  CREDIT TRANCHE:-A member can draw further annuallyfrom balance quota in 4 installments up to 100% of its quotas from credit tranches. Drawings from credit tranches are conditional because the members have to satisfy the fund of adopting a viable programme to ensure financial stability. To meet the severe BOP problems, the fund has been gradually raising the limit of borrowings by its members over the years under the credit tranche. RESERVE TRANCHE:-The fund has variety of lending its resources to member countries. Lending by the funds is linked to temporary assistance to members in financing disequilibrium in their balance of payments on current account. If a member has less currency with the Fund than its quota, the difference is called reserve tranche. It can draw up to 25% on its reserve tranche automatically upon representation to fund for its balance needs. It is not charged any interest on such drawings, but is required to repay within a period of three to five years. SPECIAL DRAWING RIGHTS:-SDRS are issued by IMF to its member countries according to their quotas they are used only to correct their bop positions. Members can also use their friend’s quotas also which is repayable at the price of 1 SDRS=approx.1.1$.Special drawing rights, reserve assets created by I.M.F. at a meeting at Rio De Janeiro in 1967 at an annually meeting.
  • 9. CREDIT FACILITY Compensatory and contingency funds is used when the nation is undergoing structural reforms and there is trade deficit(value of imports> value of exports). Buffer stock financing facility:- IMF helps to member countries build buffer stock of goods(especially those goods whose demand and supply fluctuations are high) to be used in times of need. Emergency assistance facility:- IMF provides this facility to the member nations to get over any emergency, natural calamity(like earthquakes, volcanic eruptions) or disaster. Infrastructural adjustment facility:- IMF extends this facility only to low income countries which are carrying on structural reforms. Enlarged structural adjustment facility:- IMF extends facility is given by IMF to those countries which are low income and who require urgent help or are in serious need to carry on structural reform schemes of processes.
  • 10. FUNDING FACILITIES OF THE I.M.F. Permanent facilities for general Balance of Payments support(like reserve tranche and credit tranche facilities). Permanent facilities for specific purposes(like extendedfund facility compensatory and contingency financing facility and buffer stock facility supplement all reserve facility have been already explained. Temporary facilities. Special disbursement a/c facility .
  • 11. Temporary facilities Supplementary financing facility was introduced to provide support the Balance of payments generally in excess of the quota of a member country. The oil facility was introduced because the rising costs of the oil import bill of the oil importing member countries. This facility was supposed to take care of the excess oil import which member countries had to meet their oil requirements. The trust fund facility was introduced in late 1970s out sale of IMFs gold holdings for US$4.6 Bullion. Out of this fund, 104 developing countries directly received a sum of US $1.3 billion in proportion of their quota and the rest amount as loans to 37-low income countries. The systematic transformation facility was set upon April 1993 for the purpose of helping those countries whose balance of payments was disrupted or disturbed due to a shift from a controlled economy, to a market based economy. The major beneficiaries of this facility were the East European countries.