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International Monetary Fund

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  • 1. INTERNATIONALMONETARY FUND Presented by: Jatin Vaid 1
  • 2. InternationalMonetary Fund 2
  • 3. Overview  The International Monetary Fund (IMF) is an organization of 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.  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.Ch 1 3
  • 4. Overview  With its global membership of 186 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities—and manage the challenges—posed by globalization  The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties  The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce povertyCh 1 4
  • 5. Key IMF Activities The IMF supports its membership by providing: III. policy advice to governments and central banks based on analysis of economic trends and cross-country experiences; IV. research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets; V. loans to help countries overcome economic difficulties; VI. concessional loans to help fight poverty in developing countries; and VII. technical assistance and training to help countries improve the management of their economies.Ch 1 5
  • 6. IMF Functions The IMFs main goal is to ensure the stability of the international monetary and financial system. It helps resolve crises, and works with its member countries to promote growth and alleviate poverty. III. Economic and Financial Surveillance : The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. To do this, it regularly monitors global, regional, and national economic developments. V. Technical Assistance and Training: IMF offers technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is offered in several areas, including fiscal policy, monetary and exchange rate policies, banking and financial system supervision and regulation, and statistics. VII. IMF Lending: In the event that member countries experience difficulties financing their balance of payments, the IMF is also a fund that can be tapped to facilitate recovery. IX. Research and Data : Supporting all three of these activities is the IMFs economic and financial research and statistics.Ch 1 6
  • 7. Objectives of IMF I. To promote international monetary cooperation II. To facilitate the expansion and balanced growth of International Trade III. To promote exchange rate stability IV. To make its resources available to its members who are experiencing BOP problems V. To establish a multilateral system of paymentsCh 1 7
  • 8. Conditionality • IMF lends to its member countries, ensuring that, members are pursuing policies that will improve external payment problems. • Commitment to implement corrective measures. • To repay in a timely manner.Ch 1 8
  • 9. Membership I. The IMF currently has a near-global membership of 186 countries. To become a member, a country must apply and then be accepted by a majority of the existing members. III. Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in the world economy.Ch 1 9
  • 10. Special Drawing Rights (SDR) • SDR is an international reserve asset • Supplements members’ existing reserve assets – gold, forex. • Unit of account for IMF operations and transactions • Value of SDR is based on basket of major currencies used in IB. • Weights assigned show relative importance. • France, Ger, Jp, UK, US – Largest exports • US – 0.557; EURO-0.426; YEN – 21.0; POUND- 0.0984 • More stable.Ch 1 10
  • 11. Subscriptions  A members 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 IMF: up to 25 percent must be paid in the IMFs own currency, called Special 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.  Voting power. The quota largely determines a members voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota.  Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. Under Stand-By and Extended Arrangements, which are types of loans, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively.Ch 1 11
  • 12. Organization & Management  The IMF has a management team and 17 departments that carry out its country, policy, analytical, and technical work. The current management team:  Dominique Strauss-Kahn, a French national, became the IMFs tenth Managing Director in November 2007. Previously, he was the Finance Minister of France during 1997-99.  John Lipsky, an American, has been First Deputy Managing Director since September 2006. Before coming to the IMF, he worked for JPMorgan Investment Bank.  Takatoshi Kato, a Japanese national, became Deputy Managing Director of the IMF in February 2004. Previously, he advised the president of Tokyo-Mitsubishi Bank.Ch 1 12
  • 13. Governance Structure  The Board of Governors is the highest decision-making body of the IMF. It consists of one governor and one alternate governor for each member country. The governor is appointed by the member country and is usually the minister of finance or the head of the central bank.  While the Board of Governors has delegated most of its powers to the IMFs Executive Board, it retains the right to approve quota increases, special drawing right (SDR) allocations, the admittance of new members, compulsory withdrawal of members, and amendments to the Articles of Agreement and By-Laws. It also elects or appoints executive directors  The Boards of Governors of the IMF and the World Bank Group normally meet once a yearCh 1 13
  • 14. Governance Structure  Ministerial Committees: The IMF Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee. The IMFC has 24 members, drawn from the pool of 186 governors  The Executive Board: The IMFs 24-member Executive Board takes care of the daily business of the IMF. Together, these 24 board members represent all 186 countries.Ch 1 14
  • 15. Finances  Quotas: The IMFs resources come mainly from the money that countries pay as their capital subscription when they become members. Quotas broadly reflect the size of each members economy: the larger a countrys economy in terms of output and the larger and more variable its trade, the larger its quota tends to be. They also help determine how much countries can borrow from the IMF and their share in allocations of special drawing rights or SDRs (the reserve currency created by the IMF in 1969).  Gold: The IMF holds a relatively large amount of gold among its assets, for reasons of financial soundness, also to meet unforeseen contingencies. The IMF holds 103.4 million ounces (3,217 metric tons) of gold, worth about $83 billion as of end-August 2009, making it the third-largest official holder of gold in the world.Ch 1 15
  • 16. History of IMF The IMF has played a part in shaping the global economy since the end of World War II. 1. Cooperation and reconstruction (1944–71) During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens freedom to hold foreign exchange. These attempts proved to be self- defeating. World trade declined sharply, and employment and living standards plummeted in many countries.Ch 1 16
  • 17. History of IMF 2. The Bretton Woods agreement  The IMF was conceived in July 1944, when representatives of 45 countries meeting in the town of Bretton Woods, New Hampshire, U.S, agreed on a framework for international economic cooperation, to be established after the Second World War. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression.  The IMF came into formal existence in December 1945, when its first 29 member countries signed its Articles of Agreement. It began operations on March 1, 1947. Later that year, France became the first country to borrow from the IMF.  Par value system - The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (the value of their currencies in terms of the U.S. dollar). This prevailed until 1971.Ch 1 17
  • 18. History of IMF 3. The end of the Bretton Woods System (1972–81)  By the early 1960s, the U.S. dollars fixed value against gold, under the Bretton Woods system of fixed exchange rates, was seen as overvalued.  In August 1971, U.S. President Richard Nixon announced the "temporary" suspension of the dollars convertibility into gold.  Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish : allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union.Ch 1 18
  • 19. Thank You!Ch 1 19