2. Overview
Ch 1 2
The International Monetary Fund (IMF) is an
organization of 189 countries, working to facilitate global
monetary cooperation, secure financial stability, facilitate
international trade, promote high employment,
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.
3. Contd..
Created in 1945,
The IMF is governed by and accountable to the 189 countries
that make up its near-global membership.
South Sudan is the 188th country to join IMF in 2012.
Nauru becomes 189th member of IMF, World Bank. The
Republic of Nauru, a tiny South Pacific island nation in Pacific
Ocean became the 189th member of the International
Monetary Fund (IMF) and World Bank i.e. Bretton-Woods
institutions.
India joined the IMF in 1945 (when it was created).
The resources for IMF loans are member countries
themselves. IMF collects funds from member countries
4. Why IMF was created
The IMF, also known as the Fund, was conceived at a UN
conference in Bretton Woods, New Hampshire, United States,
in July 1944.
The 44 countries at that conference sought to build a
framework for economic cooperation to avoid a repetition of
the competitive devaluations that had contributed to the Great
Depression of the 1930s.
5. Facts about IMF
Membership: 189 countries
Headquarters: Washington, D.C.
Executive Board: 24 Directors each representing a
single country or a group of countries
Staff: Approximately 2,700 from 148 countries
Total quotas: US$675 billion
6. Objective of IMF
International Monetary Co-Operation:
The most important objective of the Fund is to establish
international monetary co-operation amongst the various
member countries through a permanent institution that
provides the machinery for consultation and collaborations in
various international monetary problems and issues.
Ensure Exchange Stability:
Another important objective of the Fund is to ensure stability
in the foreign exchange rates by maintaining orderly
exchange arrangement among members and also to rule out
unnecessary competitive exchange depreciations
7. Contd..
Balanced Growth of Trade:
IMF has also another important objective to promote
international trade so as to achieve its required expansion
and balanced growth. This would ensure development of
production resources and thereby promote and maintain high
levels of income and employment among all its member
countries.
Correction of BOP Maladjustments:
IMF also helps the member countries in eliminating or
reducing the disequilibrium or maladjustments in balance of
payments. Accordingly, it gives confidence to members by
selling or lending Fund’s foreign currency resources to the
member nations.
8. Structure
It has three tiered system of functioning:
Board of directors
All nations(189)
Finance minister/Central Bank governor
Annual meetings
Executive Board:
They look after daily work.
They have 24 members.
5 seats are reserved : USA, UK,
JAPAN,GERMANY,FRANCE
Managing Director
Appointed for 5 years
Can be reappointed
Ch 1 8
9. She was named as the
Managing Director of the
IMF for a five-year term,
starting on 5 July 2011.
She was re-elected by
consensus for a second
five-year term, starting 5
July 2016, being the only
candidate nominated for the
post of Managing Director.
Christine Lagarde
MD of IMF
10. Special Drawing Rights
The SDR was created as a supplementary international
reserve asset.
The SDR serves as the unit of account of the IMF and some
other international organizations.
Value of SDR is based on basket of major currencies.
Weights assigned show relative importance.
Dollar–41.73;
EURO-30.93;
YEN–8.33;
POUND-8.09
Yuan-10.92
• 1 SDR = 98.81 rupees ( as on 19th feb 2019)
11. Finances
Ch 1 11
Quotas:
The IMF's resources come mainly from the money that
countries pay as their capital subscription when they
become members.
Quotas broadly reflect the size of each member's
economy: the larger a country's 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 90.5 million ounces (2,814.1 metric
tons) of gold, worth about $120.1 billion, making it the
third-largest official holder of gold in the world.
13. 1.Cooperation and reconstruction
(1944–71):
Ch 1 13
•The breakdown of international monetary cooperation during the
Great Depression of the1930s & WW2 led the IMF's founders to
plan an institution charged with overseeing the international
monetary . The new global entity would ensure exchange rate
stability
•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 and, in the case of the United States,
the value of the dollar in terms of gold) pegged at rates that could
be adjusted only to correct a "fundamental disequilibrium" in the
balance of payments, and only with the IMF's agreement.
•This par value system—also known as the Bretton Woods
system—prevailed until 1971, when the U.S. government
suspended the convertibility of the dollar (and dollar reserves
held by other governments) into gold.
14. 2.The end of the Bretton Woods
System(1972-81):
By the early 1960s, the U.S. dollar's fixed value against
gold, under the Bretton Woods system of fixed exchange
rates, was seen as overvalued. The system dissolved
between 1968 and 1973.
Since the collapse of the Bretton Woods system, IMF
members have been free to choose any form of exchange
arrangement they wish.
Many feared that the collapse of the Bretton Woods system
would bring the period of rapid growth to an end. In fact, the
transition to floating exchange rates was relatively smooth,
and it was certainly timely: flexible exchange rates made it
easier for economies to adjust to more expensive oil, when
the price suddenly started going up in October 1973. Floating
rates have facilitated adjustments to external shocks ever
since.
15. 3.Debt and painful reforms (1982–89)
The oil shocks of the 1970s, which forced many oil-importing
countries to borrow from commercial banks, and the interest
rate increases in industrial countries trying to control inflation
led to an international debt crisis.
when interest rates began to soar in 1979, the floating rates
on developing countries' loans also shot up. Higher interest
payments are estimated to have cost the non-oil-producing
developing countries at least $22 billion during 1978–81. At
the same time, the price of commodities from developing
countries slumped because of the recession brought about by
monetary policies.
The IMF's initiatives calmed the initial panic and defused its
explosive potential.
16. 4. ASEAN Crisis (Late 90s):
The late 1990s Asian meltdown was caused in large part by
South Korea, Thailand, the Philippines, Malaysia and
Indonesia's heavy reliance on short-term foreign loans and
openness to hot money.
When it became apparent in 1997 that private enterprises in
those nations would not be able to meet their payment
obligations, international currency markets panicked.
Currency traders sought to convert their Asian money into
dollars, and the Asian currencies plummeted. That made it
harder for the Asian countries to pay their loans, and it made
imports suddenly very expensive
Having contributed in important ways to the development of
the crisis, the IMF proceeded to make it worse.
17. Contd..
The IMF treated the Asian financial crisis like other situations
where countries could not meet their balance of payment
obligations. The Fund made loan arrangements to enable
countries to meet foreign debt payments (largely to private
banks in these cases) on the condition that the recipient
countries adopt structural adjustment policies.
But the Asian crisis differed from the normal situation of
countries with difficulties paying off foreign loans. For
example, the Asian governments were generally not running
budget deficits. Yet the Fund instructed them to cut spending -
- a recessionary policy that deepened the economic
slowdown.
18. IMF & INDIA
Date of Membership: December 27, 1945
Latest Country Assessment/Country Report: February 22,
2017
Special Drawing Rights (SDR): 1062.76 million
Quota (SDR): 13114.4 million
Number of Arrangements since membership: 7
◦ In 1981-82, India borrowed SDR 3.9 billion under an
Extended Fund Facility, the largest arrangement in IMF
history at the time.
◦ In 1991-93, India borrowed a total of SDR 2.2 billion under
two stand by arrangements.
◦ In 1991 it borrowed SDR 1.4 billion under the
Compensatory Financing Facility
19. Contd..
India gets more voting rights in IMF reforms:
India’s voting rights increase to 2.6 per cent from the current
2.3 per cent, and China’s, to 6 per cent from 3.8, as per the
new division.
The reforms bring India and Brazil into the list of the top 10
members of IMF, along with the U.S, Japan, France,
Germany, Italy, the United Kingdom, China and Russia.
India-born Harvard professor Gita Gopinath joins IMF as first
woman Chief Economist.
India urges IMF to implement quota reforms.
20. Publications of IMF
1. World Economic Outlook
2. Global Financial Stability Report.
3. Fiscal Monitor
