InternatIonal MonetaryFundPresented By-Sumit PachauriM.BA II ndMangalayatan University,Aligarh
International Monetary Fund• IMF is the intergovernmental organization thatoversees the global financial system by followingthe macroeconomic policies of its membercountries, in particular those with an impact onexchange rate and the balance of payments.• It is an organization formed with a stated objectiveof stabilizing international exchange rates andfacilitating development through the enforcementof liberalising economic policies on othercountries as a condition for loans, restructuring oraid.
International Monetary Fund• IMF is a forum of national economic policies,international monetary and financial systems,which involves active dialogue with each membercountry.• Total quotas of $312 billion; outstanding loans of$71 billion to 82 countries (According to thereport of August 31, 2005).• Five largest shareholders:United States, Japan,Germany, France, United Kingdom.
International Monetary Fund• The IMF was created to support orderly internationalcurrency exchanges and to help nations havingbalance of payment problems through short termloans of cash.• Its headquarters are in Washington, United States.
HISTORY• The International Monetary Fund was conceived inJuly 1944 originally with 45 members and came intoexistence in December 1945 when 29 countries signedthe agreement• IMF started to make service with IBRD in 1947.• The IMF works to improve the economies of itsmember countries
Objective of the IMFo 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 flowof capital.
o Help establish multilateral system ofpayments and eliminate foreign exchangerestrictions.o Make resources of the Fund available tomemberso Shorten the duration and lessen the degreeof disequilibrium in international balancesof payments
o Promote international monetary cooperation,exchange stability, and orderly exchangearrangements.o Foster economic growth and high levels ofemployment.o Temporary financial assistance to countries to help thebalance of payments adjustments
Growth in IMF Membership In the beginning 29member countries Today,187 memberCountries Staff of about 2680Persons
ROLE OF IMF• Focusing on its core macroeconomic andfinancial areas of responsibility.• Working in a complementary fashion withother institutions established.• Collection and allocation of reserves.Rendering advice to member countries ontheir international monetary affairs.
ROLE OF IMF• Promoting research in various areas ofinternational economics and monetaryeconomics.• Providing a forum for discussion andconsultation among member countries.Being in the center of competence.
FUNCTIONS OF IMF• Surveillance (like a doctor) Gathering dataand assessing economic policies ofcountries.• Technical Assistance (like a teacher)Strengthening human skills and institutionalcapacity of countries.• Financial Assistance (like a banker)Lending to countries to support reforms
Operations• Monitoring economic and financialdevelopments and policies, in membercountries and at the global level, giving policyadvance to its members based on its more thanfifty years of experience.• Lending to member countries with balance ofpayments problems, supporting adjustment andreform policies aimed at correcting theunderlying problems.• Providing the governments and central banksof its member countries with technicalassistance and training in its areas of expertise.
Operations• IMF looks at the performance of theeconomy as a whole (macroeconomicperformance)• Focuses also on the financial sector policiesEx: regulation and supervision of banks andother financial institutions.• Pays attention to structural policies that affectmacroeconomic performance.• Ex: labor market policies (affect employmentand wage behavior)
How the polices are determined:… in their headquarters in Washington:• The Executive Board meets three times aweek, maybe more.• The Board has a voting system:- The largerthe economy, the more voting power it has• - But, most decisions are based onconsensus
Where does the IMF get it’sMoney from?• Most loans are provided by membercountries, determined by their quota, whichis calculated based upon a country’s relativesize in the world economy.• For a closer look at the Member Quotas wecan reference the IMF website.• Upon joining, the 25% of the quota is paidin some major currency US Dollar, BritishPound, Yen while the remaining 75% ispaid in their own currency.
What is the IMF’s LendingCapacity?• IMF can only borrow from financially strongeconomies to finance lending.• The IMF Board selects these “strongcurrencies” every three months, which makeup its “usable” resources.
India and the imf• India and the IMF has a positive relationship. TheIMF has provided financial assistance to India,which has helped in boosting the countryseconomy.• The IMF praised the country for it was able to avoidthe Asian Financial Crisis in 1999 and was also ableto maintain the average rate of growth of itseconomy.• In 2005, the IMF said that the budget of India isvery positive for it points that the economy of thecountry will grow at the rate of 6.7%.
• The Managing Director of International MonetaryFund Rodrigo De Rato visited India in May 2005.• International Monetary Fund said that the reasonsbehind the economy growth of India are that theRBI has been able to control inflation and has alsohandled its monetary policies very skillfully.• The IMF has suggested that India can become afinancial super power by bringing in more reformsin its economic policies that will increase itsgrowth rate to 8%.India and the imf
Collaborating with Other Institutions• 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 responsibilityand specialization and its particular contribution to make tothe world economy.
How does the IMF serve its membercountries?I. Monitoring national, global, and regionaleconomic and financial developments andadvising member countries on their economicpolicies (“surveillance”).II. Lending members hard currencies to supportpolicy programs designed to correct balance ofpayments problems.III. Offering technical assistance in its areas ofexpertise, as well as training for government andcentral bank officials.
•Bretton Woods system• The Bretton Woods system of monetary managementestablished the rules for commercial and financial relationsamong the worlds industrial states. independent nation-states.• Preparing to rebuild the international economic system asWorld War II was still raging, 730 delegates from all 44 Alliednations gathered at the Mount Washington Hotel in BrettonWoods, New Hampshire, United States, for the United NationsMonetary and Financial Conference. The delegates deliberatedupon and signed the Bretton Woods Agreements during thefirst three weeks of July 1944.
What is the SDR?• The SDR, or Special Drawing Rights, is an internationalreserve asset that member countries can add to their foreigncurrency and gold reserves and use for payments requiringforeign 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 thatthe stock and prospective growth of international reservesmight not be sufficient to support the expansion of worldtrade. (The main reserve assets at the time were gold and U.S.dollars.)
What is the SDR? (Cont.)• The SDR was introduced as a supplementary reserve asset,which the IMF could "allocate" periodically to members whenthe need arose, and cancel, as necessary.• IMF member countries may use SDRs in transactions amongthemselves, with 16 "institutional" holders of SDRs, and withthe IMF.• The SDR is also the IMFs unit of account. A number of otherinternational and regional organizations and internationalconventions use it as a unit of account, or as the basis for aunit of account.
Where the IMF gets its money• Most comes from the quota subscriptions– the money each member contributes whenjoining the IMF• General Arrangements to Borrow (1962)– line of credit set up with several governmentsand banks throughout the world
When is a country in need ?• A country that had not taken in enoughforeign currency to pay the other countries forwhat they have bought– spends more money than it takes in• IMF will lend foreign exchange to thatmember– hoping to stabilize its currency which willstrengthen its trade
How Does the IMF help Poor Countries?1. Most of the IMFs loans to low-income countries are made onconcessional terms, under the Poverty Reduction andGrowth Facility.2. Under a mechanism introduced by the IMF in 2005—thePolicy Support Instrument—countries can request that theIMF regularly and frequently review their economicprograms to ensure that they are on track.
How Does the IMF help Poor Countries?(Cont.)3. The success of a countrys program is assessed against thegoals set forth in the countrys poverty reduction strategy,and the IMFs assessment can be made public if the countrywishes.4. The IMF also participates in debt relief efforts for poorcountries that are unable to reduce their debt to a sustainablelevel even after benefiting from aid, concessional loans, andthe pursuit of sound policies.5. To ensure that developing countries reap full benefit fromthe loans and debt relief they receive, in 1999 the IMF andthe World Bank introduced a process known as the PovertyReduction Strategy Paper (PRSP) process.
How much money a member canborrow from the IMF• 25% of the country’s quota may be used• If this is not sufficient, then members can borrowup to 3 times the amount of its quota– present plans for reform to Executive Directors• If these plans are sufficient for the ExecutiveDirectors, the IMF grants the member a loan
Conclusion• The IMF works to foster global growth andeconomic stability. It provides policyadvice and financing to members ineconomic difficulties and also works withdeveloping nations to help them achievemacroeconomic stability and reducepoverty.