What is IMF
Fast facts about IMF
Functional department of IMF
Functions of IMF
How IMF help member countries
Process of IMF lending
Special drawing rights
Imf and Indian economy
Benefits toI ndia
What Is IMF?
International Monetary Fund (IMF) is an
organization working to foster global monetary
cooperation, of 188 countries to :
Organization formed with a stated objective of stabilizing international exchange rates and
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
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
Pays attention to structural policies that affect
Ex: labor market policies (affect employment and
• Membership: 187 countries
• Headquarters: Washington, D.C.
• Executive Board: 24 Directors representing countries or groups of
• Staff: Approximately 2,470 from 141 countries
• Total Quotas : US$ 383 billion
• Biggest Borrowers : Greece , Portugal ,Ireland (as of 18/08/2011)
• The members of the IMF are 186 members of the UN (all UN member
states but 7) and Republic of Kosovo.
• Apart from Cuba, the other six member states of the UN not
belonging to the IMF are: North Korea, Andorra, Monaco,
Liechtenstein, Nauru and South Sudan.
• All member states participate directly in the IMF.
• 24-member executive board-
Five executive directors are appointed by the five members
with the largest quotas,
Nineteen executive directors are elected by the remaining
all members appoint a Governor to the IMF's board of
• The powers of the other countries are represented on a proportional
scale to their population and economic rank in the world.
• The Executive board are the general owners of the IMF and can
control major decisions.
• All members of the IMF are also International Bank for
Reconstruction and Development (IBRD) members and vice versa
Post 1930 Era was impacted by The Great Depression & World War II.
• During the Great Depression the countries were trying to shore up
their falling economies by –
1. sharply raising barriers to foreign trade
2. devaluing their currencies to compete against each other for
3. curtailing their citizens' freedom to hold foreign exchange
• Countries affected by World War II desperately required
• Economic Reconstruction (for well developed nations)
• Economic Development (for less developed nations)
• World trade declined sharply (see chart below), and employment and
living standards plummeted in many countries.
• This breakdown in international monetary cooperation led the
IMF's founders to plan an institution charged with overseeing the
international monetary system—the system of exchange rates and
international payments that enables countries and their citizens to
buy goods and services from each other.
The Bretton Woods agreement
• The IMF was conceived in July 1944,
• Representatives of 45 countries met in the town of Bretton Woods, New
Hampshire, in the Northeastern United States, agreed on a framework for
international economic cooperation.
• 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 (Bretton Woods system)
• Initially, member countries agreed to peg their currencies in US Dollar
terms and for US, the value of Dollar in terms of Gold-to correct
How IMF Help Member Countries
• When a country joins the IMF, it
agrees to subject its economic
and financial policies to the
• Lending to countries with
balance of payments difficulties
• Financial assistance to countries
to meet International Payments
• To assist mainly low-
countries in effectively
Surveillance over Members’ Economic Policies
countries agree to pursue economic policies that are consistent
with the objectives of the IMF.
The Articles of Agreement confer on the IMF the legal authority
to oversee compliance by members with this obligation
IMF is “the only organization that has a mandate to examine on
a regular basis the economic
circumstances of virtually every country in the world.”
Surveillance ( Like A Doctor )
Strengthening human skills and institutional capacity of
Helps members in strengthening their policy formulation and
implementation, and the legal,
institutional, and market frameworks within which they operate.
It also constitutes an important complement to IMF surveillance
and lending operations in member countries.
Technical Assistance (like a teacher)
Lending to countries to support reforms
Improving financial sector surveillance.
Development of standards and codes of
Enhancement of transparency in the IMF
and its member countries.
Involvement of the private sector in crisis resolution
Financial Assistance (like a banker)
Board of Governors
The Board of Governors is the highest decision-making body of the
The governor is appointed by the member country and is usually the
minister of finance or the head of the central bank.
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 Board of Governors, the highest decision-
making body of the IMF, consists of one governor
and one alternate governor for each member
The governor is appointed by the member country
and is usually the minister of finance or the
governor of the central bank.
Board of Governors decide on major policy issues
All powers of the IMF are vested in the Board of
Day-to-day decision making – Executive Governors
24 in number.
The Managing Director is Chair person of the EB
Meets thrice a week, more if required
Five largest shareholders of IMF – US, japan,
Germany, UK & France along with China, Russia
and Saudi Arabia have their own seats on EB
Other members are selected for 2 year terms by
groups of countries known as constituencies
The Board of council may delegate to the Executive
Board all except certain reserved powers.
The Board of Governors normally meets once a
Key policy issues relating to international monetary
system are considered twice a year by IMFC
Development committee reports to the Governors on
development policy and other related matters
IMF has a weighted voting system – the larger the
country’s quota (dependent on its economic size)
more votes for the country
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
How the polices are determined ?
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
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.
Where does the IMF get it’s Money from ?
The Bretton Woods system of monetary management established the rules for
commercial and financial relations among the world's industrial 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
Bretton Woods system
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
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.)
What is the SDR?
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 IMF's 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.
What is the SDR?
1. Most of the IMF's 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.
3. The success of a country's program is assessed against
the goals set forth in the country's poverty reduction
strategy, and the IMF's assessment can be made public
if the country wishes.
4. 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.
5. 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)
India and the imf
• India and the IMF has a positive relationship. The IMF has
provided financial assistance to India, which has helped in
boosting the country's 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%.
India and the IMF
• 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%.