The document discusses the history and role of the International Monetary Fund (IMF). It was created in 1944 at the Bretton Woods conference to stabilize exchange rates and assist countries with payment imbalances. The IMF provides policy advice, research, loans, and technical assistance to its 188 member countries. The IMF is governed by quotas paid by each member and is led by a Managing Director. It supports global monetary cooperation, balanced trade, exchange rate stability, and helps eliminate payment imbalances and poverty in developing countries.

1. IMF
&
ITS IMPACT ON INDIA
Dr. C S Shaijumon
Indian Institute of Space Science & Technology
Dept. of Space, Govt. Of India

2. IInntteerrnnaattiioonnaall MMoonneettaarryy FFuunndd
The International Monetary Fund was formally created in July
1944 during the United Nations Monetary and Financial
Conference. The representatives of 44 governments met in the
Mount Washington Hotel in the area of Bretton Woods, New
Hampshire, United States of America, with the delegates to the
conference agreeing on a framework for international economic
cooperation.

3. World Bank & IMF
World Bank provides long-term loans for
promoting balanced economic development,
while IMF provides short-term loans to member
countries for eliminating BOP disequilibrium.
Both these institutions are complementary to
each other. Few economists have even suggested
that the two organizations should be merged.

4. CCRREEAATTIIOONN
The IMF was formally organized on December 27, 1945. The
International Monetary Fund was created with a goal to stabilize
exchange rates and assist the reconstruction of the world's
international payment system. Countries contributed to a pool
which could be borrowed from, on a temporary basis, by
countries with payment imbalances.
The IMF describes itself as "an organization of 188 countries
(South Sudan being the 188th, as of April 18, 2012).
Most are represented by other member states on a 24-member
Executive Board but all member countries belong to the IMF's
Board of Governors.
The IMF financial year is from 1 May to 30th April.

5. OOBBJJEECCTTIIVVEESS
According to ‘Articles of Association’ of the IMF, its main objectives are:
• To promote international monetary co-operation.
• To ensure balanced international trade.
• To ensure exchange rate stability.
• To eliminate or to minimize exchange restrictions by promoting the
system of multilateral payments.
• To grant economic assistance to member countries for eliminating the
adverse imbalance in balance of payments.
• To minimize imbalances in quantum and duration of international trade.

6. The IMF supports its membership by providing
• policy advice to governments and central banks based on analysis of
economic trends and cross-country experiences;
• research, statistics, forecasts, and analysis based on tracking of global,
regional, and individual economies and markets;
• loans to help countries overcome economic difficulties;
• concessional loans to help fight poverty in developing countries; and
• Technical assistance and training to help countries improve the
management of their economies.
• 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. A
sizable increase in domestic spending on President Lyndon Johnson's Great
Society programs and a rise in military spending caused by the Vietnam
War gradually worsened the overvaluation of the dollar.

7. Organization
• The IMF is led by a Managing Director, who is head of the
staff and Chairman of the Executive Board. The Managing
Director is assisted by a First Deputy Managing Director and
three other Deputy Managing Directors. According to the
IMF's Articles of Agreement, the Managing Director "shall be
chief of the operating staff of the Fund and shall conduct,
under the direction of the Executive Board, the ordinary
business of the Fund.
• The current Managing Director, Christine Lagarde, a French
national, joined the IMF as Managing Director in July 2011.
Before coming to the IMF, she was France's Minister for
Economy, Finance and Industry.

8. Resources of IMF
• The quota system - Each member of the IMF is assigned a quota, based
broadly on its relative size in the world economy, which determines its
maximum contribution to the IMF’s financial resources.
• The current quota formula is a weighted average of GDP (weight of
50 percent), openness (30 percent), economic variability (15 percent), and
international reserves (5 percent). For this purpose, GDP is measured
through a blend of GDP—based on market exchange rates (weight of
60 percent)—and on PPP exchange rates (40 percent). The formula also
includes a “compression factor” that reduces the dispersion in calculated
quota shares across members.
• Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit
of account. The largest member of the IMF is the United States, with a
current quota of SDR 42.1 billion (about $65 billion), and the smallest
member is Tuvalu, with a current quota of SDR 1.8 million (about
$2.78 million).

9. • Quotas are reviewed at least every five years. In 2010, the 14th General
Review of Quotas was completed, and the IMF’s members agreed that the
Fund’s quota resources should be doubled to SDR 476.8 billion.
Name of the Country Vote Share (%) Quota Share(%)
USA 16.75 17.69
Japan 6.23 6.56
Germany 5.81 6.12
UK 4.29 4.51
France 4.29 4.51
China 3.81 4
Italy 3.16 3.31
Canada 2.56 2.67
Russia 2.39 2.5
India 2.34 2.44
Brazil 1.72 1.79
South Africa 0.77 0.78
• A member's 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 Fund: up to 25 percent must be paid
in SDRs or widely accepted currencies (such as the U.S. dollar, the euro, the
yen, or the pound sterling), while the rest is paid in the member's own
currency. Each IMF member’s votes are comprised of basic votes plus one
additional vote for each SDR 100,000 of quota.

10. • Total voting share of EU is about 25%
• Share of BRICS countries
Name of the
Country Vote Share (%) Quota Share(%)
Brazil 1.72 1.79
Russia 2.39 2.5
India 2.34 2.44
China 3.81 4
South Africa 0.77 0.78
Total 11.03 11.51
• BRICS countries account for 40 per cent of the
world’s population and 20 per cent of its GDP

11. • Special Drawing Rights
• The Special Drawing Right (SDR) is an international reserve asset, created
by the IMF in 1969 to supplement the existing official reserves of member
countries.
• The SDR is neither a currency, nor a claim on the IMF. Rather, it is a
potential claim on the freely usable currencies of IMF members. Holders of
SDRs can obtain these currencies in exchange for their SDRs in two ways:
first, through the arrangement of voluntary exchanges between members;
and second, by the IMF designating members with strong external
positions to purchase SDRs from members with weak external positions.
• The value of the SDR is based on a basket of key international currencies
—the euro, Japanese yen, pound sterling, and U.S. dollar. The basket
composition is reviewed every five years by the Executive Board to ensure
that it reflects the relative importance of currencies in the world’s trading
and financial systems.
• The SDR interest rate is determined weekly and is based on a weighted
average of representative interest rates on short-term debt in the money
markets of the SDR basket currencies.
• Two types of allocations – General and Special

12. • Gold holdings
• The IMF’s gold holdings amount to about 90.5 million troy
ounces (2,814.1 metric tons), making the IMF the third largest
official holder of gold in the world. However, the IMF’s
Articles of Agreement strictly limit the use of this gold. If
approved by an 85 percent majority of voting power of
member countries, the IMF may sell or accept gold as payment
by member countries but it is prohibited from buying gold or
engaging in other gold transactions.
• In December 2010, the IMF sold 403.3 metric tons of gold-—
about one-eighth of its holdings The limited gold sale was
conducted under strong safeguards to avoid market disruption
and all gold sales were at market prices, including direct sales
to official holders.

13. IMF Lending
• Concessional Lending
Low-income countries may borrow on concessional terms through the
Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the
Rapid Credit Facility (RCF). Concessional loans carry zero interest rates until
the end of 2014.
• Non-Concessional Lending
Non-concessional loans are provided mainly through Stand-By Arrangements
(SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line
(PLL), and the Extended Fund Facility (which is useful primarily for medium-and
longer-term needs). The IMF also can provide emergency assistance via the
Rapid Financing Instrument (RFI) to all its members facing urgent balance of
payments needs. All non-concessional facilities are subject to the IMF’s
market-related interest rate, known as the “rate of charge,” and large loans
(above certain limits) carry a surcharge. The rate of charge is based on the
SDR interest rate, which is revised weekly to take account of changes in short-term
interest rates in major international money markets.

14. End of Bretton Woods system
•The system dissolved between 1968 and 1973. In August 1971, U.S.
President Richard Nixon announced the "temporary" suspension of the dollar's
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 (except pegging
their currency to gold): 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.
•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. Helping poor countries
From the mid-1970s, the IMF sought to respond to the balance of
payments difficulties confronting many of the world's poorest
countries by providing concessional financing through what
was known as the Trust Fund. In March 1986, the IMF created
a new concessional loan program called the Structural
Adjustment Facility. The SAF was succeeded by the Enhanced
Structural Adjustment Facility in December 1987.
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.

16. • So when interest rates began to soar in 1979, the floating rates
on developing countries' loans also shot up.
• When a crisis broke out in Mexico in 1982, the IMF
coordinated the global response, even engaging the
commercial banks. It realized that nobody would benefit if
country after country failed to repay its debts.
• The fall of the Berlin wall in 1989 and the dissolution of the
Soviet Union in 1991 enabled the IMF to become a (nearly)
universal institution. In three years, membership increased
from 152 countries to 172, the most rapid increase since the
influx of African members in the 1960s.
• The IMF played a central role in helping the countries of the
former Soviet bloc transition from central planning to market-driven
economies. This kind of economic transformation had
never before been attempted, and sometimes the process was
less than smooth.

17. Asian Financial Crisis
• In 1997, a wave of financial crises swept over East Asia, from Thailand to
Indonesia to Korea and beyond. Almost every affected country asked the
IMF for both financial assistance and for help in reforming economic
policies.
• From this experience, the IMF drew several lessons that would alter its
responses to future events.
First, it realized that it would have to pay much more attention to
weaknesses in countries’ banking sectors and to the effects of those
weaknesses on macroeconomic stability.
Second, the Fund realized that the institutional prerequisites
for successful liberalization of international capital flows were
more daunting than it had previously thought.
Third, necessitated a re-evaluation of how fiscal policy should be
adjusted when a crisis was precipitated by a sudden stop in
financial inflows.

18. Debt relief for poor countries
• During the 1990s, the IMF worked closely with the World Bank to
alleviate the debt burdens of poor countries. The Initiative for Heavily
Indebted Poor Countries was launched in 1996, with the aim of ensuring
that no poor country faces a debt burden it cannot manage. In 2005, to help
accelerate progress toward the United Nations Millennium Development
Goals (MDGs), the HIPC Initiative was supplemented by the Multilateral
Debt Relief Initiative (MDRI).

19. Global Financial Crisis
• The global economic crisis that began with the collapse of
mortgage lending in the United States in 2007, and spread
around the world in 2008 was preceded by large imbalances in
global capital flows.
• Phase I – USA Phase II – EU
• The most rapid increase has been experienced by advanced
economies, but emerging markets and developing countries
have also become more financially integrated.
• The latest global crisis uncovered a fragility in the advanced
financial markets that soon led to the worst global downturn
since the Great Depression. Suddenly, the IMF was inundated
with requests for stand-by arrangements and other forms of
financial and policy support.

20. The volume of loans provided by the IMF has
fluctuated significantly over time.
The oil shock of the 1970s and the debt crisis of the
1980s were both followed by sharp increases in
IMF lending.
In the 1990s, the transition process in Central and
Eastern Europe and the crises in emerging market
economies led to further surges of demand for
IMF resources.
Deep crises in Latin America and Turkey kept
demand for IMF resources high in the early 2000s.
IMF lending rose again in late 2008 in the wake of
the global financial crisis.

21. IMF has played an important role in Indian economy. IMF has
provided economic assistance from time to time to India and has
also provided appropriate consultancy in determination of
various policies in the country.
Till 1970, India was among the first five nations having the
highest quota with IMF and due to this status India was allotted a
permanent place in Executive Board of Directors.
In July 2004, India and IMF joint training programme at the
National Institute of Bank Management, Pune was established.