IMF & Impact On India


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IMF & Impact On India

  1. 1. a presentation by: SUNIL KUMAR AGRAWAL Head, Faculty of Management Studies RP Inderaprastha Institute of Technology Bastara, Distt. Karnal. [email_address] IMF & ITS IMPACT ON INDIA
  2. 2. <ul><li>International Monetary Fund </li></ul><ul><li>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. </li></ul>IMF MEMBER STATES
  3. 3. CREATION <ul><li>The IMF was formally organised 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. </li></ul><ul><li>The IMF describes itself as &quot;an organization of 186 countries (Kosovo being the 186th, as of June 29, 2009). </li></ul><ul><li>With the exception of Taiwan (expelled in 1980), North Korea, Cuba (left in 1964), Andorra, Monaco, Liechtenstein, Tuvalu and Nauru, all UN member states participate directly in the IMF. </li></ul><ul><li>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. </li></ul>
  4. 4. OBJECTIVES <ul><li>According to ‘Articles of Association’ of the IMF, its main objectives are: </li></ul><ul><li>To promote international monetary co-operation. </li></ul><ul><li>To ensure balanced international trade. </li></ul><ul><li>To ensure exchange rate stability. </li></ul><ul><li>To eliminate or to minimize exchange restrictions by promoting the system of multilateral payments. </li></ul><ul><li>To grant economic assistance to member countries for eliminating the adverse imbalance in balance of payments. </li></ul><ul><li>To minimize imbalances in quantum and duration of international trade. </li></ul>
  5. 5. IMF vs. WORLD BANK <ul><li>World Bank provides long-term loans for promoting balanced economic development, while IMF provides short-term loans to member countries for eliminating BOP disequilibrium. </li></ul><ul><li>Both these institutions are complementary to each other. Few economists have even suggested that the two organizations should be merged. </li></ul>
  6. 6. MEMBERSHIP & VOTING RIGHT <ul><li>IMF is controlled and managed by a Board of Governors. </li></ul><ul><li>Each member country nominates a Governor. All the nominated Governors make the Board of Governors. </li></ul><ul><li>Each country also nominates an alternate Governor, who casts his vote in the absence of the Governor. </li></ul><ul><li>Each Governor is allotted a number of votes which is determined by the quota allotted to the respective country in the capital of IMF. </li></ul><ul><li>Each Governor has got the right of 250 votes on the basis of the membership. And one additional vote for each SDR 1,00,000 of quota. The addition of theser two types of votes becomes the actual voting right of the member country. </li></ul><ul><li>India’s current voting right is 250 + 41582 = 41832, representing 1.89% of votes. Finance Minister Pranab Mukherjee is the Governor and D. Subbarao is the alternate Governor. </li></ul>
  7. 7. CAPITAL RESOURCES <ul><li>The main source of IMF resources is the quotas allotted to member countries. </li></ul><ul><li>Till 1971, all the amounts of quotas and the assistance provided were denominated in USD, but since December 1971 all the the quotas and transactions of IMF are expressed in SDRs (Special Drawing Rights), also known as the Paper Gold. </li></ul><ul><li>In 1971, The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold — which, at the time, was also equivalent to one U.S. dollar but due to the subsequent decline in dollar value, 1 SDR became equivalent to USD 1.585 by the end of April 1995. </li></ul><ul><li>Since November 2005, the value fo SDR is being determined by the basket of 4 major currencies. These are USD, Euro, Yen, and Pound Sterling. </li></ul>
  8. 8. <ul><li>The currency value of SDR is determined each day by summarizing the values in US dollars, based on the market exchange rates of a basket of currencies. </li></ul><ul><li>The IMF finacial year is from 1 May to 30th April. </li></ul><ul><li>IMF lends to various member countries in the form of various facilities (Extended Fund Facility, Standby Facility, Contingent Credit Lines, Compensatory Facility etc.) designed to serve specific purpose, but essentially aimed at balance of payments stabilization or meeting the emergent foreign exchange needs. </li></ul><ul><li>The IMF's influence in the global economy has steadily increased as it accumulated more members. The number of IMF member countries has more than quadrupled from the 44 states involved in its establishment, reflecting in particular the attainment of political independence by many developing countries and more recently the collapse of the Soviet bloc. The expansion of the IMF's membership, together with the changes in the world economy, have required the IMF to adapt in a variety of ways to continue serving its purposes effectively. </li></ul>
  9. 9. <ul><li>In 2008, faced with a shortfall in revenue, the International Monetary Fund's executive board agreed to sell part of the IMF's gold reserves. On April 27, 2008, IMF Managing Director Dominique Strauss-Kahn welcomed the board's decision April 7, 2008 to propose a new framework for the fund, designed to close a projected $400 million budget deficit over the next few years. The budget proposal includes sharp spending cuts of $100 million until 2011 that will include up to 380 staff dismissals. </li></ul><ul><li>At the 2009 G-20 London summit, it was decided that the IMF would require additional financial resources to meet prospective needs of its member countries during the ongoing global crisis. As part of that decision, the G-20 leaders pledged to increase the IMF's supplemental cash tenfold to $500 billion, and to allocate to member countries another $250 billion via Special Drawing Rights. </li></ul>
  10. 10. IMF & POOR COUNTRIES <ul><li>IMF helps the poor countries by funding from Poverty Reduction and Growth Facility. As on June 2004, the IMF was lending to 13 members in the form of Standby Facility, to 2 members under Extended Arrangements and 38 poor countries under Poverty Reduction and Growth Facility. The total credit outstanding was 45.686 billion, o.877 billion and 5.515 billion SDRs respectively. </li></ul><ul><li>The quota allotted by the IMF to each member country has to be deposited partly in the member’s own currency and the remainder in the form of foreign exchange. </li></ul>
  11. 11. IMF & INDIA <ul><li>India’s current quota in the IMF is SDR 4158.2 millonin the total quota of SDR 213 billion, giving it a shareholding of 1.95 per cent. India’s relative position based on quota is 13 th . However, based on voting share, India (together with its constituent countries, viz., Bangladesh, Bhutan and Sri Lanka) is ranked 21 st in the list of 24 constitutencies. </li></ul><ul><li>The IMF members can either retain SDRs, use them in payments etc. or sell them to other member countries. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>In July 2004, India and IMF joint training programme at the National Institute of Bank Management, Pune was established. </li></ul>
  12. 12. THANKS