IMF

INTERNATIONAL
MONETARY FUND
 The Creation of the IMF
 The first part of the 20th century saw a
breakdown of cooperation among nations
 The IMF was one of the institutions set up to
avoid a repeat of that experience.
 It is a cooperative of 185 member countries
 Their objective is to promote world economic
stability and growth.
 The member countries are the shareholders of
the cooperative, providing the capital of the IMF
through quota subscriptions
 The IMF is one of several autonomous
organizations designated by the United Nations
(UN) as “Specialized Agencies,”
 UN has established working relationships.
 The IMF is a permanent observer at the UN.
 The Articles of Agreement that created the IMF
and govern its operations were adopted at the
United Nations Monetary and Financial
Conference in Bretton Woods, New Hampshire,
on July 22, 1944.
 It entered into force on December 27, 1945.
 Mandate of the IMF
 Promote international monetary cooperation
through a permanent institution
 Provides the machinery for consultation and
 collaboration on international monetary problems
 To facilitate the expansion and balanced growth of
international trade
 To contribute to the promotion and maintenance of
high levels of employment and real income and to
the development of the productive resources of all
members as primary objectives of economic policy
 • To promote exchange stability
 To maintain orderly exchange arrangements among
members, and to avoid competitive exchange
depreciation
 To assist in the establishment of a multilateral
system of payments in respect of current
transactions between members and in the
elimination of foreign exchange restrictions which
hamper the growth of world trade
 To give confidence to members by making the
general resources of the IMF temporarily available
to them under adequate safeguards
 this provides them with an opportunity to correct
maladjustments in their balance of payments
without resorting to measures destructive of
national or international prosperity
 To shorten the duration and lessen the degree of
disequilibrium in the international balances of
payments of members.
 The Functions of the IMF
 Surveillance (like a doctor)
Gathering data and assessing economic policies of countries

 Technical Assistance (like a teacher)

Strengthening human skills and institutional capacity of
countries

 Financial Assistance (like a banker)

Lending to countries to support reforms
 Surveillance
 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.”
 Technical Assistance (like a
teacher)
 Strengthening human skills and
institutional capacity of countries
 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.
Financial Assistance (like a banker)

 Lending to countries to support reforms

 Improving financial sector surveillance.
 Development of standards and codes of
 good practice.
 Enhancement of transparency in the IMF
 and its member countries.
 Involvement of the private sector in crisis
resolution
 Governance of the IMF
 IMF is accountable to its member countries.

 Board of Governors: one governor from each

member country. Meets once a year.

 Day to day affairs are guided by the Executive

Board: 24 Executive Directors. Managing
Director of IMF is Chairman of Executive Board.
 Board
International Monetary of Joint IMF World
and Directors Bank development
Financial Committee committee

Executive Board Independent

Evaluation Office

Managing Directors
 Organisation of IMF
 The Board of Governors, the highest decision-
making body of the IMF, consists of one governor
and one alternate governor for each member
country.
 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
Governors.
 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
year.
 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
 Quotas & subscriptions
 Quota subscriptions generate most of the
IMF's financial resources.
 Each member country of the IMF is
assigned a quota, based broadly on its
relative size in the world economy.
 A member's quota determines its
maximum financial commitment to the
IMF and its voting power, and has a
bearing on its access to IMF financing.
 A new country is assigned an initial quota in the same
range as the quotas of existing members
 The 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 as a blend of GDP
based on a market exchange rates (weight of 60 percent)
and on PPP exchange rates (40 percent).
 Quotas are denominated in Special Drawing Rights (SDRs)
 The formula also includes a “compression factor” that
reduces the dispersion in calculated quota shares across
members.
 Special Drawing Rights
 The SDR is an international reserve asset, created by the
IMF in 1969 to supplement its member countries' official
reserves.
 Its value is based on a basket of four key international
currencies, and SDRs can be exchanged for freely usable
currencies.
 With a general SDR allocation that took effect on August
28 and a special allocation on September 9, 2009, the
amount of SDRs increased from SDR 21.4 billion to SDR
204.1 billion (currently equivalent to about $324 billion).
 The value of the SDR was initially defined as
equivalent to 0.888671 grams of fine gold.
 the SDR was redefined as a basket of currencies,
today consisting of the euro, Japanese yen,
pound sterling, and U.S. dollar.
 The U.S. dollar-value of the SDR is posted daily
on the IMF's website.
 It is calculated as the sum of specific amounts of
the four currencies valued in U.S. dollars, on the
basis of exchange rates quoted at noon each
day in the London market.
 Lending Policies
 A member country may request IMF financial
assistance if it has a balance of payments need
—that is, if it cannot find sufficient financing on
affordable terms to meet its net international
payments while maintaining adequate reserve
buffers going forward.
 An IMF loan provides a cushion that eases the
adjustment policies and reforms that a country
must make to correct its balance of payments
problem and restore conditions for strong
economic growth.
 IMF Facilities
 the IMF has developed various loan
instruments, or “facilities,” that are
tailored to address the specific
circumstances of its diverse membership.
 IMF financial policies govern the
modalities for the use of its financial
resources under existing IMF facilities.