International Monetary Fund (IMF)

ROLE AND FUNCTION OF IMF

Arun Mishra
9893686820
arunjimishra@gmail.com
 HISTORY
The International Monetary Fund was conceived
in July 1944 originally with 45 members and came
into existence in December 1945 when 29
countries signed the agreement.

IMF started to make service with IBRD in 1947.

The IMF works to improve the economies of its

member countries.

Its HQ is Washington, D.C.,

It is governed by almost 184 countries.

International Monetary Fund
IMF is the intergovernmental organization that oversees
the global financial system by following the
macroeconomic policies of its member countries, in
particular those with an impact on exchange rate and the
balance of payments.

It is an organization formed with a stated objective of

stabilizing international exchange rates and
facilitating development through the enforcement of
liberalizing economic policies on other countries as
a condition for loans, restructuring or aid.
International Monetary Fund
The IMF was created to support orderly international
currency exchanges and to help nations having balance
of payment problems through short term loans of cash.

Its headquarters are in Washington, United States.

Purposes of the IMF
o 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 flow of capital.

o Make resources of the Fund available to

members
Purposes of the IMF
o Help establish multilateral system of payments and
eliminate foreign exchange restrictions.

o Shorten the duration and lessen the degree of

disequilibrium in international balances of payment.

o Foster economic growth and high levels of

employment.

o Temporary financial assistance to countries to help

the balance of payments adjustments.
ROLE OF IMF
Promoting research in various areas of
international economics and monetary
economics.

Providing a forum for discussion and

consultation among member countries.
Being in the center of competence.

Focusing on its core macroeconomic and

financial areas of responsibility.

Working in a complementary fashion with

other institutions established.
FUNCTIONS OF 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
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

responsibility and specialization and its
particular contribution to make to the
world economy.
Organisational Structure of IMF
1. Board of Governors
Interim Committee Development Committee

2. Executive Board

3. A Managing Director

4. IMF secretariat helps managing

director
Board of Governors
Decision-making organ of the fund.
It is the highest body.
It exercises powers & takes the decisions.
Consists of one Governor and one Alternate
Governor by each member country.
Governor has the right to vote.
Usually countries appoint its Finance Minister
or RBI Governor.
Alternate Governor had Voting rights only in the
absence of Governor.
The Board of Governors meets once a year
The Executive Board
Has 21 members.
5 major members are appointed by the coutries
having largest Quota.
Sixth ED is appointed by the Kingdom of Saudi
Arabia
The remaining 15 are elected by the remaining
member countries.
Managing Director
Elected by the Executive Directors.
Can be a Politician or an imp. International official.
Is anon-voting chairman of the board &
Head of the fund staff.
Interim Committee
At present 22 members.
Created in 1974.
Objective is to advice BoG on;
Supervising the management
Adaptation of international monetary system

The Development Committee

At present 22 members. Created in 1974.
Objective is to advice & report BoG on all aspects.
The Executive Board
Has 21 members.
5 major members are appointed by the coutries having
largest Quota.
Sixth ED is appointed by the Kingdom of Saudi Arabia
The remaining 15 are elected by the remaining member
countries.

Managing Director
Elected by the Executive Directors.
Can be a Politician or an imp. International official.
Is anon-voting chairman of the board &
Head of the fund staff.
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.
Quotas & subscriptions
The quota formula is a weighted average of GDP (weight
of 50%), openness (30%), economic variability (15%), &
international reserves (5%)
For this purpose, GDP is measured as a blend of GDP
based on a market exchange rates (weight of 60%) & on
PPP exchange rates (40%).
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.
Voting Rights
VOTING RIGHTS & QUOTA for INDIA
in IMF
Indias quota in IMF to rise to 2.7 per cent from
the existing 2.44 per cent
Voting share of India would rise to 2.6 per cent
from the current 2.34 per cent
For the first time, four emerging market
countries BRIC will be among the 10 largest
members of the IMF.
Special Drawing Rights (SDR)
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.
Different Programmes of IMF
Stand-by Arrangements:
Under this arrangement a credit tranche which is
equal to 100 per cent of member countrys quota is
available for lending to it.
Typically, stand-by arrangements last for 12-18
months period.
Repayments of loans under this arrangement are
made within 3-5 years of each drawing the money
from IMF.
Different Programmes of IMF
Extended Fund Facility (EFF):
was created in 1974 to help the developing
countries over longer periods (upto 3 years)
The loans taken under this facility can be paid
back over a period of 4-10 years.
developing countries can borrow more than their
quota.
The important special facilities are:
Poverty Reduction and Growth Facility (PRGF)
Supplemental Reserve Facility (SRF)
Contingent Credit Line (CCL)
Special Oil Facility.
Criticism of IMF

Related to Conditionality:
Related to myopic one-size-fits-all approach
Privatization to state-run undertakings as pre-
condition for sanctioning aid.
Delay in responding to crises.