About the IMF

The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. With its near-global membership of 187 countries, the IMF is uniquely placed to help member governments take advantage of the opportunitiesand manage the challengesposed by globalization and economic development more generally. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties. The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. Marked by massive movements of capital and abrupt shifts in comparative advantage, globalization affects countries' policy choices in many areas, including labor, trade, and tax policies. Helping a country benefit from globalization while avoiding potential downsides is an important task for the IMF. The global economic crisis has highlighted just how interconnected countries have become in todays world economy. Key IMF activities 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.

Bretton woods system and imf:

The International Monetary Fund was originally laid out as a part of the Bretton Woods system exchange agreement in 1944.[4] During the earlier Great Depression, countries sharply raised barriers to foreign trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade. This

breakdown in international monetary cooperation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire in the United States, to discuss framework for post-World War II international economic cooperation. The participating countries were concerned with the rebuilding of Europe and the global economic system after the war. There were two views on the role the IMF should assume as a global economic institution. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped governments and to act as the US government had during the New Deal in response to World War II. American delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time.Most of Whites plan was incorporated into the final acts adopted at Bretton Woods. The International Monetary Fund formally came into existence on December 27, 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the Fund had grown to 39 members. On 1 March 1947, the IMF began its financial operations and on 8 May France became the first country to borrow from it. The IMF was one of the key organizations of the international economic system; its design allowed the system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism. The IMFs influence in the global economy steadily increased as it accumulated more members. The increase reflected in particular the attainment of political independence by many African countries and more recently the 1991 dissolution of the Soviet Union because most countries in the Soviet sphere of influence did not join the IMF. The Bretton Woods system prevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold. This is known as the Nixon Shock.] As of January 2012, the largest borrowers from the fund in order are Greece, Portugal, Ireland, Romania and Ukraine.

aims
The IMF was founded more than 60 years ago, towards the end of World War II. The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed. Since then, the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty, especially in Asia. In many ways, the IMF's main purposeto provide the global public with financial stabilityis the same today as it was when the organisation was established. More specifically, the IMF continues to - provide a forum for cooperation on international monetary problems; - facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction; - promote exchange rate stability and an open system of international payments;

and - lend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems. In response to the crisis, the IMF has rethought its operations in several ways: - By enhancing IMF lending facilities. The IMF has upgraded its lending facilities to enable it to better serve its members. It has created a new Short-Term Liquidity Facility designed to help emerging market countries with a track record of sound policies address fallout from the current financial crisis. To make its financial support more flexible and tailored to the diversity of low-income countries, it has established a new Poverty Reduction and Growth Trust, which has three new lending windows. As part of a wide-ranging reform of its lending practices, the IMF has also redefined the way it engages with countries on issues related to structural reforms of the economy.

Important aims of imf:

Exchange rate stability
Under the original Articles of Agreement, the IMF supervised a modified gold standard system of pegged, or stable, currency exchange rates. Each member declared a value for its currency relative to the U.S. dollar, and in turn the U.S. Treasury tied the dollar to gold by agreeing to buy and sell gold to other governments at $35 per ounce. A countrys exchange rate could vary only 1 percent above or below its declared value. Seeking to eliminate competitive devaluations, the IMF permitted exchange rate movements greater than 1 percent only for countries in fundamental balance -of-payments disequilibrium and only after consultation with, and approval by, the fund. In August 1971 U.S. President Richard Nixon ended this system of pegged exchange rates by refusing to sell gold to other governments at the stipulated price. Since then each member has been permitted to choose the method it uses to determine its exchange rate: a free float, in which the exchange rate for a countrys currency is determined by the supply and demand of that currency on the international currency markets; a managed float, in which a countrys monetary officials will occasionally in tervene in international currency markets to buy or sell its currency to influence short-term exchange rates; a pegged exchange arrangement, in which a countrys monetary officials pledge to tie their currencys exchange rate to another currency or group of currencies; or a fixed exchange arrangement, in which a countrys currency exchange rate is tied to another currency and is unchanging. After losing its authority to regulate currency exchange rates, the IMF shifted its focus to loaning money to developing countries.

Surveillance The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. To do this, it regularly monitors global, regional, and national economic developments. It also seeks to assess the impact of the policies of individual countries on other economies. This process of monitoring and discussing countries economic and financial policies is known as bilateral surveillance. On a regular basisusually once each yearthe IMF conducts in depth

appraisals of each member country's economic situation. It discusses with the country's authorities the policies that are most conducive to a stable and prosperous economy. Consistent with the decision on bilateral surveillance adopted in June 2007, the main focus of the discussions is whether there are risks to the economys domestic and external stability that would argue for adjustments in economic or financial policies.

Working with the World Bank The IMF and the World Bank are different, but complement each other's work. Whereas the IMF's focus is chiefly on macroeconomic and financial sector issues, the World Bank is concerned mainly with longer-term development and poverty reduction. Its loans finance infrastructure projects, the reform of particular sectors of the economy, and broader structural reforms. Countries must join the IMF to be eligible for World Bank membership. Given the World Bank's focus on antipoverty issues, the IMF collaborates closely with the Bank in the area of poverty reduction and helping countries draw up poverty reduction strategies. Other areas of collaboration include assessments of member countries' financial sectors, development of standards and codes, and improvement of the quality, availability, and coverage of data on external debt.

SDR allocations. Allocations of SDRs, the IMF's unit of account, is used as an international reserve asset. A member's share of general SDR allocations is established in proportion to its quota. The most recent general allocation of SDRs took place in 2009. The IMF collaborates with the World Bank, the regional development banks, the World Trade Organization (WTO), UN agencies, and other international bodies. While all of these organizations are involved in global economic issues, each has its own unique areas of responsibility and specialization. The IMF also interacts with think tanks, civil society, and the media on a daily basis.

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. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this

crisis marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by March 1973 the major currencies began to float against each other. 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. The imf after the collapse of bretton woods: Despite the strenuous efforts of U.S. foreign policymakers, the IMFBretton Woods system suffered a slow, painful death in the 1960s and early 1970s. Institutionally the IMF was at the center of many of the attempts to keep the system on life support. The organization's deposits, and ability to loan, were increased substantially in the 1960s. The IMF was also at the center of a series of proposals to reform and recast international monetary relations. The most interesting was the American proposal to supplant the dollar's reserve and liquidity role with an instrument called "Special Drawing Rights," or SDRs. The idea for the SDRs emerged from a 1963 G-10 study on the need for additional liquidity and was formally proposed by the United States in the summer of 1965. The French were vehemently against the SDR, or any instrument that increased the IMF's power, since they believed the organization was a vehicle for American hegemony. Tough and at times acrimonious negotiations finally produced an agreement that was signed in Rio de Janeiro in September 1967. The SDRs were hailed as a major accomplishment, a needed supplement to the IMF Bretton Woods system, but in fact they were never widely used. Ironically the greatest beneficiary of the monetary disorder of the 1960s and 1970s might have been the IMF. Irrelevant during the late 1940s and 1950s, the organization became the focal point of efforts to fix a broken international monetary system. Increased capital and trade flows brought more balance of payments volatility, and the IMF was called upon repeatedly to bail countries out of foreign exchange crises. The British requested billions to stave off monetary crises in 1961, 1964, and 1966. None of this aid helped, as sterling was finally devalued in 1967, although unlike the 1949 devaluation, the IMF played a key role. Even the French were forced to ask the IMF for

help to defend their currency after their currency collapsed in the wake of the May 1968 Paris street protests. The IMF also served as a convenient vehicle for U.S. foreign policy goals when direct aid was not politically feasible, especially in the case of the bailout of sterling. The IMF's power and influence as an organization increased even more after the collapse of the global monetary rules it was assigned to oversee. Nixon ended dollar-gold convertibility at Camp David on 15 August 1971 without consulting the IMF. But every American attempt to restructure the system during the ensuing sixteen months did so with the IMF as the centerpiece organization. Any attempt to maintain the Bretton Woods fixed exchange rate system collapsed, however, after February 1973, when the United States and the world abandoned the short-lived Smithsonian agreement. The world returned to market-determined free exchange rates, the very system the IMF was established to prevent. Economic malaise, in the form of international recession and a fourfold increase in oil prices, combined with exchange-rate volatility to spread balance-of-payments chaos worldwide. After Camp David the IMF's role, and even its customers, changed dramatically. After abandoning fixed exchange rates the large industrialized countries like Japan and the countries of western Europe were less concerned about balance-ofpayments difficulties. Market-determined changes in cross exchange rates replaced the ineffective adjustment mechanism of the old IMF Bretton Woods system. Nor did these large countries need the liquidity provided by the IMF, unless they wanted to defend their exchange rates against the overwhelming forces of the market. But the countries of the developing world could not as easily ignore dramatic changes in their exchange rates, and the oil price surge left many unable to close their balance-of-payments gaps without outside help. Thus in the 1970s the IMF acquired a new clientthe developing world. The fund also had new subscribersthe states of the Middle East that had grown rich with profits from their oil. Countries like Kuwait and Saudi Arabia had vast amounts of money, some of which went to increased subscriptions to international organizations like the IMF, and most of which was "recycled" through American banks and invested in the

underdeveloped world. This massive recycling was both a response to and the reason for the Third World debt crisis of the late 1970s and 1980s. The IMF increasingly found itself providing balance-of-payments financing to poorer countries hit hard by the energy price spikes of the 1970s and the debt crisis of the 1980s. One of the most controversial aspects of the IMF's postBretton Woods lending program has been its requirement that funded countries undergo what is called "structural adjustment." Since IMF funding is meant to fill a balance-of-payments deficit, stabilize the foreign exchange rate, and avoid devaluation, the institution demands fundamental macroeconomic and institutional reforms to remove the causes of the payments imbalance. Stabilizing a currency and halting massive capital flows usually require policies that deflate the domestic economy, such as raising interest rates and slashing the size of the state's budget. Many critics contend that these measures hurt the weakest members of the affected society. The first programs cut are usually in much-needed social welfare, health care, and educational programs that help the poor. Higher interest rates deflate the economy and lead to increased unemployment. Furthermore, the poor do not have the option of transferring their assets and capital abroad, as the wealthy often do during currency crises in the underdeveloped world. The harshness of the IMF's structural adjustment programand U.S. policymakers' role in promoting these controversial planscame into greater focus in the late twentieth century. Largely at the behest of the Clinton administration's Treasury Department, the massive IMF bailout of Mexico in 1995 required an economic reform plan that led to large layoffs and sharp downward pressure on workers' wages. Similar complaints have been voiced in East Asia, where Indonesia's efforts to calm a currency crisis through "structural readjustment" led to political turmoil, domestic unrest, and economic collapse. The IMF's reputation has been further damaged by the widespread misuse of its funds in Russia. Things got so bad that the IMF was publicly criticized by Joseph Stiglitz, the chief economist of its sister organization, the World Bank. Worse, the IMF was seen as a handmaiden for America's foreign policy goal of privatizing, reforming, and opening overseas markets. The sharp criticism forced the IMF to reassess all of its lending procedures and requirements, including its structural adjustment programs.