International Monetary

Fund
and its impact on india
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
liberalising economic policies on other countries as a
condition for loans, restructuring or aid.
..International Monetary Fund
IMF is a forum of national economic policies,
international monetary and financial systems, which
involves active dialogue with each member country.

Total quotas of $312 billion; outstanding loans of $71
billion to 82 countries (According to the report of
August 31, 2005).

Five largest shareholders:United States, Japan,
Germany, France, United Kingdom.

..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
Promote international monetary cooperation.
Expansion and balanced growth of international trade.

Promote exchange rate stability.

The elimination of restrictions on the international
flow of capital.
Help establish multilateral system of
payments and eliminate foreign exchange
restrictions.

Make resources of the Fund available to
members

Shorten the duration and lessen the degree
of disequilibrium in international balances
of payments

Promote international monetary cooperation,
exchange stability, and orderly exchange
arrangements.

Foster economic growth and high levels of
employment.

Temporary financial assistance to countries to help
the balance of payments adjustments

ROLE OF IMF
Focusing on its core macroeconomic and financial
areas of responsibility.

Working in a complementary fashion with other
institutions established.

Collection and allocation of reserves. Rendering
advice to member countries on their international
monetary affairs.


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.
Where does the IMF get its Money
from?

Most loans are provided by member countries,
determined by their quota, which is calculated
based upon a countrys relative size in the
world economy.
For a closer look at the Member Quotas we
can reference the IMF website.
Upon joining, the 25% of the quota is paid in
some major currency US Dollar, British Pound,
Yen while the remaining 75% is paid in their
own currency.

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
India and the IMF
India and the IMF has a positive relationship. The
IMF has provided financial assistance to India,
which has helped in boosting the country's
economy.

The IMF praised the country for it was able to avoid
the Asian Financial Crisis in 1999 and was also able
to maintain the average rate of growth of its
economy.

In 2005, the IMF said that the budget of India is
very positive for it points that the economy of the
country will grow at the rate of 6.7%.
The Managing Director of International Monetary
Fund Rodrigo De Rato visited India in May 2005.

International Monetary Fund said that the reasons
behind the economy growth of India are that the
RBI has been able to control inflation and has also
handled its monetary policies very skillfully.

The IMF has suggested that India can become a
financial super power by bringing in more reforms
in its economic policies that will increase its
growth rate to 8%.

India and the IMF
IMF and India Relations

India is among one of the developing economies that effectively employed
the various Fund programmes to fortify its fiscal structure. Through
productive engagement with the IMF, India formulated a consistent
approach to expand domestic and global assistance for economic reforms.

Whenever India underwent balance of payments crises, it sought the help
of IMF and in turn the internationally recognized reserve willingly helped
India to overcome the difficulties.


Recently, India purchased IMF gold to lend money to developing countries.
This proves that the fiscal reforms set in motion by the previous finance
ministers have finally started gaining momentum, transforming India from
fiscal borrower to major lender.


IMF and India Relations(Contd.)
The speed at which the gold was purchased by India on
September 18, 2009 astonished the market observers, who
later considered it as a smart move towards shoring its bullion
funds and steadily trying to stake on the US dollar.
Some analysts predict that India is purchasing gold to move
forward for higher voting share in the IMF. India is also
seeking for a considerable say in global fiscal affairs and
greater account in the IMF.

The Reserve Bank of India forfeited USD 1,045/ ounce of
yellow metal paying the amount in hard exchange and not in
the IMF's internal division of account.


IMF 2010-11 prediction of Indian
Economy

The International Monetary Fund (IMF) predicted 8%
expansion during 2010-11. However, the growth will be
affected by high inflation and increasing monetary
deficit in the concerned fiscal year.

India's long term economic prospects will continue to
remain sturdy in 2010-11 followed by lower growth
rate at 7.7% for the FY 2011-12.

Other than high inflation and rising financial deficit, the
major areas of concern are rise in asset cost and the
prospects of an unanticipated slowdown in the influx
of foreign investment in India caused due by the chaos
in worldwide financial markets.

How Does the IMF help Poor Countries?
1. Most of the IMF's loans to low-income countries are made
on concessional terms, under the Poverty Reduction and
Growth Facility.

2. Under a mechanism introduced by the IMF in 2005the
Policy Support Instrumentcountries can request that the
IMF regularly and frequently review their economic
programs to ensure that they are on track.

How Does the IMF help Poor Countries? (Cont.)
3. The success of a country's program is assessed against the
goals set forth in the country's poverty reduction strategy,
and the IMF's assessment can be made public if the country
wishes.

4. The IMF also participates in debt relief efforts for poor
countries that are unable to reduce their debt to a
sustainable level even after benefiting from aid,
concessional loans, and the pursuit of sound policies.

5. To ensure that developing countries reap full benefit from
the loans and debt relief they receive, in 1999 the IMF and
the World Bank introduced a process known as the Poverty
Reduction Strategy Paper (PRSP) process.

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.

What is the SDR?
The SDR, or Special Drawing Rights, is an international reserve
asset that member countries can add to their foreign currency
and gold reserves and use for payments requiring foreign
exchange.

Its value is set daily using a basket of four major currencies:
the euro, Japanese yen, pound sterling, and U.S. dollar.

The IMF introduced the SDR in 1969 because of concern that
the stock and prospective growth of international reserves
might not be sufficient to support the expansion of world
trade. (The main reserve assets at the time were gold and U.S.
dollars.)
India and the IMF
Indias 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. Indias 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.

The IMF members can either retain SDRs, use them in payments etc. or sell them to
other member countries.

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.