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IMF
IMF
DEFINITION .............................................................................................................................................. 2
INTRODUCTION....................................................................................................................................... 2
FORMATION ............................................................................................................................................. 2
ORIGIN ....................................................................................................................................................... 2
WORKING STRUCTURE ........................................................................................................................ 3
Board of Governors ................................................................................................................................ 4
Executive Boards..................................................................................................................................... 4
Managing Director .................................................................................................................................. 4
International Monetary and Financial Committee .............................................................................. 5
IMF Staff ................................................................................................................................................. 5
What Do it Work?....................................................................................................................................... 5
How Does it Works? ................................................................................................................................... 6
OBLIGATIONS OF MEMBERSHIP ....................................................................................................... 8
MEMBERS OF IMF................................................................................................................................... 9
BENEFITS OF MEMBERSHIP................................................................................................................ 9
Advantages of IMF ..................................................................................................................................... 9
Disadvantages of IMF ............................................................................................................................... 10
IMF and PAKISTAN................................................................................................................................ 10
IMF and CURRENT GOVERNMENT .................................................................................................. 11
IMF
IMF
DEFINITION
The International Monetary Fund (IMF) is an international organization that provides financial
assistance and advice to member countries.
INTRODUCTION
International Monetary Fund (IMF), United Nations (UN) specialized agency, founded at
the Bretton Woods Conference in 1945 to secure international monetary cooperation, to
stabilize currency exchange rates, and to expand international liquidity (access to hard currencies).
FORMATION
The IMF was born at the end of World War II, out of the Bretton
Woods Conference in 1945. It was created out of a need to prevent
economic crises like the Great Depression. With its sister
organization, the World Bank, the IMF is the largest public lender of
funds in the world. It is a specialized agency of the United
Nations and is run by its 186 member countries. Membership is open
to any country that conducts foreign policy and accepts the organization's statutes.
ORIGIN
The first half of the 20th century was marked by two world wars that caused enormous physical
and economic destruction in Europe and a Great Depression that wrought economic devastation in
both Europe and the United States. These events kindled a desire to create a new international
monetary system that would stabilize currency exchange rates without backing currencies entirely
with gold; to reduce the frequency and severity of balance-of-payments deficits (which occur when
more foreign currency leaves a country than enters it); and to eliminate
destructive mercantilist trade policies, such as competitive devaluations and foreign
exchange restrictions—all while substantially preserving each country’s ability to pursue
independent economic policies. Multilateral discussions led to the UN Monetary and Financial
Conference in Bretton Woods, New Hampshire, U.S., in July 1944. Delegates representing 44
countries drafted the Articles of Agreement for a proposed International Monetary Fund that would
supervise the new international monetary system. The framers of the new Bretton Woods monetary
regime hoped to promote world trade, investment, and economic growth by maintaining
convertible currencies at stable exchange rates. Countries with temporary, moderate balance-of-
payments deficits were expected to finance their deficits by borrowing foreign currencies from the
IMF rather than by imposing exchange controls, devaluations, or deflationary economic policies
that could spread their economic problems to other countries.
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IMF
After ratification by 29 countries, the Articles of Agreement entered into force on December 27,
1945. The fund’s board of governors convened the following year in Savannah, Georgia, U.S., to
adopt bylaws and to elect the IMF’s first executive directors. The governors decided to locate the
organization’s permanent headquarters in Washington, D.C., where its 12 original executive
directors first met in May 1946. The IMF’s financial operations began the following year.
WORKING STRUCTURE
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IMF
Board of Governors
Executive Boards
The wishes of the Board of Governors are communicated to the
Executive Directors who meet in formal session at least three
times a week. There are 24 Executive Directors, eight
representing individual countries – China, France, Germany,
Japan, Russia, Saudi Arabia, the United Kingdom, and the United
States – and 16 representing groups of the remaining countries.
Managing Director
The Managing Director is the chief of the IMF's operating staff
and Chair of the Executive Board. The Managing Director is
assisted by four Deputy Managing Directors in the operation of
the Fund, which serves its membership through about 2,700 staff
Kristalina Georgieva is the current IMF Managing Director
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IMF
International Monetary and Financial Committee
IMF Staff
The IMF has an international staff of about 2,700 economists, statisticians, research scholars,
experts in public finance and taxation and in finance systems and banking, linguists, writers and
editors, and support personnel, most headquartered in Washington, DC. The IMF is headed by a
Managing Director who is also chairman of the Executive Board, which appoints him.
What Do it Work?
The IMF is responsible for the creation and maintenance of the international monetary system, the
system by which international payments among countries take place. It thus strives to provide a
systematic mechanism for foreign exchange transactions in order to foster investment and promote
balanced global economic trade.
To achieve these goals, the IMF focuses and advises on the macroeconomic policies of a country,
which affect its exchange rate and its government's budget, money and credit management. The
IMF will also appraise a country's financial sector and its regulatory policies, as well as structural
policies within the macroeconomy that relate to the labor market and employment. In addition, as
a fund, it may offer financial assistance to nations in need of correcting balance of
payments discrepancies. The IMF is thus entrusted with nurturing economic growth and
maintaining high levels of employment within countries.
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IMF
How Does it Works?
The IMF is headed by a board of governors, each of whom represents one of the organization’s
approximately 180 member states. The governors, who are usually their countries’ finance
ministers or central bank directors, attend annual meetings on IMF issues. The fund’s day-to-day
operations are administered by an executive board, which consists of 24 executive directors who
meet at least three times a week. Eight directors represent individual countries
(China, France, Germany, Japan, Russia, Saudi Arabia, the United Kingdom, and the United
States), and the other 16 represent the fund’s remaining members, grouped by world regions.
Because it makes most decisions by consensus, the executive board rarely conducts formal voting.
The board is chaired by a managing director, who is appointed by the board for a renewable five-
year term and supervises the fund’s staff of about 2,700 employees from more than 140 countries.
The managing director is usually a European and—by tradition—not an American. The first
female managing director, Christine Lagarde of France, was appointed in June 2011.
Each member contributes a sum of money called a quota subscription. Quotas are reviewed every
five years and are based on each country’s wealth and economic performance—the richer the
country, the larger its quota. The quotas form a pool of loanable funds and determine how much
money each member can borrow and how much voting power it will have. For example, the United
States’ approximately $83 billion contribution is the most of any IMF member, accounting for
approximately 17 percent of total quotas. Accordingly, the United States receives about 17 percent
of the total votes on both the board of governors and the executive board. The Group of
Eight industrialized nations (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom,
and the United States) controls nearly 50 percent of the fund’s total votes.
The larger the country, the larger its contribution; thus the U.S. contributes about 18% of total
quotas while the Seychelles Islands contribute a modest 0.004%. If called upon by the IMF, a
country can pay the rest of its quota in its local currency. The IMF may also borrow funds, if
necessary, under two separate agreements with member countries. In total, it has SDR 212 billion
(USD 290 billion) in quotas and SDR 34 billion (USD 46 billion) available to borrow.
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IMF
Largest IMF Members by Quota, 2020 (in millions of SDRs and percent of total quotas)
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IMF
Why Join the International Monetary Fund?
On joining the IMF, each country pledges to cooperate with all other member countries in
resolving international monetary problems. Members are required to share information on
financial, fiscal, economic, and exchange policies that have international ramifications.
Members must refrain from restricting the exchange of domestic money for foreign money.
They pledge themselves to pursue economic policies that will encourage employment and
international trade to the benefit of the entire world economic community.
OBLIGATIONS OF MEMBERSHIP
Agree to the code of conduct found in the IMF Articles of Agreement
Pay a quota subscription
Refrain from restrictions on exchange of foreign currency
Strive for openness in economic policies affecting other countries.
The IMF rarely makes its decisions on the basis of formal voting, but relies on the
formation of consensus among its members.
The chain of command runs clearly from governments of member countries to the IMF and
not vice versa.
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IMF
MEMBERS OF IMF
Total members of IMF are 186 Countries. The seven countries (out of a total of
196 countries) that are not IMF members are Cuba, East Timor, North Korea,
Liechtenstein, Monaco, Taiwan, and Vatican City.
BENEFITS OF MEMBERSHIP
The benefits of belonging to the IMF are obviously convincing to the 184 countries that have
voluntarily joined the organization. These countries anticipate that membership will help them
run their own economies better. Because member countries are known to be following the IMF
code of conduct, membership encourages investment and trade, leading to fuller employment.
The IMF also provides technical assistance and financial support when the member country
needs it.
Advantages of IMF
It promotes international monetary co-operation and global financial stability.
It provides temporary financial help to countries in debt – particularly those with balance-
of-payments problems.
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IMF
Disadvantages of IMF
Decisions about which countries may borrow money are made by rich countries. Poor
countries have little say about loans and the conditions attached to them.
The IMF will only lend money to countries if they agree to certain conditions. These
conditions increase poverty.
The livelihoods of people in poorer countries are destroyed by unfair competition from
foreign goods and services.
The IMF does not give good financial advice. Countries have suffered by following it.
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IMF
IMF and CURRENT GOVERNMENT
In 2018, Imran Khan became Prime Minister of Pakistan. From start, Pakistan had a
large balance of payment deficit and its foreign reserves were only good enough for two months.
For this, they arranged friendly loans from Saudi Arabia, United Arab Emirates and China to
avoid tough IMF conditions. In 2019, when economic conditions worsened, they went to IMF for
twenty-second time and got a largest loan in history of US$6 billion. IMF gave loan based on
conditions such as hike in energy tariffs, removal of energy subsidy, increase in taxation,
privatization of public entities and fiscal adjustments to the budget.
IMF gave loan based on conditions such as
hike in energy tariffs
removal of energy subsidy
increase in taxation
privatization of public entities
fiscal adjustments to the budget.
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