Bretton woods institutions: International monetary

fund.
IMF
The IMF has 189 members.India is a founding member.Its headquarters is in Washington.

Objectives-

• To promote international monetary cooperation

• To facilitate balamced growth of nternational trade for economic growth of all member
countries.
• To promote exchange rate stability;maintain orderly exchange rate arrangement; and to
advice against competitive exchange rate revaluation.
• To help members in times of balance of payments crisis.

Governance structure
• The Board of Governors is the highest decision-making body of the IMF.
• It 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 head of the central bank.
• While the Board of Governors has delegated most of its powers to the IMF's
Executive Board, it retains the right to approve quota increases, special drawing right
(SDR) allocations, the admittance of new members, compulsory withdrawal of
members, and amendments to the Articles of Agreement and By-Laws.
• The Board of Governors also elects or appoints executive directors and is the
ultimate arbiter on issues related to the interpretation of the IMF's Articles of
Agreement. Voting by the Board of Governors usually takes place by mail-in ballot.

International monetary and financial committee

The IMFC has 24 members, drawn from the pool of 187 governors. Its structure mirrors
that of the Executive Board and its 24 constituencies. As such, the IMFC represents all
the member countries of the Fund.
Functions: The IMFC meets twice a year, during the Spring and Annual Meetings. The
Committee discusses matters of common concern affecting the global economy and also
advises the IMF on the direction its work.
At the end of the Meetings, the Committee issues a joint communiqué summarizing
its views. These communiqués provide guidance for the IMF’s work program during the
six months leading up to the next Spring or Annual Meetings. There is no formal voting
at the IMFC, which operates by consensus.
Significance:

1. The IMFC advises and reports to the IMF Board of Governors on the supervision
and management of the international monetary and financial system, including on
responses to unfolding events that may disrupt the system.
2. It also considers proposals by the Executive Board to amend the Articles of
Agreement and advises on any other matters that may be referred to it by the
Board of Governors.
3. Although the IMFC has no formal decision-making powers, in practice, it has
become a key instrument for providing strategic direction to the work and policies
of the Fund.

Development committee
It was established in 1974 to advice board of IMF and world bank on critical
development issues and on financial resources required to promote economic
development in developing countries.

Function of IMF
▪ Provides Financial Assistance: To provide financial assistance to member countries
with balance of payments problems, the IMF lends money to replenish international
reserves, stabilize currencies and strengthen conditions for economic growth. Countries
must embark on structural adjustment policies monitored by the IMF.
▪ IMF Surveillance: It oversees the international monetary system and monitors the
economic and financial policies of its 189 member countries. As part of this process, which
takes place both at the global level and in individual countries, the IMF highlights possible
risks to stability and advises on needed policy adjustments.
▪ Capacity Development: It provides technical assistance and training to central banks,
finance ministries, tax authorities, and other economic institutions. This helps countries
raise public revenues, modernize banking systems, develop strong legal frameworks,
improve governance, and enhance the reporting of macroeconomic and financial data. It
also helps countries to make progress towards the Sustainable Development Goals
(SDGs).

IMF quota
The IMF is a quota-based institution. Quotas are the building blocks of the IMF’s
financial and governance structure.

An individual member country’s quota broadly reflects its relative position in the
world economy. Quotas are denominated in Special Drawing Rights (SDRs),
the IMF’s unit of account.

ROLES-
Resource Contributions: Quotas determine the maximum amount of financial
resources a member is obliged to provide to the IMF.
Voting Power: Quotas are a key determinant of the voting power in IMF decisions.
Votes comprise one vote per SDR100,000 of quota plus basic votes (same for all
members).
Access to Financing: The maximum amount of financing a member can obtain from the
IMF under normal access is based on its quota.
SDR Allocations: Quotas determine a member’s share in a general allocation of SDRs.

Special drawing rights

▪ The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on
the freely usable currencies of IMF members. SDRs can be exchanged for these
currencies.
▪ The SDR serves as the unit of account of the IMF and some other international
organizations.
▪ The currency value of the SDR is determined by summing the values in U.S.
dollars, based on market exchange rates, of a SDR basket of currencies.
▪ The SDR basket of currencies includes the U.S. dollar, Euro, Japanese yen, pound
sterling and the Chinese renminbi (included in 2016).
▪ The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF
is closed for business) and the valuation basket is reviewed and adjusted every five years.

SDRs as global reserve of currencies

• Dollar as a global reserve currency is neither as viable nor as desirable to
the same degree as before the great recession.
• John maynard jeynes once proposed a global currency in the centre of the
international monetary system.
• US dollar dominates the global reserve system.US monetary policy impacts
the whole world .
• Role of SDR should be increased as it would diversify the risk from forex
holding, lessen the chance of global financial volatility ,make US policy less
important to the world.

IMF borrowing arrangements

While quota subscription of member countries remain the main source of finance
,the IMF can supplement its resource through borrowing if it believes that
resources might fall short.such additional funds are raised through -
NAF-
• The New Arrangement to Borrow is the fund mobilization arrangement of the IMF
to mobilise additional funds through borrowing from member countries.
• Under NAB, member countries and institutions can stand ready to lend to the
Fund.
• The NAB is structured as a set of credit arrangements between the IMF and 38-
member countries (can be changed) and institutions.
GAB-
• General Agreements to Borrow (GAB) was a lending medium for members of
the Group of Ten (G-10).
• Under GAB, G-10 countries deposited funds into the International Monetary
Fund (IMF) for a nation in economic distress to access.
• Usually, the loans made through GAB were temporary and designed to help
address potential crisis situations.

IMF facilities
Over the years IMF has made many instruments that are tailored specific
circumstances of its diverse membership.
• PRGF-Low income countries may borrow at concessional interest rate
through poverty reduction and growth facility.
• SBA- non concessional loans are provided through Stand-by agreement to
the countries facing BOP crisis.
• EFF-Requires basic changes in the economic policy orientation to open up
the economy.

IMF and conditionality

They are the set of conditions that IMF want the bebtor country to adop t in
exchange of the loan.
They are-
• Cutting expenditure also known as austerity
• Devaluation of currency
• Trade liberalization, lifting import export restrictions.
• Open up to FDI
• Allow foreign participants in domestic stock market
• Balancing budget and not over spending
• Removing price controls and state subsidies
• Privatization
• Deregulation of exchange rates
• Currency convertibility
• Downsize the government
• Enact flexible labour sector reform
 • Improving governance and fight corruption

IMF and social protection

To incorporate social protection into IMF operational work,it works with relevant
partner institutions.
The relevant institution include :World bank, in the areas of poverty assessment
,provision of social safety nets and basic social services and improving the
effectiveness and pro-poor orientation of public expenditure ,International labour
organization (ILO), united nations children’s fund (UNICEF), organization for
economic cooperation and development (OECD).

IMF, money-laundering and terror finance

• Money laundering is the illegal process of making large amounts of money
generated by a criminal activity, such as drug trafficking or terrorist funding,
appear to have come from a legitimate source. The money from the criminal
activity is considered dirty, and the process "launders" it to make it look clean.
• Terror financing raises money to finance terrorist activities.

FATF
The Financial Action Task Force (FATF) is an inter-governmental organization
established to set standards and promote effective implementation of legal, regulatory
and operational measures for combating money laundering, terrorist financing and other
related threats to the integrity of the international financial system.
It was formed in 1989 by the G7 Summit which was held in Paris. The FATF is really a
policy-making body that works with governments to bring about national legislation and
regulatory reforms in these areas.
FATF has two lists:

o Grey List: Countries that are considered safe haven for supporting terror funding and
money laundering are put in the FATF grey list. This inclusion serves as a warning to the
country that it may enter the blacklist.
o Black List: Countries known as Non-Cooperative Countries or Territories (NCCTs) are put
in the blacklist. These countries support terror funding and money laundering activities.
The FATF revises the blacklist regularly, adding or deleting entries.

India and IMF

• 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.

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.

Reforming of IMF
Role of IMF was criticized for following reasons-
• One size fits all under which it gives same policies to all ills.
• Conditionalities that go with the loan that it disburses demand that spending on social
sector be curtailed.
• IMF managing director is invariably from European countries as a part of convention and
india and other merging markets are demanding that it should not be geographically
confined and be merit based.
• India wants that its economic power , as it is emerging, should be recognized and so is
given greater voting rights.
• IMF failed to predict the global recession 2008-09,let alone prevent it from surveillance
role.

Chiang mai initiative

The Chiang Mai Initiative (CMI), a mechanism for foreign currency exchange in times of
emergency created under ASEAN+3, had previously been regarded as a pool of foreign
exchange reserves accessible by the countries concerned as a U.S. dollar loan. At this
meeting, however, it was decided to permit local currency swaps.

BRICKS CRA
• The BRICS Contingent Reserve Arrangement (CRA) is a framework for the
provision of support through liquidity and precautionary instruments in response
to actual or potential short-term balance of payments pressures.
• It was established in 2015 by the BRICS countries Brazil, Russia, India, China
and South Africa. The legal basis is formed by the Treaty for the Establishment of
a BRICS Contingent Reserve Arrangement, signed at Fortaleza, Brazil on 15
July 2014.
 • It entered into force upon ratification by all BRICS states, announced at the 7th
BRICS summit in July 2015.
• The objective of this reserve is to provide protection against global liquidity
pressures.
• This includes currency issues where members' national currencies are being
adversely affected by global financial pressures.
• The CRA is generally seen as a competitor to the International Monetary
Fund (IMF) and along with the New Development Bank is viewed as an example
of increasing South-South cooperation.

G10
• G10 stands for 'The Group of Ten', but is a group of the 11 leading industrial
countries; namely: Belgium, Canada, France, Germany, Italy, Japan, the
Netherlands, Sweden, Switzerland, the United Kingdom and the United
States.
• They meet on an annual basis to discuss economic, monetary and financial
matters.

G15
The G15, a group of 17 developing countries from Asia, Africa and Latin America, was set up to
foster cooperation and provide input for other international groups, such as the World Trade
Organization and the Group of Seven rich industrialized nations.

G20
• The G20 (or Group of Twenty) is an international forum for the governments and central
bank governors from 19 countries and the European Union (EU).
• Founded in 1999 with the aim to discuss policy pertaining to the promotion of
international financial stability, the G20 has expanded its agenda since 2008 and heads of
government or heads of state, as well as finance ministers and foreign ministers, have
periodically conferred at summits ever since.

• It seeks to address issues that go beyond the responsibilities of any one organization.

G24
• The Intergovernmental Group of Twenty-Four on International Monetary Affairs and
Development, or The Group of 24 (G-24) was established in 1971 as a chapter of the
Group of 77 in order to help coordinate the positions of developing countries on international
monetary and development finance issues, as well as and to ensure that their interests are
adequately represented in negotiations on international monetary matters.
 • Though originally named after the number of founding Member States, it now has 28
Members (plus China, which acts as a Special Invitee).[1] Although the G-24 officially has 28
member countries, any member of the G-77 can join discussions.
• Although the group is not an organ of the International Monetary Fund, but the IMF provides
secretariat services for the Group.
• Its meets biannually, first prior to the International Monetary and Financial Committee, and
secondly prior to the Joint Ministerial Committee of the Boards of Governors of the Bank and
the Fund.
• These meetings allow developing country members to discuss agenda items prior to these
important meetings of the IMF/World Bank.

G77
• The Group of 77 (G77) at the United Nations is a coalition of 134 developing countries,
designed to promote its members' collective economic interests and create an enhanced
joint negotiating capacity in the United Nations.
• There were 77 founding members of the organization headquartered in Geneva, but it
has since expanded to 134 member countries according to the organization, one of
which is China.
• China does not consider itself to be a member, nor did it when it was generally regarded
as a developing country.
• However, the country supports and financially contributes to G77. Guyana holds the
chairmanship as of 2020.