IMF of Pakistan

INTRODUCTION
What is the IMF?
The intergovernmental organization that oversees the global financial system. The IMF
organizes the conduct of international monetary affairs.
History Of IMF:
An international monetary conference was held at Bretton Woods in U.S.A. in July which lead
to:
 Establishment of I. M. F
 Setting up of World Bank History of IMF

The International Monetary Fund was created in July 1944, originally with 45 members, with a goal to
stabilize exchange rates and assist the reconstruction of the world international payment
system. Members of IMF 188 Members of IMF.

Types of Membership

Original membership: All those countries whose representatives took part in Bretton Woods’s
conference. Who agreed to be the members of the fund prior to 31st December, 1945?
Ordinary membership: All those who became its members subsequently. BANK has the
authority to suspend any member and similarly every member is free to resign.

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.
Resources of IMF
When a country joins IMF, it is assigned a quota which determines its maximum contribution to
the IMF’s financial resources.
 It based on the country's relative size in the world economy, its voting power and
drawing rights.
 IMF has signed a number of bilateral loan and note purchase agreements to
supplement its quota resources.
It maintains two standing multilateral borrowing arrangements:
 The expanded New Arrangements to Borrow (NAB)
 The General Arrangements to Borrow (GAB)
Golden Holdings:
The IMF’s gold holdings amount to about 90.5 million troy ounces (2,814.1 metric tons)
making the IMF one of the largest official holders of gold in the world. The IMF’s Articles of
Agreement strictly limit the use of gold.
IMF concessional lending and debt relief:

The IMF currently provides two primary types of financial assistance to low-income countries:

 Low-interest loans under the Poverty Reduction and Growth Trust (PRGT).
 Debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the
Catastrophe Containment and Relief (CCR) Trust.
Functions of IMF
Three Major Functions of IMF:

1. Surveillance; Gathering the data and gives advices in making policies of the country.
2. Technical Assistant: Strengthening the human skills and institutional skills of the country. 3.
Financial Assistant: Lending to countries to support reforms. The IMF also plays an important
role in the fight against Money Laundering and Terrorism.
Structure of IMF;
IMF is governed by FOUR main Bodies:

1: Governing Body
2: Executive Board
3: Managing Director
4: IMF Staff
Governing body:
The Governing Body All powers of the IMF are Vested in its Board of Governors, all the
members of countries are represented.(187). Ministry of finance or President of central bank
Governor and Alternate Governor meet once in a year in Washington DC.
In December 2002, the United States governor was Secretary of the Treasury Paul O'Neill,and the
alternate, Federal Board Ch. Alan Greenspan.
Voting Power
Each member nation is required to contribute funds according to its Economic size and
Strength.
Special Drawing Rights (SDR)
A unit for the amount of foreign currency member states can draw on Currencies including:
Euro, Pound Sterling, Japanese yen and US Dollar.
Advisers of the GB
It is being advised by TWO Committees:
 International Monetary & Financial Committee (IMFC)
 The Development Committee
International Monetary & Financial Committee (IMFC)
IMFC has 24 Members, Meets twice a year (Spring, Annual), Matters of common concern
affecting the global economy, Communiqués provide guidance for the IMF's work program.
The Development Committee
24 Members • A joint committee, tasked with advising • IMF & World Bank • Issues related to
Economic development • Developmental issues.
. Executive Board ;
 24 Executive Directors, 5 are appointed by the countries having Largest Quotas, US, UK, Japan,
Germany, France • 19 are appointed by Regional Groups of remaining members • Fund General
Operation • Function in Continuous Session
IMF Managing Directors;
Headed by Executive Board • Managing Director is chosen by E.B • It is responsible for the
conduct of the ordinary business of the Fund • Manager appointed for 5-Years • May not serve
concurrently.
IMF Staff;
It has staff of about 2,600 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.
Importance of IMF
The importance of IMF can be explained for its following works:
1. To bring about international monetary cooperation.
2. To promote and establish system of multinational trade and payments system. To help
member nations to achieve balanced economic growth.
3. To ensure stability in foreign exchange rates.
4. To reduce the disequilibrium in the balance of payments.
5. To offer special aids or loans to member countries in solving their economic problem.
Strengths of IMF

Stabilize Economy at the time of Need;

IMF can be seen as lender of last resort. The IMF can provide crucial loans to stabilize the economy
and prevent a collapse of confidence. Its most important function is its ability to provide loans to
member nations in need of a bailout.
IMF guarantees long term development;
IMF can impose necessary reforms on an economy such as privatization, fiscal responsibility etc.
These policies may cause short term pain but are essential for preventing future crisis and long term
development.
IMF Provides an External Aid;
It provides an external assessment of the economy, which helps the government to implement
popular ideas while focusing on its core macroeconomic and financial areas of responsibility
IMF fills the gap to balance payments;
The IMF assists member nations in several different capacities. If a country has a balance of
payments deficit, the IMF can step in to fill the gap.
IMF Collaboration with Institutions;
 The World Bank.
 The regional development banks.
 The World Trade Organization.
 United Nations agencies.
 International bodies.
IMF as an Economic Adviser
 IMF Collaboration with Institutions It serves as a council and adviser to countries attempting a
new economic policy. It is also known for providing a forum for discussion and consultation
among member countries.
Weaknesses of IMF
Fixed and rigid policies for all;
IMF implies same inflexible set of economic policies for all its members regardless of the
situation.
For example, Policies of privatization may work better in developed countries in the West but
are more difficult to implement in the developing world.
Poverty and Economic problems;
 Loans with high interest rates
 Country stays in debt unable to provide for its people Poverty and Unemployment
As voting power is determined by the amount of money that each country pays into the IMF's quota
system Dominated by the perspective of the G8 industrialized nations. The U.S. is the largest
shareholder of IMF. Germany, Japan, France, Great Britain, and the US combined control about 38
percent of shares.
Hinder Social Security and Social Development;
 Structural adjustment policies (SAPs)
 Cut social development budgets like education, health, food and transportation
budgets etc. Make exports cheaper
 Privatize national assets
 Cut down wages of employees
Disregard national sovereignty:
Foreign bodies have great influence over key economic issues and resource management and
investments in IMF debt countries. For example, Jamaica argues that the IMF takes away the
ability for countries to decide national policy.
Promote Gender Discrimination at National Level.

IMF policies hurt WOMEN the most in IMF debt countries by following means:
• Difficult to meet families’ basic needs
• First to be drawn out of schools due to high education fee as suggested by SAPs
• More exploited as sweatshops abuses increase with long working hours, less wages and
non-existent facilities
Violate Labor Rights
The IMF advises countries to attract foreign investors by weakening their labor laws.
For example, In Haiti, the government was told to eliminate a statute in their labor code that
allowed increases in the minimum wage on 10% inflation. Workers in rich countries are also
hurt this.
 IMF policies promote natural resource exploitation and Unsustainable liquidation on a
staggering scale
 Environmental ministries are not included in policy making
For example, in Africa the Ivory Coast's increased reliance on cocoa exports has led to a loss
of two- thirds of the country's forests.
Morals Hazard;
 Many member countries of IMF like Italy and Greece, have been accused of unsustainable
budgets and unplanned investments etc. because they believed that IMF would come to their
rescue 66.