What is IMF?

The International Monetary Fund (IMF), also known as the Fund, is an international organization
headquartered in Washington, D.C., consisting of 189 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 while periodically depending on
World Bank for its resources. Formed in 1944 at the Bretton Woods Conference primarily by the
ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29
member countries and the goal of reconstructing the international payment system. It now plays a
central role in the management of balance of payments difficulties and international financial crises.
Countries contribute funds to a pool through a quota system from which countries experiencing
balance of payments problems can borrow money. As of 2016, the fund had XDR 477 billion (about
US$667 billion).

Through the fund and other activities such as the gathering of statistics and analysis, surveillance of
its members' economies, and the demand for particular policies, the IMF works to improve the
economies of its member countries. The organisation's objectives stated in the Articles of
Agreement are: to promote international monetary co-operation, international trade, high
employment, exchange-rate stability, sustainable economic growth, and making resources available
to member countries in financial difficulty. IMF funds come from two major sources: quotas and
loans. Quotas, which are pooled funds of member nations, generate most IMF funds. The size of a
member's quota depends on its economic and financial importance in the world. Nations with larger
economic importance have larger quotas. The quotas are increased periodically as a means of
boosting the IMF's resources.

The current Managing Director (MD) and Chairwoman of the International Monetary Fund is French
lawyer and former politician, Christine Lagarde, who has held the post since 5 July 2011. On Tuesday,
July 16, 2019, Christine Lagarde announced her resignation as the MD of IMF effective from
Thursday, September 12, 2019.
 Key Facts about IMF

1. In the 1930’s the world was overtaken with financial turmoil of the Great Depression.
Markets all over the world collapsed and countries closed their doors to foreign imports. The
IMF was conceived in July 1944 at the United Nations Bretton Woods Conference in New
Hampshire, to protect the world from a similar blow and hasten financial recovery in war-
torn nations.

2. The Fund was created to act as a credit union and watch over the values of the world’s
currency, and facilitates International Trade, promotes employment and sustainable growth
and helps to reduce global poverty. Its main aim is to maintain economic stability and help
countries complete financial transactions.

3. The three main responsibilities of the IMF are: Surveillance — specifically to monitor the
economic and financial policies of its members; financial assistance through loans to its
members experiencing balance of payments issues; and technical assistance to help
members design and implement economic policies that foster stability and growth.

4. Primary aims of the IMF: Promote international monetary cooperation, facilitate the
expansion and balanced growth of international trade, promote exchange stability, assist in
the establishment of a multilateral system of payments and make resources available to
members experiencing balance of payment difficulties.

5. The IMF is accountable to 189 member countries. Its Headquarters is located in Washington
D.C.

6. A country’s voting power is based on the size of its economy and the amount of the quota it
pays when it joins IMF. The U.S. has the largest share of votes (approximately 17 percent).
Decisions require a supermajority– 85 percent of votes.

7. The IMF advocates currency devaluation for governments of poor nations with struggling
economies.

8. Largest borrowers of the IMF are Portugal, Greece, Ukraine and Pakistan. The largest
number of IMF loans have gone to the African Continent.

9. The U.S. contributes about 20 percent of the total annual IMF Budget. The largest member
of the IMF is the U.S. and the smallest member is Tuvalu.

10. The fiscal year for the IMF begins on May 1 and ends on April 30.

11. The head of the IMF staff is the Managing Director. The Managing Director also acts as
Chairman of the Executive Board and serves a five year term. The present Managing Director
is Christine Lagarde of France. The Executive Board Members monitor the day to day work
with the guidance of the International Monetary and Financial Committee.
 Will Pakistan reform under IMF pressure?

For the $6-billion loan, Pakistan has to adhere to stiff conditions. But Imran’s focus isn’t on tackling
the economic mess

It’s long been accepted that Pakistan’s army chief is the country’s most important power-broker who
calls the shots. But in the coming months, there may be another crucial figure who’ll wield clout
behind the scenes. His name is Reza Baqir who was with the IMF nearly 20 years and who now has
been parachuted into the top job at Pakistan’s central bank.

Baqir’s unenviable task during the next three years will be to keep a tight watch on Pakistan’s
economic manoeuvres and to ensure it complies with toughest conditions ever set by the IMF for its
latest $6-billion bailout. Abiding by the IMF’s terms will be all the more difficult because there’s no
indication of Imran Khan, whose government just marked its first anniversary, showing any sign of
comprehending, or tackling, the country’s deep economic mess. On the contrary, Khan has focussed
on raising the temperature against India over Kashmir and, instead of sabre-rattling, he’s now nuke-
rattling to attract the world’s attention.

Can Pakistan hike taxes and ensure many more of its elite are forced into the tax net? (Pakistan with
its 217 million population has 1.5 million taxpayers. Compare that with Bangladesh which, with its
168 million population, has 1.6 million taxpayers). Also, can it raise electricity prices and push up
exports enough to narrow its trade deficit? Can it reduce its overall budget deficit? Can it move to a
“market determined” exchange rate? These are all changes the IMF wants to see in exchange for its
money.

On the exchange-rate front, there’s one positive of sorts: Pakistan’s got closer to a market-
determined exchange rate because its currency has sunk from PKR 120 to the US dollar to PKR 158
over the last few months (Ten years ago, PKR 80 bought one dollar). But for the rest, it will be a
rough ride. The lower rupee might make exports more attractive but it will stoke domestic inflation,
already over 8 per cent. The dollar inflow may allow the government, however, to expand welfare
spending in an attempt to ease economic misery.

Pakistan is a standing example of a country that’s done almost everything wrong when it comes to
ensuring its citizens’ prosperity. The result is it has plunged into its worst-ever economic morass
while India and even Bangladesh have risen to new prosperity levels. The army’s interests have
always overridden all others. But the fact is Pakistan would find it hard to afford a conventional war
right now. Also, the current IMF rescue comes only three years after the last one ended and Pakistan
still has repayments to make on its earlier borrowings.

Pakistan began as a country with a strong agricultural base and maybe that’s why it didn’t bother
focussing on building industrial might. The result is its industries are terribly underdeveloped, even
compared to Bangladesh. Consider power production. Till two years ago, the entire country
produced only 25,000MW of power daily. That’s risen since then to 32,000MW because of the new
Chinese-backed projects coming onstream under the China-Pakistan Economic Corridor (CPEC). Now
compare that to India’s capital Delhi, an enormous power guzzler. In July, Delhi’s electricity
consumption peaked at around 7,500MW on one particularly warm day. That one figure is enough to
illustrate how Pakistan has failed to develop its industry.

In other key sectors, Pakistan’s performance is not quite as dire but it’s nothing to write home
about. The cement industry produces around 40 million tonnes annually compared to India’s around
500 mt. Some of its cement is exported to the Middle East and even came to India until the latest
trade shutdown. Steel production is at 4 mt compared to India’s 102 mt. India recently overtook
Japan to become the world’s second-largest steel producer though it’s far behind China that turns
out 800 mt, which is flooding world markets.

Falling growth

Clearly, industry needs to take root in a far more profound way in a country in which almost two-
thirds of the population is under 30 and where 30 per cent is below the poverty line. But economic
growth has fallen from 5.5 per cent in 2017-18 to 3.3 last year. And things will get much worse
before they get better with growth projected to cool to 2.4 per cent in 2019-20.

Adherence to the IMF’s stringent loan conditions will be reviewed quarterly. But, in many places, the
IMF Pakistan report appears almost to be going through the motions and not really believing its own
words. The macroeconomic section, for instance, is headlined: “Sustained reform implementation is
expected to steadily reduce imbalances and deliver higher and more balanced growth.” But the
section goes on to note economic activity will probably decelerate because of the strict measures
being taken. Then, sounding a plaintively hopeful note, it says the government’s belt-tightening
should lead to higher private-sector and foreign investment.

Can Pakistan change its ways during the 39-month IMF programme? As anyone who follows Pakistan
knows, it’s been through many such programmes. In fact, the IMF has bailed it out a staggering 21
times, and it hasn’t reformed in any way. Khan’s pronouncements also show little understanding of
his country’s predicament. Will he stay the course when tough times start hurting his popularity?

Is an economically thriving Pakistan or one that’s an economic failure better for India? Certainly,
India and Pakistan would benefit hugely by trading with each other like normal neighbours but that
doesn’t seem to be on the cards in the foreseeable future. Worryingly, failure can turn leaders, and
not just of Pakistan, towards other adventures to restore their popularity.

Khan, though, has got one big bargaining chip and may still get lucky. He’s reportedly seeking to
persuade Washington to help dilute the IMF’s tough conditions and keep Pakistan off the FATF’s
anti-money-laundering blacklist in exchange for US troops’ peaceful exit from Afghanistan, according
to Pakistan’s The News, quoting an unnamed cabinet minister. President Donald Trump may just
take the bait because he wants US troops out of Afghanistan by the 2020 elections and so Pakistan
may yet get an easing of IMF financial pressure. Khan’s got two meetings this month with Trump to
pitch his case.

Still, there’s a lesson in this for us. Countries that take their eye off the economic ball and get
distracted by other issues can often find themselves mired in difficulties. India has got many things
right till now, despite what the Modi government may say about the Nehru and Congress
governments. Any deviation from focussing on the economy could lead us onto the wrong roads and
away from the goal of being a prosperous nation.