International Monetary Fund

Presented By-
Deepak Khandelwal
 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.

 HISTORY
• The International Monetary Fund was conceived in
July 1944 originally with 45 members and came into
existence in December 1945 when 29 countries signed
the agreement

• IMF started to make service with IBRD in 1947.

• The IMF works to improve the economies of its

member countries
Organization
 Purposes of the IMF

o Promote international monetary cooperation.

o Expansion and balanced growth of international trade.

o Promote exchange rate stability.

o The elimination of restrictions on the international flow

of capital.
o Help establish multilateral system of
payments and eliminate foreign exchange
restrictions.

o Make resources of the Fund available to

members

o Shorten the duration and lessen the degree

of disequilibrium in international balances
of payments
o Promote international monetary cooperation,
exchange stability, and orderly exchange
arrangements.

o Foster economic growth and high levels of

employment.

o Temporary financial assistance to countries to help the

balance of payments adjustments
Growth in IMF Membership

 In the beginning 29
member countries

 Today,187 member
Countries

 Staff of about 2680

Persons
 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.
 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
 Operations
• Monitoring economic and financial
developments and policies, in member
countries and at the global level, giving policy
advance to its members based on its more than
fifty years of experience.
• Lending to member countries with balance of
payments problems, supporting adjustment and
reform policies aimed at correcting the
underlying problems.
• Providing the governments and central banks
of its member countries with technical
assistance and training in its areas of expertise.
 Operations
• IMF looks at the performance of the economy as
a whole (macroeconomic performance)
• Focuses also on the financial sector policies Ex:
regulation and supervision of banks and other
financial institutions.
• Pays attention to structural policies that affect
macroeconomic performance.
• Ex: labor market policies (affect employment
and wage behavior)
How the polices are determined:
… in their headquarters in Washington:

• The Executive Board meets three times a week,

maybe more.
• The Board has a voting system:- The larger the
economy, the more voting power it has

• - But, most decisions are based on consensus

 Where does the IMF get it’s
Money from?
• Most loans are provided by member countries,
determined by their quota, which is calculated based
upon a country’s 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.
 What is the IMF’s Lending
Capacity?

• IMF can only borrow from financially strong

economies to finance lending.

• The IMF Board selects these “strong

currencies” every three months, which make
up its “usable” resources.
 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%.
 India and the imf
• 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%.
 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.
How does the IMF serve its member
countries?
I. Monitoring national, global, and regional
economic and financial developments and
advising member countries on their economic
policies (“surveillance”).
II. Lending members hard currencies to support
policy programs designed to correct balance of
payments problems.
III. Offering technical assistance in its areas of
expertise, as well as training for government and
central bank officials.
•
Bretton Woods system
• The Bretton Woods system of monetary management
established the rules for commercial and financial relations
among the world's industrial states. independent nation-states.

• Preparing to rebuild the international economic system as

World War II was still raging, 730 delegates from all 44 Allied
nations gathered at the Mount Washington Hotel in Bretton
Woods, New Hampshire, United States, for the United Nations
Monetary and Financial Conference. The delegates deliberated
upon and signed the Bretton Woods Agreements during the
first three weeks of July 1944.
 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.)
 What is the SDR? (Cont.)
• The SDR was introduced as a supplementary reserve asset,
which the IMF could "allocate" periodically to members when
the need arose, and cancel, as necessary.

• IMF member countries may use SDRs in transactions among

themselves, with 16 "institutional" holders of SDRs, and with
the IMF.

• The SDR is also the IMF's unit of account. A number of other

international and regional organizations and international
conventions use it as a unit of account, or as the basis for a
unit of account.
Where the IMF gets its money

• Most comes from the quota subscriptions

– the money each member contributes when
joining the IMF

• General Arrangements to Borrow (1962)

– line of credit set up with several governments
and banks throughout the world
 When is a country in need ?
• A country that had not taken in enough
foreign currency to pay the other countries for
what they have bought
– spends more money than it takes in
• IMF will lend foreign exchange to that
member
– hoping to stabilize its currency which will
strengthen its trade
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 2005—the

Policy Support Instrument—countries 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.
How much money a member can
borrow from the IMF
• 25% of the country’s quota may be used

• If this is not sufficient, then members can borrow

up to 3 times the amount of its quota
– present plans for reform to Executive Directors

• If these plans are sufficient for the Executive

Directors, the IMF grants the member a loan
 conclusion
• The IMF works to foster global growth and
economic stability. It provides policy
advice and financing to members in
economic difficulties and also works with
developing nations to help them achieve
macroeconomic stability and reduce
poverty.
THANK
YOU