About the IMF

Presentation On:

“International Monetary Fund”

Submitted To: Mahathy Hasan Jewel Lecturer, Dept. of Business Admin. IBAIS University

Submitted By: Md. Ali Akbar-3265, Batch-32(B) Md. Badruddza Nahid-3280, Batch-32(B) Shariful Islam-3250, Batch-32(B) Md. Rahfir Rahim-3289, Batch-32(B) Sumon Biswas-3242, Batch-32(B) Rashed Ferdous Shifat-3283, Batch-32(B)

17-06-2012International Monetary Fund

About the IMF

The International Monetary Fund (IMF) is an organization of 188 countries, workingto foster global monetary cooperation, securefinancial stability, facilitate internationaltrade, promote high employment andsustainable economic growth, and reducepoverty around the world.

History

The International Monetary Fund was originally created as part of the Bretton Woods systemexchange agreement in 1944.During the GreatDepression, countries sharply raised barriersto foreign trade in an attempt to improve their failing economies. This led to the devaluationof national currencies and a decline in worldtrade. The representatives of 45 governmentsmet in the Mount Washington Hotel in Bretton Woods, New Hampshire in the United States, and agreed on a framework for internationaleconomic cooperation to establish post –World War II. The participating countries were Concerned with the rebuilding of Europe and The global economic system after the war.

There were two views on the role the IMF should assume as a global economic institution at the Bretton Woods Conference. The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement. The International Monetary Fund was one of the key organizations of the international economic system; its design allowed the system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism.

In 1947, France became the first country to borrow from the IMF. The IMF’s influence in the global economy steadily increased as it accumulated more members. The number of IMF member countries has more than quadrupled from the 44 states involved in its establishment, reflecting in particular the attainment of political independence by many African countries and more recently the 1991 dissolution of the Soviet Union because most countries in the Soviet Sphere of influence did not join the IMF.

The Bretton Woods system prevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold. This is known as the Nixon Shock. As of January 2012, the largest borrowers from the fund in order are Greece, Portugal, Ireland, Romania and Ukraine.

IMF Aims

Article I of the Articles of Agreement sets out the IMF’s main goals:

o promoting international monetary cooperation; o facilitating the expansion and balanced growth of international trade;

o promoting exchange stability;

o assisting in the establishment of a multilateral system of payments; and

o making resources available (with adequate safeguards) to members experiencing balance of payments difficulties.

Member countries

The members of the IMF are 188 members of the UN and the Republic of Kosovo. All members of the IMF are also International Bank for Reconstruction and Development (IBRD) members and vice versa.

Former members are Cuba (which left in 1964) and the Republic of China, which was ejected from the UN in 1980 after losing the support of then U.S. President Jimmy Carter and was replaced by the People's Republic of China.

Apart from Cuba, the other states that do not belong to the IMF are North Korea, Andorra, Monaco, Liechtenstein, Nauru, Cook Islands, Niue, Vatican City, and the states with limited recognition (other than Kosovo).

Qualifications for Membership

Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar period, rules for IMF membership were left relatively loose. Members needed to make periodic membership payments towards their quota, to refrain from currency restrictions unless granted IMF permission, to abide by the Code of Conduct in the IMF Articles of Agreement, and to provide national economic information. However, stricter rules were imposed on governments that applied to the IMF for funding.

The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement.

Some members have a very difficult relationship with the IMF and even when they are still members they do not allow themselves to be monitored. Argentina for example refuses to participate in an Article IV Consultation with the IMF.

Benefits

Member countries of the IMF have access to information on the economic policies of all member countries, the opportunity to influence other members’ economic policies, technical assistance in banking, fiscal affairs, and exchange matters, financial support in times of payment difficulties, and increased opportunities for trade and investment.

Leadership or Management

Board of Governors

The Board of Governors consists of one governor and one alternate governor for each member country. Each member country appoints its two governors. The Board normally meets once a year and is responsible for electing or appointing executive directors to the Executive Board. While the Board of Governors is officially responsible for approving quota increases, special drawing right allocations, the admittance of new members, compulsory withdrawal of members, and amendments to the Articles of Agreement and By-Laws, in practice it has delegated most of its powers to the IMF's Executive Board.

The Board of Governors is advised by the International Monetary and Financial Committee and the Development Committee. The International Monetary and Financial Committee has 24 members and monitors developments in global liquidity and the transfer of resources to developing countries. The Development Committee has 25 members and advises on critical development issues and on financial resources required to promote economic development in developing countries. They also advise on trade and global environmental issues.

Executive Board

24 Executive Directors make up Executive Board. The Executive Directors represent all 188 member-countries. Countries with large economies have their own Executive Director, but most countries are grouped in constituencies representing four or more countries.

Following the 2008 Amendment on Voice and Participation, eight countries each appoint an Executive Director: the United States, Japan, Germany, France, the United Kingdom,

China, the Russian Federation, and Saudi Arabia. The remaining 16 Directors represent constituencies consisting of 4 to 22 countries. The Executive Director representing the largest constituency of 22 countries accounts for 1.55% of the vote.

Managing Director

The IMF is led by a Managing Director, who is head of the staff and serves as Chairman of the Executive Board. The Managing Director is assisted by a First Deputy Managing Director and three other Deputy Managing Directors. Historically the IMF’s managing director has been European and the president of the World Bank has been from the United States. However, this standard is increasingly being questioned and competition for these two posts may soon open up to include other qualified candidates from any part of the world. In 2011 the world's largest developing countries, the BRIC nations, issued a statement declaring that the tradition of appointing a European as managing director undermined the legitimacy of the IMF and called for the appointment to be merit-based. The head of the IMF's European department is Antonio Borges of Portugal, former deputy governor of the Bank of Portugal. He was elected in October 2010.

Dates Name Nationality

May 6, 1946 – May 5, 1951 Camille Gutt  Belgium

August 3, 1951 – October 3, 1956 Ivar Rooth  Sweden

November 21, 1956 – May 5, 1963 Per Jacobsson  Sweden

September 1, 1963 – August 31, 1973 Pierre-Paul Schweitzer  France

September 1, 1973 – June 16, 1978 Johannes Witteveen  Netherlands

June 17, 1978 – January 15, 1987 Jacques de Larosière  France

January 16, 1987 – February 14, 2000 Michel Camdessus  France

May 1, 2000 – March 4, 2004 Horst Köhler  Germany

June 7, 2004 – October 31, 2007 Rodrigo Rato  Spain

November 1, 2007 – May 18, 2011 Dominique Strauss-Kahn  France

July 5, 2011 – Christine Lagarde  France

On June 28, 11, Christine Lagarde was named Managing Director of the IMF, replacing Dominique Strauss-Kahn.Previous Managing Director Dominique Strauss-Kahn was arrested in connection with charges of sexually assaulting a New York room attendant . Strauss-Kahn Subsequently resigned his position on May 18.On June 28, 11Christine Lagarde was confirmed as Managing D of the IMF for a five-year term starting on 5,11.

Voting power

Voting power in the IMF is based on a quota system. Each member has a number of “basic votes" (each member's number of basic votes equals 5.502% of the total votes), plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member country’s quota. The Special Drawing Right is the unit of account of the IMF and represents a claim to currency. It is based on a basket of key international currencies. The

basic votes generate a slight bias in favor of small countries, but the additional votes determined by SDR outweigh this bias..

Effects of the quota system

The IMF’s quota system was created to raise funds for loans. Each IMF member country is assigned a quota, or contribution, that reflects the country’s relative size in the global economy. Each member’s quota also determines its relative voting power. Thus, financial contributions from member governments are linked to voting power in the organization. This system follows the logic of a shareholder-controlled organization: wealthy countries have more say in the making and revision of rules. Since decision making at the IMF reflects each member’s relative economic position in the world.

Developing countries

Quotas are normally reviewed every five years and can be increased when deemed necessary by the Board of Governors. Currently, reforming the representation of developing countries within the IMF has been suggested. These countries’ economies represent a large portion of the global economic system but this is not reflected in the IMF's decision making process through the nature of the quota system. Joseph Stiglitz argues "There is a need to provide more effective voice and representation for developing countries, which now represent a much larger portion of world economic activity since 1944, when the IMF was created." In 2008, a number of quota reforms were passed including shifting 6% of quota shares to dynamic emerging markets and developing countries.

United States influence

A second criticism is that the United States’ transition to neoliberalism and global capitalism also lead a change in the identity and functions of international institutions like the IMF. Because of the high involvement and voting power of the United States, the global economic ideology could effectively be transformed to match the US's. This is consistent with the IMF’s function change during the 1970s after the Nixon Shock ending the Bretton Woods system. Another criticism is that allies of the United States are able to receive bigger loans with fewer conditions.

Overcoming borrower/creditor divide

The IMF’s membership is divided along income lines: certain countries provide the financial resources while others use these resources. Both developed country “creditors” and developing country “borrowers” are members of the IMF. The developed countries provide the financial resources but rarely enter into IMF loan agreements; they are the creditors. Conversely, the developing countries use the lending services but contribute little to the pool of money available to lend because their quotas are smaller; they are the borrowers. Thus, tension is created around governance issues because these two groups, creditors and borrowers, have fundamentally different interests in terms of the conditions of these loans. The criticism is that the system of voting power distribution through a quota system institutionalizes borrower subordination and creditor dominance.

Functions

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. The rationale for this is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance of payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse effects on both national and international economic prosperity. The IMF can provide other sources of financing to countries in need that would not be available in the absence of an economic stabilization program supported by the Fund.

Upon initial IMF formation, its two primary functions were: to oversee the fixed exchange rate arrangements between countries, thus helping national governments manage their exchange rates and allowing these governments to prioritize economic growth, and to provide short-term capital to aid balance-of-payments. This assistance was meant to prevent the spread of international economic crises. The Fund was also intended to help mend the pieces of the international economy post the Great Depression and World War II.

Z

In addition, the IMF negotiates conditions on lending and loans under their policy of conditionality, which was established in the 1950s. Low-income countries can borrow on

concessional terms, which means there is a period of time with no interest rates, through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF). No concessional loans, which include interest rates, are provided mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance via the newly introduced Rapid Financing Instrument (RFI) to all its members facing urgent balance of payments needs.

Surveillance of the global economy

The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its 188 member countries. This activity is known as surveillance and facilitates international cooperation. Since the demise of the Bretton Woods system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of new obligations. The responsibilities of the Fund changed from those of guardian to those of overseer of members’ policies.The Fund typically analyzes the appropriateness of each member country’s economic and financial policies for achieving orderly economic growth, and assesses the consequences of these policies for other countries and for the global economy.

Loans and Conditions

IMF conditionality is a set of policies or “conditions” that the IMF requires in exchange for financial resources. The IMF does not require collateral from countries for loans but rather requires the government seeking assistance to correct its macroeconomic imbalances in the form of policy reform. If the conditions are not met, the funds are withheld. Conditionality is perhaps the most controversial aspect of IMF policies. The concept of conditionality was introduced in an Executive Board decision in 1952 and later incorporated in the Articles of Agreement. Conditionality is associated with economic theory as well as an enforcement mechanism for repayment. Stemming primarily from the work of Jacques Polak in the Fund’s research department, the theoretical underpinning of conditionality was the “monetary approach to the balance of payments."

SDR (Special Drawing Rights)

The IMF issues an international reserve asset known as Special Drawing Rights (SDRs) that can supplement the official reserves of member countries. Two allocations in August and September 2009 increased the outstanding stock of SDRs almost ten-fold to total about SDR 204 billion (US$312 billion). Members can also voluntarily exchange SDRs for currencies among themselves. In a recent paper, IMF staff explore options to enhance the role of the SDR to promote international monetary stability.

Technical assistance

The IMF provides technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is offered in several areas, including tax policy and administration, expenditure management, monetary and exchange rate policies, banking and financial system supervision and regulation, legislative frameworks, and statistics.

Resources

The IMF’s resources are provided by its member countries, primarily through payment of quotas, which broadly reflect each country’s economic size. At the April 2009 G-20 Summit, world leaders pledged to support a tripling of the IMF's lending resources from about US$250 billion to US$750 billion. To deliver on this pledge, the current and new participants in the New Arrangements to Borrow (NAB) agreed to expand the NAB to about US$570 billion, which was approved by the Executive Board of the IMF on April 12, 2010 and became effective on March 11, 2011 following completion of the ratification process by NAB participants. When concluding the 14th General Review of Quotas in December 2010, Governors agreed to double the IMF’s quota resources to approximately US$730 billion and a major realignment of quota shares among members. When the quota increase becomes effective, there will be a corresponding rollback in NAB resources. In April 2012, member countries announced additional pledges to increase the IMF’s resources by over $430 billion to help strengthen global economic and financial stability.

Historically, the annual expenses of running the Fund have been met mainly by interest receipts on outstanding loans, but the membership recently agreed to adopt a new income model based on a range of revenue sources better suited to the diverse activities of the Fund.

Core role: crisis resolution

A country in severe financial trouble, unable to pay its international bills, poses potential problems for the stability of the international financial system, which the IMF was created to protect. Any member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain a safe level of reserves.

IMF Board Approves €28 Bi Loan for Greece.

IMF Approves $15.1 Billion Loan for Ukraine.

Angola Gets $1.4 Billion IMF Loan.

IMF Board Approves € 108.9 Mi for Kosovo. IMF Approves € 100 mi for Bangladesh

Bangladesh and IMF

Bangladesh Joined on August 17, 1972; accepted the obligations under Article VIII, Sections 2, 3, and 4 on April 11, 1994.

Quota: SDR 533.30 million

Outstanding loans: Emergency Assistance SDR 133.33 million; PRGF Arrangements SDR 301.88 million.

Extended Credit Facility to Bangladesh

Member Date of Agreement

Expiration Total AmountAgreed

UndrawnBalance

IMF CreditOutstandingUnder PRGFT

Bangladesh April 11, 2012

April 10, 2015

639,960 548,537 282,046

Accountability and transparency The IMF is accountable to the governments of its member countries. At the top of its organizational structure is the Board of Governors, which consists of one Governor and one Alternate Governor from each member country. The Board of Governors meets once each year at the IMF-World Bank Annual Meetings. Twenty-four of the Governors sit on the International Monetary and Financial Committee (IMFC) and normally meet twice each year. In 2010, over 90 percent of Article IV and program-related staff reports and policy papers were published.

IMF and globalization

Globalization encompasses three institutions: global financial markets and transnational companies, national governments linked to each other in economic and military alliances led by the US, and rising “global governments” such as World Trade Organization (WTO), IMF, and World Bank. Charles Derber argues in his book People Before Profit, "These interacting institutions create a new global power system where sovereignty is globalized, taking power and constitutional authority away from nations and giving it to global markets and international bodies. " Titus Alexander argues that this system institutionalises global inequality between western countries and the Majority World in a form of global apartheid, in which the IMF is a key pillar.

The establishment of globalized economic institutions has been both a symptom of and a stimulus for globalization. The development of the World Bank, the IMF. regional development banks such as the European Bank for Reconstruction and Development (EBRD), and, more recently, multilateral trade institutions such as the WTO indicates the trend away from the dominance of the state as the exclusive unit of analysis in international affairs. Globalization has thus been transformative in terms of a reconceptualizing of state sovereignty.

Following U.S. President Bill Clinton's administration’s aggressive financial deregulation campaign in the 1990s, globalization leaders overturned long-standing restrictions by governments that limited foreign ownership of their banks, deregulated currency

exchange, and eliminated restrictions on how quickly money could be withdrawn by foreign investors.

Criticism

Overseas Development Institute (ODI) research undertaken in 1980 pointed to five main criticisms of the IMF which support the analysis that it is a pillar of global apartheid. Firstly, developed countries were seen to have a more dominant role and control over less developed countries (LDCs) primarily due to the Western bias towards a capitalist form of the world economy with professional staff being Western trained and believing in the efficacy of market-oriented policies.

Secondly, the Fund worked on the incorrect assumption that all payments disequilibria were caused domestically. The Group of 24 (G-24), on behalf of LDC members, and the United Nations Conference on Trade and Development (UNCTAD) complained that the Fund did not distinguish sufficiently between disequilibria with predominantly external as opposed to internal causes. This criticism was voiced in the aftermath of the 1973 Oil

Crises.

The third criticism was that the effects of Fund policies were anti-developmental. The deflationary effects of IMF programmers’ quickly led to losses of output and employment in economies where incomes were low and unemployment was high. Moreover, it was

sometimes claimed that the burden of the deflationary effects was borne disproportionately by the poor.

Fourthly is the accusation that harsh policy conditions were self-defeating where a vicious circle developed when members refused loans due to harsh conditionality, making their economy worse and eventually taking loans as a drastic medicine.

Lastly is the point that the Fund's policies lack a clear economic rationale. Its policy foundations were theoretical and unclear due to differing opinions and departmental rivalries whilst dealing with countries with widely varying economic circumstances.

In an interview, the former Romanian Prime Minister Călin Popescu-Tăriceanu claimed that "Since 2005, IMF is constantly making mistakes when it appreciates the country's economic performances."

Support of military dictatorships

The role of the Bretton Woods institutions has been controversial since the late Cold War period, due to claims that the IMF policy makers supported military dictatorships friendly to American and European corporations and other anti-communist regimes. Critics also claim that the IMF is generally apathetic or hostile to their views of human rights, and labor rights. The controversy has helped spark the Anti-globalization movement.

Impact on access to food

A number of civil society organizations have criticized the IMF’s policies for their impact on people’s access to food, particularly in developing countries. In October 2008, former U.S. president Bill Clinton presented a speech to the United Nations World Food Day, which criticized the World Bank and IMF for their policies on food and agriculture:

Impact on public health

In 2008 a study by analysts from Cambridge and Yale universities published on the open-access Public Library of Science concluded that strict conditions on the international loans by the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care had to be weakened. In the 21 countries to which the IMF had given loans, tuberculosis deaths rose by 16.6%.

Impact on environment

IMF policies have been repeatedly criticized for making it difficult for indebted countries to avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal, and forest-destroying lumber and agriculture projects.

Criticism from free-market advocates

Typically the IMF and its supporters advocate a monetarist approach. As such, adherents of supply-side economics generally find themselves in open disagreement with the IMF. The IMF frequently advocates currency devaluation, criticized by proponents of supply-side economics as inflationary.