Imf

Headquarters Washington D C USA

Members 185 countries

Managing Director Dominique Strauss-Kahn

History of IMF

bull IMF was introduced as there arouse a need for International cooperation in economics trade and balance of payment affairs

bull United States made a proposal for establishment of International Stabilization Fund It was known as White plan

bull UK proposed establishment of International Clearing Union It was known as Keynes plan

bull IMF came in to existence by the joint plan prepared in 1944

bull Thus IMF came in to existence to promote economic and financial co-operation among the member countries

EMERGENCE OF IMFbull The International Monetary Fund was formally created in July

1944 during the United nations Monetary and Financial Conferencebull The IMF was formally organized on December 27 1945 when the first 29 countries signed its Articles of Agreement The statutory purposes of the IMF today are the same as when they were formulated in 1944 Headquarters bull IMF is a post-war international monetary institution

bull Growth in IMF Membership 1945 - 2005(number of countries)

Organizational structure

BOARD OF GOVERNORS

EXECUTIVE BOARD OF DIRECTORS

MANAGING DIRECTOR

IMF SECRETARIAT

bullInterim CommitteebullDevelopment committee

Key Members

IMF Member Country Quota Millions of SDRs

Quota Percentage

Australia 32364 149

Belgium 46052 212

U S A 371495 1709

United Kingdom 107385 494

India 41583 191

Brazil 30361 14

Objectives of IMF

bull To avoid the competitive devaluation and exchange

control

bull To establish and maintain currency convertibility

bull To develop multilateral trade and payments

bull To promote international monetary co-operation through

a permanent institute

bull To facilitate the expansion of balanced growth of

international trade

bull To provide exchange stability

Objectives Conti

bull To maintain orderly exchange arrangements among

members and to avoid competitive exchange

depreciation

bull To assist in the establishment of a multilateral system of

payments in respect of current transactions

bull To lend confidence to members by making the funds

resources available to them under adequate safeguards

bull To shorten the duration and lessen the degree of

disequilibrium in the international balance of payments of

members

Functions of IMF

bull lsquoGuardian of good conductrsquo in the area of Balance of payments

bull Reducing tariffs and other trade restrictionsbull Provides technical advicebull Provides short term financial assistance to its member

countries bull Provides machinery for orderly adjustment of

exchange ratesbull Reservoir of currenciesbull Lending institution of foreign currencies bull

bull Machinery for altering the par values of the

currency of a member country

bull International consultancy

bull Conducts research studies and publishes report

How Does IMF Get Its Money

bull Mainly from the Quotas that countries deposit when

they join

bull The Quotas reflects the size of each members

economy

bull Under some Circumstances it gets money from

Trusts

Role of IMF

Lending- Providing financial assistance to low-income

countries experiencing protracted BOP through-

bull Poverty Reduction And Growth Facility(PRGF)

bull Heavily Indebted Poor Countries

Initiative(HIPC)

bull Multilateral Debt Relief Initiative (MDRI)

Technical Assistance- For development of productive

resources of member countries through help in Policy

Making and Training

bull Regional Technical Assistance Center at

Pacific Caribbean and Africa

bull It accounts for about one-fifth of IMFrsquos operating budget

bull Bilateral donors of technical assistance program-

Australia China Canada France Germany India Japan

Russia Luxembourg Portugal US UK etc

bull Multilateral Donors- African Development Bank Arab

Monetary Fund Asian Development Bank etc

Ghana discovery of oil field

Nigeria natural gas

Developing countries combat poverty and growth

Surveillance- Help in providing policy advise to low

income countries by-

i Establishing Economic Frameworks that support

sustained growth and poverty reduction

ii Identify and manage sources of macroeconomic risk and

vulnerabilities

iii Strengthen institutions and policies that underline sound

macroeconomic management

Progress report is annually published in Global Monitoring

Report by IMF and World Bank

Balance of Payment Difficulties

bull It occurs due to-

bull Fiscal Deficit

bull High Level of external andor public debt

bull Exchange rate fixed at inappropriate levels

bull Natural Disasters or Armed conflicts

bull It causes-

bull Countryrsquos Currency Depreciate rapidly

bull International goods expensive

Balance of Payment Status

bull Worlds payment balances in 2005 (States in surplus in blue (dark blue = Euroland) States in deficit in red)

bull And also in here

How IMF helps

bull Through IMF Lending

bull Through IMF Loan

IMF Helps Ghana Learn From Others on Inflation Targets

bull February 14 2008

bull The IMF is sharing its cross-country experience in inflation targeting with Ghana as the country adapts its monetary policy and aims to reach middle-income status by 2015

IMF to Back Liberia With Debt Relief New Finance

bull March 20 2008

bull In a major move to back Liberias economic recovery after a ruinous 14-year period of civil war the IMF has announced a series of measures to support it with debt relief and new financing

Exchange rate

bull The exchange rates between two countries specifies how

much one currency is worth in terms of other

Ex- JPY 102 = USD 1

amp USD 1= 4135 INR

Spot exchange rate refers to the current exchange rate

bull Free or Pegged

If a currency is free floating its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand

bull Nominal amp real exchange rates

The nominal exchange rate is the price in domestic currency of one unit of foreign currency

SPECIAL DRAWING RIGHTS(SDR)

bull is an international reserve asset created by the IMF in 1969 to supplement the existing official reserves of member countries

bull SDRs are allocated to member countries in proportion to

their IMF quotas

bull Its value is based on a basket of key international currencies

bull SDRs are popularly known as ldquopapergoldrdquo

WHY SDR WAS CREATEDbull SDR was created by the IMF in 1969 to support the

Bretton Woods fixed exchange rate system bull International supply of two key reserve assetsmdash gold

and the US dollarmdashproved inadequate for supporting the expansion of world trade and financial development

bull A few years later the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime

bull Today the SDR has only limited use as a reserve asset

SDR valuation

bull The value of the SDR was initially defined as equivalent to 0888671 grams of fine goldmdashwhich at the time was also equivalent to one US dollar

bull After the collapse of the Bretton Woods system in 1973 however the SDR was redefined as a basket of currenciestoday consisting of the euro Japanese yen pound sterling and US dollar

bull The basket composition is reviewed every five years to ensure that it reflects the relative importance of currencies in the worlds trading and financial systems

The SDR Interest Ratebull The SDR interest rate provides the basis for calculating

the interest charged to members on regular (non-concessional) IMF loans

bull The SDR interest rate is determined weekly

SDR ALLOCATIONbull Under its Articles of Agreement the IMF may allocate SDRs to

members in proportion to their IMF quotas

bull Each member country of the IMF is assigned a quota based broadly on its relative size in the world economy

bull Indiarsquos quota ndash 41582 millions US$ of SDRs 191 of total

bull If a members SDR holdings rise above its allocation it earns interest on the excess conversely if it holds fewer SDRs than allocated it pays interest on the shortfall

bull 2 types of allocations ndash 1) general allocations of SDRs 2) special one time allocation of SDRs

EMERGENCY ASSISTANCEbull The IMF provides emergency assistance to help

members countries during natural disasters and conflicts

bull Since 1962 38 countries have received aid upto US $29 billion from IMF

bull Emergency assistance loans are subject to the basic rate of charge and should be repaid within 35 to 5 yrs

Countries that received emergency assistance since 1995

Country Year Event Amount(US

$MILLION)

BANGLADESH 1998 FLOODS 1382

DOMINICAN 1998 HURRICANE 559

TURKEY 1999 EARTHQUAKE 5010

GRENADA 2003 HURRICANE 40

MALDIVES 2005 TSUNAMI 63

SRILANKA 2005 TSUNAMI 1584

DOMINICAN 2008 HURRICANE 33

Role of IMF in INDIA

Joined IMF on 27 DEC 1945

Subscribes to the IMFrsquos special data dissemination standard

India borrowed SDR 39 billion (1981-82)SDR 22 billion (1991-93)

Technical assistance

bull In recent years the fund has provided India in government securities foreign exchange market public expenditure management amp tax amp custom administrations

bull Current scenario

SDR (Net cumulative allocation)- 68117 m

Holdings - 678 m

Outstanding purchases amp loans - None

Where do our interest lie

bull Our monetary policy framework is not consistent we need to build a consistent

framework of monetary policy

Our strength

bull By James Gordon (Washington based multilateral institutions representative)

ldquoIndia does not need any financing from IMF considering that the country had crossed $103 billion of FOREX reservesrdquo

Emerging market economy Feb 13 2004

Acc to indiatimes - India borrowed from IMF in crisis of 1990rsquos amp fully repaid its loan

Conthellip

bull Acc to finance ministry source FOREX crossed $ 100 billion and now providing money to ldquonation buildingrdquo countries like

bull $ 43 m to Indonesia$ 350 m to Brazil$ 05 m to Burundi

So now India has that potential to be include into IMF financial transactions plan (40 countries)

By P Uaidynathan Iyer in New Delhi Jan 19 2004

IMF and the World Bankbull IMF and World bank both were created at an

International Conference convened in Bretton Woods

bull IMF promotes international monetary cooperation and provides policy advice and technical assistance to maintain strong economies

bull The World bank promotes long-term economic development and poverty reduction to help countries reform particular sectors or implement specific projects

bull IMF and World bank collaborate regularly and at many levels on assistance to member countries and are involved in several joint initiatives

Criticisms of IMF

Case

bull Iraqi Oil Crisis

bull Common Criticisms of the IMF

bull 1048708 The IMF has created an immoral system of modern day

colonialism that drains the poor

bull 1048708 The IMF serves wealthy countries and Wall Street

bull 1048708 The IMF is a secretive institution with no accountability

bull 1048708 IMF policies promote corporate welfare

bull 1048708 IMF Policies hurt the environment

Thank You