What is The International Monetary Fund ?

Intergovernmental organisations (IGOs) have always played a very important role in the global economy . These groups are generally created through the enactment of a treaty and are composed of a group with member states . The goal of individual IGOs depends on their genre of function and membership . Some of the most common and widely known IGOs include the United Nations , the World Bank and International Monetary Fund ( IMF)

International Monetary Fund () IMF also called The Fund , based in Washington ,D.C. is an international monetary institution established by 44 nations under the Bretton Woods Agreement of July 1994.

The IMF was established to promote economic and financial cooperation among its members in order to facilitate the expansion and balanced growth of world trade . It started functioning from March 1,1947 , the Fund has currently 189 member countries each of which has representation on the IMF ‘s executive board in proportion to its financial importance .

IMF is an international organisation that promotes global economic growth and financial stability, encourages international trade and reduces poverty Quotas of member countries .

IMF ‘s mission is

“To foster global Monetary cooperation ,secure financial stability , facilitate international trade , promote high employment and sustainable economic growth and reduce poverty around the world.”

Origin :-

IMF was originally created in 1945 ,as part of the Bretton Woods Agreement, which attempted to encourage international which attempted to encourage international financial cooperation .

The principal aim was to avoid the economic mistakes of the 1920s and 1930s . The attempts of many countries to return to the old gold system after the First World War failed miserably.

The World Depression of the thirties forced every country to abandon the gold standard .This led to adoption of nationalist policies which marked decline in world trade and extension of depression.

44 nations assembled at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire from July 1 to July 22,1944 and established The International Monetary Fund .

The Article of Agreement of the IMF provided the basis of the international monetary system .

Structure of The Fund

The structure of The Fund consists of a Board of Governors , an Executive Board , A Managing Director, a Council and a staff with its headquarters in Washington DC, USA.

The Board of Governors is the top in the structure of The Fund . They are decision making organs of the Fund..They exercise power and make decisions that are binding on members and the Fund .

The board of the Governors, which now has 24 members ,meets annually in which details of the Fund activities for the previous year are presented.

Other members include :-

The Executive Board , which has 21 members at present . Five Executive Directors are appointed by the five members ( USA , UK , Germany., France and Japan ) having longest quotas .

The Managing Director is elected by the Executive Directors .He is usually political or any other international official.

The Interim Committee (now IMFC ) , is established to advise the Board of Governors on supervising the management and adoption of international monetary policy .

The Development Committee advises and reports to the Board of Governors on all aspects of the transfer of real resources to developing countries .

Objectives :-

The fundamental purposes and objectives of the Fund had been laid down in Article 1 of the original Articles of Agreement . The major six objectives of IMF are :-

1: To promote international monetary cooperation through a permanent Institution which provides the machinery for consumption and collaboration in international monetary problems.

2: To facilitate the expansion and balanced growth of international trade, and to
contribute thereby to the promotion and maintenance of high levels of employment and
real income and to the development of the productive resources of all members as
primary objective of economic policy.

3: To promote exchange stability, to maintain orderly exchange arrangements among
members, and to avoid competitive exchange depreciation.

4: To assist in the establishment of a multilateral system of payments in respect of
current transactions between members and in the elimination of foreign exchange
restrictions which hamper the growth of world trade.

5: To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the
opportunity to correct maladjustments in their balance of payments, without resorting
to measure destruction of national or international prosperity.

6: In accordance with the above, to shorten the duration and lessen the degree of dis –
equilibrium in the international balance of payments of members.

Functions of IMF

The principal function of the IMF is to supervise the international monetary system.
Several other functions performed by the IMF .
Three major functions of IMF are :-

Surveillance over Members Economic Policies :-

The IMF closely monitors each member’s country’s economic and financial development . The IMF holds a conference with member countries on a regular basis Usually once each year to assess its economic conditions with a view to providing policy recommendations .

Financial Assistance :-

IMF functions as an agency of providing resources to meet short term and medium term
. It lends to its member countries facing BOP disequilibrium .

IMF loan is usually provided under an “arrangement ” requiring a borrowing country to undertake the specific policies and measures to resolve it’s balance of payments problem as specified in a “Letter of Intent ” .
Most IMF loans are primarily financed by its member countries through payment of quotas .

Consultative Function:

It functions as a centre for international cooperation and a source of counsel and
technical assistance to its members.IMF provides technical assistance to help member countries strengthen their capacity to design and implement effective policies in four areas :- monetary and Financial policy ; fiscal policy; statistics ; and economic and financial legislation.

Other functions :-

• Stabilizing Economics
• Maintaining Balance between demand and supply of member countries.
• Maintenance of Liquidity .
• Reducing tariffs.
• General watch .

Financial Resources of The Fund :-

The bulk of financial assistance performed by the IMF has its financial resources from two sources .

(i) Subscription or quota of the member nations :-

Each member country is required to subscribe to an amount equivalent to its quota. It is
the quota on which payment obligations, credit facilities, and voting right of members
are determined. As soon as a country joins the Fund, it is assigned a quota which is
expressed in Special Drawing Rights (SDRs).

(ii) Borrowings :-

The Fund is authorised to borrow in special circumstances if its own resources prove to
be insufficient. It sells gold to member countries to replenish currency holdings. It is
entitled to borrow even from the international capital market. Though the Articles of
Agreement permits the Fund to borrow from the private capital market.

The IMF has two accounts of
operation—the General Account and the Special Drawing Account.
The Fund burrows under the General Arrangements to Borrow in order to forestall or cope with an impairment of the international monetary system.

Credit Tranches :-

To meet the severe BOP disequilibrium , the Fund has been gradually raising the limit of borrowing by its members under the credit tranche.
Since the 1960s , the Fund has created several credit facilities for its members.

Some borrowing facility provided by the Fund are :-

(i) Stand-by Arrangements:
The term “stand-by” here
means that, subject to conditionality, a member has a right to draw the money made available, if needed.
This method of borrowing has become the most normal form of assistance by the Fund.
Under this form of borrowing, a member state obtains the assurance of the Fund that,
usually over 12-18 months, requests for drawings of foreign exchange (i.e., to meet
short- term BOP problems) up to a certain amount will be allowed if the country
concerned wishes.
However, the stand-by arrangements can be extended up to 3 years while repayments
are required to be made within 3-5 years of each drawing.

(ii) Extended Fund Facility (EFF):
Stand-by arrangements to stabilise a member’s BOP run usually for a period of 12-18
months. Developing countries suffer from chronic BOP problems which could not be
remedied in the short run. EFF provides credit upto a period of 10 years and loan upto 300 percent of a member’s Quotas are allowed.

(iii) Compensatory Financing Facility (CFF):
Apart from the ordinary drawing rights, there are some ‘special finances’ windows to
assist the developing countries to tide over BOP difficulties. CFF, introduced in 1963, is
one such special drawing provision.
It can now draw up to 45 p.c. Since the mid- 1990s, this has been the least-used facility.

(iv) Structural Adjustment Facility (SAF) and the Enhanced SAF (ESAF):
In 1986 a new facility—the SAF—was introduced for the benefit of low income
Under it, credit facilities for economic reform programmes are available at a low
interest rate of 0.5 p. c compared to 6 p.c. for most Fund facilities. Loans are for 10
years with a grace period of five and a half years.
SAF provides to undertake medium-term structural
adjustment programmes to foster economic growth and improve BOP conditions
The ESAF has been replaced
by a new facility, called Poverty Reduction and Growth Facility in 1999.

(v) Poverty Reduction and Growth Facility (PRGF):
The PRGF that replaced the ESAF in November 1999 provides concessional lending to
help the poorest member countries with the aim of making poverty reduction and
economic growth —the central objectives of policy programmes.

(vi) Supplemental Reserve Facility (SRF):
This instrument provides additional short-term financing to member countries facing
exceptional BOP difficulties because of a sudden and disruptive loss of market
confidence reflected in capital outflows of countries concerned. Consequent upon the
After the eruption of the East Asian financial crisis, the SRF was introduced in 1997.


India And The IMF

India is one of the founder members of the IMF . It signed the Fund Agreement on 27 December , 1945 . Till 1970 India ‘s Quotas in the Fund was the fifth and it had the power to appoint permanent Executive Directors.

With increase in the Fund Quotas of other countries like Canada , Italy , Japan etc . India ceased to hold a permanent position as Executive Directors .
With the Eleventh Review of Quotas , India’s quota in the IMF declined from 2.09 per cent . As a result , India’s position in the Fund quota came down to 13th .

The current IMF data shows India’s position at seventh .

India has been benefited in certain ways by the IMF by receiving loans to meet the deficit in its balance payment in several years .India has been getting advisory help from the Fund under the Fund surveillance conditionality .
Hence , as a member India has gained much help from the IMF to have an economically stable system.