IMF Class

8/7/2019 IMF Class

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IMFIMFINTERNATIONALINTERNATIONAL

MONETARY FUNDMONETARY FUND

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The Creation of the IMFThe Creation of the IMF

TheThe first first part part of of thethe 2020thth centurycentury sawsaw aabreakdownbreakdown of of cooperationcooperation amongamong nationsnations

TheThe IMFIMF waswas oneone of of thethe institutionsinstitutions set set upup toto

avoidavoid aa repeat repeat of of that that experienceexperience.. It is a cooperative of 185 member countries

Their objective is to promote world economic

stability and growth.

The member countries are the shareholders of

the cooperative, providing the capital of the IMF

through quota subscriptions

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The IMF is one of several autonomous

organizations designated by the United Nations(UN) as Specialized Agencies,

UN has established working relationships.

The IMF is a permanent observer at the UN. The Articles of Agreement that created the IMF

and govern its operations were adopted at the

United Nations Monetary and FinancialConference in Bretton Woods, New Hampshire,

on July 22, 1944.

It entered into force on December 27, 1945.

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Mandate of the IMF Promote international monetary cooperation

through a permanent institution Provides the machinery for consultation and collaboration on international monetary problems

To facilitate the expansion and balanced growth of international trade To contribute to the promotion and maintenance of

high levels of employment and real income and tothe development of the productive resources of all

members as primary objectives of economic policy To promote exchange stability To maintain orderly exchange arrangements among

members, and to avoid competitive exchange

depreciation

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To assist in the establishment of a multilateralsystem of payments in respect of current

transactions between members and in theelimination of foreign exchange restrictions whichhamper the growth of world trade

To give confidence to members by making the

general resources of the IMF temporarily availableto them under adequate safeguards

this provides them with an opportunity to correct maladjustments in their balance of paymentswithout resorting to measures destructive of national or international prosperity

To shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

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The Functions of the IMFThe Functions of the IMF

Surveillance (like a doctor)Surveillance (like a doctor)Gathering data and assessing economic policies of Gathering data and assessing economic policies of countriescountries

Technical Assistance (like a teacher)Technical Assistance (like a teacher)Strengthening human skills and institutional capacityStrengthening human skills and institutional capacity

of countriesof countries

Financial Assistance (like a banker)Financial Assistance (like a banker)Lending to countries to support reformsLending to countries to support reforms

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SurveillanceSurveillance

Surveillance over Members Economic Policies

countries agree to pursue economic policies that

are consistent with the objectives of the IMF.

The Articles of Agreement confer on the IMF the

legal authority to oversee compliance by members

with this obligation

IMF is the only organization that has a mandate

to examine on a regular basis the economic

circumstances of virtually every country in the

world.

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TechnicalTechnical AssistanceAssistance (like a(like ateacher)teacher)

Strengthening human skills andinstitutional capacity of countries

Helps members in strengthening their

policy formulation and implementation,and the legal,

institutional, and market frameworks

within which they operate. It also constitutes an important

complement to IMF surveillance andlending operations in member countries.

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Financial Assistance (like a banker)Financial Assistance (like a banker)

Lending to countries to support reforms

Improving financial sector surveillance.

Development of standards and codes of

good practice.

Enhancement of transparency in the IMF

and its member countries.

Involvement of the private sector in crisis

resolution

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Governance of the IMFGovernance of the IMF

IMF is accountable to its member countries.IMF is accountable to its member countries.

Board of Governors: one governor from eachBoard of Governors: one governor from eachmember country. Meets once a year.member country. Meets once a year.

Day to day affairs are guided by the ExecutiveDay to day affairs are guided by the Executive

Board: 24 Executive Directors. ManagingBoard: 24 Executive Directors. ManagingDirector of IMF is Chairman of Executive Board.Director of IMF is Chairman of Executive Board.

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International Monetaryand

Financial Committee

Board

of

Directors

Joint IMF WorldBank development

committee

Executive Board IndependentEvaluation Office

Managing Directors

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Organisation of IMFOrganisation of IMF

TheThe Board of GovernorsBoard of Governors, the highest decision, the highest decision--making body of the IMF, consists of one governormaking body of the IMF, consists of one governorand one alternate governor for each memberand one alternate governor for each membercountry.country.

The governor is appointed by the member countryThe governor is appointed by the member countryand is usually the minister of finance or theand is usually the minister of finance or thegovernor of the central bank.governor of the central bank.

Board of Governors decide on major policy issuesBoard of Governors decide on major policy issues

All powers of the IMF are vested in the Board of All powers of the IMF are vested in the Board of Governors.Governors.

DayDay--toto--day decision makingday decision making ExecutiveExecutiveGovernorsGovernors

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24 in number.24 in number.

The Managing Director is Chair person of the EBThe Managing Director is Chair person of the EB

Meets thrice a week, more if requiredMeets thrice a week, more if required

Five largest shareholders of IMFFive largest shareholders of IMF US, japan,US, japan,Germany, UK & France along with China, RussiaGermany, UK & France along with China, Russiaand Saudi Arabia have their own seats on EBand Saudi Arabia have their own seats on EB

Other members are selected for 2 year terms byOther members are selected for 2 year terms bygroups of countries known as constituenciesgroups of countries known as constituencies

The Board of council may delegate to theThe Board of council may delegate to the

Executive Board all except certain reservedExecutive Board all except certain reservedpowers.powers.

The Board of Governors normally meets once aThe Board of Governors normally meets once ayear.year.

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Key policy issues relating to internationalKey policy issues relating to international

monetary system are considered twice amonetary system are considered twice ayear by IMFCyear by IMFC

Development committee reports to theDevelopment committee reports to the

Governors on development policy andGovernors on development policy andother related mattersother related matters

IMF has a weighted voting systemIMF has a weighted voting system thethe

larger the countrys quota (dependent onlarger the countrys quota (dependent onits economic size) more votes for theits economic size) more votes for the

countrycountry

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Quotas & subscriptions

Quota subscriptions generate most of theIMF's financial resources.

Each member country of the IMF isassigned a quota, based broadly on itsrelative size in the world economy.

A member's quota determines its

maximum financial commitment to theIMF and its voting power, and has abearing on its access to IMF financing.

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A new country is assigned an initial quota in the same

range as the quotas of existing members

The quota formula is a weighted average of GDP (weight of

50 percent), openness (30 percent), economic variability

(15 percent), and international reserves (5 percent )

For this purpose, GDP is measured as a blend of GDPbased on a market exchange rates (weight of 60 percent)

and on PPP exchange rates (40 percent).

Quotas are denominated in Special Drawing Rights (SDRs)

The formula also includes a compression factor that

reduces the dispersion in calculated quota shares across

members.

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Special Drawing RightsSpecial Drawing Rights

The SDR is an international reserve asset, created by the

IMF in 1969 to supplement its member countries' official

reserves.

Its value is based on a basket of four key international

currencies, and SDRs can be exchanged for freely usable

currencies.

With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the

amount of SDRs increased from SDR 21.4 billion to SDR

204.1 billion (currently equivalent to about $324 billion).

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The value of the SDR was initially defined asThe value of the SDR was initially defined as

equivalent to 0.888671 grams of fine gold.equivalent to 0.888671 grams of fine gold. the SDR was redefined as a basket of the SDR was redefined as a basket of

currencies, today consisting of the euro,currencies, today consisting of the euro,

Japanese yen, pound sterling, and U.S. dollar.Japanese yen, pound sterling, and U.S. dollar.

The U.S. dollarThe U.S. dollar--value of the SDR is posted dailyvalue of the SDR is posted daily

on the IMF's website.on the IMF's website.

It is calculated as the sum of specific amounts of It is calculated as the sum of specific amounts of

the four currencies valued in U.S. dollars, on thethe four currencies valued in U.S. dollars, on thebasis of exchange rates quoted at noon eachbasis of exchange rates quoted at noon each

day in the London market.day in the London market.

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Lending PoliciesLending Policies

A member country may request IMF financialA member country may request IMF financialassistance if it has a balance of paymentsassistance if it has a balance of paymentsneedneedthat is, if it cannot find sufficient that is, if it cannot find sufficient financing on affordable terms to meet its net financing on affordable terms to meet its net international payments while maintaininginternational payments while maintainingadequate reserve buffers going forward.adequate reserve buffers going forward.

An IMF loan provides a cushion that eases theAn IMF loan provides a cushion that eases the

adjustment policies and reforms that a countryadjustment policies and reforms that a countrymust make to correct its balance of paymentsmust make to correct its balance of paymentsproblem and restore conditions for strongproblem and restore conditions for strongeconomic growth.economic growth.

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IMF FacilitiesIMF Facilities

the IMF has developed various loanthe IMF has developed various loan

instruments, or facilities, that areinstruments, or facilities, that are

tailored to address the specifictailored to address the specificcircumstances of its diverse membership.circumstances of its diverse membership.

IMF financial policies govern theIMF financial policies govern the

modalities for the use of its financialmodalities for the use of its financial

resources under existing IMF facilities.resources under existing IMF facilities.

IMF Class

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