Why do we need the I MF? Smoothing the bumps in the flow of

foreign exchange

Before people from different countries can buy or sell anything to each other, they have to solve a basic problem. Buyers have to be able to change their money from their country's currency to the seller's national currency. This is called "foreign exchange." Each currency, whether it's the US dollar or the indian rupees, has a value in terms of other currencies.

This is the "This is the "exchange rateexchange rate." Without a reliable ." Without a reliable supply of foreign exchange in each country, and supply of foreign exchange in each country, and without relatively stable exchange rates, world without relatively stable exchange rates, world trade would trade would drop drasticallydrop drastically. You wouldn't be . You wouldn't be wearing tennis shoes made in Asia, or eating an wearing tennis shoes made in Asia, or eating an apple grown in New Zealand.apple grown in New Zealand.

The International Monetary Fund was founded The International Monetary Fund was founded over 50 years ago to allow currency to be over 50 years ago to allow currency to be exchanged exchanged freely and easilyfreely and easily between member between member countries. Today, the IMF works to help member countries. Today, the IMF works to help member countries ensure that they always have countries ensure that they always have enoughenough foreign exchange to continue to do business with foreign exchange to continue to do business with the rest of the world.the rest of the world.

Bretton Woods systemBretton Woods system

The The Bretton Woods systemBretton Woods system of of monetary management management established established

the rules for the rules for commercial and and financial relations among the world's relations among the world's industrial states. independent nation-states. . independent nation-states.

Preparing to rebuild the international economic system as Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 was still raging, 730 delegates from all 44 Allied nations gathered at the gathered at the Mount Washington Hotel in in Bretton Woods, New Hampshire, , United States, for the , for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed. The delegates deliberated upon and signed the the Bretton Woods AgreementsBretton Woods Agreements during the first three weeks of during the first three weeks of July 1944.July 1944.

The chief features of the Bretton Woods system The chief features of the Bretton Woods system were an obligation for each country to adopt a were an obligation for each country to adopt a monetary policy that maintained the that maintained the exchange rate of its of its currency within a fixed within a fixed value—plus or minus one percent—in terms of value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge and the ability of the IMF to bridge temporary temporary imbalances of payments. In the face . In the face of increasing strain, the system collapsed in of increasing strain, the system collapsed in 1971, following the 1971, following the United States' suspension of ' suspension of convertibility from dollars to gold. This created from dollars to gold. This created the unique situation whereby the United States the unique situation whereby the United States dollar became the "reserve currency" for the dollar became the "reserve currency" for the nation-states which had signed the agreementnation-states which had signed the agreement..

IMF at a Glance The International Monetary Fund (IMF)

came into official existence on December27, 1945, when 29 countries signed its

Articles of Agreement at a conference held in Bretton Woods, New Hampshire, USA,

from July 1-22, 1944. The IMF began financial operations on March 1, 1947.

How the IMF Came About

The International Monetary Fund (IMF or Fund) and the International Bank for Reconstruction and Development (IBRD or World Bank) were both established at the United Nations Monetary and Financial Conference, held at Bretton Woods, New Hampshire, on July 1-22, 1944. The two were created to oversee stability in international monetary affairs and to facilitate the expansion of world trade.

Membership in the World Bank requires Membership in the World Bank requires membership in the IMF, and they are both membership in the IMF, and they are both specialized agencies of the United Nations. specialized agencies of the United Nations. The World Bank was given domain over The World Bank was given domain over long-term financing for nations in need, long-term financing for nations in need, while the IMF's mission was to monitor while the IMF's mission was to monitor exchange rates, provide short-term exchange rates, provide short-term financing for balance of payments financing for balance of payments adjustments, provide a forum for discussion adjustments, provide a forum for discussion about international monetary concerns, and about international monetary concerns, and give technical assistance to member give technical assistance to member countries.countries.

Membership qualifications

Any country may apply for membership to the IMF. The application will be considered first by the IMF's Executive Board. After its consideration, the Executive Board will submit a report to the Board of Governors of the IMF with recommendations in the form of a "Membership Resolution." These recommendations cover the amount of quota in the IMF, the form of payment of the subscription, and other customary terms and conditions of membership. After the Board of Governors has adopted the "Membership Resolution," the applicant state needs to take the legal steps required under its own law to enable it to sign the IMF's Articles of Agreement and to fulfil the obligations of IMF membership.

Membership in the World Bank requires Membership in the World Bank requires membership in the IMF, and they are both membership in the IMF, and they are both specialized agencies of the United specialized agencies of the United Nations. The World Bank was given Nations. The World Bank was given domain over long-term financing for domain over long-term financing for nations in need, while the IMF's mission nations in need, while the IMF's mission was to monitor exchange rates, provide was to monitor exchange rates, provide short-term financing for balance of short-term financing for balance of payments adjustments, provide a forum payments adjustments, provide a forum for discussion about international for discussion about international monetary concerns, and give technical monetary concerns, and give technical assistance to member countries. assistance to member countries.

PURPOSE OF IMFPURPOSE OF IMF . The IMF purposes are outlined in Article I of the . The IMF purposes are outlined in Article I of the

IMF Articles of Agreement.IMF Articles of Agreement. They are the promotion of international monetary They are the promotion of international monetary

cooperation.cooperation. The expansion and balanced growth of The expansion and balanced growth of

international trade.international trade. Exchange rate stability.Exchange rate stability. The elimination of restrictions on the The elimination of restrictions on the

international flow of capital.international flow of capital. The orderly adjustment of balance of payment The orderly adjustment of balance of payment

(BOP) imbalances. (BOP) imbalances.

MEMBERS OF IMF

IMF HEADQUATER AT WASHINGTON,DCIMF HEADQUATER AT WASHINGTON,DC

FUNCTIONS OF IMF IMF describes itself as "an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty".

The primary mission of the IMF is to provide financial assistance to countries that experience serious financial difficulties.

Member states with balance of payments problems may request loans and/or organizational management of their national economies.

In return, the countries are usually required to launch certain reforms. These reforms are generally required because countries with fixed exchange rate policies can engage in fiscal, monetary, and political practices which may lead to the crisis itself..

SHARE OF IMF QUOTA

Other29%

ASEAN+313%

Africa4%

United States17%

South America

6%

European Union31%

TECHNICAL ASSISTANCETECHNICAL ASSISTANCE IMF offers advices to the member countries IMF offers advices to the member countries

regarding the formulation and implementation regarding the formulation and implementation of ‘economic management’.of ‘economic management’.

The fund provided the training course on The fund provided the training course on ‘financial analysis and policy’,fiscal policy etc.It ‘financial analysis and policy’,fiscal policy etc.It provides training on ‘balance of payments provides training on ‘balance of payments methodology’,public finance,central banking methodology’,public finance,central banking services,organisationand administration of services,organisationand administration of central bank.central bank.

It sends teams of experts to various developing It sends teams of experts to various developing countries in order to provide countries in order to provide training,conducting surveys,formulation of training,conducting surveys,formulation of monetary policy etc.monetary policy etc.

IMF LENDINGIMF LENDING A core responsibility of the IMF is to provide loans to A core responsibility of the IMF is to provide loans to

countries experiencing balance of payments problems.countries experiencing balance of payments problems. The financial assistance enables countries to rebuild The financial assistance enables countries to rebuild

there international reserves, continue paying for imports there international reserves, continue paying for imports and restore conditions for strong economic growth.and restore conditions for strong economic growth.

Unlike development banks,the IMF doesn’t lend for Unlike development banks,the IMF doesn’t lend for specific projects.specific projects.

An IMFloan is usually provided under an arrangement An IMFloan is usually provided under an arrangement which stipulates the specific policies and measures a which stipulates the specific policies and measures a country has agreed to implement to resolve its balance of country has agreed to implement to resolve its balance of payments problems.payments problems.

Once an arrangement is approved by the board ,the loan Once an arrangement is approved by the board ,the loan is released in phased installments as the program is is released in phased installments as the program is carried out.carried out.

IMF AND INDIAIMF AND INDIA Joint india-imf training program (ITP) is Joint india-imf training program (ITP) is

established in pune.established in pune. The ITP provides policy-oriented training in The ITP provides policy-oriented training in

economics and related operational fields to economics and related operational fields to officials in india.officials in india.

Courses covers macroeconomics management Courses covers macroeconomics management and policies,financial programming,monetory and policies,financial programming,monetory policy,exchange rate policy and foreign policy,exchange rate policy and foreign exchange operations.exchange operations.

The cost of running the ITP program is shared The cost of running the ITP program is shared by the IMF,reserve bank of india,government by the IMF,reserve bank of india,government of australia.of australia.

From,1970,India no longer From,1970,India no longer appointed its own executive director, appointed its own executive director, as it lost its place among the five as it lost its place among the five countries with the largest quota.It countries with the largest quota.It was replased by japan.was replased by japan.

IMF gives a lost of recommentations IMF gives a lost of recommentations ,when they visit India,and the Indian ,when they visit India,and the Indian government flush them down the government flush them down the toilet. toilet.

CRITICISM REGARDING CRITICISM REGARDING IMFIMF

The united states is the biggest The united states is the biggest shareholders in the IMF,holding nearly shareholders in the IMF,holding nearly 18% in shares,and the IMF is generally 18% in shares,and the IMF is generally considered a tool of the U.S.treasury.considered a tool of the U.S.treasury.

IMF steps in and provide money,reform IMF steps in and provide money,reform are not forthcoming.forexample-despite are not forthcoming.forexample-despite a post-crisis recovery in some asian a post-crisis recovery in some asian countries,fundamental strutural reform countries,fundamental strutural reform has not taken place in any of of the has not taken place in any of of the asians countries. asians countries.

IMF says, it makes loans in exachange IMF says, it makes loans in exachange for policy reform,it has not been for policy reform,it has not been successful in turning countries to the successful in turning countries to the free market.Instead,the fund has created free market.Instead,the fund has created loan addicts, “more than 70 nations have loan addicts, “more than 70 nations have depended on imf aid for 20 or more depended on imf aid for 20 or more years,24 countries have received IMF years,24 countries have received IMF creidts for 30 or more years.creidts for 30 or more years.

One of the biggest critiques of the One of the biggest critiques of the IMF and world bank is that they IMF and world bank is that they hardly ever co-ordinate their hardly ever co-ordinate their activitiesactivities

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