IMF

INTERNATIONAL MONETARY FUND

Adel Abouhana

THE CREATION OF THE IMF

The first part of the 20th century saw a

breakdown of cooperation among nations

The IMF was one of the institutions set up to

avoid a repeat of that experience.

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

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 Financial

Conference in Bretton Woods, New Hampshire,

on July 22, 1944.

It entered into force on December 27, 1945.

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 to the 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

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

To give confidence to members by making the general resources of the IMF temporarily available to them under adequate safeguards

this provides them with an opportunity to correct maladjustments in their balance of payments without 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.

THE FUNCTIONS OF THE IMF

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

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

capacity of countries

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

Surveillance

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.”

TECHNICAL ASSISTANCE (LIKE A

TEACHER)

Strengthening human skills and institutional

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 and lending operations in

member countries.

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

GOVERNANCE OF THE IMF

IMF is accountable to its member countries.

Board of Governors: one governor from each

member country. Meets once a year.

Day to day affairs are guided by the Executive

Board: 24 Executive Directors. Managing

Director of IMF is Chairman of Executive Board.

International Monetary

and

Financial Committee

Board

of

Directors Joint IMF World

Bank development

committee

Executive Board Independent

Evaluation Office

Managing Directors

ORGANISATION OF IMF

The Board of Governors, the highest decision-making body of the IMF, consists of one governor and one alternate governor for each member country.

The governor is appointed by the member country and is usually the minister of finance or the governor of the central bank.

Board of Governors decide on major policy issues

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

Day-to-day decision making – Executive Governors

24 in number.

The Managing Director is Chair person of the EB

Meets thrice a week, more if required

Five largest shareholders of IMF – US, japan, Germany, UK & France along with China, Russia and Saudi Arabia have their own seats on EB

Other members are selected for 2 year terms by groups of countries known as constituencies

The Board of council may delegate to the Executive Board all except certain reserved powers.

The Board of Governors normally meets once a year.

Key policy issues relating to international

monetary system are considered twice a

year by IMFC

Development committee reports to the

Governors on development policy and other

related matters

IMF has a weighted voting system – the

larger the country’s quota (dependent on its

economic size) more votes for the country

QUOTAS & SUBSCRIPTIONS

Quota subscriptions generate most of the

IMF's financial resources.

Each member country of the IMF is assigned

a quota, based broadly on its relative size in

the world economy.

A member's quota determines its maximum

financial commitment to the IMF and its

voting power, and has a bearing on its

access to IMF financing.

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 GDP based

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.

SPECIAL 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).

The value of the SDR was initially defined as

equivalent to 0.888671 grams of fine gold.

the SDR was redefined as a basket of

currencies, today consisting of the euro,

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

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

on the IMF's website.

It is calculated as the sum of specific amounts

of the four currencies valued in U.S. dollars, on

the basis of exchange rates quoted at noon

each day in the London market.

LENDING POLICIES

A member country may request IMF financial assistance if it has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms to meet its net international payments while maintaining adequate reserve buffers going forward.

An IMF loan provides a cushion that eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.

IMF FACILITIES

the IMF has developed various loan

instruments, or “facilities,” that are tailored

to address the specific circumstances of its

diverse membership.

IMF financial policies govern the modalities

for the use of its financial resources under

existing IMF facilities.