International Monetary Fund (IMF) Part I

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. 

  • Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership. 
  • The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.  
  • The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability. 
  • HQ – Washington 
  • Official language – Chinese, English, French, Russian, Spanish, Arabic 
  • Formally created in 1945 by 29 member countries 
  • The stated goal was to assist in the reconstruction of the world’s international payment system  post World War II 
  • Countries contribute funds to a pool through a quota system from which countries with payment imbalances temporarily can borrow money and other resources. 

OBJECTIVES of IMF 

IMF was developed as an initiative to promote international monetary cooperation, enable international trade, achieve financial stability, stimulate high employment, diminish poverty in the world and sustain economic growth. Initially, there were 29 countries with a goal of redoing the global payment system. Today, the organization has 189 members. The main objectives of  the International Monetary Fund (IMF) are mentioned below: 

  • To improve and promote global monetary cooperation of the world. 
  • To secure financial stability by eliminating or minimizing the exchange rate stability. 
  • To facilitate a balanced international trade. 
  • Promoting high employment through economic assistance and sustainable economic growth. 
  • To reduce poverty around the world.

HISTORY 

  • In 1944, President Roosevelt hosted a conference here, to rebuild the world economy,  after the Second World War. 
  • Delegates of 44 allied nations came to participate (India was represented by Sir D.  Deshmukh, the first Indian Governor of RBI) 
  • Officially known as United Nations Monetary and Financial Conference, commonly known as Bretton Woods because of the place where it was held. 

This conference resulted into creation of four important organizations viz. 

  • IMF (International monetary fund) 
  • World Bank 
  • GATT (General Agreement on Trade and Tariff) – later becomes WTO in 1995 
  • Fixed Exchange Rate System (Discarded in the 1970s)

FUNCTIONS 

The IMF’s fundamental mission is to ensure the stability of the international monetary system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members. 

Economic Surveillance 

The IMF oversees the international monetary system and monitors the economic and financial policies of its 189 member countries. As part of this process, which takes place both at the global level and in individual countries, the IMF highlights possible risks to stability and advises on needed policy adjustments. 

Lending 

The IMF provides loans to member countries experiencing actual or potential balance of payments problems to help them rebuild their international reserves, stabilize their currencies,  continue paying for imports, and restore conditions for strong economic growth while correcting underlying problems. 

Capacity Development 

The IMF works with governments around the world to modernize their economic policies and institutions and train their people. This helps countries strengthen their economy, improve growth and create jobs. 

ORGANISATION AND FINANCES 

The IMF has a management team and 17 departments that carry out its country, policy,  analytical, and technical work. One department is charged with managing the IMF’s resources.  This section also explains where the IMF gets its resources and how they are used. 

Management 

The IMF has a Managing Director, who is head of the staff and Chairperson of the Executive  Board. The Managing Director is appointed by the Executive Board for a renewable term of five years and is assisted by a First Deputy Managing Director and three Deputy Managing Directors. 

Staff 

The IMF’s employees come from all over the world; they are responsible to the IMF and not to the authorities of the countries of which they are citizens. The IMF staff is organized mainly into the area; functional; and information, liaison, and support responsibilities. 

IMF Resources 

Most resources for IMF loans are provided by member countries, primarily through their payment of quotas. 

Quotas 

Quota subscriptions are a central component of the IMF’s financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy.  

Special Drawing Rights (SDR) 

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.  

Gold 

Gold remains an important asset in the reserve holdings of several countries, and the IMF is still one of the world’s largest official holders of gold.  

Borrowing Arrangements 

While quota subscriptions of member countries are the IMF's main source of financing, the  Fund can supplement its quota resources through borrowing if it believes that they might fall short of members' needs.  

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Blog Post written by:
Anurag Trivedi
UPSC Mentor