INTERNATIONAL MONETARY FUND

INTRODUCTION

The IMF was conceived in July 1944 at the United Nations Bretton Woods Conference in
New Hampshire, United States. The 44 countries in attendance sought to build a framework
for international economic cooperation and avoid repeating the competitive currency
devaluations that contributed to the Great Depression of the 1930s. The IMF's primary
mission 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.

Surveillance: In order to maintain stability and prevent crises in the international monetary
system, the IMF monitors member country policies as well as national, regional, and global
economic and financial developments through a formal system known as surveillance . The
IMF provides advice to member countries and promotes policies designed to foster economic
stability, reduce vulnerability to economic and financial crises, and raise living standards. It
also provides periodic assessments of global prospects in its World Economic Outlook , of
financial markets in its Global Financial Stability Report , of public finance developments in
its Fiscal Monitor , and of external positions of the largest economies in its External Sector
Report , in addition to a series of regional economic outlooks

The IMF is mandated to oversee the international monetary and financial system and monitor
the economic and financial policies of its member countries. This activity is known as
surveillance and facilitates international co-operation. Since the demise of the Bretton Woods
system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of
changes in procedures rather than through the adoption of new obligations. The
responsibilities changed from those of guardian to those of overseer of members’ policies.

The Fund typically analyses the appropriateness of each member country’s economic and
financial policies for achieving orderly economic growth, and assesses the consequences of
these policies for other countries and for the global economy.

In 1995 the International Monetary Fund began work on data dissemination standards with
the view of guiding IMF member countries to disseminate their economic and financial data
to the public. The International Monetary and Financial Committee (IMFC) endorsed the
guidelines for the dissemination standards and they were split into two tiers: The General
Data Dissemination System (GDDS) and the Special Data Dissemination Standard (SDDS).

The executive board approved the SDDS and GDDS in 1996 and 1997 respectively, and
subsequent amendments were published in a revised Guide to the General Data
Dissemination System. The system is aimed primarily at statisticians and aims to improve
many aspects of statistical systems in a country. It is also part of the World Bank Millennium
Development Goals and Poverty Reduction Strategic Papers.

The primary objective of the GDDS is to encourage member countries to build a framework
to improve data quality and statistical capacity building to evaluate statistical needs, set
priorities in improving the timeliness, transparency, reliability and accessibility of financial
and economic data. Some countries initially used the GDDS, but later upgraded to SDDS

Financial assistance: Providing loans to member countries that are experiencing actual or
potential balance-of-payments problems is a core responsibility of the IMF. Individual
country adjustment programs are designed in close cooperation with the IMF and are
supported by IMF financing, and ongoing financial support is dependent on effective
implementation of these adjustments. In response to the global economic crisis, in April 2009
the IMF strengthened its lending capacity and approved a major overhaul of its financial
support mechanisms, with additional reforms adopted in subsequent years. These changes
enhanced the IMF’s crisis-prevention toolkit, bolstering its ability to mitigate contagion
during systemic crises and allowing it to better tailor instruments to meet the needs of
individual member countries.

Loan resources available to low-income countries were sharply increased in 2009, while
average limits under the IMF’s concessional loan facilities were doubled. Access limits under
the IMF’s non-concessional lending facilities were again reviewed and increased in 2016,
when the effectiveness conditions for the 14th Review were met (see below). In
addition, zero interest rates on concessional loans were extended through the end of 2018,
and the interest rate on emergency financing is permanently set at zero. Finally, the 2014
exercise to replenish loan resources that support the IMF's concessional lending has so far
raised more than SDR 11 billion (about $16 billion).

Capacity development: The IMF provides technical assistance and training to help member
countries build better economic institutions and strengthen related human capacities. This
includes, for example, designing and implementing more effective policies for taxation and
administration, expenditure management, monetary and exchange rate policies, banking and
financial system supervision and regulation, legislative frameworks, and economic statistics.
SDRs: The IMF issues an international reserve asset known as Special Drawing Rights , or
SDRs, that can supplement the official reserves of member countries. Total global allocations
are currently about SDR 204 billion (some $296 billion). IMF members can voluntarily
exchange SDRs for currencies among themselves.

Resources: Member quotas are the primary source of IMF financial resources. A member’s
quota broadly reflects its size and position in the world economy. The IMF regularly
conducts general reviews of quotas. The lastest review (the 14thReview) was concluded in
2010 and the quota increases became effective in 2016. This review doubled quota resources
to SDR 477 billion (about US$692 billion). In addition, credit arrangements between the IMF
and a group of members and institutions provide supplementary resources of up to about SDR
182 billion ($264 billion), and are the main backstop to quotas. As a third line of defense,
member countries have also committed resources to the IMF through bilateral
borrowing agreements, totaling about SDR 316 billion ($460 billion).

Governance and organization: The IMF is accountable to its member country governments.
At the top of its organizational structure is the Board of Governors , consisting of one
governor and one alternate governor from each member country, usually the top officials
from the central bank or finance ministry. The Board of Governors meets once a year at
the IMF–World Bank Annual Meetings . Twenty-four of the governors serve on the
International Monetary and Financial Committee, or IMFC, which advises the IMF's
Executive Board on the supervision and management of the international monetary and
financial system. The day-to-day work of the IMF is overseen by its 24-member Executive
Board , which represents the entire membership and supported by IMF staff. The Managing
Director is the head of the IMF staff and Chair of the Executive Board and is assisted by four
Deputy Managing Directors.

Board of Governors

The Board of Governors consists of one governor and one alternate governor for each
member country. Each member country appoints its two governors. The Board normally
meets once a year and is responsible for electing or appointing executive directors to the
Executive Board. While the Board of Governors is officially responsible for approving quota
increases, Special Drawing Right allocations, the admittance of new members, compulsory
withdrawal of members, and amendments to the Articles of Agreement and By-Laws, in
practice it has delegated most of its powers to the IMF's Executive Board.
The Board of Governors is advised by the International Monetary and Financial
Committee and the Development Committee. The International Monetary and Financial
Committee has 24 members and monitors developments in global liquidity and the transfer of
resources to developing countries.The Development Committee has 25 members and advises
on critical development issues and on financial resources required to promote economic
development in developing countries. They also advise on trade and environmental issues.

Executive Board

24 Executive Directors make up the Executive Board. The Executive Directors represent all
189 member countries in a geographically based roster. Countries with large economies have
their own Executive Director, but most countries are grouped in constituencies representing
four or more countries.

Following the 2008 Amendment on Voice and Participation which came into effect in March
2011, eight countries each appoint an Executive Director: the United States, Japan, China,
Germany, France, the United Kingdom, Russia, and Saudi Arabia. The remaining 16
Directors represent constituencies consisting of 4 to 22 countries. The Executive Director
representing the largest constituency of 22 countries accounts for 1.55% of the vote. This
Board usually meets several times each week. The Board membership and constituency is
scheduled for periodic review every eight years.

Managing Director

The IMF is led by a managing director, who is head of the staff and serves as Chairman of the
Executive Board. The managing director is assisted by a First Deputy managing director and
three other Deputy Managing Directors. Historically, the IMF's managing director has been
European and the president of the World Bank has been from the United States. However,
this standard is increasingly being questioned and competition for these two posts may soon
open up to include other qualified candidates from any part of the world.

In 2011 the world's largest developing countries, the BRIC nations, issued a statement
declaring that the tradition of appointing a European as managing director undermined the
legitimacy of the IMF and called for the appointment to be merit-based.

HISTORY
The IMF has played a part in shaping the global economy since the end of World War
II.

Cooperation and reconstruction (1944–71)

As the Second World War ends, the job of rebuilding national economies begins. The IMF is
charged with overseeing the international monetary system to ensure exchange rate stability
and encouraging members to eliminate exchange restrictions that hinder trade.
The end of the Bretton Woods System (1972–81)

After the system of fixed exchange rates collapses in 1971, countries are free to choose their
exchange arrangement. Oil shocks occur in 1973–74 and 1979, and the IMF steps in to help
countries deal with the consequences.

Debt and painful reforms (1982–89)

The oil shocks lead to an international debt crisis, and the IMF assists in coordinating the
global response.

Societal Change for Eastern Europe and Asian Upheaval (1990–2004)

The IMF plays a central role in helping the countries of the former Soviet bloc transition from
central planning to market-driven economies.

Globalization and the Crisis (2005 - present)

The implications of the continued rise of capital flows for economic policy and the stability
of the international financial system are still not entirely clear. The current credit crisis and
the food and oil price shock are clear signs that new challenges for the IMF are waiting just
around the corner.

Globalization encompasses three institutions: global financial markets and transnational

companies, national governments linked to each other in economic and military alliances led
by the United States, and rising "global governments" such as World Trade
Organization (WTO), IMF, and World Bank. Charles Derber argues in his book People
Before Profit,"These interacting institutions create a new global power system where
sovereignty is globalized, taking power and constitutional authority away from nations and
giving it to global markets and international bodies". Titus Alexander argues that this system
institutionalises global inequality between western countries and the Majority World in a
form of global apartheid, in which the IMF is a key pillar.

The establishment of globalised economic institutions has been both a symptom of and a
stimulus for globalisation. The development of the World Bank, the IMF regional
development banks such as the European Bank for Reconstruction and
Development (EBRD), and multilateral trade institutions such as the WTO signals a move
away from the dominance of the state as the exclusive unit of analysis in international affairs.
Globalization has thus been transformative in terms of a reconceptualising of state
sovereignty.

Following United States President Bill Clinton's administration's aggressive

financial deregulation campaign in the 1990s, globalisation leaders overturned longstanding
restrictions by governments that limited foreign ownership of their banks, deregulated
currency exchange, and eliminated restrictions on how quickly money could be withdrawn by
foreign investors.

Fund report in May 2015, the world's governments indirectly subsidise fossil fuel companies
with $5.3tn (£3.4tn) a year. Most this is due to polluters not paying the costs imposed on
governments by the burning of coal, oil and gas: air pollution, health problems, the floods,
droughts and storms driven by climate change
 GOVERNANCE
Governance Structure

The IMF has evolved along with the global economy throughout its 70-year history, allowing
the organization to retain a central role within the international financial architecture.

Country Representation

Unlike the General Assembly of the United Nations, where each country has one vote,
decision making at the IMF was designed to reflect the relative positions of its member
countries in the global economy. The IMF continues to undertake reforms to ensure that its
governance structure adequately reflects fundamental changes taking place in the world
economy.

Voting power

Voting power in the IMF is based on a quota system. Each member has a number of basic
votes (each member's number of basic votes equals 5.502% of the total votes), plus one
additional vote for each Special Drawing Right (SDR) of 100,000 of a member country's
quota. The Special Drawing Right is the unit of account of the IMF and represents a claim to
currency. It is based on a basket of key international currencies. The basic votes generate a
slight bias in favour of small countries, but the additional votes determined by SDR outweigh
this bias. Changes in the voting shares require approval by a supermajority of 85% of voting
power.

The table below shows quota and voting shares for IMF members
Quota: Quota:
IMF Member Number
Rank millions percentage Governor Alternative
country of votes
of SDRs of the total
United Steven
1 82,994.2 17.68 Jerome Powell 831,396
States Mnuchin
Haruhiko
2 Japan 30,820.5 6.56 Taro Aso 309,659
Kuroda
Zhou
3 China 30,482.9 6.49 Gang Yi 306,283
Xiaochuan
Jens Wolfgang
4 Germany 26,634.4 5.67 267,798
Weidmann Schäuble
François
Bruno Le
5 France 20,155.1 4.29 Villeroy de 203,005
Maire
Galhau
United Philip
6 20,155.1 4.29 Mark Carney 203,005
Kingdom Hammond
7 Italy 15,070.0 3.21 Pier Carlo Ignazio Visco 152,154
 Padoan
8 India 13,114.4 2.79 Piyush Goyal Urjit Patel 132,598
Anton Elvira S.
9 Russia 12,903.7 2.75 130,491
Siluanov Nabiullina
Henrique
10 Brazil 11,042.0 2.35 Ilan Goldfajn 111,874
Meirelles
11 Canada 11,023.9 2.35 Bill Morneau Stephen Poloz 111,693
Saudi Ibrahim A. Al- Fahad
12 9,992.6 2.13 101,380
Arabia Assaf Almubarak
Luis de Luis María
13 Spain 9,535.5 2.03 96,809
Guindos Linde
Luis Agustín
14 Mexico 8,912.7 1.90 90,581
Videgaray Carstens
15 Netherlands 8,736.5 1.86 Klaas Knot Hans Vijlbrief 88,819
Kim Dong-
16 South Korea 8,582.7 1.83 Lee Ju-yeol 87,281
yeon
17 Australia 6,572.4 1.40 Scott Morrison John Fraser 67,178
Marc
18 Belgium 6,410.7 1.37 Jan Smets 65,561
Monbaliu
Eveline
Thomas
19 Switzerland 5,771.1 1.23 Widmer- 59,165
Jordan
Schlumpf
Agus D.W. Mahendra
20 Indonesia 4,648.4 0.99 47,938
Martowardojo Siregar

In December 2015, the United States Congress adopted a legislation authorising the 2010
Quota and Governance Reforms. As a result,

 all 188 members' quotas will increase from a total of about SDR 238.5 billion to about
SDR 477 billion, while the quota shares and voting power of the IMF's poorest
member countries will be protected.

 more than 6 percent of quota shares will shift to dynamic emerging market and
developing countries and also from over-represented to under-represented members.

 four emerging market countries (Brazil, China, India, and Russia) will be among the
ten largest members of the IMF. Other top 10 members are the United States, Japan,
Germany, France, the United Kingdom and Italy.

Effects of the quota system

The IMF's quota system was created to raise funds for loans. Each IMF member country is
assigned a quota, or contribution, that reflects the country's relative size in the global
economy. Each member's quota also determines its relative voting power. Thus, financial
contributions from member governments are linked to voting power in the organisation.

This system follows the logic of a shareholder-controlled organisation: wealthy countries

have more say in the making and revision of rules. Since decision making at the IMF reflects
each member's relative economic position in the world, wealthier countries that provide more
money to the IMF have more influence than poorer members that contribute less;
nonetheless, the IMF focuses on redistribution.

Inflexibility of voting power

Quotas are normally reviewed every five years and can be increased when deemed necessary
by the Board of Governors. IMF voting shares are relatively inflexible: countries that grow
economically have tended to become under-represented as their voting power lags
behind. Currently, reforming the representation of developing countries within the IMF has
been suggested.These countries' economies represent a large portion of the global economic
system but this is not reflected in the IMF's decision making process through the nature of the
quota system. Joseph Stiglitz argues, "There is a need to provide more effective voice and
representation for developing countries, which now represent a much larger portion of world
economic activity since 1944, when the IMF was created." In 2008, a number of quota
reforms were passed including shifting 6% of quota shares to dynamic emerging markets and
developing countries.

Overcoming borrower/creditor divide

The IMF's membership is divided along income lines: certain countries provide the financial
resources while others use these resources. Both developed country "creditors"
and developing country "borrowers" are members of the IMF. The developed countries
provide the financial resources but rarely enter into IMF loan agreements; they are the
creditors. Conversely, the developing countries use the lending services but contribute little to
the pool of money available to lend because their quotas are smaller; they are the borrowers.
Thus, tension is created around governance issues because these two groups, creditors and
borrowers, have fundamentally different interests.

The criticism is that the system of voting power distribution through a quota system
institutionalises borrower subordination and creditor dominance. The resulting division of the
IMF's membership into borrowers and non-borrowers has increased the controversy around
conditionality because the borrowers are interested in increasing loan access while creditors
want to maintain reassurance that the loans will be repaid.

Exceptional Access Framework – sovereign debt

The Exceptional Access Framework was created in 2003 when John B. Taylor was Under
Secretary of the US Treasury for International Affairs. The new Framework became fully
operational in February 2003 and it was applied in the subsequent decisions on Argentina and
Brazil. Its purpose was to place some sensible rules and limits on the way the IMF makes
loans to support governments with debt problem—especially in emerging markets—and
thereby move away from the bailout mentality of the 1990s. Such a reform was essential for
ending the crisis atmosphere that then existed in emerging markets. The reform was closely
related to, and put in place nearly simultaneously with, the actions of several emerging
market countries to place collective action clauses in their bond contracts.

In 2010, the framework was abandoned so the IMF could make loans to Greece in an
unsustainable and political situation.

The topic of sovereign debt restructuring was taken up by IMF staff in April 2013 for the first
time since 2005, in a report entitled "Sovereign Debt Restructuring: Recent Developments
and Implications for the Fund's Legal and Policy Framework". The paper, which was
discussed by the board on 20 May, summarised the recent experiences in Greece, St Kitts and
Nevis, Belize and Jamaica. An explanatory interview with Deputy Director Hugh
Bredenkamp was published a few days later, as was a deconstruction by Matina Stevis of
the Wall Street Journal.

The staff was directed to formulate an updated policy, which was accomplished on 22 May
2014 with a report entitled "The Fund's Lending Framework and Sovereign Debt: Preliminary
Considerations", and taken up by the Executive Board on 13 June. The staff proposed that "in
circumstances where a (Sovereign) member has lost market access and debt is considered
sustainable ... the IMF would be able to provide Exceptional Access on the basis of a debt
operation that involves an extension of maturities", which was labelled a "reprofiling
operation". These reprofiling operations would "generally be less costly to the debtor and
creditors—and thus to the system overall—relative to either an upfront debt reduction
operation or a bail-out that is followed by debt reduction ... (and) would be envisaged only
when both (a) a member has lost market access and (b) debt is assessed to be sustainable, but
not with high probability ... Creditors will only agree if they understand that such an
amendment is necessary to avoid a worse outcome: namely, a default and/or an operation
involving debt reduction ... Collective action clauses, which now exist in most—but not all—
bonds, would be relied upon to address collective action problems."

Accountability

Created in 1945, the IMF is governed by and accountable to the 189 countries that make up
its near-global membership.

Corporate Responsibility

The Fund actively promotes good governance within its own organization.
 ORGANIZATION 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 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.
 IMF AND PAKISTAN

Since 1958, Pakistan has availed 16 programmes of the International Monetary Fund (IMF)
yet the relationship has been far from smooth.

Islamabad has earned the reputation of a one-tranche nation – a veiled reference to the
country’s track record of taking loans at critical times and then abandoning them
prematurely, either because of a crisis of balance of payments or because further
disbursements required tough policy actions.

Even the start of Pakistan’s relationship with the IMF was not on solid footing. On
December 8, 1958 the then military government signed a one-year Standby Arrangement
(SBA) but terminated it prematurely after nine months.

The second SBA was signed on March 16, 1965 and concluded on March 15, 1966.
Pakistan again obtained a one-year SBA on May 18, 1975 that graduated on May 17, 1973.
The fourth arrangement came on the heels of the third, signed on August 11, 1973 and
ended on August 10, 1974.

The fifth programme, again, was signed after three months on November 11, 1974 and
graduated on November 10, 1975.

Pakistan signed the sixth SBA on March 9, 1977, which terminated exactly after one year.

On November 24, 1980, Islamabad signed an Extended Fund Facility (EFF) that continued
for three years and ended on November 23, 1983. After a gap of five years, Pakistan signed
two simultaneous programmes, Structural Adjustment Facility (SAF) and SBA on
December 28, 1988. Both facilities continued beyond the agreed timeframe and ended in
1990 and 1992.

The ninth programme, again a one-year SBA, was signed on September 16, 1993 but was
terminated prematurely on February 22, 1994.
The 10th programme was again two separate facilities, a SAF and an EFF signed on
February 22, 1994 for a period of three years. But yet again, both the facilities prematurely
terminated on December 13, 1995. The 11th SBA facility was signed on December 13,
1995 and ended on September 30, 1997. The 12th programme once again came in the shape
of two separate facilities, the Poverty Reduction Growth Facility (PRGF) and an EFF. Both
facilities were signed on October 20, 1997 and continued till October 19, 2000.

Under the 13th programme, another SBA facility was signed on November 29, 2000 and
continued until September 30, 2001. The 14th Extended Credit Facility/PRGF was signed
on June 12, 2001 and terminated on May 12, 2004.

A three-year SBA was signed on November 24, 2008 but was prematurely terminated on
September 12, 2010 after Pakistan could not initiate tax and energy reforms. The latest
programme with the IMF was signed in September 2013.

The IMF, directly and indirectly, has played a crucial role in the macroeconomic stability of
Pakistan since1988. it has provided direct bilateral support to Pakistan in order to handle its
macroeconomic imbalances like balance of payment deficits. On the other hand, the IMF has
indirect influence on lending by other donor agencies. In the last few months, there was a lot
of speculation and discussion on the government decision to call for IMF loan to meet its
liquidity and financial problems. Pakistan is a developing country suffering from the
deficiency of saving and investment and needing long-term confessional financing to grow
out of poverty. Its problems of development could not be addressed by short-term balance of
payment support from the IMF. However, with the passage of time, Pakistan accumulated a
large bilateral and multilateral debt that was used unproductively, leading to a major debt-
servicing problem without the buildup of debt-repayment capacity. When it got to the stage
close to a debt default, the government knocked at the doors of the IMF in the 1980 and has
remained locked in that position since then.

IMF AGREEMENTS WITH PAKISTAN

IMF loans have been an important source to manage the financial problems of Pakistan such
as balance of payment deficits, stabilization of currency, rebuilding international reserves,
managing liquidity problems along with enabling the respective countries to meet their short
term needs by providing various types of loans which IMF calls as its lending ‘facility’. In
the last few months, there was a lot of speculation and discussion on the government decision
to call for IMF loan to meet its liquidity and financial problems. In spite of effective policy
actions taken by State Bank of Pakistan, issues such as sharp depreciation of exchange rate,
depletion of foreign exchange reserves of $5 billion till November 2008, inflation rate of
more than 25%, and increase in import bill by 35.2% created immense challenges for the
government and State Bank of Pakistan. Finally, the IMF loan of $7.6 billion was approved
to help Pakistan come out of the liquidity and financial crisis albeit with certain IMF
conditions. The IMF facility is still an important topic of discussion until the real gains from
IMF loans are realized.

To determine the effects of IMF loans on Pakistani economy, it is important to analyze the
history of IMF loans to Pakistan briefly. Since 1988 when Pakistan became member of IMF,
almost eleven loan arrangements (including the recent IMF loan of $7.6 billion in 2008) have
taken place under various IMF facilities/programs. Almost six loan arrangements were made
during the regime of Benazir Bhutto including standby arrangement, Structural Adjustment
Programs (SAP), Poverty reduction and Growth Facility (PRGF) and Extended SAP. Two
IMF loan arrangements were made during Nawaz Sharif regime and two standby agreement
and PRGF under Musharraf regime to stabilize the economy. It is important to note that in the
tenure of last two decades, on average almost 44% of the total lending amount has been
drawn from the original 100% agreed upon lending amount because of the failure of the
government to act upon the strict measures determined by IMF. For the first time in the year
2000, this tradition was broken in Musharraf regime when Musharraf’s government
successfully implemented the conditions proposed by IMF and successfully drew the whole
lending amount of $1.3 billion. It is also very interesting to note that only two loan
arrangements were made during the military regime whereas nine IMF agreements (including
the recent IMF loan) were made during the civilian regime.

The conditions posed by IMF mostly include the close monitoring, reduction of government
spending, revision in tax collection policies, change in policy/discount rate etc. to make sure
that funds granted to the borrower country are utilized in optimal manner. The IMF loans
greatly impact the economic indicators and bring change in the regulatory framework which
has both positive and negative impacts on the country. Pakistan saw a decline in GDP
growth rate and other economic indicators right after infusion of IMF funds in the economy
except in the second last lending arrangement in Musharraf’s regime when full amount of
loan was drawn from IMF. The economic indicators after IMF loans in the last two decades
followed a typical cycle. Usually the trend after IMF loans show immediate decline in GDP
growth rate, increased tax revenues to GDP ratio, increased CPI, increased debt on the
country and then restoration of the conditions back to their previous states because of the
cancellation of loans in the later years. The cancellation of IMF loan agreements in the
previous regimes along with the initial IMF loan effects created quite negative impacts on the
economy as a whole which shows that there were very few times when IMF loans were fully
optimized.

The current IMF loan is expected to have both positive and negative impacts. The immediate
benefits include quick influx of liquidity, improvement in credit rating by reducing the
country’s default risk, enhancement of foreign exchange reserves, stabilization of rupee
(which faced 25% depreciation against U.S. dollar till November), increased investor’s
confidence in both money and capital markets and increased financial assistance from the
friends of Pakistan. However the negative impacts associated with the increase in policy rate
include increased costs for the banks

Criticisms
Overseas Development Institute (ODI) research undertaken in 1980 included criticisms of
the IMF which support the analysis that it is a pillar of what activist Titus Alexander
calls global apartheid.

 Developed countries were seen to have a more dominant role and control over less
developed countries (LDCs).
 Secondly, the Fund worked on the incorrect assumption that all
payments disequilibria were caused domestically. The Group of 24 (G-24), on
behalf of LDC members, and the United Nations Conference on Trade and
Development (UNCTAD) complained that the IMF did not distinguish sufficiently
between disequilibria with predominantly external as opposed to internal causes.
This criticism was voiced in the aftermath of the 1973 oil crisis. Then LDCs found
themselves with payments deficits due to adverse changes in their terms of trade,
with the Fund prescribing stabilisation programmes similar to those suggested for
deficits caused by government over-spending. Faced with long-term, externally
generated disequilibria, the G-24 argued for more time for LDCs to adjust their
economies.
 Some IMF policies may be anti-developmental; the report said
that deflationary effects of IMF programmes quickly led to losses of output and
employment in economies where incomes were low and unemployment was high.
Moreover, the burden of the deflation is disproportionately borne by the poor.
 Lastly is the suggestion that the IMF's policies lack a clear economic rationale. Its
policy foundations were theoretical and unclear because of differing opinions and
departmental rivalries whilst dealing with countries with widely varying economic
circumstances.

ODI conclusions were that the IMF's very nature of promoting market-oriented approaches
attracted unavoidable criticism. On the other hand, the IMF could serve as a scapegoat
while allowing governments to blame international bankers. The ODI conceded that the
IMF was insensitive to political aspirations of LDCs, while its policy conditions were
inflexible.

Argentina, which had been considered by the IMF to be a model country in its compliance
to policy proposals by the Bretton Woods institutions, experienced a catastrophic economic
crisis in 2001, which some believe to have been caused by IMF-induced budget
restrictions—which undercut the government's ability to sustain national infrastructure even
in crucial areas such as health, education, and security—and privatisation of strategically
vital national resources. Others attribute the crisis to Argentina's misdesigned fiscal
federalism, which caused subnational spending to increase rapidly. The crisis added to
widespread hatred of this institution in Argentina and other South American countries, with
many blaming the IMF for the region's economic problems. The current—as of early
2006—trend toward moderate left-wing governments in the region and a growing concern
with the development of a regional economic policy largely independent of big business
pressures has been ascribed to this crisis.

In 2006, a senior ActionAid policy analyst Akanksha Marphatia stated that IMF policies in
Africa undermine any possibility of meeting the Millennium Development Goals (MDGs)
due to imposed restrictions that prevent spending on important sectors, such as education
and health.

In an interview (2008-05-19), the former Romanian Prime Minister Călin Popescu-

Tăriceanu claimed that "Since 2005, IMF is constantly making mistakes when it appreciates
the country's economic performances". Former Tanzanian President Julius Nyerere, who
claimed that debt-ridden African states were ceding sovereignty to the IMF and the World
Bank, famously asked, "Who elected the IMF to be the ministry of finance for every
country in the world?"

Former chief economist of IMF and former Reserve Bank of India (RBI)
Governor Raghuram Rajan who predicted Financial crisis of 2007–08 criticised IMF for
remaining a sideline player to the Developed world. He criticised IMF for praising the
monetary policies of the US, which he believed were wreaking havoc in emerging
markets. He had been critical of the ultra-loose money policies of the Western nations and
IMF.

Conditionality

The IMF has been criticised for being "out of touch" with local economic conditions,
cultures, and environments in the countries they are requiring policy reform. The economic
advice the IMF gives might not always take into consideration the difference between what
spending means on paper and how it is felt by citizens.

Jeffrey Sachs argues that the IMF's "usual prescription is 'budgetary belt tightening to
countries who are much too poor to own belts'". Sachs wrote that the IMF's role as a
generalist institution specialising in macroeconomic issues needs reform. Conditionality has
also been criticised because a country can pledge collateral of "acceptable assets" to obtain
waivers—if one assumes that all countries are able to provide "acceptable collateral".

One view is that conditionality undermines domestic political institutions. The recipient
governments are sacrificing policy autonomy in exchange for funds, which can lead to
public resentment of the local leadership for accepting and enforcing the IMF conditions.
Political instability can result from more leadership turnover as political leaders are
replaced in electoral backlashes. IMF conditions are often criticised for reducing
government services, thus increasing unemployment.

Another criticism is that IMF programs are only designed to address poor governance,
excessive government spending, excessive government intervention in markets, and too
much state ownership. This assumes that this narrow range of issues represents the only
possible problems; everything is standardised and differing contexts are ignored. A country
may also be compelled to accept conditions it would not normally accept had they not been
in a financial crisis in need of assistance.

On top of that, regardless of what methodologies and data sets used, it comes to same
conclusion of exacerbating income inequality. With Gini coefficient, it became clear that
countries with IMF programs face increased income inequality.

It is claimed that conditionalities retard social stability and hence inhibit the stated goals of
the IMF, while Structural Adjustment Programs lead to an increase in poverty in recipient
countries. The IMF sometimes advocates "austerity programmes", cutting public spending
and increasing taxes even when the economy is weak, to bring budgets closer to a balance,
thus reducing budget deficits. Countries are often advised to lower their corporate tax rate.
In Globalization and Its Discontents, Joseph E. Stiglitz, former chief economist and senior
vice-president at the World Bank, criticises these policies. He argues that by converting to a
more monetarist approach, the purpose of the fund is no longer valid, as it was designed to
provide funds for countries to carry out Keynesian reflations, and that the IMF "was not
participating in a conspiracy, but it was reflecting the interests and ideology of the Western
financial community".

International politics play an important role in IMF decision making. The clout of member
states is roughly proportional to its contribution to IMF finances. The United States has the
greatest number of votes and therefore wields the most influence. Domestic politics often
come into play, with politicians in developing countries using conditionality to gain
leverage over the opposition to influence policy.

ALTERNATIVES

In March 2011 the Ministers of Economy and Finance of the African Union proposed to
establish an African Monetary Fund.

At the 6th BRICS summit in July 2014 the BRICS nations (Brazil, Russia, India, China,
and South Africa) announced the BRICS Contingent Reserve Arrangement (CRA) with an
initial size of US$100 billion, a framework to provide liquidity through currency swaps in
response to actual or potential short-term balance-of-payments pressures.

In 2014, the China-led Asian Infrastructure Investment Bank was established

 REFERENCES

www.imf.org

www.dawn.com

www.tribune.com.pk

www.wikipedia.org

www.scribd.com