IMF

Presented by:Bijendra Kumar Anushka Baranwal Vijay Prakash

The International Monetary Fund

Overview:
An International Organization with 188 Countries. Conceived at the 1944 Bretten Woods Conference and formally created in 1945 by 29 member countries. On 1 March 1947, the IMF began its financial operations,[ and on 8 May France became the first country to borrow from it Core mission is to foster Economic Growth and increased International Trade by supporting international monetary cooperation, Exchange Rate stability and temporary financial assistance to countries facing balance of payments difficulties.

History behind the IMF

After the Great Depression in the 1930s there was a need for an organization to create a system for exchange rate stability
Uncertainty of the value of paper money (no longer used the gold standard) Countries began cheating other countries in trade

Countries economies affected by WWII

need for reconstruction in well-developed nations need for development in the lesser developed nations

Bretton Woods Conference

1940s proposals for monetary system by Harry Dexter White (U.S.) and John Keynes (UK)
establish the value of each currency eliminate restrictions and certain practices on trade assistance for post-war reconstruction

Bretton Woods Conference, New Hampshire, July 1944 with delegates of 44 nations
final negotiations of the IMF and the World Bank took place

The Operation of the IMF

Most important feature of IMF is its quota system
Determine both the amount members can borrow from the IMF and their relative voting power
Higher a members quota, the more it can borrow and the greater its voting power

Members quotas are their subscriptions to the IMF

Based on their relative sizes in the world economy Pays one fourth of its quota in widely-accepted reserve currencies (US dollar, British pound, euro, or yen) or in Special Drawing Rights Pays remaining three-quarters of quota in its own national currency

The IMF engages in four areas of activity

Economic surveillance or monitoring Dispensing of policy advice Lending
Perhaps most important

Technical assessment

Purposes of the IMF

i) promote international monetary cooperation ii) expansion and balanced growth of international trade iii) promote exchange rate stability

iv) help establish multilateral system of payments and eliminate foreign exchange restrictions

v) make resources of the Fund available to members vi) Shorten the duration and lessen the degree of disequilibrium in international balances of payments

Qualifications
Any country may apply to be a part of the IMF. PostIMF formation, in the early post-war period, rules for IMF membership were left relatively loose. Members needed to make periodic membership payments towards their quota, to refrain from currency restrictions unless granted IMF permission, to abide by the Code of Conduct in the IMF The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement.[20]

 Some members have a very difficult relationship with the IMF and even when they are still members they do not allow themselves to be monitored. Argentina for example refuses to participate in an Article IV Consultation with the IMF.[

Country

Quota(S DR)

% of quota

Governo Alternat r e Ben Timothy Bernank Geithner e Masaaki Taro Aso Shiraka wa Jens Weidma nn Pierre Moscovi ci Wolfgan g Schubl e

No. of votes 421,961

%of votes 16.75

USA

42,122.4 17.69

Japan

15,628.5 6.56

157,022

6.23

German 14,565.5 6.12 y

146,392

5.81

France (11)Indi a

10,738.5 4.51

Christian 108,122 Noyer 58,952

4.29

5,821.5

2.44

P. Duvvuri Chidamb Subbara aram o

2.34

Administrative Structure of the IMF

Organization
Board of Governors
Each member country appoints one Governor and and Alternate Governor

Executive Board
24 Executive Directors which are representatives for the members

Managing Director
the chairman of the Executive Board

IMF Lending

Where the IMF gets its money

Most comes from the quota subscriptions
the money each member contributes when joining the IMF

General Arrangements to Borrow (1962)

line of credit set up with several governments and banks throughout the world

Ideal Role of the Fund

Development of a country requires an inflow of private foreign savings Inflow would cover a current account deficit often caused by import of capital goods Occasionally, this private foreign savings disappears
Resulting in a balance of payments crisis
In these instances IMF steps in
Member draws on its reserve and credit tranches Repaying credit tranche debts in five years time Thus, IMF offers short-term credit, stepping in to replace private foreign savings on those rare occasions

Special Drawing Right (SDRs)

SDR is an invented currency
its value is based on the worth of the worlds five major currencies US Dollar, French Franc, Pound Sterling, Japanese Yen, Deutsche Mark

Countries add SDRs to their holdings of foreign currencies

keep available for need of payments that must be made in foreign exchange

When is a country in need ?

A country that had not taken in enough foreign currency to pay the other countries for what they have bought
spends more money than it takes in

IMF will lend foreign exchange to that member

hoping to stabilize its currency which will strengthen its trade

Power among the members

Size of the quotas determine voting power IMF decides on the quota for each member
richer countries have larger quota

US having largest economy provides 18% of the total quota (about $35 billion)
US has largest voting power (18% or 26,5000)

 Governors spend most of their time dealing with their own countries
report their countries plans to their representatives only meet with entire IMF board once a year

Executive Board oversees the economic policies of the members

holds meetings three times a week Managing Director heads the the IMF staff of about 2,600 people traditionally held by a European

;
current IMF membership: 188 countries India Joined on December 27, 1945; Article VIII Quota: SDR 4,158.20 million Outstanding loans: None The last Article IV Executive Board Consultation was on April 18, 2012

Latest Reforms: The fast growing emerging market countries will now have a say
- Combined voting power of the U.S. and European Union will fall below 50%.
- Potential to change the culture of the institution.

The institution has become much more flexible in the way it lends money
- Lending facilities that are more suitable for countries
with good track records. - The goals of this reform are to improve the Funds ability to avert financial crises and to respond more flexibly to borrowers needs.

The general financial resources of the IMF, are to be doubled

- The main immediate effect of this reform, therefore, will not be to increase the amount that the IMF can lend, but rather to reduce the need for the Fund to borrow from creditors countries to finance large lending operations.

India and the IMF

India joined the IMF on December 27, 1945, as one of the IMF's original members. For India's Governor, quota, and voting power in the IMF, For India's Executive Director in the IMF and constituency, see India accepted the obligations of Article VIII Article VII of the IMF Articles of Agreement on current account convertibility on August 20, 1994.

 India subscribes to the IMF's Special Data Dissemination Standard. Countries belonging to this group make a commitment to observe the standard and to provide information about their data and data dissemination practices.

IMF and challenger

An Assessment
When IMF opened for business in 1947, its quotas were approximately 13% of world imports
Quotas failed to address the needs of the post-war European economy

Since 1947, IMF quotas as a percent of world imports have fallen to approximately 4% A number of observers have questioned whether IMF has succeeded in addressing global liquidity John Maynard Keynes envisioned a global central bank with an international currency
This central bank would be responsible for regulating expansion of international liquidity
In light of concerns over liquidity, some observers have called for a return to the global central bank idea