IMF International Monetory

Fund
March 07, 2016

Presented By: (Group

I)
Anoop Kumar Sharma
(420)
Adarsh Chajjed(411)
Apoorva Sharma (422)
Rahul Gupta(452)
Saurabh Verma ()

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

History

Great Depression of the 1930s

Breakdown in International Monetary
Cooperation

The Bretton Woods Agreement

(BWA)
IMF was formed

End of Bretton

through the

Woods system

BWA:

(197281) :

BWA was conceived The system dissolved

in July 1944
between 1968-1973.
International
Since the collapse of
Monetary Fund
the Bretton Woods
(IMF) formal
system, IMF members
existence was in
have been free to
December 1945
choose any form of
exchange
Par value system
arrangement they
wish

IMF Becoming a Universal

Institution:
The fall of the Berlin wall in 1989
Expansion to fulfill responsibilities
Soviet Block Transition
Debt relief for poor countries

IMF is an international financial organization

comprised of 183 member countries.
The IMF engages in following activities:

Economic surveillance or monitoring

Dispensing of policy advice
Lending
Technical assistance
Exchange rate stability
balance of payments disequilibrium
growth of international trade

The Most Important feature of IMF is

Quota system.
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Administrative Structure

Tranche
If

an IFM member faces balance of

payments difficulties
Can

automatically borrow one fourth of

its quota in the form of a reserve tranche
When the IMF lends to a member
country,
what
actually
happens
is
domestic country purchases international
reserves from the IMF using its own
domestic currency reserves
Member

country is then obliged to repay IMF

by repurchasing its own domestic currency
reserves with international reserve assets
IMF lending is known as a purchaserepurchase arrangement
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Credit tranches
Originally,

each were equal to of the

members quotas
In the late 1970s, credit tranches were
increased to 37.5% of quota
First credit tranche is more or less
automatic
Second through fourth credit tranches
require that the member adopt policies
(conditionality) that will solve balance of
payments problem at hand
Effectively

limits a member countrys credit to

150 percent of its quota
As

IMF evolved, it created a number of special

credit facilities that extend potential credit
beyond 150% level

Drawings

on IMF by its members

have to be repaid
Five-year

limit was established

IMF Lending

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Special Credit Facilities

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Success & Failures

Successful operations
Bailout
Bailout
Bailout
Bailout
Bailout

of
of
of
of
of

Mexico (95)
Kenya
Brazil (98)
Asia (98)
Argentina (2001)

Failures
Bailout

of Russia (98)
Bailout of Greece (2012)

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Current Challenges for the IMF

Continued Globalization (2005-present)
IMF should remain prepared for a more
unstable world
Dramatic change of world economy
since the creation of the IMF
A sharp rise in private international
capital flows
Speed of capital account crises
Icelandic Financial Crisis

Future of IMF
IMF

Sets Out a Strategy for Financial

Surveillance
Identify potentially dangerous
imbalances in the global economy early
on, and encourage countries to take
action to reduce those imbalances.
Serve as referee for disputes over
exchange rates
Coordinate the provision of crisis
liquidity conditioned on necessary policy
adjustments when the uncoordinated
actions of market participants results in
liquidity runs that could give rise to
costly crises

Thank You

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