Definition: The IMF is the International Monetary Fund, headquartered in

Washington, D.C. It's a global organization made up of 185 member countries,

founded in 1944 with the purpose to oversee global financial health and provide
assistance when needed to its members. Today, the IMf states its goals as "to
promote international monetary cooperation, exchange stability, and orderly
exchange arrangements; to foster economic growth and high levels of employment;
and to provide temporary financial assistance to countries to help ease balance of
payments adjustment." Criticism of the IMF is a cornerstone of the anti-globalization
movement.
The IMF, or International Monetary Fund, was conceived at the Bretton Woods UN
conference in July 1944. The purpose of the IMF is to promote the health of the
world economy. The IMF pursues this aim through a focus on monetary policies and
activities that promote international cooperation, expansion of international trade,
and stability of foreign exchange rates. The IMF also provides technical assistance
to governments that need help creating better policies, and lends funds in the event
of a financial crisis. In addition, the IMF works to alleviate poverty. The IMF is funded
by a quota system of contributions from its members. The United States has by far
the largest IMF quota. IMF quotas are reviewed every five years. Today, the majority
of the world's countries participate in the IMF. The IMF is headquartered in
Washington, DC.

IMF History and Structural Adjustment Conditions

The International Monetary Fund was established, along with the World Bank, at a conference in
Bretton Woods, New Hampshire, USA, in the closing stages of World War II. The participants
represented the governments soon to win the war against fascism. They were concerned about
the rebuilding of Europe and of the global economic system after a devastating war.
The key debate at Bretton Woods was between the British and US delegations representing,
respectively, liberal and conservative visions of global economic institutions. The British
delegation, led by Maynard Keynes, imagined that the new IMF should be a cooperative fund
which member states could draw upon to maintain economic activity and employment through
periodic crises. This view suggested an IMF helping governments to act as the US government
had during the New Deal in response to the great recession of the 1930s.
By contrast, the US delegation to Bretton Woods foresaw an IMF more like a bank, making sure
that borrowing states could repay their debts on time. This more conservative view was less
concerned to avoid recession and unemployment. The US view prevailed, and set the stage for
how economic crises have been handled since World War II (Harris 1988).
Since the Second World War, the International Monetary Fund has provided loans to
governments facing economic crises. The loans have come to be known as structural adjustment
loans because they aim to help borrowing governments adjust the structure of economic activity.
The presence of the IMF as an international lending institution continues to evolve with the
changing conditions of globalization. Most recently the IMF has begun to focus its policy-
making stratgies to incorporate poverty reduction policies in addition to creating economic
stability.
IMF HISTORY:
The early years of the 20th century witnessed the 'Great Depression' of the 1930s and the two
World Wars. This resulted in the collapse of the total global economic system, thereby affecting
international trade. As a result, all the countries were reeling with unemployment and
plummeting living standards. Anglo-American discussions during the period of World War II
reflected the demand for an organization to take care of the international monetary cooperation
and promote the growth of international trade.

Bretton Woods Conference

A meeting of 730 delegates, from the 44 allied nations, was held at the Mount Washington Hotel,
situated in Bretton Woods, New Hampshire, United States. The meeting lasted for 22 days - July
1 to July 22, 1944, and the main issue was regulation of the post-war international monetary and
financial order. The main debate was between the U.S. and U.K. delegations, regarding the
nature of the impending organization. The British delegation argued for a fund which could help
the member nations economically, during the times of crisis, whereas the U.S. delegation wanted
a bank-like institution, from where the member countries could borrow money, which would
have to be repaid in time. Finally, the U.S. view was accepted.

Formation of IMF

During the Bretton Woods Conference, agreements were signed to establish the International
Monetary Fund (IMF), International Bank for Reconstruction and Development (IBRD or World
Bank), and the General Agreement on Tariffs and Trade (GATT).

The International Monetary Fund came into existence on December 27, 1945, when 29 countries
signed the treaty called Articles of Agreement. In 1946, the board of governors convened the first
meeting of the IMF in Savannah, Georgia, U.S., to elect its executive directors and decide the
location of the organization's permanent headquarters and to draft the bylaws. They decided to
select Washington D.C. as the permanent headquarters of the IMF. The financial operations of
the IMF started on March 1, 1947. The statutory goals of the IMF are to oversee exchange rates,
giving financial and technical assistance to the member countries and to address global economic
problems.

IMF, which started with 29 countries as its members, now has a membership of 182. Countries
seeking membership of the IMF have to deposit a particular amount as subscription fee to the
fund and has to comply with the stipulated conditions. The other sources of income are loan
repayments from debtor countries, gold reserves and requested resources from its shareholders.
This amount is used by the IMF in providing financial assistance. In 1952, IMF had effected
some changes to its drawing policies. The concept of structural adjustment loans that helped the
borrowing government to adjust the economic structure, was introduced, and was modified in
1956. From 1956 till date, lending operations remain to be one of the main functions of the IMF
and various changes have been incorporated to its drawing policies.

Since its inception, the IMF has provided financial aid to various countries facing economic
problems. The organization still adheres to its objectives and tries to bring about a positive
change in the global economic scenario.
IMF - The International Monetary Fund
History of the IMF:
The International Monetary Fund (IMF) was created in 1944 to help the world avoid
another Great Depression. Its goal was to help countries maintain the value of their
currencies without resorting to trade barriers and high interest rates.

Today, the IMF has over 180 member countries, which it helps by:
• Surveying global economic conditions.
• Advising member countries on methods to improve their economy.
• Providing short-term loans to avoid currency instability.
Importance of the IMF:
The importance of the IMF has increased since the global financial crisis started in
2007. The IMF has been called upon more and more to provide global economic
surveillance. It is in the best position to do so because of its membership
requirements. The 180 member countries have already agreed to subject their
economic policies to IMF scrutiny. They committed to:

• Pursue policies that are conducive to reasonable price stability.

• Avoid manipulating exchange rates for unfair competitive advantage.
• Provide the IMF with data about its economy.
An IMF surveillance report warned about the economic crisis, but was ignored.
IMF Advises Member Countries:
Since the Mexican peso crisis of 1994–95 and the Asian crisis of 1997–98, the IMF
has taken a more active role to help countries prevent financial crises. It develops
standards that countries should follow, such as providing adequate foreign
exchange reserves in good times to help provide for increased spending during
recessions. It reports on members countries' observance of these standards. It also
issues member country reports that investors use to make well-informed decisions,
improving the functioning of financial markets, and reducing potential financial
shocks.

IMF Provides Short-term Loans:

The IMf provides loans to help its members tackle balance of payments problems,
stabilize their economies, and restore sustainable economic growth. Unlike the
World Bank and other development agencies, the IMF does not finance projects.

Most IMF borrowers are developing countries which have only limited access to international
capital markets, partly because of their economic difficulties. Since IMF lending signals that a
country's economic policies are on the right track, it reassures investors and can act as a catalyst
for attracting funds from other sources.
Who Runs the IMF?:
The IMF is governed by its member countries through its Board of Governors, which
is usually the finance minister or central bank. They meet annually, in conjunction
with the World Bank. The International Monetary and Financial Committee, or the
IMFC, meets twice a year to review the international monetary system. The day-to-
day work of the IMF is carried out by the Executive Board, who appoints the IMF's
Managing Director to a renewable five-year term.

The International Monetary Fund has long provided advice and technical assistance
that has helped to foster good governance, such as promoting public sector
transparency and accountability. Traditionally the IMF’s main focus has been on
encouraging countries to correct macroeconomic imbalances, reduce inflation, and
undertake key trade, exchange, and other market reforms needed to improve
efficiency and support sustained economic growth. While these remain its first order
of business in all its member countries, increasingly the IMF has found that a much
broader range of institutional reforms is needed if countries are to establish and
maintain private sector confidence and thereby lay the basis for sustained growth.

Mirroring the greater importance the membership of the IMF places on this matter, the
declaration Partnership for Sustainable Global Growth that was adopted by the IMF’s Interim
Committee at its meeting in Washington on September 29, 1996, identified "promoting good
governance in all its aspects, including ensuring the rule of law, improving the efficiency and
accountability of the public sector, and tackling corruption" as an essential element of a
framework within which economies can prosper. The IMF’s Executive Board then met a number
of times to develop guidance for the IMF regarding governance issues.
The Guidance Note reprinted in this pamphlet, adopted by the Board in July 1997, reflects the
strong consensus among Executive Directors on the significance of good governance for
economic efficiency and growth. The IMF’s role in these issues has been evolving pragmatically
as more was learned about the contribution that greater attention to governance issues could
make to macroeconomic stability and sustainable growth. Executive Directors were strongly
supportive of the role the IMF has been playing in this area in recent years. They also
emphasized that the IMF’s involvement in governance should be limited to its economic aspects.
Taking into account lessons from experience and the Executive Board’s discussions, the
guidelines seek to promote greater attention by the IMF to governance issues, in particular
through:
• A more comprehensive treatment in the context of both Article IV
consultations and IMF-supported programs of those governance issues within
the IMF’s mandate and expertise;
• A more proactive approach in advocating policies and the development of
institutions and administrative systems that eliminate the opportunity for
bribery, corruption, and fraudulent activity in the management of public
resources;
• An evenhanded treatment of governance issues in all member countries; and
 • Enhanced collaboration with other multilateral institutions, in particular the
World Bank, to make better use of complementary areas of expertise.
Jack Boorman
DIRECTOR
POLICY DEVELOPMENT AND
REVIEW DEPARTMENT

The Role of the IMF in

Governance Issues: Guidance Note
(Approved by the IMF Executive Board, July 25, 1997)

I. Introduction
1. Reflecting the increased significance that member countries attach to the
promotion of good governance, on January 15, 1997, the Executive Board held a
preliminary discussion on the role of the IMF in governance issues, followed by a
discussion on May 14, 1997, on guidance to the staff.1 The discussions revealed a
strong consensus among Executive Directors on the importance of good governance
for economic efficiency and growth. It was observed that the IMF’s role in these
issues had been evolving pragmatically as more was learned about the contribution
that greater attention to governance issues could make to macroeconomic stability
and sustainable growth in member countries. Directors were strongly supportive of
the role the IMF has been playing in this area in recent years through its policy
advice and technical assistance.

2. The IMF contributes to promoting good governance in member countries through different
channels. First, in its policy advice, the IMF has assisted its member countries in creating
systems that limit the scope for ad hoc decision making, for rent seeking, and for undesirable
preferential treatment of individuals or organizations. To this end, the IMF has encouraged,
among other things, liberalization of the exchange, trade, and price systems, and the elimination
of direct credit allocation. Second, IMF technical assistance has helped member countries in
enhancing their capacity to design and implement economic policies, in building effective
policymaking institutions, and in improving public sector accountability. Third, the IMF has
promoted transparency in financial transactions in the government budget, central bank, and the
public sector more generally, and has provided assistance to improve accounting, auditing, and
statistical systems. In all these ways, the IMF has helped countries to improve governance, to
limit the opportunity for corruption, and to increase the likelihood of exposing instances of poor
governance. In addition, the IMF has addressed specific issues of poor governance, including
corruption,2 when they have been judged to have a significant macroeconomic impact.
3. Building on the IMF’s past experience in dealing with governance issues and taking into
account the two Executive Board discussions, the following guidelines seek to provide greater
attention to IMF involvement in governance issues, in particular through:
 • a more comprehensive treatment in the context of both Article IV
consultations and IMF-supported programs of those governance issues that
are within the IMF’s mandate and expertise;
• a more proactive approach in advocating policies and the development of
institutions and administrative systems that aim to eliminate the opportunity
for rent seeking, corruption, and fraudulent activity;
• an evenhanded treatment of governance issues in all member countries; and
• enhanced collaboration with other multilateral institutions, in particular the
World Bank, to make better use of complementary areas of expertise.

II. Guidance for IMF Involvement

Responsibility for Good Governance
4. The responsibility for governance issues lies first and foremost with the national
authorities. The staff should, wherever possible, build on the national authorities’
own willingness and commitment to address governance issues, recognizing that
staff involvement is more likely to be successful when it strengthens the hands of
those in the government seeking to improve governance. However, there may be
instances in which the authorities are not actively addressing governance issues of
relevance to the IMF. In such circumstances, the staff should raise their specific
concerns in this regard with the authorities and point out the economic
consequences of not addressing these issues.

Aspects of Governance of Relevance to the IMF

5. Many governance issues are integral to the IMF’s normal activities. The IMF is
primarily concerned with macroeconomic stability, external viability, and orderly
economic growth in member countries. Therefore, the IMF’s involvement in
governance should be limited to economic aspects of governance. The contribution
that the IMF can make to good governance (including the avoidance of corrupt
practices) through its policy advice and, where relevant, technical assistance, arises
principally in two spheres:

• improving the management of public resources through reforms covering

public sector institutions (e.g., the treasury, central bank, public enterprises,
civil service, and the official statistics function), including administrative
procedures (e.g., expenditure control, budget management, and revenue
collection); and
• supporting the development and maintenance of a transparent and stable
economic and regulatory environment conducive to efficient private sector
activities (e.g., price systems, exchange and trade regimes, and banking
systems and their related regulations).
6. Within these areas of concentration, the IMF should focus its policy advice and
technical assistance on areas of the IMF’s traditional purview and expertise. Thus,
the IMF should be concerned with issues such as institutional reforms of the
treasury, budget preparation and approval procedures, tax administration,
accounting, and audit mechanisms, central bank operations, and the official
statistics function. Similarly, reforms of market mechanisms would focus primarily
on the exchange, trade, and price systems, and aspects of the financial system. In
the regulatory and legal areas, IMF advice would focus on taxation, banking sector
laws and regulations, and the establishment of free and fair market entry (e.g., tax
codes and commercial and central bank laws). In other areas, however, where the
IMF does not have a comparative advantage (e.g., public enterprise reform, civil
service reform, property rights, contract enforcement, and procurement practices),
the IMF would continue to rely on the expertise of other institutions, especially the
World Bank. But, consistent with past practice, policies and reforms in these areas
could, as appropriate, be part of the IMF staff’s policy discussions and conditionality
for the IMF’s financial support where those measures were necessary for the
achievement of program objectives.

7. Although it is difficult to separate economic aspects of governance from political aspects,

confining the IMF’s involvement in governance issues to the areas outlined above should help
establish the boundaries of this involvement. In addition, general principles that are more broadly
applicable to the IMF’s activities should also guide the IMF’s involvement in governance issues.
Specifically, the IMF’s judgments should not be influenced by the nature of a political regime of
a country, nor should it interfere in domestic or foreign politics of any member. The IMF should
not act on behalf of a member country in influencing another country’s political orientation or
behavior. Nevertheless, the IMF needs to take a view on whether the member is able to formulate
and implement appropriate policies. This is especially clear in the case of countries
implementing economic programs supported by the IMF from the guidelines on conditionality
that call on IMF management to judge that "the program is consistent with the IMF’s provisions
and policies and that it will be carried out."3 As such, it is legitimate for management to seek
information about the political situation in member countries as an essential element in judging
the prospects for policy implementation.
Criteria for IMF Involvement
8. The IMF’s mandate and resources do not allow the institution to adopt the role of
an investigative agency or guardian of financial integrity in member countries, and
there is no intention to move in this direction. The staff should, however, address
governance issues, including instances of corruption, on the basis of economic
considerations within its mandate.

9. In considering whether IMF involvement in a governance issue is appropriate, the staff should
be guided by an assessment of whether poor governance would have significant current or
potential impact on macroeconomic performance in the short and medium term and on the ability
of the government credibly to pursue policies aimed at external viability and sustainable growth.
The staff could draw upon comparisons with broadly agreed best international practices of
economic management to assess the need for reforms.
10. As regards possible individual instances of corruption, IMF staff should continue raising
these with the authorities in cases where there is a reason to believe they could have significant
macroeconomic implications, even if these effects are not precisely measurable. Such
implications could arise either because the amounts involved are potentially large, or because the
corruption may be symptomatic of a wider governance problem that would require changes in
the policy or regulatory framework to correct. Instances could include, for example, the diversion
of public funds through misappropriation, tax (including customs) fraud with the connivance of
public officials, the misuse of official foreign exchange reserves, or abuse of powers by bank
supervisors that could entail substantial future costs for the budget and public financial
institutions. Corrupt practices could also occur in other government activities, including the
regulation of private sector activities that do not have a direct impact on the budget or public
finances, such as ad hoc decisions made in relation to the regulation of foreign direct investment.
Such practices would be counter to the IMF’s general policy advice aimed at providing a level
playing field to foster private sector activity.
11. Instances of corruption that do not meet the threshold of having significant macroeconomic
implications are best addressed through the IMF’s efforts to promote transparency and remove
unnecessary regulations and opportunities for rent seeking consistent with the broad principles
that apply to other issues of economic governance. Staff recommendations could include
improvements in government management processes and systems that would have the beneficial
side effect of preventing a recurrence of corrupt practices or advice to the authorities to seek the
assistance of competent institutions for advice in these areas.
Modalities of IMF Involvement in Governance Issues
12. Governance issues are relevant to all member countries, although the problems
differ depending on economic systems, institutions, and the economic situation. The
mode of IMF involvement will have implications for the manner in which governance
concerns are addressed by staff in different member countries. Nonetheless,
whatever the mode of involvement, the IMF’s main contribution to improving
governance in all countries—both countries receiving financial support from the IMF
and other countries—will continue to be through support for policy reforms that
remove opportunities for rent-seeking activities and through sustained efforts to
help strengthen institutions and the administration capacity in member countries.

Article IV Consultation Discussions

13. In Article IV consultation discussions, the staff should be alert to the potential
benefits of reforms that can contribute to the promotion of good governance (e.g.,
reduced scope for generalized rent seeking, enhanced transparency in decision-
making and budgetary processes, reductions in tax exemptions and subsidies,
improved accounting and control systems, improvements in statistical
dissemination practices, improvements in the composition of public expenditure,
and accelerated civil service reform). The potential risk that poor governance could
adversely affect private market confidence and, in turn, reduce private capital
inflows and investment—even in countries enjoying relatively strong growth and
private capital inflows—should also be brought to the attention of the authorities.
IMF policy advice should also make use of the broad experience of countries with
different economic systems and institutional practices and be based on the broadly
agreed best international practices of economic management and on the principles
of transparency, simplicity, accountability, and fairness. In the case of international
transactions that involve corruption, the staff should pay equal attention to both
sides of corrupt transactions and recommend that such practices be stopped if they
have the potential to significantly distort economic outcomes (e.g., the tax
deductibility of bribes in member countries or certain operations of official
agencies). Where poor governance with a significant economic impact is evident
and brought to the staff’s attention in its surveillance activities, the staff should
discuss the issue with the authorities.

Use of IMF Resources

14. While the policy advice indicated above in relation to Article IV consultations is
also relevant in the case of IMF-supported programs, the need to safeguard the
IMF’s resources must also be taken into account.

15. The use of conditionality related to governance issues emanates from the IMF’s concern with
macroeconomic policy design and implementation as the main means to safeguard the use of
IMF resources. Thus, conditionality, in the form of prior actions, performance criteria,
benchmarks, and conditions for completion of a review, should be attached to policy measures,
including those relating to economic aspects of governance that are required to meet the
objectives of the program. This would include policy measures that may have important
implications for improving governance but are covered by the IMF’s conditionality primarily
because of their direct macroeconomic impact (e.g., the elimination of tax exemptions or
recovery of nonperforming loans). While the IMF staff should rely on other institutions’
expertise in areas of their purview (e.g., public enterprise reform by the World Bank), it could
nevertheless recommend conditionality in these areas if it considers that measures are critical to
the successful implementation of the program.
16. Weak governance should be addressed early in the reform effort. Financial assistance from
the IMF in the context of completion of a review under a program or approval of a new IMF
arrangement could be suspended or delayed on account of poor governance, if there is reason to
believe it could have significant macroeconomic implications that threaten the successful
implementation of the program, or if it puts in doubt the purpose of the use of IMF resources.
Corrective measures that at least begin to address the governance issue should be prior actions
for resumption of IMF support, and, if necessary, certain key measures could be structural
benchmarks or performance criteria. Examples of such measures include recuperation of forgone
revenue and changes in tax or customs administration. The staff would need to exercise
judgment in assessing whether the actions adopted by the authorities were adequate to address
the governance concerns; as in the case of other policies in which the track record is weak and
the commitment of the authorities is in doubt, it may be appropriate in some circumstances to
call for a period of monitoring prior to a resumption of financial support. The authorities’ policy
response could also entail changes in management in public institutions and, as appropriate, the
removal of individuals from involvement in particular operations where corruption had occurred,
and efforts to recover government funds that have been misappropriated. The staff must, of
course, be mindful of the need to avoid action prejudicial to any related domestic legal processes
in a particular case.
Technical Assistance
17. The IMF’s technical assistance programs should continue to contribute to
improving economic aspects of governance. This would apply to areas of IMF
expertise, including budget management and control, tax and customs
administration, central bank laws and organization, foreign exchange laws and
regulations, and macroeconomic statistical systems and dissemination practices. In
these areas, technical assistance missions should bring to the attention of the
authorities areas in which procedures and practices fall short of best international
practices.

Identification of Governance Problems

18. In the context of Article IV consultations, program negotiations, and technical
assistance missions, the staff should be alert to aspects of poor governance that
would influence the implementation and effectiveness of economic policies and
private sector activities. For example, this could be related to a weak and poorly
remunerated civil service, which could be addressed through civil service reforms
encompassing a restructuring or selective increase in pay scales or the process and
transparency of the privatization process. The staff should also pay attention to
inconsistencies or improbabilities in the various data and accounts in member
countries. For instance, tax collection might fall short of the expected potential
yields as a result of weak administration of tax laws, procedural complexities, or the
widespread abuse of exemptions. The staff should bring data inconsistencies that
are not judged to be the result of problems in statistical collection and compilation
to the attention of the authorities. The staff should also advise that greater
transparency in macroeconomic policy implementation could help build private
sector confidence in government policies; for example, the consolidation of all
extrabudgetary accounts within the budget, the early publication of the budget, and
early reporting on the outcome at the end of the fiscal year.

19. It is recognized that there are clear practical limitations to the ability of the staff to identify
deficiencies in governance. The availability, quality, and reliability of information are likely to
be important factors affecting IMF involvement in corruption cases. The staff should continue to
rely on information provided by the authorities. If inconsistencies in public accounts and reports
suggest that a problem exists, the staff should, in the first instance, raise the issue with the
authorities. In its endeavor to seek information, the staff may need to be prepared to face some
tension in the working relationship with country authorities in specific cases potentially
involving corrupt practices. The staff may also point out that, in an atmosphere of widespread
rumors of corrupt practices, and where the rumors have some genuine credence, an independent
audit may be desirable to address such concerns. If the staff considers that further information is
required to resolve an issue that has a significant macroeconomic impact, it may be appropriate
to make use of information from third parties, including other international organizations and
donors. In view of the confidential nature of the information obtained by the staff from member
countries, staff inquiries will need to be handled with due discretion and regard for the sensitive
nature of the issue.

The IMF’s main role should be monitoring and surveillance, not a direct provider of loans

7 Nov 2008

As the global financial crisis radiates out from the developed economies into emerging
markets, it is ravaging not just governance- challenged economies such as Venezuela,
Russia and Argentina. The crisis is also striking Brazil, Korea and South Africa, which appeared
to have made substantial and lasting progress towards macroeconomic stability. For this reason,
the future shape of the International Monetary Fund (IMF) is on the top of the agenda for world
leaders as they prepare to meet in Washington in mid-November.

Just a short time ago, the IMF seemed relegated to a sustained period of irrelevance as it failed to
modernise either its Euro-centric political representation or its arcane government-to-government
lending facilities. Suddenly, the Fund has moved to centre stage as the only agency seemingly
capable of stemming the downward spiral that is currently seizing emerging-market stocks and
bonds.

World leaders should be happy that the IMF stands ready to take the lead in the next phase of the
global financial crisis, even if its lending resources of approximately $250 billion are inadequate
to stem the current run on emerging markets. Emerging-market companies alone have hundreds
of billions coming due in the next 12 months.

Unlike the US Federal Reserve chairman, Ben Bernanke, most emerging-market central bankers
are in no position to extend blank cheques across their economies without a boomerang effect on
interest rates and exchange rates.
But it would be a terrible mistake to simply super-size the IMF in its current guise by greatly
scaling up its lending facilities, as many propose. Rather, the Fund’s role, even in the current
crisis, should be sharpened as an interlocutor between lenders and developing country borrowers,
rather than simply as a replacement for all other loan sources.

The key reforms for the IMF remain, one, improving governance by reducing European
representation while increasing that of Asia, and two, focusing the Fund’s mission on monitoring
and surveillance rather than as a direct provider of bailout loans. Rich country governments, led
by central banks, should provide the large-scale funding needed to stem the run on developing
country finances. The Fund’s main role should be in monitoring.

Without its own currency, the IMF is poorly positioned to intervene with the overwhelming force
needed for lender-of-last-resort operations. In principle, the IMF could be allowed to print
money. But this is not realistic, given the lack of an adequate system for global governance.
Even the euro area, which is far more cohesive, has not quite figured out how to use its central
bank as lender of last resort.

The IMF’s lending resources have shrunk dramatically relative to world trade and income
compared over the past 50 years. But increasing its resources to a trillion dollars or more is not a
realistic option, either. The IMF does not have an adequate framework for handling the massive
defaults that could easily attend a huge surge in lending, much less the political will to
distinguish between countries that are facing genuine short-term liquidity problems and countries
that are actually facing insolvency problems.

In the short run, the IMF could help coordinate additional loans from the US, Japan and China, to
help maintain economic and political stability in the developing world. Without directly
acknowledging America’s central role in causing the financial crisis, the US Federal Reserve has
already offered to exchange up to $30 billion each with the central banks of Korea, Brazil,
Mexico and Singapore.
The IMF can also play a useful role in helping surplus countries manage their foreign exchange
reserves, much as the Bank for International Settlements already does. World leaders can allow
the IMF to sell some of its gold stock to fund its monitoring and surveillance functions. Then in
the future, it will not need to make crisis loans just to keep the lights on in the building.
As tempting as it may be to ramp up IMF lending on a long-term basis, this would be a strategic
mistake for both the world and the Fund. The rich countries, together with China and the Middle
East oil exporters, do indeed need to take bold steps to help out emerging markets, and the Fund
has a useful role to play. But super-sizing the Fund, without sufficient governance improvements
and lending constraints, would give the world too much of a good thing.

Role of IMF
The International Monetary Fund is a global organisation founded in 1944. It aims was to help
stabilise exchange rates and provide loans to countries in need. Nearly all members of the United
Nations are members of the IMF with a few exceptions such as Cuba, Lichtenstein and Andorra.
• The IMF is independent of the World Bank although both are United Nations
agencies and both are aiming to increase living standards. The World Bank
concentrates on long term loans to developing countries.
Functions of IMF
1. International Monetary Cooperation
2. Promote exchange Rate stability
3. To help deal with Balance of Payments adjustment
4. Help Deal With Economic Crisis by providing international coordination
What The IMF does
1. Economic Surveillance. IMF produces reports on member countries economies and suggest
areas of weakness / possible danger. The idea is to work on crisis prevention by highlighting
areas of economic imbalance. A list of IMF reports on member countries are available at: IMF
Countries
2. Loans to Country's with financial crisis. The IMF has $300 billion of loanable funds. This
comes from member countries who deposit a certain amount on joining. In times of financial /
economic crisis, the IMF may be willing to make available loans as part of a financial
readjustment.
• the IMF has arranged more than $180 billion in bailout packages since 1997.
3. Technical assistance and economic training. The IMF produce many reports and
publications. They can also offer support for local economies. More on technical assistance
How is IMF Financed?
The IMF is financed by member countries who contribute funds on joining. They can also
increase this throughout their membership. The IMF can also ask its member countries for more
money. IMF financial resources have risen from about $50 billion in 1950 to nearly $300 billion
last year, sourced from contributions from its 183 members.This initial amount depends on the
size of the countries economy. E.g. the US deposited the largest amount with the IMF. The US
currently has 16% of voting rights at the IMF, a reflection of its quotas deposited with IMF. The
UK has 4% of IMF Voting rights. Loans are also available to developing countries to 'deal with
poverty reduction.'
Special Drawing Rights SDR
The IMF use Special drawing rights to provide a unit for the amount of foreign currency member
states can draw on. SDRs are defined in terms of a basket of major currencies including: Euro,
Pound Sterling, Japanese yen and US Dollar.

The relationship between India and the IMF dates back to the time when India
needed economic reform packages to strengthen its international reputation and
fiscal policy. IMF provided major loans to India to structure its finances and maintain
average economic growth rate.

About the IMF

The International Monetary Fund (IMF) is an association of 186 nations, working

towards strengthening the international fiscal system, protecting monetary stability,
assisting international trade, endorsing greater employment, maintaining fiscal
growth, and diminishing poverty rate across the globe.

The organization maintains its association by facilitating:

• Policy guidance to administrations and nationalized financial institutions on

the basis of the assessment of fiscal trends cross national know-how;
• Providing study data, statistics, predictions and assessments based on the
survey of international, local and respective financial systems and markets.
• Providing loans to assist nations to surmount financial difficulties;
• Providing provisional finances to help evade poverty in progressing nations
and
• Providing technological support and training to aid nations enhance the
administration of their financial systems.

IMF and India Relations

India is among one of the developing economies that effectively employed the
various Fund programmes to fortify its fiscal structure. Through productive
engagement with the IMF, India formulated a consistent approach to expand
domestic and global assistance for economic reforms. Whenever India underwent
balance of payments crises, it sought the help of IMF and in turn the internationally
recognized reserve willingly helped India to overcome the difficulties.
Recently, India purchased IMF gold to lend money to developing countries. This
proves that the fiscal reforms set in motion by the previous finance ministers have
finally started gaining momentum, transforming India from fiscal borrower to major
lender.

The speed at which the gold was purchased by India on September 18, 2009
astonished the market observers, who later considered it as a smart move towards
shoring its bullion funds and steadily trying to stake on the US dollar. Some analysts
predict that India is purchasing gold to move forward for higher voting share in the
IMF. India is also seeking for a considerable say in global fiscal affairs and greater
account in the IMF.

The Reserve Bank of India forfeited USD 1,045/ ounce of yellow metal paying the
amount in hard exchange and not in the IMF's internal division of account.

The history of India's engagement with IMF illustrates that with premeditated
planning it is possible to alleviate a macroeconomic calamity and sustain the rights
of reform package without negotiating on democratic organizations or international
policy autonomy.

IMF 2010-11 prediction of Indian Economy

The International Monetary Fund (IMF) predicted 8% expansion during 2010-11. However, the
growth will be affected by high inflation and increasing monetary deficit in the concerned fiscal
year.

India's long term economic prospects will continue to remain sturdy in 2010-11 followed by
lower growth rate at 7.7% for the FY 2011-12. Other than high inflation and rising financial
deficit, the major areas of concern are rise in asset cost and the prospects of an unanticipated
slowdown in the influx of foreign investment in India caused due by the chaos in worldwide
financial markets.

About the IMF

The International Monetary Fund (IMF) is an organization of 187 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.

Overview
The IMF works to foster global growth and economic stability. It provides policy
advice and financing to members in economic difficulties and also works with
developing nations to help them achieve macroeconomic stability and reduce
poverty.

What we do
The multimedia content on this page cannot be printed.

Video (2:35): An introduction to the IMF

Related Links
• IMF at a Glance
• IMF Annual Report
• IMF Articles of Agreement
• More on globalization
• More on emerging markets
• More on IMF's work in low-income countries
Highlights of this section:
• Key IMF Activities
• Original Aims
• Adapting to Change
With its near-global membership of 187 countries, the IMF is uniquely placed to help member
governments take advantage of the opportunities—and manage the challenges—posed by
globalization and economic development more generally. The IMF tracks global economic
trends and performance, alerts its member countries when it sees problems on the horizon,
provides a forum for policy dialogue, and passes on know-how to governments on how to tackle
economic difficulties.
The IMF provides policy advice and financing to members in economic difficulties and also
works with developing nations to help them achieve macroeconomic stability and reduce
poverty.
Marked by massive movements of capital and abrupt shifts in comparative advantage,
globalization affects countries' policy choices in many areas, including labor, trade, and tax
policies. Helping a country benefit from globalization while avoiding potential downsides is an
important task for the IMF. The global economic crisis has highlighted just how interconnected
countries have become in today’s world economy.
Key IMF activities
The IMF supports its membership by providing
• policy advice to governments and central banks based on analysis of
economic trends and cross-country experiences;
• research, statistics, forecasts, and analysis based on tracking of global,
regional, and individual economies and markets;
• loans to help countries overcome economic difficulties;
• concessional loans to help fight poverty in developing countries; and
• technical assistance and training to help countries improve the management
of their economies.
IMF and the global financial crisis
• Click here to read about our work in crisis countries
Original aims
The IMF was founded more than 60 years ago toward the end of World War II (see History). The
founders aimed to build a framework for economic cooperation that would avoid a repetition of
the disastrous economic policies that had contributed to the Great Depression of the 1930s and
the global conflict that followed.
Since then the world has changed dramatically, bringing extensive prosperity and lifting millions
out of poverty, especially in Asia. In many ways the IMF's main purpose—to provide the global
public good of financial stability—is the same today as it was when the organization was
established. More specifically, the IMF continues to
• provide a forum for cooperation on international monetary problems
• facilitate the growth of international trade, thus promoting job creation,
economic growth, and poverty reduction;
• promote exchange rate stability and an open system of international
payments; and
• lend countries foreign exchange when needed, on a temporary basis and
under adequate safeguards, to help them address balance of payments
problems.
The IMF's way of operating has changed over the years and has undergone rapid change since
the beginning of the 1990s as it has sought to adapt to the changing needs of its expanding
membership in an globalized world economy. Most recently, the IMF's Managing Director,
Dominique Strauss-Kahn, has launched an ambitious reform agenda, aimed at making sure the
IMF continues to deliver the economic analysis and multilateral consultation that is at the core of
its mission—ensuring the stability of the global monetary system.
Video (11:17) Dan Rather interviews IMF Managing Director, Dominique Strauss-Kahn
An adapting IMF
With cross-border financial flows increasing sharply in recent decades, the interdependence of
countries has deepened (see slideshow on capital inflows). The turbulence in advanced economy
credit markets in 2007-08 has demonstrated that domestic and international financial stability
cannot be taken for granted, even in the world's wealthiest countries. The spike in food and fuel
prices, which has hit import-dependent poor and middle-income countries particularly hard, is
another aspect of the globalized economy we all are part of.
In response, the IMF has rethought its operations in several ways:
• Enhancing IMF lending facilities. The IMF has upgraded its lending
facilities to enable it to better serve its members. It has created a new Short-
Term Liquidity Facility designed to help emerging market countries with a
track record of sound policies address fallout from the current financial crisis.
To make its financial support more flexible and tailored to the diversity of
low-income countries, it has established a new Poverty Reduction and Growth
Trust, which has three new lending windows. As part of a wide-ranging reform
of its lending practices, the IMF has also redefined the way it engages with
countries on issues related to structural reform of the economy. (See
Lending).
• Strengthening the monitoring of global, regional, and country
economies. The IMF has taken several steps to improve economic and
financial surveillance, which is its framework for providing advice to member
countries on macroeconomic policies (see Our Work). It is emphasizing
research into the links between the financial sector and the real economy and
the sharing of cross-country experiences. It has published new guidance on
how to analyze and advise on exchange rates, and is paying more attention
to the impact of the world's most important economies on other countries'
economies. And it is improving its ability to warn member countries of risks
and vulnerabilities in their economies.
• Helping resolve global economic imbalances. The IMF's analysis of
global economic developments, contained in its World Economic Outlook,
provide finance ministers and central bank governors with a common
framework for discussing the global economy. The IMF now also has the
ability to call for multilateral consultations to discuss specific problems facing
the global economy with a select group of countries—an innovative way of
facilitating collective action among key players in the global economy. The
first such consultation took place in 2006. It sought to reduce global
 payments imbalances and involved China, the euro area, Japan, Saudi Arabia,
and the United States (see Tackling Current Challenges).
• Analyzing capital market developments.The IMF is devoting more
resources to the analysis of global financial markets and their linkages with
macroeconomic policy. Twice a year, it publishes the Global Financial
Stability Report, which provides up-to-date analysis of developments in global
financial markets. IMF staff also work with member countries to help them
identify potential risks to financial stability, including through the Financial
Sector Assessment Program (described in more detail below). The IMF also
offers training to country officials on how to manage their financial systems,
monetary and exchange regimes, and capital markets. The IMF is currently
facilitating the drafting of voluntary guidelines for Sovereign Wealth Funds
and works closely with the Financial Stability Board to promote international
financial stability.
• Assessing financial sector vulnerabilities.Resilient, well-regulated
financial systems are essential for macroeconomic stability in a world of ever-
growing capital flows. The IMF and the World Bank jointly run the Financial
Sector Assessment Program, aimed at alerting countries to vulnerabilities and
risks in their financial sectors. IMF and World Bank staff also advise on how to
strengthen oversight and supervision of banks and other financial institutions.
• Working to cut poverty. At present, more than a billion people are living
on less than $1 a day, and more than three-quarters of a billion people are
malnourished. The IMF's role in low-income countries is changing as these
countries grow and mature. But its central goal remains the same: to help
promote economic stability and growth, laying the ground work for deep and
lasting poverty reduction. Its current main priority is to help low- and middle-
income countries cope with the adverse effects of the global economic crisis.
To that effect, it is stepping up lending to low-income countries to combat the
impact of the global recession.
• Improving IMF governance. In May 2008, the IMF's membership approved
a two-year package of reforms to improve representation of members at the
Fund. For the IMF to be fully effective in its role, it must be perceived as
representing all countries in a fair manner. With that in mind, governance
reform is being accelerated to ensure a decision-making structure that
reflects current global realities. The IMF is also becoming leaner and more
efficient. It is trimming expenditures and reorganizing the way it earns
revenue to pay for its operations (See Governance).
• Greater accountability and transparency. The IMF publishes almost all of
its annual economic health checks of member countries, updates about its
lending programs, and a wealth of other information on its website. The IMF's
performance is assessed on a regular basis by an Independent Evaluation
Office.

How we do it
The IMF's main business
The IMF's job is to promote a stable international monetary system, in which member countries
can achieve high rates of employment, low inflation, and sustainable economic growth. The IMF
does this by
• overseeing the international monetary system by regularly reviewing global
and regional economic and financial developments;
• providing economic monitoring and policy advice to its 187 member countries
in the areas most relevant to domestic and external stability, that is, a
situation where disruptive exchange rate adjustments are unlikely. The IMF's
focus is therefore on macroeconomic and financial policies as well as on
developments in exchange rates, the balance of payments, the real
economy, and the financial sector; and
• analyzing the impact of countries' policies on others; applying lessons from
cross-country experience to each country's unique situation; and providing a
forum for international cooperation on global economic and financial
problems.
Highlights of this section:
• Economic and Financial Surveillance
• Technical Assistance and Training
• IMF Lending
• Research and Data
The IMF's main goal is to ensure the stability of the international monetary and financial system.
It helps resolve crises, and works with its member countries to promote growth and alleviate
poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical
assistance and training, and lending. These functions are underpinned by the IMF's research and
statistics.
Surveillance
The IMF promotes economic stability and global growth by encouraging countries to adopt
sound economic and financial policies. To do this, it regularly monitors global, regional, and
national economic developments. It also seeks to assess the impact of the policies of individual
countries on other economies.
This process of monitoring and discussing countries’ economic and financial policies is known
as bilateral surveillance. On a regular basis—usually once each year—the IMF conducts in depth
appraisals of each member country's economic situation. It discusses with the country's
authorities the policies that are most conducive to a stable and prosperous economy. Consistent
with the decision on bilateral surveillance adopted in June 2007, the main focus of the
discussions is whether there are risks to the economy’s domestic and external stability that would
argue for adjustments in economic or financial policies.
Member countries may agree to publish the IMF's assessment of their economies, with the vast
majority of countries opting to do so.
The IMF also has the option to bring together, on an as-needed basis, groups of systemically
relevant economies to address issues of broad importance to the global economy. These meetings
are called multilateral consultations. A consultation on how to reduce global imbalances took
place in 2006-07.
The IMF's work on individual countries informs its work on regional economies and the global
economy. These views, along with timely analysis of important economic and financial issues,
are published twice a year in the World Economic Outlook, various Regional Economic Outlook
reports, and the Global Financial Stability Report.
The IMF works with the World Bank to promote resilient financial systems around the world
through the joint Financial Sector Assessment Program (FSAP). Supported by experts from a
range of national agencies and standard-setting bodies, IMF and World Bank staff assess the
stability of a country’s financial system by identifying its strengths and vulnerabilities, determine
how key sources of risks are being managed, ascertain the sector's developmental needs, and help
prioritize policy responses.
For more information on how the IMF monitors economies, go to Surveillance in the Our Work
section.
Technical assistance and training
IMF offers technical assistance and training to help member countries strengthen their capacity
to design and implement effective policies. Technical assistance is offered in several areas,
including fiscal policy, monetary and exchange rate policies, banking and financial system
supervision and regulation, and statistics.
The IMF provides technical assistance and training mainly in four areas:
• Monetary and financial policies (monetary policy instruments, banking
system supervision and restructuring, foreign management and operations,
clearing settlement systems for payments, and structural development of
central banks)
• Fiscal policy and management (tax and customs policies and administration,
budget formulation, expenditure management, design of social safety nets,
and management of domestic and foreign debt)
• Compilation, management, dissemination, and improvement of statistical
data
• Economic and financial legislation.
For more on technical assistance, go to Technical Assistance in the Our Work section or read an
Issues Brief on the subject.
Lending
In the event that member countries experience difficulties financing their balance of payments,
the IMF is also a fund that can be tapped to facilitate recovery. A policy program supported by
financing is designed by the national authorities in close cooperation with the IMF. Continued
financial support is conditional on the effective implementation of this program.
The IMF also provides low-income countries with loans at a concessional interest rate through
the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF).
For more on different types of IMF lending, go to Lending in the Our Work section.
Research and data
Supporting all three of these activities is the IMF's economic and financial research and statistics.
In recent years, the IMF has applied both its surveillance and technical assistance work to the
development of standards and codes of good practice in its areas of responsibility, and to the
strengthening of financial sectors. These are part of the IMF's continuing efforts to strengthen the
international financial system and improve its ability to prevent and resolve crises.

Membership
Highlights of this section:
• Number of Members
• How Countries Become Members
• What Is a Quota and How Is It Determined?
• The Functions of Quota
The IMF currently has a near-global membership of 187 countries. To become a member, a
country must apply and then be accepted by a majority of the existing members. In June 2009,
the former Yugoslav republic of Kosovo joined the IMF, becoming the institution's 186th
member.
Upon joining, each member of the IMF is assigned a quota, based broadly on its relative size in
the world economy. The IMF's membership agreed in May 2008 on a rebalancing of its quota
system to reflect the changing global economic realities, especially the increased weight of
major emerging markets in the global economy. For more on the quota and voice reform, please
go to the section on Country Representation in the Governance section).
A member's quota delineates basic aspects of its financial and organizational relationship with
the IMF, including:
Subscriptions. A member's quota subscription determines the maximum amount of financial
resources the member is obliged to provide to the IMF. A member must pay its subscription in
full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency, called
Special Drawing Rights (SDRs) or widely accepted currencies (such as the dollar, the euro, the
yen, or pound sterling), while the rest is paid in the member's own currency.
Voting power. The quota largely determines a member's voting power in IMF decisions. Each
IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota.
Accordingly, the United States has 371,743 votes (16.77 percent of the total), and Palau has 281
votes (0.01 percent of the total). The newly agreed quota and voice reform will result in a
significant shift in the representation of dynamic economies, many of which are emerging market
countries, through a quota increase for 54 member countries. A tripling of the number of basic
votes is also envisaged as a means to give poorer countries a greater say in running the
institution.
Access to financing. The amount of financing a member can obtain from the IMF (its access
limit) is based on its quota. Under Stand-By and Extended Arrangements, which are types of
loans, a member can borrow up to 200 percent of its quota annually and 600 percent
cumulatively. However, access may be higher in exceptional circumstances.
SDR allocations. Allocations of SDRs, the IMF's unit of account, is used as an international
reserve asset. A member's share of general SDR allocations is established in proportion to its
quota. The most recent general allocation of SDRs took place in 2009.
Collaborating with others

The HIPC debt relief initiative is a joint program with the World Bank.
Related Links
• The UN system
• IMF and the World Bank
• The Malan Report
• IMF and the WTO
• Financial Stability Forum
• The Basel Committee
Highlights of this section:
• Working with the World Bank
• Cooperating with the UN and Other Agencies
• Engaging with Think Tanks, Civil Society, and the Media
The IMF collaborates with the World Bank, the regional development banks, the World Trade
Organization (WTO), UN agencies, and other international bodies. While all of these
organizations are involved in global economic issues, each has its own unique areas of
responsibility and specialization. The IMF also interacts with think tanks, civil society, and the
media on a daily basis.
Working with the World Bank
The IMF and the World Bank are different, but complement each other's work. Whereas the
IMF's focus is chiefly on macroeconomic and financial sector issues, the World Bank is
concerned mainly with longer-term development and poverty reduction. Its loans finance
infrastructure projects, the reform of particular sectors of the economy, and broader structural
reforms. Countries must join the IMF to be eligible for World Bank membership.
Given the World Bank's focus on antipoverty issues, the IMF collaborates closely with the Bank
in the area of poverty reduction and helping countries draw up poverty reduction strategies.
Other areas of collaboration include assessments of member countries' financial sectors,
development of standards and codes, and improvement of the quality, availability, and coverage
of data on external debt.
An external review committee on World Bank and IMF collaboration was formed in March 2006
to assess the working relationship between the two sister agencies, known collectively as the
Bretton Woods institutions. In its February 2007 report, the six-member Malan committee
offered recommendations for closer collaboration between the two institutions. This led to the
institutions’ adoption of a Joint Management Action Plan, under which, IMF and World Bank
country teams discuss their country-level work programs, the division of labor, and the work
needed from each insititution in the coming year. Also the Bank and Fund have improved their
information sharing at the country level, including technical assistance reports.
Cooperating with other international organizations
The IMF is a member of the Switzerland-based Financial Stability Board, which brings together
government officials responsible for financial stability in the major international financial
centers, international regulatory and supervisory bodies, committees of central bank experts, and
international financial institutions. It also works with standard-setting bodies such as the Basel
Committee on Banking Supervision and the International Association of Insurance Supervisors.
The IMF collaborates with the World Trade Organization (WTO) both formally and informally.
The IMF has observer status at WTO meetings and IMF staff contribute to the work of the WTO
Working Group on Trade, Debt, and Finance. And the IMF is involved in the WTO-led
Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries,
whose other members are the International Trade Commission, UNCTAD, UNDP, and the
World Bank.
The IMF has a Special Representative to the United Nations, located at the UN Headquarters in
New York. The Special Representative facilitates the liaison between the IMF and the UN
system. The general arrangements for collaboration and consultations between the IMF and the
UN include areas of mutual interest, such as cooperation between the statistical services of the
two organizations, and reciprocal attendance and participation at events.
Engaging with think tanks, civil society, and the media
The IMF also engages on a regular basis with the academic community, civil society
organizations (CSOs), and the media.
IMF staff at all levels frequently meet with members of the academic community to exchange
ideas and receive new input. The IMF also has an active outreach program involving CSOs.
IMF management and senior staff communicate with the media on a daily basis. Additionally, a
biweekly press briefing is held at the IMF headquarters, during which a spokesperson takes live
questions from journalists.