A Proposal for Studying the Functions and Roles of International

Monetary Fund (IMF)

Subject: International Economic Organization
Submitted By: Submitted To:
Bhogayta Ketan (09F19) Yogesh C. Joshi
Hinsu Paresh (09F25)
Gadara Paresh (09M24)
Sondarva Piyush (09M27)

BACKGROUND:
IMF stands for International Monetary Fund. IMF was conceived at a United Nations conference
convened in Bretton Woods, New Hampshire, U.S. in July 1944. The 45 governments represented
at that conference sought to build a framework for economic cooperation that would avoid
repetition of the vicious circle of competitive devaluations that had contributed to the Great
Depression of the 1930s. IMF was created in 1945 to foster international monetary co-operation,
secure financial stability, facilitate international trade, promote huge employment and sustainable
economic growth and reduce poverty around the world.

IMF deals with poor countries like Bhutan, Bangladesh, Ethiopia, Zambia and other African
countries and also with the developing countries like India, China, Russia etc for providing
assistance it shall have certain conditions in many cases. This aspect is related to its policy issue.
From here the most important things comes into picture which is interaction these countries.
Among all above countries we shall consider IMF’s interaction with India. It includes interaction
with government as well as corporate. Let us have an overview of IMF as under:
IMF AT GLANCE:
1. Membership: 187 countries
2. Headquarters: Washington, D.C.
3. Executive Board: 24 Directors representing countries or groups of countries
4. Staff: Approximately 2,500 from 158 countries
5. Total quotas: US$328 billion (as of 8/31/10)
6. Additional pledged or committed resources: $600 billion
7. Loans committed (as of 8/31/10): US$200 billion, of which US$146 billion have
not been drawn
8. Biggest borrowers (credit outstanding as of 8/31/10): Romania, Ukraine, Hungary
9. Original aims:
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a. promoting international monetary cooperation;

 b. facilitating the expansion and balanced growth of international trade;
c. promoting exchange stability;
d. assisting in the establishment of a multilateral system of payments; and
e. Making resources available (with adequate safeguards) to members
experiencing balance of payments difficulties.
KEY ACTIVITIES OF IMF:
IMF supports its members by providing:
1. Policy advice to governments and central banks based on analysis of economic trends and
cross-country experiences;
2. Research, statistics, forecasts, and analysis based on tracking of global, regional, and
individual economies and markets;
3. Loans to help countries overcome economic difficulties;
4. Concessional loans to help fight poverty in developing countries; and
5. Technical assistance and training to help countries improve the management of their
economies.
RESPONSIBILITIES OF IMF:
Article I of the Articles of Agreement sets out the IMF's main responsibilities:
• Promoting international monetary cooperation;
• Facilitating the expansion and balanced growth of international trade;
• Promoting exchange stability;
• Assisting in the establishment of a multilateral system of payments; and
• Making its resources available (with adequate safeguards) to members experiencing
balance of payments difficulties.

Where the IMF Gets its Money?

Most resources for IMF loans are provided by member countries, primarily through their
payment of quotas. Since early 2009, the IMF has signed a number of new bilateral loan and
note purchase agreements to bolster its capacity to support member countries during the
global economic crisis. Multilateral borrowing arrangements provide a further backstop to
Fund resources. Concessional lending and debt relief for low-income countries are financed
through separate contribution-based trust funds.
(September 29, 2010)
The IMF’s lending capacity
The IMF can use its quota-funded holdings of currencies of financially strong economies to
finance lending. The IMF’s Executive Board selects these currencies every three months.
Most are issued by industrial countries, but the list also has included currencies of lower
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income countries such as Botswana, China, and India. The IMF’s holdings of these
currencies, together with its own SDR holdings, make up its own usable resources. If
needed, the IMF can temporarily supplement these resources by borrowing (see below).
The amount the IMF has readily available for new (non-concessional) lending is indicated by
its one-year forward commitment capacity. This is determined by its usable resources
(including unused amounts under loan and note purchase agreements), plus projected loan
repayments over the subsequent twelve months, less the resources that have already been
committed under existing lending arrangements, less a prudential balance.

SDRs:
The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing
official reserves of member countries. SDRs are allocated to member countries in proportion to
their IMF quotas. The SDR also serves as the unit of account of the IMF and some other
international organizations. Its value is based on a basket of key international currencies.

IMF FACILITIES
Over the years, the IMF has developed various loan instruments, or "facilities," that are tailored
to address the specific circumstances of its diverse membership. Low-income countries may
borrow at a concessional interest rate through the Poverty Reduction and Growth Facility
(PRGF) and the Exogenous Shocks Facility (ESF). Apart from these some of the following
assistances are also in the list of IMF:

Stand-By Arrangements (SBA)

Extended Fund Facility (EFF)
Supplemental Reserve Facility (SRF)
Compensatory Financing Facility (CFF)
Emergency Assistance
Technical Assistance

THE QUOTA SYSTEM:

The Board of Governors, the highest decision-making body of the IMF, consists of one
governor and one alternate governor for each member country. The governor is appointed by
the member country and is usually the minister of finance or the governor of the central bank.
All powers of the IMF are vested in the Board of Governors. The Board of Governors may
delegate to the Executive Board all except certain reserved powers. The Board of Governors
normally meets once a year.

Each member of the IMF is assigned a quota, based broadly on its relative size in the world
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economy, which determines its maximum contribution to the IMF’s financial resources. Upon
joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely
accepted foreign currencies (such as the U.S. dollar, euro, yen, or pound sterling) or Special
Drawing Rights (SDRs). The remaining three-quarters are paid in the country’s own currency.

Quotas are reviewed at least every five years. The 1998 quota review led to a 45 percent increase
in IMF quotas. The reviews concluded in January 2003 and January 2008 resulted in no change
in quotas. Initial ad hoc quota increases of 1.8 percent were agreed in 2006 as the first step in a
two-year program of quota and voice reforms. Further ad hoc quota increases were approved by
the Board of Governors on April 28, 2008, which will raise quotas by an additional 9.55 percent
(with an overall increase under the reform of 11.5 percent). The Fourteenth General Review of
Quotas is now underway and is expected to be completed by January 2011—two years ahead of
the original schedule.

GOLD HOLDINGS:
The Fund’s gold holdings amounted to about 93.8 million troy ounces (2,917.1 metric tons) at
end July 2010, making the Fund the third largest official holder of gold in the world. However,
the IMF’s Articles of Agreement strictly limit its use. If approved by an 85 percent majority of
voting power of member countries, the IMF may sell gold or may accept gold as payment by
member countries but it is prohibited from buying gold or engaging in other gold transactions.

The IMF’s membership has recently approved the sale of a limited portion (12.97 million troy
ounces or 403 metric tons) of the Fund’s gold. The receipts from gold sales will help finance an
endowment as part of the Fund’s new income model to put the Fund’s finances on a sound long-
term footing. Resources linked to the profits from gold sales will also help meet the subsidy
needs associated with the IMF’s concessional lending to low-income countries. As of end-July
2010, the IMF had sold 300 tons of gold, comprising 212 tons sold to three official holders, and a
further 88 tons through on-market sales that commenced in February 2010.

HOW THE IMF ACQUIRED ITS GOLD HOLDINGS

The IMF held 93.8 million ounces (2,917.1 metric tons) of gold at designated depositories at end
July 2010. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.9 billion
(about $5.9 billion) on the basis of historical cost. As of July 31, 2010, the IMF's holdings
amounted to $109.6 billion at current market prices.

A portion of these holdings was acquired after the Second Amendment of the IMF’s Articles of
Agreement in April 1978. This portion, which amounted to 12.97 million ounces(403.3 metric
tons) prior to the sales agreed in September 2009, is not subject to restitution to IMF member
countries (see below), unlike gold the IMF acquired before 1978. In September 2009 the
Executive Board authorized the sale of this post-Second Amendment gold, and at end July 2010,
a total of 103 metric tons of this portion of gold remained on the Fund’s books.

The IMF acquired the majority of its gold holdings prior to the Second Amendment through four
main types of transactions.

1. First, when the IMF was founded in 1944 it was decided that 25 percent of initial quota
subscriptions and subsequent quota increases were to be paid in gold. This represents the
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largest source of the IMF's gold.

 2. Second, all payments of charges (interest on member countries' use of IMF credit) were
normally made in gold.
3. Third, a member wishing to acquire the currency of another member could do so by
selling gold to the IMF. The major use of this provision was sales of gold to the IMF by
South Africa in 1970–71.
4. And finally, member countries could use gold to repay the IMF for credit previously
extended.

WHEN THE IMF HAS USED GOLD IN THE PAST:

Outflows of gold from the IMF's holdings occurred under the original Articles of Agreement
through sales of gold for currency, and via payments of remuneration and interest. As noted,
since the Second Amendment of the Articles of Agreement, outflows of gold can only occur
through outright sales. Key gold transactions included:

1) Sales for replenishment (1957–70)

2) South African gold (1970–71)
3) Investment in U.S. government securities (1956–72)
4) Auctions and "restitution" sales (1976–80)
5) Off-market transactions in gold (1999–2000)

BORROWING ARRANGEMENTS:

The IMF maintains two standing multilateral borrowing arrangements—the New Arrangements
to Borrow (NAB) and the General Arrangements to Borrow (GAB)—currently with a total
borrowing capacity of SDR 34 billion (about $51 billion). If the IMF believes that its forward
commitment capacity might fall short of its member countries’ needs—for example, in the event
of a major financial crisis—it can activate these arrangements. Their renewal was approved in
2007 for another five years starting in 2008.
In April 2009, the G-20 Leaders and the International Monetary and Financial Committee agreed
to increase the resources available to the IMF through immediate financing from members by
$250 billion, and to subsequently expand the NAB by up to $500 billion and make it more
flexible.
Since 2009, the IMF has signed a number of bilateral loan agreements. Currently, the Fund has
sixteen bilateral loan agreements worth about $191 billion. The Executive Board of the IMF
approved on July 1, 2009 a framework for issuing notes to the official sector. Issuance of the
notes allows member countries to invest in a safe instrument and helps ensure that the Fund can
continue to provide timely and effective balance of payments assistance to its member countries.
The IMF has so far signed three bilateral note purchase agreements for about $68 billion. A list
of bilateral loan and note purchase agreements is available here.

On April 12, 2010, the Executive Board adopted a proposal on an expanded and more flexible
NAB, by which the NAB would be expanded to SDR 367.5 billion (about $555 billion), with the
addition of 13 new participating countries, including a number of emerging market countries
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with significant contributions to this large expansion. The expanded NAB will become
operational after domestic approvals by the participating countries (see Factsheet on IMF
Standing Borrowing Arrangements). Once the expanded NAB becomes operational, the bilateral
loan and note purchase agreements would expire.

IMF's Advice, Money Help Combat Global Crisis

The IMF is working on several fronts to help its members combat the worldwide economic and
financial crisis.

The Fund is tracking economic and financial developments worldwide so that it can help
policymakers with the latest forecasts and analysis of developments in financial markets. It is
giving policy advice to countries and regions, and money to assist emerging market and low-
income economies that have been hit by the crisis. And it is assisting the Group of 20
industrialized and emerging economies with recommendations to reshape the system of
international regulation and governance.

The above information pulls together the IMF's work on the financial crisis and includes links to
key articles, documents, and background information.

Working To Reduce Poverty

The IMF is working to prevent millions of people in low-income countries from slipping into
poverty as the third wave of the global economic crisis washes up on their shores.

Low-income countries, which are still feeling the effects of the recent food and fuel crisis, have
sought the IMF’s help in coping with the effects of the global financial crisis. Although advanced
and emerging economies were hit first, low-income countries are now experiencing sharply
lower exports, shrinking foreign direct investment, and declining remittances as a result of the
global downturn.

Besides providing new concessional financing, policy advice, and technical assistance, the IMF
is taking measures to help low-income countries protect spending on health, education, and other
critical services.

SURVEILLANCE

Low-income countries benefit from the full range of policy advice that is provided regularly to
all 187 members through IMF surveillance.

The objectives of this advice are to help countries:

i) To establish economic frameworks that can support sustained high growth and
poverty reduction;
ii) To identify and manage sources of macroeconomic risks and vulnerabilities,
including debt-related vulnerabilities; and
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 iii) To strengthen institutions and policies those underpin sound macroeconomic
management.

Low-income countries also benefit from the Fund's surveillance over the policies of other
countries and the international monetary system, which promotes global growth and economic
stability. IMF also uses the surveillance process to encourage developed countries to live up to
their pledges toward the MDGs.

LITERATURE REVIEW
1. Rethinking the IMF's capital account mandate
(Briefing|Peter Chowla|28 September 2010)

While the intellectual thinking within some parts of the international financial
institutions has recognized the usefulness of capital controls, there is yet to be formal
acceptance of them within the International Monetary Fund (IMF). While the IMF's
Articles of Agreement already contain important provisions about the rights of
countries to use capital controls, consensus has not been achieved among the Fund's
largest members on capital account management, despite its importance for both
large and small developing countries.

The Greek crisis and the involvement of the IMF

(Comment Elena Papadopoulou|17 June 2010)
The “Greek expression” of the crisis has revealed an amazingly broad range of issues not
only concerning the structural problems of the Greek economy, but also those of the
European Union (EU) as an economic and currency area, and its unwillingness or
inability to react to the problem in a timely, meaningful and collective way.

Debt crisis in Europe: Beware IMF bearing gifts

(News|Bretton Woods Project|17 June 2010)
The descent of Greece into a sovereign debt crisis marks the first time a country that uses
the euro has gone to the IMF. The fear of adverse market reaction has now moved Europe
towards greater coordination and the G20 to argue against continued fiscal stimulus.

IMF bank tax proposals cause controversy

(News|Bretton Woods Project|17 June 2010)
A leaked copy of the IMF's report to the G20 on A fair and substantial contribution by the
financial sector which proposes two new financial sector taxes to cover some of the costs
of the financial and economic crisis, has been criticized by campaigners for inadequate
analysis of the potential of the financial transactions tax (FTT), dubbed the Robin Hood
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tax.
The IMF's framework for low-income countries
(Inside the inst|Bretton Woods Project|17 June 2010)
In the midst of the global financial and economic crisis the IMF amended its lending
framework for low-income countries (LICs). It now has three main instruments for LICs
– the Extended Credit Facility, the Standby Credit Facility and the Rapid Credit Facility.
The three different programmes are subsidized by the newly created Poverty Reduction
and Growth Trust (PRGT). The IMF also engages with LICs through non-financial
facilities, especially the Policy Support Instrument (PSI) and the Staff Monitored
Programme (SMP)

IMF waters down transparency review

(News|Bretton Woods Project|15 February 2010)
The IMF executive board significantly weakened many of the far-ranging proposals made
by Fund staff in the recently completed transparency review, leaving significant power in
the hands of countries to block the disclosure of country documents, and failing to require
publication of draft policy proposals before they are discussed at the Board.

Repaying bondholders while immiserating people: Ireland’s EU-IMF programme

(Comment Andy Storey|16 December 2010)
Partly as a result of the failures of successive Irish governments, Irish people are now
confronted with the same anti-democratic and immiserating consequences the IMF has
imposed around the rest of the world. Opposition to the EU-IMF intervention, and to the
Irish government's cutbacks (including cuts in the minimum wage and social welfare),
must demand a default on bank debt and not just a reorganization of which sectors of
Irish society should bear the cost of debt repayments.

Implementing IMF governance reform: Baby steps in slow motion

(News|Bretton Woods Project|29 November 2010)
IMF managing director Dominique Strauss-Kahn called agreements reached on IMF
governance reform "historic". A closer analysis reveals that the shifts in votes are smaller
than claimed and though the basic power structure of the IMF will better incorporate
large emerging markets after two years, it will continue to be dominated by the US and
Europe.

World Bank and IMF enter debate on sources of climate finance

(News|Bretton Woods Project|16 April 2010)
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As experts in the United Nations Advisory Group on Finance (AGF) start to scope
innovative sources of climate finance, the IMF issued its own proposal, while questions
 loom over the governance of climate funds. Meanwhile, the Climate Investment Funds'
(CIFs) Partnership Forum exposed the limitations of the Bank's engagement with civil
society in developing the funds thus far.

INTRODUCTION OF THE STUDY:

During the study on roles and functions of IMF, we shall understand the structure of IMF. The
structure will include organizational structure i.e. key positions within the organization and its
membership. Currently 187 countries are the members of IMF.
We will come across the objectives of IMF during the study. There are large number inter-linked
objectives like economic co-operation, providing solutions o international monetary problems
and so on.
The study will cover the functions and primary objectives of IMF. Its activities can be bifurcated
into two parts of which one is related to its member countries and another is for others.
We know that IMF helps and provide assistance to its member countries in financial terms as
well. But it will be quite useful to know which the resources are where IMF avail its funds to
carry out its operations. Many of the objectives shall not be fulfill if financial resources are not
available to IMF.

OBJECTIVE OF THE STUDY:

1. To understand the structure of IMF
2. To study the objectives of IMF
3. TO study the main functions of IMF
4. To know the resources availability to IMF
5. To know IMF’s support to with India. (With government and with corporate)

SCOPE OF THE STUDY:

In this study we will be covering establishment of IMF. The basic aim of establishing the
organization will also be studies. We will further study membership criteria, member countries,
resource of fund and criteria for fund collection and technical assistance. We will also study the
different regions which are benefited with the services of IMF.

METHODOLOGY:
We will use data collected from the secondary sources for the purpose to carry out
aforementioned study. We will collect the data from various sources like Internet, Articles,
newspapers, Reference books, government publications and Magazines.
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IMPORTANCE OF STUDY:
The study will be helpful in bringing awareness regarding the operations of IMF among the
readers. We will also encounter various policies and procedures of IMF in providing assistance
whether it is in financial term, technical term or in terms of policy advice. We will also be
enriched in terms of sources of finance available to IMF.
In today’s world where almost each and every country is a member of IMF, we must be aware of
the main functions and various roles of IMF in economic development of member countries.

LIMITATION
1. Time period: - We will be restricted to devote full time for the comprehensive study on
roles and functions of IMF. Hence we cannot come out with all the details of their operation
years back.
2. Collection of data: - Since we will be using data collected from the second sources as
above mention, the reliability and accuracy of the data may not be perfect.
3. Our knowledge: - We are not expert in analyzing and studying details of IMF. We cannot
interpret the whole scenario in its right manner.
4. Cost: - As we have limited scares resources available like money, we could not spend
much money after gathering and interpreting the information.

BIBLIOGRAPHY:
www.imf.org
(News|Bretton Woods Project|16 April 2010)
(News|Bretton Woods Project|29 November 2010)
(Comment Andy Storey|16 December 2010)
(News|Bretton Woods Project|15 February 2010)
(Inside the inst|Bretton Woods Project|17 June 2010)
(News|Bretton Woods Project|17 June 2010)
(Comment Elena Papadopoulou|17 June 2010)
(Briefing|Peter Chowla|28 September 2010)
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