including by making financial resources available to member countries to meet balance of payments needs. Through this activity and others such as surveillance of its members' economies and policies. and reduce poverty. The IMF describes itself as “an organization of 188 countries (as of April 2012). The International Monetary Fund (IMF) is an international organization that was created on July 22. It works with developing nations to assist them complete macroeconomic stability and reduce poverty. Its headquarters are in Washington. facilitate international trade. It also provides policy guidance and financing to members in economic difficulties. secure financial stability. promote high employment and sustainable economic growth.INTRODUCTION IMF is working to foster global growth and economic stability. working to promote global monetary cooperation. employment. 1944 at the Bretton Woods Conference and came into existence on December 27. . Countries contribute money to a pool through a quota system from which countries with payment imbalances can borrow funds on a temporary basis.” The organization's stated objectives are to promote international economic cooperation. international trade.C. 1945 when 29 countries signed the Articles of Agreement. The IMF's stated goal was to stabilize exchange rates and assist the reconstruction of the world’s international payment system post World War II. the IMF works to improve the economies of its member countries. It originally had 45 members. D. and exchange rate stability.

to help them address balance of payments problems.KEY IMF ACTIVITIES The IMF supports its membership by providing  policy guidance to governments and central banks based on study of economic trends and cross-country experiences. thus promoting job creation. especially in Asia.  loans to help countries rise above economic difficulties. The founders aimed to build a structure for economic cooperation that would avoid a repetition of the terrible economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed.  research. More specifically. on a temporary basis and under adequate safeguards. . and  Technical assistance and training to help countries improve the management of their economies.  concessional loans to help fight poverty in developing countries. regional. and analysis based on tracking of global. statistics. Since then the world has changed dramatically. ORIGINAL AIMS The IMF was founded more than 60 years ago toward the end of World War II. 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. and individual economies and markets. bringing extensive prosperity and lifting millions out of poverty. economic growth. and poverty reduction. forecasts. the IMF continues to  provide an opportunity for cooperation on international monetary problems  help the growth of international trade.  promote open system of international payments and exchange rate stability  Lend countries foreign exchange when needed.

the United States has 421.03 percent of the total). A country must apply and then be accepted by a majority of the existing members in order to become a member of IMF. Tuvalu joined the IMF. a member country can borrow up to 200 percent of its quota annually and 600 percent cumulatively. A country must pay its subscription in full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency.76 percent of the total). Upon joining. The IMF's membership agreed in November 2010 on a major refit of its quota system to reflect the changing global economic realities. Access to financing The amount of financing a member country can obtain from the IMF is based on its quota. becoming the institution's 187th member. A member country's quota defines its financial and organizational relationship with the IMF. based broadly on its relative size in the world economy. while the rest is paid in the member's own currency. especially the increased weight of major promising markets in the global economy. Each IMF member's votes are comprised of basic votes plus one additional vote for each SDR 100.965 votes (16. the euro. SDR allocations SDRs are used as an international reserve asset. A member's share of general SDR allocations is established in proportion to its quota.000 of quota.502 percent of total votes. The number of basic votes attributed to each member is calculated as 5. each member country of the IMF is assigned a quota. including: Subscriptions A member country's quota subscription determines the maximum amount of financial resources the country is obliged to provide to the IMF. The most recent general allocation of SDRs took place in 2009. called Special Drawing Rights (SDRs) or widely accepted currencies (such as the dollar. For instance. under Stand-By and Extended Arrangements. Accordingly. which are types of loans. or pound sterling). the yen.MEMBERSHIP The IMF currently has a near-global membership of 188 countries. . and Tuvalu has 759 votes (0. In June 2010. Voting power The quota largely determines a member's voting power in IMF decisions.

and giving sensible help to members. It does so in three ways: keeping follow of the global economy and the economies of member countries. and to provide the IMF with data about its economy. labor unions. The consultations are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. The IMF's regular monitoring of economies and associated provision of policy advice is planned to identify weaknesses that are causing or could lead to financial or economic instability. The team reports its findings to IMF management and then presents them for discussion to the Executive Board. an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials. with discussions in between as needed. it agrees to subject its economic and financial policies to the inspection of the international community. Country surveillance Country surveillance is an ongoing process that culminates in regular (usually annual) full consultations with individual member countries. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price strength. During an Article IV consultation. which represents all of the IMF's member countries. lending to countries with balance of payments difficulties. Surveillance When a country joins the IMF.THEIR WORK The IMF's primary mission is to help ensure stability in the international system. An outline of the Board's views is then transmitted to the country's government. In this way. the views of the global community and the lessons of international know-how are brought to bear on national policies. to avoid manipulating exchange rates for unjust competitive advantage. IMF staff missions also often meet with parliamentarians and representatives of business. and civil society. This process is known as surveillance. Summaries of most discussions are released in Public Information .

Regional surveillance Regional surveillance involves examination by the IMF of policies pursued under currency unions—i ncluding the euro area. Global surveillance Global surveillance entails reviews by the IMF's Executive Board of global economic trends and developments. Regional economic outlook reports are also arranged to discuss economic developments and key policy issues in Asia Pacific. as are most of the country reports organized by the staff. SubSaharan Africa. . Middle East and Central Asia. Japan. The IMF also has the option of holding multilateral consultations. which covers developments. complements Article IV of the IMF’s Articles of Agreement and introduces the concept of external stability as an organizing principle for bilateral surveillance. and the Western Hemisphere. prospects. The main reviews are based on theWorld Economic Outlook reports and the Global Financial Stability Report. with updates being provided on a quarterly basis. Europe. euro area countries. involving smaller groups of countries . In addition. and the Eastern Caribbean Currency Union. This means that the main focus of the negotiations between the IMF and country officials is whether there are risks to the economy’s domestic and external steadiness that would call for adjustments to that country’s economic or financial policies. In 2006. In June 2007 the IMF's Executive Board adopted a comprehensive policy statement on surveillance. Saudi Arabia. multilateral consultations brought together China. and policy issues in international financial markets.Notices and are posted on the IMF's web site. the Central African Economic and Monetary Community. Both reports are published twice a year. the Executive Board holds more frequent informal discussions on world economic and market developments. and the United States to discuss global economic imbalances. The 2007 Decision on Bilateral Surveillance over Member's Policies. the West African Economic and Monetary Union. to foster debate and develop policy actions designed to address problems of global or regional importance.

building capacity to design and implement poverty-reducing and growth programs. The reforms emphasize better prioritization. tax policy and administration. It is concentrated in critical areas of macroeconomic policy where the Fund has the greatest comparative advantage. such as central banking. enhanced performance measurement.Technical Assistance The IMF shares its expertise with member countries by providing technical assistance and training in a wide range of areas. The objective is to help improve the design and implementation of members' economic policies. monetary and exchange rate policy.and lowermiddle-income countries. and official statistics. In 2008. and statistical agencies. Postconflict countries are major beneficiaries. . The IMF has also given advice to countries that have had to reestablish government institutions following severe civil unrest or war. the IMF's technical assistance program is informed by experience and knowledge gained across diverse regions and countries at different levels of development. including by strengthening skills in institutions such as finance ministries. central banks. The IMF is also providing technical assistance aimed at strengthening the architecture of the international financial system. and helping heavily indebted poor countries (HIPC) in debt reduction and management. About 80 percent of the IMF's technical assistance goes to low. in particular in sub-Saharan Africa and Asia. the IMF embarked on an ambitious reformeffort to enhance the impact of its technical assistance. Thanks to its near-universal membership. Beneficiaries of technical assistance Technical assistance is one of the IMF's core activities. more transparent costing and stronger partnerships with donors.

poses potential problems for the stability of the international financial system. middle-income. In the 1990s. or poor.LENDING BY THE IMF A country in severe financial trouble. . A key objective of recent lending reforms has therefore been to complement the traditional crisis resolution role of the IMF with more effective tools for crisis prevention. it does not finance projects. these countries have been able to meet their financing needs in the capital markets. But since the late 1970s. But the amount of loans outstanding and the number of borrowers have fluctuated significantly over time. the transition process in central and eastern Europe and the crises in emerging market economies led to a further increase in the demand for IMF resources. stabilize their economies. can turn to the IMF for financing if it has a balance of payments need—that is. which the IMF was created to protect. This crisis resolution role is at the core of IMF lending. more than half of its lending went to industrial countries. The IMF is not a development bank and. The changing nature of lending About four out of five member countries have used IMF credit at least once. Any member country. IMF loans are meant to help member countries tackle balance of payments problems. In the first two decades of the IMF's existence. and restore sustainable economic growth. whether rich. if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain a safe level of reserves. The oil shock of the 1970s and the debt crisis of the 1980s led many lowerand lower-middle-income countries to borrow from the IMF. At the same time. unlike the World Bank and other development agencies. the global financial crisis has highlighted the need for effective global financial safety nets to help countries cope with adverse shocks. unable to pay its international bills.

and streamlining instruments that were seldom used. More reforms have since been undertaken. adapting its cost structures for high-access and precautionary lending.. including modernizing conditionality.. As a consequence. thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. the IMF began making loans to countries hit by the global financial crisis The IMF currently has programs with more than 50 countries around the world and has committed more than $325 billion in resources to its member countries since the start of the global financial crisis. poverty reduction and economic . benign economic conditions worldwide meant that many countries began to repay their loans to the IMF." In practice. While the financial crisis has sparked renewed demand for IMF financing. Lending to preserve financial stability Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is ". doubling access limits on loans. the IMF's financial assistance has evolved from helping countries deal with short-term trade fluctuations to supporting adjustment and addressing a wide range of balance of payments problems resulting from terms of trade shocks. the IMF conducted a wide-ranging review of its lending facilities and terms on which it provides loans.In give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards. It has also speeded up lending procedures and redesigned its Exogenous Shocks Facility to make it easier to access for low-income countries. natural disasters. introducing a new flexible credit line. the decline in lending that preceded the financial crisis also reflected a need to adapt the IMF's lending instruments to the changing needs of member countries. In response. the purpose of the IMF's lending has changed dramatically since the organization was created. But in 2008. post-conflict situations. broad economic transition. the demand for the Fund’s resources dropped off sharply. Over time. the Fund announced a major overhaul of its lending framework. most recently in November 2011. enhancing the flexibility of the Fund’s regular stand-by lending arrangement. In March 2009.

sovereign debt restructuring. To this end. The experience is clear: capital account crises typically inflict substantial costs on countries themselves and on other countries through contagion.development. reinforcing policy credibility and increasing investors' confidence. IMF lending serves three main purposes. both for the country itself and possibly for other countries through economic and financial ripple effects (known as contagion). IMF programs can help unlock other financing. Conditions for lending When a member country approaches the IMF for financing. the IMF helps countries to protect the most vulnerable in a crisis. acting as a catalyst for other lenders. with its currency under attack in foreign exchange markets and its international reserves depleted. Third. helping a member country avoid disruptive economic adjustment or sovereign default. IMF lending can help prevent crisis. and confidence-driven banking and currency crises. The IMF aims to ensure that conditions linked to IMF loan disbursements are focused and adequately tailored to the varying strengths of members' policies and fundamentals. Today. Second. and a large number of firms and households going bankrupt. it can smooth adjustment to various shocks. This is because the program can serve as a signal that the country has adopted sound policies. economic activity stagnant or falling. it may be in or near a state of economic crisis. First. For example. the country may commit to fiscal or foreign exchange reserve targets. The best way to deal with capital account problems is to nip them in the bud before they develop into a fullblown crisis. the IMF discusses with the country the economic policies that may be expected to address the problems most effectively. The IMF and the government agree on a program of policies aimed at achieving specific. quantified goals in support of the overall objectives of the authorities' economic program. The IMF and the . In difficult economic times. something that would be extremely costly. The IMF discusses with the country the economic policies that may be expected to address the problems most effectively.

Loans are typically disbursed in a number of installments over the life of the program. Rates are non-concessional. The SBA was upgraded in 2009 to be more flexible and responsive to member countries’ needs. IMF loans usually provide only a small portion of the resources needed to finance their balance of payments. The Flexible Credit Line (FCL) is for countries with very strong fundamentals. Main lending facilities In an economic crisis. For example. and conditions were streamlined and simplified. The FCL is a renewable credit line. quantified goals in support of the overall objectives of the authorities' economic program. depending on the nature of the country's problems. but can be followed by another program if needed. particularly with recent enhancements. with each installment conditional on targets being met. with a review of eligibility after the first year. although they are almost always lower than what countries would pay to raise financing from private markets. Since its creation in June 1952. which at the country’s judgment could be for 1-2 years. and track records of policy implementation. It represents a significant shift in how the IMF delivers Fund financial assistance. Programs typically last up to 3 years. The government outlines the details of its economic program in a "letter of intent" to the Managing Director of the IMF. the country may commit to fiscal or foreign exchange reserve targets.government agree on a program of policies aimed at achieving specific. it is the IMF’s workhorse lending instrument for emerging market countries. There is the flexibility to either . countries often need financing to help them beat their balance of payments troubles. the IMF’s Stand-By Arrangement (SBA) has been used time and again by member countries. Such letters may be revised if circumstances change. helping countries find additional financing from other sources. But IMF loans also signal that a country's economic policies are on the right track. Borrowing limits were doubled with more funds available up front. For countries in crisis. which reassures investors and the official community. The new framework also enables broader high-access borrowing on a precautionary basis. policies. as it has no ongoing (ex post) situation and no caps on the size of the credit line.

A program supported by an extended arrangement usually includes measures to improve the way markets and institutions function. without the need for a full-fledged program. post-conflict situations and emergencies resulting from weakness. including countries affected by regional or global economic and financial stress. This is justified by the very strong track records of countries that qualify to the FCL. The PLL provides financing to meet actual or potential balance of payments needs of countries with sound policies. The Rapid Financing Instrument (RFI) provides rapid and low-access financial assistance to member countries facing an urgent balance of payments need. Once a country qualifies (according to pre-set criteria). The Precautionary and Liquidity Line (PLL) builds on the strengths and broadens the scope of the Precautionary Credit Line (PCL). it can tap all resources available under the credit line at any time. The Extended Fund Facility is used to help countries address balance of payments difficulties related partly to structural problems that may take longer to correct than macroeconomic imbalances.treat the credit line as defensive or draw on it at any time after the FCL is approved. thus contributing to consolidation of market confidence in the country’s policy plans. as disbursements would not be phased and conditioned on particular policies as with traditional IMF-supported programs. privatization of public enterprises. The Trade Integration Mechanism allows the IMF to provide loans under one of its facilities to a developing country whose balance of payments is suffering because of multilateral trade liberalization. It combines a qualification process (similar to that for the FCL) with focused ex-post conditionality aimed at addressing vulnerabilities identified during qualification. The PLL is designed to provide liquidity to countries with sound policies under broad circumstances. Its qualification requirements signal the strength of qualifying countries’ fundamentals and policies. which give assurance that their economic policies will remain strong or that remedial measures will be taken in the face of shocks. such as tax and financial sector reforms. natural disasters. either because its export earnings decline when it loses preferential access to certain markets or . It can provide support to meet a broad range of vital needs. including those arising from commodity price shocks. and is intended to serve as insurance and help resolve crises.

provides significantly higher levels of concessionality. It provides support under a wide range of circumstances. These changes became effective in January 2010. more flexible program design features. can be used on a precautionary basis. more concessional financing terms. with higher levels of access. carries a low interest rate.because prices for food imports go up when agricultural subsidies are eliminated. Several low-income countries have made significant progress in recent years toward economic stability and no longer require IMF financial assistance. The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to low-income countries (LICs) facing an urgent balance of payments need. these changes will boost obtainable resources for low-income countries to US$17 billion through 2014. The RCF streamlines the Fund’s emergency assistance. and places emphasis on countries’ poverty reduction and growth objectives. Once additional loan and subsidy resources are mobilized. But many of these countries still seek the IMF's advice and the monitoring and . Three types of loans were shaped under the new Poverty Reduction and Growth Trust (PRGT) as part of this broader reform: the Extended Credit Facility. The ECF succeeds the Poverty Reduction and Growth Facility (PRGF) as the Fund’s main tool for providing medium-term support LICs. and places greater emphasis on the country’s poverty reduction and growth objectives. the IMF has revamped its concessional lending facilities to make them lither and meet increasing demand for financial assistance from countries in want. The Standby Credit Facility (SCF) provides financial assistance to lowincome countries (LICs) with short-term balance of payments needs. can be used flexibly in a wide range of circumstances. as well as streamlined and more focused conditionality. Lending to low-income countries To help low-income countries weather the harsh impact of the global financial crisis. The Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems. allows for high access. the Rapid Credit Facility and the Standby Credit Facility.

with a view to restoring debt sustainability. introduced in 1996 and enhanced in 1999. called the Policy Support Instrument. whereby creditors provide debt relief. The Heavily Indebted Poor Countries (HIPC) Initiative. the IMF has created a program for policy support and signaling. the International Development Association (IDA) of the World Bank. under which the of their economic policies that comes with it. in a synchronized manner. and the African Development Fund (AfDF) canceled 100 percent of their debt claims on certain countries to help them proceed toward the Millennium Development Goals. some low-income countries are also eligible for debts to be written off under two key initiatives. . To help these countries. Debt relief In addition to concessional loans. and The Multilateral Debt Relief Initiative (MDRI).

Here are some of the issues that top the agenda: A partner in Europe The IMF is actively engaged in Europe as a provider of policy advice. See also article on fixing the flaws in EMU. to get beyond the crisis. We work both independently and. To restore confidence more immediately. The crisis began in the finance markets in the United States in 2007 and swiftly escalated into a crisis that affected activity and institutions worldwide. Europe must address three key issues—lack of growth. using its cross-country experience to advice on policy solutions. The IMF's work in Europe has intensified since the start of the global financial crisis in 2008. in cooperation with European institutions. in European Union (EU) countries. increasing its lending. the euro zone must develop a strong firewall to protect its members. and technical assistance. As IMF Managing Director Christine Lagarde has stressed. Read our Factsheet on Europe and visit our webpagethat pulls together IMF information about Europe. the Fund has become actively engaged in the region and is also working with the G-20 to hold a multilateral approach. and has been further stepped up since mid-2010 as a result of the sovereign debt crisis in the euro area.TACKLING CURRENT CHALLENGES The global economic predicament created the worst recession since the Great Depression of the 1930s. reduced competitiveness. financing. and the need for greater integration. such as the European Commission (EC) and the European Central Bank (ECB). The IMF mobilized on many fronts to sustain its member countries. . As the apex of the crisis shifted to Europe. and introducing reforms to modernize its operations and become more reactive to member countries’ needs.

At the request of the G-20. Rethinking macroeconomic principles The severity of the crisis—immense hardship and suffering around the world—and the desire to avoid a repeat also raised some profound questions about the pre-crisis consensus on macroeconomic policies. Sustainable. In . and the United States—to assess the impact of policies by one country or area on the rest of the world. Japan. and to better integrate the three." The backbone of this framework is a multilateral process. where G-20 countries together set out objectives and the policies needed to get there. collectively. launching the "Framework for Strong. The IMF’s Executive Board has also been considering a range of options to enhance multilateral. they can achieve the G20’s goals. At their 2009 Pittsburgh Summit G-20 countries pledged to adopt policies that would ensure a lasting recovery and a brighter economic future. It has launched “spillover reports” for the five most systemic economies—China. bilateral. and Balanced Growth. the IMF provides thetechnical analysis needed to evaluate how members’ policies fit together—and whether. And. the Euro Area. most importantly. Without the cooperation spearheaded by the Group of Twenty industrialized and emerging market economies (G-20) the crisis could have been much worse. and financial surveillance. United Kingdom. they undertake to check on their progress toward meeting those shared objectives—done through the G-20Mutual Assessment Process or MAP.Reinforcing multilateralism The crisis highlighted the tremendous benefits from international cooperation.

growth strategies. iMFdirect. and introducing a newPrecautionary Credit Line (PCL) for countries that have sound economic policies and fundamentals. Stepping up crisis lending As part of its efforts to support countries during the global economic crisis. the IMF hosted a high profile conferenceto take stock of these policy questions and promote a discussion about the future of macroeconomic policy. and the international monetary system (discussed further below). but are still facing vulnerabilities  Modernizing conditionality to ensure that conditions linked to IMF loan disbursements are focused and adequately tailored to the varying strengths of members’ policies  Focusing more on social spending and more concessional terms for low-income countries . the IMF is encouraging a wholesale re-examination of macroeconomic policy principles in the wake of the global economic crisis. More recently. The agenda focused on six key areas: monetary policy. further reforms have been approved that strengthen the IMF’s capacity to prevent crises. It has approved a major overhaul of how it lends money by offering higher amounts and tailoring loan terms to countries’ varying strengths and circumstances. A key goal of the conference was to promote a broad-based and ongoing dialogue that extends beyond the corridors of the IMF. the conference was webcast and the conference co-hosts opened an online discussion with posts on the IMF blog. financial intermediation and regulation. fiscal policy. In March 2011. the IMF has beefed up its lending capacity. In particular:  Doubling of lending access limits for member countries and streamlining procedures to reduce perceived stigma attached to borrowing from the Fund  Introducing and refining a Flexible Credit Line (FCL) for countries with robust policy frameworks and a strong track record in economic performance. capital account management.this context. To this end.

Poland. But it has a number of well-known weaknesses. and reducing systemic risk. Romania. Ireland. unabated accumulation of international reserves. and Ukraine— and has extended credit to Mexico. concentrated on a narrow supply. volatile capital flows and exchange rates that can have deleterious economic effects. conventions. The IMF’s recent review of its mandate and resultant reforms—to surveillance and its lending toolkit— go some way towards addressing these concerns but further reforms are being pursued. by ensuring an orderly rebalancing of demand growth. and the flow of capital among countries—has certainly delivered a lot. Portugal. which is essential for a sustained and strong global recovery. Supporting low-income countries . Addressing these problems is crucial to achieving the global public good of economic and financial stability.The IMF has committed more than $280 billion to countries hit by the crisis—including Greece. and supporting institutions that facilitate international trade and cross-border investment. and Colombia under a new flexible credit line. Strengthening the international monetary system The current International Monetary System—the set of internationally agreed rules. and related to the above. the rapid. The IMF is also stepping up its lending to lowincome countries to help prevent the crisis undermining recent economic gains and keep poverty reduction efforts on track. including the lack of an automatic and orderly mechanism for resolving the buildup of real and financial imbalances.

including up to $8 billion in the first two years. . including from sales of an agreed amount of IMF gold. reflecting the changing nature of economic conditions in these countries and their increased vulnerabilities due to the effects of the global economic crisis. It has overhauled its lending instruments.  Providing interest relief. with zero payments on outstanding IMF concessional loans through end-2011 to help low-income countries cope with the crisis. The IMF support package includes:  Mobilizing additional resources.The IMF has upgraded its support for low-income countries. detailed here.  Establishing a new set of financial instruments. to boost the IMF’s concessional lending capacity to up to $17 billion through 2014. This exceeds the call by the Group of Twenty for $6 billion in new lending over two to three years. especially to address more directly countries' needs for short-term and emergency support.

Sign up to vote on this title
UsefulNot useful