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I take this opportunity to express my profound gratitude and deep regards to my project guide Mrs. Rajam Rajagopalan for her exemplary guidance, monitoring and constant encouragement throughout the course of this project. The blessing, help and guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark. I also take this opportunity to express a deep sense of gratitude to the principal Dr. Minu Thomas for her cordial support and guidance, which helped me in completing this task through various stages. I am obliged to my course coordinator Mrs.Shailashri Uchil, for the valuable information provided by her in respective fields. I am grateful for their cooperation during the period of my assignment. Lastly, I thank almighty, my parents, brother, sisters and friends for their constant encouragement without which this assignment would not be possible.

(Name of the student) (Mudaliyar Vineeth Rajkumar)


INDEX 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Topic IMF- An Overview Functions of the IMF Membership Collaboration History Activities of the IMF Management Governance Current Challenges Criticism Conclusion Bibliography Page no. 3 6 14 16 18 24 30 31 34 38 40 41


An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating the expansion and balanced growth of international trade 3. Assisting in the establishment of a multilateral system of payments for current transactions. The IMF plays three major roles in the global monetary system. The Fund surveys and monitors economic and financial developments, lends funds to countries with balance-ofpayment difficulties, and provides technical assistance and training for countries requesting it. The International Monetary Fund (IMF) is an organization of 188 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. Mission With its near-global membership of 188 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 labour, 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.

Original aims The IMF was founded more than 60 years ago toward the end of World War II. 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.


have been in high demand and have been used by the G-20. supported global policy coordination. The result is an institution that is more in tune with the needs of its 188 member countries. used its cross-country experience to advise on policy solutions. It increased its lending.  Stepping up crisis lending. The IMF’s monitoring. it mobilized on many fronts to support its member countries.An adapting IMF The IMF has evolved along with the global economy throughout its 65-year history. regulation. forecasts. and reformed the way it makes decisions.  Providing analysis and advice.  Greater lending flexibility. The IMF has overhauled its lending framework to make it better suited to countries’ individual needs. allowing the organization to retain its central role within the international financial architecture As the world economy struggles to restore growth and jobs after the worst crisis since the Great Depression. informed by a global perspective and by experience from previous crises. and reform of the global financial architecture. subsidized lending at rates below those being charged by the market) to the world’s poorest nations. 5 .  Drawing lessons from the crisis. During the crisis. It is also working with other regional institutions to create a broader financial safety net. the IMF has emerged as a very different institution. The IMF is contributing to the ongoing effort to draw lessons from the crisis for policy. with lending commitments reaching a record level of more than US$250 billion in 2010. This figure includes a sharp increase in concessional lending (that’s to say. while preserving the voice of the low-income members.  Historic reform of governance. The IMF responded quickly to the global economic crisis. which could help prevent new crises. and policy advice. The IMF’s member countries also agreed to a significant increase in the voice of dynamic emerging and developing economies in the decision making of the institution.

and bilateral surveillance. The IMF also carries out extensive analysis of global and regional economic trends. with the vast majority of countries opting to do so. known as multilateral surveillance. It has three main tools at its disposal to carry out its mandate: surveillance. Member countries may agree to publish the IMF’s assessment of their economies. technical assistance and training. It helps resolve crises. go to Surveillance in the Our Work Section. 6 . and national economic developments. Its key outputs are three semi-annual publications. including better integrating the three. and the Fiscal Monitor. drawing on experience across its membership. 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. the Global Financial Stability Report. For more information on how the IMF monitors economies. The IMF also publishes a series of regional economic outlooks. The IMF recently agreed on a series of actions to enhance multilateral. the World Economic Outlook. financial. it regularly monitors global. improve our understanding of spillovers and the assessment of emerging and potential risks. To do this. These functions are underpinned by the IMF’s research and statistics. and works with its member countries to promote growth and alleviate poverty. regional. and lending.FUNCTIONS OF THE IMF The IMF’s main goal is to ensure the stability of the international monetary and financial system. and strengthen IMF policy advice. It also seeks to assess the impact of the policies of individual countries on other economies. Economic & Financial Surveillance The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. It discusses with the country’s authorities the policies that are most conducive to a stable and prosperous economy.

and lower-middle-income countries. in particular in sub-Saharan Africa and Asia. the IMF embarked on an ambitious reform effort to enhance the impact of its technical assistance. The IMF has also given advice to countries that have had to reestablish government institutions following severe civil unrest or war. Beneficiaries of technical assistance Technical assistance is one of the IMF's core activities.Technical assistance and training IMF offers technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. enhanced performance measurement. such as central banking. Types of technical assistance The IMF's technical assistance takes different forms. Technical 7 . The objective is to help improve the design and implementation of members' economic policies. and statistics. building capacity to design and implement poverty-reducing and growth programs. tax policy and administration. The IMF shares its expertise with member countries by providing technical assistance and training in a wide range of areas. About 80 percent of the IMF's technical assistance goes to low. banking and financial system supervision and regulation. The IMF is also providing technical assistance aimed at strengthening the architecture of the international financial system. ranging from longterm hands-on capacity building to short-notice policy support in a financial crisis. Post-conflict countries are major beneficiaries. including by strengthening skills in institutions such as finance ministries. according to needs. monetary and exchange rate policy. and official statistics. the IMF's technical assistance program is informed by experience and knowledge gained across diverse regions and countries at different levels of development. more transparent costing and stronger partnerships with donors. Thanks to its near-universal membership. It is concentrated in critical areas of macroeconomic policy where the Fund has the greatest comparative advantage. In 2008. Technical assistance is offered in several areas. and helping heavily indebted poor countries (HIPC) in debt reduction and management. central banks. and statistical agencies. monetary and exchange rate policies. The reforms emphasize better prioritization. including fiscal policy.

policies. The IMF provides technical assistance and training mainly in four areas:  monetary and financial policies (monetary policy instruments. and institutional policy frameworks. in Barbados and Guatemala for Central America and the Caribbean. The IMF is providing an increasing part of its technical assistance through regional centers located in Gabon. in Lebanon for the Middle East. expenditure management. Mauritius. 8 . Brazil. A policy program supported by financing is designed by the national authorities in close cooperation with the IMF. and structural development of central banks). foreign management and operations. or the IMF may provide resident specialists on a short. In the most recent reforms. D. and economic and financial legislation. The IMF also offers training courses for government and central bank officials of member countries at its headquarters in Washington. Mali. design of social safety nets. clearing settlement systems for payments. budget formulation. and at regional training centers in Austria. India. Singapore.. banking system supervision and restructuring.or a long-term basis. China.  fiscal policy and management (tax and customs policies and administration. and improvement of statistical data.   compilation. and in Fiji for the Pacific Islands. IMF staff may visit member countries to advise government and central bank officials on specific issues.C. and the United Arab Emirates. Continued financial support is conditional on the effective implementation of this program. Technical assistance is integrated with country reform agendas as well as the IMF's surveillance and lending operations. and management of domestic and foreign debt). and Tanzania for Africa. Tunisia.assistance is delivered in a variety of ways. management. Lending IMF financing provides member countries the breathing room they need to correct balance of payments problems. dissemination. IMF lending instruments were improved further to provide flexible crisis prevention tools to a broad range of members with sound fundamentals.

The oil shock of the 1970s and the debt crisis of the 1980s led many lower. As a consequence. The IMF is not a development bank and. unable to pay its international bills. This crisis resolution role is at the core of IMF lending. 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. more than half of its lending went to industrial countries. The changing nature of lending About four out of five member countries have used IMF credit at least once. the global financial crisis has highlighted the need for effective global financial safety nets to help countries cope with adverse shocks. benign economic conditions worldwide meant that many countries began to repay their loans to the IMF. But in 2008. IMF loans are meant to help member countries tackle balance of payments problems. 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. these countries have been able to meet their financing needs in the capital markets. the demand for the Fund’s resources dropped off sharply. In the 1990s. poses potential problems for the stability of the international financial system. In 2004. it does not finance projects. middle-income. But the amount of loans outstanding and the number of borrowers have fluctuated significantly over time. unlike the World Bank and other development agencies. 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. But since the late 1970s. can turn to the IMF for financing if it has a balance of payments need—that is.A country in severe financial trouble. and restore sustainable economic growth. stabilize their economies. or poor.and lowermiddle-income countries to borrow from the IMF. At the same time. Any member country. which the IMF was created to protect. In the first two decades of the IMF's existence. 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 9 . whether rich.

both for the country itself and possibly for other countries through economic and financial ripple effects (known as contagion). and confidence-driven banking and currency crises. thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. IMF lending serves three main purposes. the purpose of the IMF's lending has changed dramatically since the organization was created. the IMF conducted a wide-ranging review of its lending facilities and terms on which it provides loans. introducing a new flexible credit line. doubling access limits on loans. something that would be extremely costly. 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. sovereign debt restructuring. Today. adapting its cost structures for high-access and precautionary lending. postconflict give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards. and streamlining instruments that were seldom used. First. In response.more than $325 billion in resources to its member countries since the start of the global financial crisis. broad economic transition. including modernizing conditionality. Over time. It has also speeded up lending procedures and redesigned its Exogenous Shocks Facility to make it easier to access for low-income countries. More reforms have since been undertaken." In practice. it can smooth adjustment to various shocks. poverty reduction and economic development. While the financial crisis has sparked renewed demand for IMF financing. enhancing the flexibility of the Fund’s regular stand-by lending arrangement.. the Fund announced a major overhaul of its lending framework. most recently in November 2011.. 10 . Lending to preserve financial stability Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is ". helping a member country avoid disruptive economic adjustment or sovereign default. natural disasters. 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 March 2009.

The IMF discusses with the country the economic policies that may be expected to address the problems most effectively.Second. To this end. IMF lending can help prevent crisis. but can be followed by another program if needed. This is because the program can serve as a signal that the country has adopted sound policies. The government outlines the details of its economic program in a "letter of intent" to the Managing Director of the IMF. the IMF discusses with the country the economic policies that may be expected to address the problems most effectively. depending on the nature of the country's problems. Such letters may be revised if circumstances change. Third. quantified goals in support of the overall objectives of the authorities' economic program. The IMF and the government agree on a program of policies aimed at achieving specific. it may be in or near a state of economic crisis. economic activity stagnant or falling. with each installment conditional on targets being met. the country may commit to fiscal or foreign exchange reserve targets. Loans are typically disbursed in a number of installments over the life of the program. 11 . For example. Conditions for lending When a member country approaches the IMF for financing. In difficult economic times. quantified goals in support of the overall objectives of the authorities' economic program. and a large number of firms and households going bankrupt. reinforcing policy credibility and increasing investors' confidence. The IMF and the government agree on a program of policies aimed at achieving specific. the country may commit to fiscal or foreign exchange reserve targets. the IMF helps countries to protect the most vulnerable in a crisis. IMF programs can help unlock other financing. with its currency under attack in foreign exchange markets and its international reserves depleted. Programs typically last up to 3 years. The best way to deal with capital account problems is to nip them in the bud before they develop into a full-blown crisis. 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. For example. The experience is clear: capital account crises typically inflict substantial costs on countries themselves and on other countries through contagion. acting as a catalyst for other lenders.

can be used on a precautionary basis. more concessional financing terms. helping countries find additional financing from other sources. allows for high access. The Standby Credit Facility (SCF) provides financial assistance to low-income countries (LICs) with short-term balance of payments needs. The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to low-income countries (LICs) facing an urgent balance of payments need. the Rapid Credit Facility and the Standby Credit Facility. Lending to low-income countries To help low-income countries weather the severe impact of the global financial crisis. 12 . To ensure resources are available for lending to low-income countries beyond 2014. as well as streamlined and more focused conditionality. Once additional loan and subsidy resources are mobilized.7 billion in remaining windfall profits from gold sales as part of a strategy to make lending to low-income countries sustainable. these changes will boost available resources for low-income countries to $17 billion through 2014. provides significantly higher levels of concessions. the IMF has revamped its concessional lending facilities to make them more flexible and meet increasing demand for financial assistance from countries in need. carries a low interest rate. more flexible program design features. But IMF loans also signal that a country's economic policies are on the right track. 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. can be used flexibly in a wide range of circumstances. the IMF approved an additional $2. and places emphasis on countries’ poverty reduction and growth objectives. The RCF streamlines the Fund’s emergency assistance. IMF loans usually provide only a small portion of the resources needed to finance their balance of payments. which reassures investors and the official community. The Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems. It provides support under a wide range of circumstances. with higher levels of access.For countries in crisis. Three types of loans were created under the new Poverty Reduction and Growth Trust (PRGT) as part of this broader reform: the Extended Credit Facility. These changes became effective in January 2010.

These are part of the IMF’s continuing efforts to strengthen national and global financial systems and improve its ability to prevent and resolve crises. the IMF has created a program for policy support and signaling. called the Policy Support Instrument. But many of these countries still seek the IMF's advice. In low-income countries. and to the strengthening of financial sectors. 13 . To help these countries. and the monitoring and endorsement of their economic policies that comes with it. the IMF has doubled loan access limits and is boosting its lending to the world’s poorer countries. In recent years. with loans at a concessional interest rate. 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. Research and data Supporting all three of these activities is the IMF’s economic and financial research and statistics.Several low-income countries have made significant progress in recent years toward economic stability and no longer require IMF financial assistance.

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. a country must apply and then be accepted by a majority of the existing members. the yen. each member country of the IMF is assigned a quota. The IMF's membership agreed in November 2010 on a major overhaul of its quota system to reflect the changing global economic realities. Upon joining. Republic of South Sudan joined the IMF. The number of basic votes attributed to each member is calculated as 5. becoming the institution's 188th member.03 percent of the total).000 of quota.502 percent of total votes.76 percent of the total). the United States has 421. To become a member. called Special Drawing Rights (SDRs) or widely accepted currencies (such as the dollar. Each IMF member's votes are comprised of basic votes plus one additional vote for each SDR 100. Accordingly. based broadly on its relative size in the world economy.MEMBERSHIP The IMF currently has a near-global membership of 188 countries.965 votes (16. and Tuvalu has 759 votes (0. or pound sterling). 14 . including: Subscriptions A member country's quota subscription determines the maximum amount of financial resources the country is obliged to provide to the IMF. In April 2012. the euro. Quotas A member country's quota defines its financial and organizational relationship with the IMF. especially the increased weight of major emerging markets in the global economy. Voting power The quota largely determines a member's voting power in IMF decisions. while the rest is paid in the member's own currency.

15 . The most recent general allocation of SDRs took place in 2009. which are types of loans. A member's share of general SDR allocations is established in proportion to its quota. a member country can borrow up to 200 percent of its quota annually and 600 percent cumulatively. under Stand-By and Extended Arrangements.Access to financing The amount of financing a member country can obtain from the IMF is based on its quota. SDR allocations SDRs are used as an international reserve asset. For instance.

banking supervision. Given the World Bank's focus on antipoverty issues. and broader structural reforms. The IMF also works closely with the Group of Twenty (G20) industrialized and emerging market economies and interacts with think tanks. development of standards and codes. civil society. and trade The IMF is a member of the Switzerland-based Financial Stability Board. While the IMF's focus is chiefly on macroeconomic and financial sector issues. Other areas of collaboration include assessments of member countries' financial sectors. international regulatory and supervisory bodies. but complement each other's work. stabilizing their currencies. UN agencies. and coverage of data on external debt. the World Bank is concerned mainly with longer-term development and poverty reduction. the IMF collaborates closely with the Bank in the area of poverty reduction. Countries must join the IMF to be eligible for World Bank membership. Its loans finance infrastructure projects. and improvement of the quality. Working with the World Bank The IMF and the World Bank are different.COLLABORATION The IMF collaborates with the World Bank. the reform of particular sectors of the economy. each has its own unique areas of responsibility and specialization. and other international bodies. Cooperating on financial stability. IMF loans assist countries in continuing to pay for imports. regional development banks. and restoring conditions for strong economic growth. committees of central bank experts. the World Trade Organization (WTO). and the media on a daily basis. While all of these organizations are involved in global economic issues. which brings together government officials responsible for financial stability in the major international financial centres. and international financial institutions. The IMF's determination of a country's balance of payments situation plays a considerable part in the WTO's assessment of trade restrictions applied in the event of balances of payments difficulties. The IMF has observer status at formal meetings of the World Trade Organization (WTO). It also works with standard-setting bodies such as the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors. availability. The IMF is also involved in the WTO-led Integrated Framework for 16 .

they can achieve the Group's goals. Working on employment issues The IMF's mandate includes contributing to the promotion and maintenance of high levels of employment and real incomes through the expansion and balanced growth of international trade. the UN Environment Program on the green economy. and Finance. During the global financial crisis. The IMF also liaises regularly with the International Trade Union Confederation. Working closely with the G-20 Increasingly. Given the importance of employment for sustainable and inclusive growth. Finally. located at the UN Headquarters in New York. 17 . and its affiliates. and the World Food Program on social safety nets and early assessments of vulnerability. Debt. Collaboration between the IMF and the UN covers several areas of mutual interest. collective action by the G-20 was critical for avoiding even greater economic difficulties. Collaborating with the UN The IMF has a Special Representative to the United Nations. and in subsequent meetings the G-20 leaders have continued to reaffirm their commitment to reinvigorate economic growth. the IMF has worked with the International Labour Office on issues related to employment. For this reason. The IMF provides analysis on global economic conditions and on how G-20 members' policies fit together—and whether. the IMF has been working with the Group of Twenty (G-20) industrialized and emerging market economies. the UN Children's Fund on fiscal issues and social policy. and IMF staff contributes to the work of the WTO Working Group on Trade. IMFsupported programs often contain recommendations pertaining to the labour market.Trade-Related Technical Assistance to Least Developed Countries. We have an active partnership with the International Labour Organization (ILO). the Fund works with other international. IMF missions to member countries meet regularly with trade union representatives to gain a better understanding of and exchange views on national labour market dynamics. In recent years. regional. labour market policies are not a core area of IMF expertise. including cooperation on tax issues and statistical services of the two organizations. as well as social protection floors. as well as reciprocal attendance and participation at regular meetings and specific conferences and events. with whom we have been pooling expertise to better understand the impact of macroeconomic policies on job creation. collectively. and local organizations in this important area. That said.

These attempts proved to be self-defeating. World trade declined sharply (see chart below).HISTORY The IMF has played a part in shaping the global economy since the end of World War II. Cooperation and reconstruction (1944–71) During the Great Depression of the 1930s. This breakdown in international monetary cooperation led the IMF's founders to plan an institution charged with overseeing the international monetary system—the system of exchange rates and international payments that enables countries and their citizens to buy goods and services from each other. devaluing their currencies to compete against each other for export markets. The new global entity would ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade. 18 . and employment and living standards plummeted in many countries. and curtailing their citizens' freedom to hold foreign exchange. countries attempted to shore up their failing economies by sharply raising barriers to foreign trade.

in the northeastern United States. It began operations on March 1.The Bretton Woods agreement The IMF was conceived in July 1944. New Hampshire. The end of the Bretton Woods System (1972–81) By the early 1960s. Par value system The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (the value of their currencies in terms of the U. France became the first country to borrow from the IMF. the value of the dollar in terms of gold) pegged at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments.S. the U. this crisis marked the breakdown of the system. The IMF's membership began to expand in the late 1950s and during the 1960s as many African countries became independent and applied for membership. 1947. dollar and. in the case of the United States.S. In August 1971. under the Bretton Woods system of fixed exchange rates. This par value system—also known as the Bretton Woods system—prevailed until 1971. A sizable increase in domestic spending on President Lyndon Johnson's Great Society programs and a rise in military spending caused by the Vietnam War gradually worsened the overvaluation of the dollar. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods. U. The system dissolved between 1968 and 1973. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold. when representatives of 45 countries meeting in the town of Bretton Woods. agreed on a framework for international economic cooperation. An attempt to revive the fixed 19 . They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression. when the U. But the Cold War limited the Fund's membership. The IMF came into formal existence in December 1945. when its first 29 member countries signed its Articles of Agreement. with most countries in the Soviet sphere of influence not joining. was seen as overvalued.S. Later that year. President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold.S. and only with the IMF's agreement. dollar's fixed value against gold. to be established after the Second World War.

The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its lending instruments. IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely. Since the collapse of the Bretton Woods system. The SAF was succeeded by the Enhanced Structural Adjustment Facility in December 1987. Debt and painful reforms (1982–89) The oil shocks of the 1970s. getting deposits from oil exporters and lending those resources to oil-importing and developing countries. which forced many oil-importing countries to borrow from commercial banks. or floating. Floating rates have facilitated adjustments to external shocks ever since. Western commercial banks lent billions of "recycled" petrodollars. To help oil importers deal with anticipated current account deficits and inflation in the face of higher oil prices. During the 1970s. adopting the currency of another country. interest rates. In March 1986. Oil shocks Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to an end. or forming part of a monetary union. and it was certainly timely: flexible exchange rates made it easier for economies to adjust to more expensive rates failed. usually at variable. and by March 1973 the major currencies began to float against each other. pegging it to another currency or a basket of currencies. when the price suddenly started going up in October 1973. and the interest rate increases in industrial countries trying to control inflation led to an international debt crisis. the IMF created a new concessional loan program called the Structural Adjustment Facility. it set up the first of two oil facilities. the IMF sought to respond to the balance of payments difficulties’ confronting many of the world’s poorest countries by providing concessional financing through what was known as the Trust Fund. the transition to floating exchange rates was relatively smooth. In fact. Helping poor countries From the mid-1970s. participating in a currency bloc. So when interest rates began to soar 20 .

the floating rates on developing countries' loans also shot up. technical assistance. 21 . and sometimes the process was less than smooth. By the end of the decade. and some existing Directors saw their constituencies expand by several countries. the IMF's staff expanded by nearly 30 percent in six years. This kind of economic transformation had never before been attempted. The Executive Board increased from 22 seats to 24 to accommodate Directors from Russia and Switzerland. The IMF played a central role in helping the countries of the former Soviet bloc transition from central planning to market-driven economies. even engaging the commercial banks. would be necessary to eliminate the problem. the IMF coordinated the global response. membership increased from 152 countries to 172. It realized that nobody would benefit if country after country failed to repay its debts. But a long road of painful reform in the debtor countries. At the same time. benefiting from its policy advice. The IMF's initiatives calmed the initial panic and defused its explosive potential. For most of the 1990s. the price of commodities from developing countries slumped because of the recession brought about by monetary policies. these countries worked closely with the IMF. the response by developing countries to those shocks included expansionary fiscal policies and overvalued exchange rates. most economies in transition had successfully graduated to market economy status after several years of intense reforms. In three years. When a crisis broke out in Mexico in 1982. Societal Change for Eastern Europe and Asian Upheaval (1990-2004) The fall of the Berlin wall in 1989 and the dissolution of the Soviet Union in 1991 enabled the IMF to become a (nearly) universal institution. Many times. with many joining the European Union in 2004. Higher interest payments are estimated to have cost the non-oil-producing developing countries at least $22 billion during 1978– 1979. and financial support. In order to fulfill its new responsibilities. sustained by further massive borrowings. and additional cooperative global measures. the most rapid increase since the influx of African members in the 1960s.

the IMF drew several lessons that would alter its responses to future events. with the aim of ensuring that no poor country faces a debt burden it cannot manage. Second. From this experience. the IMF dampened its enthusiasm for capital account liberalization. the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI). a wave of financial crises swept over East Asia. First. For most of the first decade of the 21st century. Almost every affected country asked the IMF for both financial assistance and for help in reforming economic policies. In 2005. the Fund realized that the institutional prerequisites for successful liberalization of international capital flows were more daunting than it had previously thought. it realized that it would have to pay much more attention to weaknesses in countries’ banking sectors and to the effects of those weaknesses on macroeconomic stability. 22 . international capital flows fueled a global expansion that enabled many countries to repay money they had borrowed from the IMF and other official creditors and to accumulate foreign exchange reserves. The Initiative for Heavily Indebted Poor Countries was launched in 1996. Along with the economics profession generally.Asian Financial Crisis In 1997. In 1999. and the IMF came under criticism that was more intense and widespread than at any other time in its history. Globalization and the Crisis (2005 . Conflicts arose on how best to cope with the crisis. Debt relief for poor countries During the 1990s. the severity of the contraction in economic activity that accompanied the Asian crisis necessitated a re-evaluation of how fiscal policy should be adjusted when a crisis was precipitated by a sudden stop in financial inflows. the IMF—together with the World Bank—launched the Financial Sector Assessment Program and began conducting national assessments on a voluntary basis. to help accelerate progress toward the United Nations Millennium Development Goals (MDGs). Third.present) The IMF has been on the front lines of lending to countries to help boost the global economy as it suffers from a deep crisis not seen since the Great Depression. from Thailand to Indonesia to Korea and beyond. the IMF worked closely with the World Bank to alleviate the debt burdens of poor countries.

but emerging markets and developing countries have also become more financially integrated. The most rapid increase has been experienced by advanced economies. The international community recognized that the IMF’s financial resources were as important as ever and were likely to be stretched thin before the crisis was over. To use those funds effectively.The global economic crisis that began with the collapse of mortgage lending in the United States in 2007. and the IMF had traditionally lent to members facing current account difficulties. as in the past. the IMF was inundated with requests for stand-by arrangements and other forms of financial and policy support. they totaled $7. With broad support from creditor countries. In 2006. the Fund’s lending capacity was tripled to around $750 billion. including by creating a flexible credit line for countries with strong economic fundamentals and a track record of successful policy implementation. Suddenly. but since then they have risen to 15 percent of GDP. Other reforms. take a look at James Boughton's "The IMF and the Force of History: Ten Events and Ten Ideas that Have Shaped the Institution. The founders of the Bretton Woods system had taken it for granted that private capital flows would never again resume the prominent role they had in the nineteenth and early twentieth century’s. For more on the ideas that have shaped the IMF from its inception until the late 1990s. Global capital flows fluctuated between 2 and 6 percent of world GDP during 1980-95." 23 . The latest global crisis uncovered fragility in the advanced financial markets that soon led to the worst global downturn since the Great Depression. enabled the IMF to disburse very large sums quickly. including ones tailored to help low-income countries.2 trillion —more than a tripling since 1995. based on the needs of borrowing countries and not tightly constrained by quotas. the IMF overhauled its lending policies. and spread around the world in 2008 was preceded by large imbalances in global capital flows.

the views of the global community and the lessons of international experience are brought to bear on national policies. and civil society. the West African Economic and Monetary Union. It does so in three ways: keeping track of the global economy and the economies of member countries. and to provide the IMF with data about its economy. The IMF's regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. it agrees to subject its economic and financial policies to the scrutiny of the international community. Country surveillance Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries. IMF staff missions also often meet with parliamentarians and representatives of business. When a country joins the IMF. as are most of the country reports prepared by the staff. lending to countries with balance of payments difficulties. the 24 . 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. labor unions. Regional surveillance Regional surveillance involves examination by the IMF of policies pursued under currency unions—including the euro area. The team reports its findings to IMF management and then presents them for discussion to the Executive Board.ACTIVITIES OF THE IMF The IMF's fundamental mission is to help ensure stability in the international system. A summary of the Board's views is subsequently transmitted to the country's government. Summaries of most discussions are released in Public Information Notices and are posted on the IMF's web site. to avoid manipulating exchange rates for unfair competitive advantage. This process is known as surveillance. with discussions in between as needed. The consultations are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation. which represents all of the IMF's member countries. and giving practical help to members. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability. In this way.

monetary. and fiscal policies. Regional economic outlook reports are also prepared to discuss economic developments and key policy issues in Asia Pacific. Middle East and Central Asia. The IMF provides advice on issues such as the choice of exchange rate policies and ensuring consistency between the regime and fiscal and monetary policies.Central African Economic and Monetary Community. In addition. Sub-Saharan Africa. which covers developments. which analyzes the latest developments in public finance. and the Eastern Caribbean Currency Union. and assessing internationally recognized standards and codes in areas crucial to the efficient functioning of a modern economy such as central bank independence. Global surveillance Global surveillance entails reviews by the IMF's Executive Board of global economic trends and developments. the Executive Board holds more frequent informal discussions on world economic and market developments. implementing. financial sector regulation.  Institutional and structural issues have also gained importance in the wake of financial crises and in the context of some countries' transition from planned to market economies. building on the achievements under the Financial Sector Assessment Program (FSAP). Surveillance covers a range of economic policies. All three reports are published twice a year. 25 .  Financial sector issues are receiving elevated coverage in surveillance reports. which enables the IMF and the World Bank to gauge the strengths and weaknesses of countries' financial sectors. and the Fiscal Monitor. prospects. with updates being provided on a quarterly basis. with the emphasis varying in accordance with a country's individual circumstances:  Exchange rate. and policy issues in international financial markets. Europe. and the Western Hemisphere.  Assessment of risks and vulnerabilities stemming from large and sometimes volatile capital flows has become more central to IMF surveillance in recent years. the Global Financial Stability Report. and policy transparency and accountability. The IMF and the World Bank play a central role in developing. The main reviews are based on the World Economic Outlook reports.

In addition to its role as a supplementary reserve asset.Debt relief In addition to concessional loans. The Heavily Indebted Poor Countries (HIPC) Initiative. the International Development Association (IDA) of the World Bank. with a view to restoring debt sustainability. The SDR is neither a currency. through the arrangement of voluntary exchanges between members. and The Multilateral Debt Relief Initiative (MDRI). Rather. by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. Organization & Finances The IMF has a management team and 17 departments that carry out its country. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first. Special Drawing Rights The Special Drawing Right (SDR) is an international reserve asset. analytical. and technical work. created by the IMF in 1969 to supplement the existing official reserves of member countries. the SDR serves as the unit of account of the IMF and some other international organizations. In addition to its role as a supplementary reserve asset. whereby creditors provide debt relief. the SDR serves as the unit of account of the IMF and some other international organizations. One department is charged with managing the IMF's resources. some low-income countries are also eligible for debts to be written off under two key initiatives. introduced in 1996 and enhanced in 1999. in a coordinated manner. under which the IMF. This section also explains where the IMF gets its resources and how they are used. 26 . policy. it is a potential claim on the freely usable currencies of IMF members. and the African Development Fund (AfDF) canceled 100 percent of their debt claims on certain countries to help them advance toward the Millennium Development Goals. and second. nor a claim on the IMF.

The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies. The U. Special allocations of SDRs. The purpose of this special allocation was to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one-fifth of the current IMF membership—had never received an SDR allocation.3 billion. for SDR 12. There are two kinds of allocations: General allocations of SDRs. in 1979–81.S. 27 . if it holds fewer SDRs than allocated. the IMF may allocate SDRs to members in proportion to their IMF quotas. it pays interest on the shortfall. the amount of SDRs increased from SDR 21. and in August 2009. Japanese yen.4 billion to SDR 204. and the interest paid to members on a portion of their quota subscriptions.S. for SDR 9.SDR’s value The value of the SDR is based on a basket of key international currencies—the euro. dollar. The SDR interest rate provides the basis for calculating the interest charged to members on regular (non concessional) IMF loans. the interest paid and charged to members on their SDR holdings.1 billion (currently equivalent to about $317 billion). for an amount of SDR 161. pound sterling and U. Decisions to allocate SDRs have been made three times: in 1970-72.1 billion. With the general SDR allocation of August 2009 and the special allocation of Setember 2009. The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the world’s trading and financial systems. General Allocations have to be based on a long-term global need to supplement existing reserve assets. providing each member with a costless asset. dollar-value of the SDR is posted daily on the IMF’s website. conversely.2 billion. However. A special one-time allocation of SDRs through the Fourth Amendment of the Articles of Agreement was implemented in September 2009. if a member’s SDR holdings rise above its allocation. SDR allocations to IMF members Under its Articles of Agreement. it earns interest on the excess.

An additional amount was later sold to the Bangladesh Bank. So as to avoid disruption to the gold market. the on-market phase of its gold sales program began. Payment of charges and repayments to the IMF by its members constituted other sources of gold. The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates pegged in terms of the dollar and. The IMF's holdings amount to about $160 billion (as determined by end-February 2012 market prices). The IMF holds about 90.5 million ounces. of gold at designated depositories. In December 2010. these sales were phased over time. Use of Gold in the IMF The IMF's Articles of Agreement strictly limit the use of the gold following the Second Amendment in 1978. the IMF may sell gold or accept gold as payment from member countries. and the Central Bank of Sri Lanka. The IMF's total gold holdings are valued on its balance sheet at about $4. In September 2009. but also to meet unforeseen contingencies.9 billion (SDR 3.3 metric tons of gold as a key step in implementing the new income model to help put the IMF's finances on a sound long-term footing.Gold The IMF holds a relatively large amount of gold among its assets.1 metric tons. in the case of the United States. the value of the dollar in terms of gold. A total of 212 metric tons was sold during this first phase. In February 2010. or 2. Gold and the international monetary system Gold played a central role in the international monetary system after World War II. But in some circumstances. The IMF sold this gold in two phases—the first phase was set aside exclusively for off-market sales to official holders. the IMF concluded the gold sales program with total 28 .2 billion) on the basis of historical cost. the Bank of Mauritius. This "par value system" ceased to work after 1971 Until the late 1970s.814. 25 percent of member countries' initial quota subscriptions and subsequent quota increases had to be paid for with gold. comprising sales to the Reserve Bank of India. the IMF's Executive Board approved the total sale of 403. not only for reasons of financial soundness.

29 .1 billion (SDR 700 million) in reserves attributed to a portion of the windfall profits from recent IMF gold sales. including contributions from member countries that have pledged to help boost the Fund’s lending capacity. Proceeds equivalent to the book value of the gold sold. This transaction was approved by the membership as a means to finance the IMF's participation in the Heavily Indebted Poor Countries Initiative and the continuation of the Poverty Reduction and Growth Facility. Total proceeds amounted to about $15 billion (SDR 9. about $4.2 billion (SDR 2.e. were retained in the IMF's General Resources Account. the Executive Board approved the distribution to all IMF member countries of about $1. It has had a range of bilateral borrowing arrangements in the 1970s and 1980s.3 metric tons of gold. with 12. Borrowing Arrangements If the IMF believes that its resources might fall short of members' needs—for example. the last time gold was sold by the institution was through off-market transactions completed in April 2001. with the expectation that member countries would return equivalent amounts to support concessional lending to low-income countries. Currently it has two standing multilateral borrowing arrangements and one bilateral borrowing agreement. In February 2012. Prior to the recent sale of gold. in the event of a major financial crisis—it can supplement its own resources by borrowing.5 billion). In April 2009. the Group of Twenty industrialized and emerging market economies agreed to triple the Fund’s lending capacity to $750 billion.sales of 403. The selling of gold by the IMF is rare as it requires an Executive Board decision with an 85 percent majority of the total voting power. enabling it to inject extra liquidity into the world economy during this time of crisis.9 million ounces traded. about $1 billion (SDR 630 million). The additional support will come from several sources.7 billion). Profits from the gold sales were invested in an income-generating fund to supplement IMF income. The distribution will be effected only when members provide satisfactory assurances that they would make new Poverty Reduction and Growth Trust subsidy contributions equivalent to at least 90 percent of the amount distributed—i.

the Managing Director "shall be chief of the operating staff of the Fund and shall conduct. The Management team oversees the work of the staff and maintains high-level contacts with member governments. Christine Lagarde. Managing Director: Duties and selection According to the IMF's Articles of Agreement. Before coming to the IMF. he shall be responsible for the organization. the Executive Board aims to reach a decision by consensus. the ordinary business of the Fund." The IMF's Executive Board is responsible for selecting the Managing Director.MANAGEMENT The IMF is led by a Managing Director. The Managing Director is assisted by a First Deputy Managing Director and three other Deputy Managing Directors. 30 . think tanks. she was France's Minister for Economy. and dismissal of the staff of the Fund. Any Executive Director may submit a nomination for the position. Managing Director. who is head of the staff and Chairman of the Executive Board. a French national. appointment. the media. nongovernmental organizations. When more than one candidate is nominated. consistent with past practice. joined the IMF as Managing Director in July 2011. as has been the case in recent years. under the direction of the Executive Board. Subject to the general control of the Executive Board. and other institutions.

Governance Structure The IMF's mandate and governance have evolved along with changes in the global economy.GOVERNANCE The IMF is accountable to the governments of its member countries. allowing the organization to retain a central role within the international financial architecture. 31 . The diagram below provides a stylized view of the IMF's current governance structure.

Italy. The G-20 discusses and coordinates international financial stability and is a key player in shaping the work of the IMF. and civil society organizations (CSOs).Accountability The IMF is accountable to its 188 member governments. as well as the European Union. Indonesia. civil society. South Africa. think tanks. encourages its own members to be as open as possible about their economic policies to encourage their accountability and transparency. and the media The IMF's work is scrutinized by the media. The G-8 functions as a forum for discussion of economic and financial issues among the major industrial countries— Canada. Engagement with intergovernmental groups Official groups. IMF management and senior staff communicate with the media on a daily basis. and its own internal watchdog. The Managing Director of the IMF is usually invited to participate in those discussions. the media. Brazil. Its meetings usually take place twice a year at the level of heads of state and government. Korea. Germany. China. academia. during which a spokesperson takes live questions from journalists. Additionally. in turn. Civil society. from political leaders and officials to. The G-8 finance ministers and central bank governors meet at least twice annually to monitor developments in the world economy and assess economic policies. The G-20 consists of the 20 leading and emerging economies of the world. the academic community. France. and includes all G-8 countries plus Argentina. Japan. a biweekly press briefing is held at the IMF Headquarters. and Turkey. The IMF. held a few times a year. and the United States. Russia. India. with several other ministerial-level meetings. and is also scrutinized by multiple stakeholders. the United Kingdom. Saudi Arabia. including finance ministers and central bank governors. Journalists who cannot be present are invited to submit their questions via the online media briefing center. such as the Group of Twenty (G-20) industrialized and emerging market countries (G-20) and the Group of Eight (G-8) are also actively engaged in the work of the IMF. Mexico. Australia. 32 .

and support institutional governance and oversight. enhances the accountability of policymakers. established in 2001." This means that publication requires the member's explicit consent but is expected to take place within 30 days following the Board discussion. The IMF regularly reviews its transparency policy 33 . The IMF also has an active outreach program involving CSOs. Greater openness encourages public discussion of economic policy. Transparency The IMF also encourages its member countries to be as open as possible about their economic policies. Internal watchdog The IMF's work is reviewed on a regular basis by an internal watchdog. In taking these steps to enhance transparency.IMF staff at all levels frequently meets with members of the academic community to exchange ideas and receive new input. strengthen its external credibility. The IEO's mission is to enhance the learning culture within the IMF. the IMF's Executive Board has adopted a transparency policy to encourage publication of member countries' policies and data. selecting topics for review based on suggestions from stakeholders inside and outside the IMF. This policy designates the publication status of most categories of Board documents as "voluntary but presumed. the Independent Evaluation Office. Its recommendations strongly influence the Fund's work. and facilitates the functioning of financial markets. the Executive Board has had to consider how to balance the IMF's responsibility to oversee the international monetary system with its role as a confidential advisor to its members. The IEO is fully independent from IMF management and operates at arm's length from the Executive Board. To that effect. promote greater understanding of the work of the Fund. although the Board appoints its director. The IEO establishes its own work program.

using its cross-country experience to advise on policy solutions. More recently. The IMF mobilized on many fronts to support its member countries. 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. increasing its lending. further reforms strengthen the IMF’s capacity to respond to and prevent crises. a Precautionary and Liquidity Line (PLL) for countries that have sound economic policies and fundamentals. and introducing reforms to modernize its operations and become more responsive to member countries’ needs. In particular:  Doubling of lending access limits for low-income 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.TACKLING CURRENT CHALLENGES The global economic crisis created the worst recession since the Great Depression of the 1930s. and a Rapid Financing Instrument (RFI) for countries facing an urgent financing need but that do not need a full-fledged economic program  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 34 . the Fund has become actively engaged in the region and is also working with the G20 to support a multilateral approach. the IMF has beefed up its lending capacity. but are still facing vulnerabilities. As the apex of the crisis shifted to Europe. The crisis began in the mortgage markets in the United States in 2007 and swiftly escalated into a crisis that affected activity and institutions worldwide. Here are some of the issues that top the agenda: Stepping up crisis lending As part of its efforts to support countries during the global economic crisis.

Ireland. such as the European Commission and the European Central Bank as part of the so-called troika. including a unified banking system and more fiscal integration. The IMF has recommended that Europe focus on structural reforms to boost economic growth. as well as labor market and pension changes. Read our Factsheet on Europe and visit our webpage that pulls together IMF information about Europe. 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. with zero payments on outstanding IMF concessional loans through end-2012 to help low-income countries cope with the crisis. The IMF support package includes:  Mobilizing additional resources. It has overhauled its lending instruments. This exceeds the call by the Group of Twenty for $6 billion in new lending over two to three years. and Ukraine—and has extended credit to Mexico. See also article on fixing the flaws in EMU. Supporting low-income countries The IMF has upgraded its support for low-income countries. Romania. and Colombia under a new flexible credit line. such as product and services market reforms. in European Union countries. 35 .  Providing interest relief. and technical assistance. We work both independently and. financing. A partner in Europe The IMF is actively engaged in Europe as a provider of policy advice. Portugal. reflecting the changing nature of economic conditions in these countries and their increased vulnerabilities due to the effects of the global economic crisis. The IMF has also urged eurozone members to make a more determined. collective response to the crisis by taking concrete steps toward a complete monetary union. especially to address more directly countries' needs for short-term and emergency support. Poland. including from sales of an agreed amount of IMF gold. and has been further stepped up since mid-2010 as a result of the sovereign debt crisis in the euro area. to boost the IMF’s concessional lending capacity to up to $17 billion through 2014. The IMF's work in Europe has intensified since the start of the global financial crisis in 2008. in cooperation with European institutions.The IMF has committed more than $300 billion to crisis-hit countries—including Greece. including up to $8 billion in the first two years.

conventions. It has launched ―spillover reports‖ for the five most systemic economies—China. volatile capital flows 36 . At their 2009 Pittsburgh Summit G-20 countries pledged to adopt policies that would ensure a lasting recovery and a brighter economic future. collectively. and as Managing Director Christine Lagarde has stressed." The backbone of this framework is a multilateral process. And. Without the cooperation spearheaded by the Group of Twenty industrialized and emerging market economies (G-20) the crisis could have been much worse. and to better integrate the three. the IMF provides the technical analysis needed to evaluate how members’ policies fit together—and whether. Japan. Reinforcing multilateralism The 2008 global financial crisis highlighted the tremendous benefits from international cooperation. they can achieve the G-20’s goals. bilateral. Sustainable. Committing resources to secure the long-term sustainability of IMF lending to lowincome countries beyond 2014. including the lack of an automatic and orderly mechanism for resolving the buildup of real and financial imbalances. Strengthening the international monetary system The current International Monetary System—the set of internationally agreed rules. But it has a number of well-known weaknesses. and the flow of capital among countries—has certainly delivered a lot. and Balanced Growth. the IMF must continue to pay more attention to understanding interconnectedness and incorporating this understanding into risk and policy analysis. and supporting institutions that facilitate international trade and cross-border investment. launching the "Framework for Strong. and financial surveillance. At the request of the G-20. the euro area. The IMF’s Executive Board has also been considering a range of options to enhance multilateral. they undertake to check on their progress toward meeting those shared objectives—done through the G-20 Mutual Assessment Process or MAP. and the United States—to assess the impact of policies by one country or area on the rest of the world. United Kingdom. where G-20 countries together set out objectives and the policies needed to get there. The IMF recently strengthened the ways in which it keeps an eye on country economies with its global analysis. most importantly.

concentrated on a narrow supply. Unlike the General Assembly of the United Nations or the World Trade Organization. The IMF’s rec ent 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. unabated accumulation of international reserves. to its largest. In December 2010. Addressing these problems is crucial to achieving the global public good of economic and financial stability. the United States. the reforms will produce a shift of more than 6 percent of quota shares to dynamic emerging market and developing countries. as well as its voting power.and exchange rates that can have deleterious economic effects. emerging market countries such as China. Implementing organizational changes The IMF must represent the interests of all of its 188 member countries. by ensuring an orderly rebalancing of demand growth. this group of countries would have seen its voting shares decline. the IMF agreed on reform of its framework for making decisions to reflect the increasing importance of emerging market and developing economies. Without these measures. The reform will enter into force once three fifths of the IMF’s membership―which currently amounts to 113 countries― representing 85 percent of total voting power have accepted the proposed amendment. the rapid. from its smallest shareholder Tuvalu. Each IMF member country is assigned a quota that determines its financial commitment to the IMF. India. The reform contains measures to protect the voice of the poorest countries in the IMF. which is essential for a sustained and strong global recovery. decision making at the IMF was designed to reflect the position of each member country in the global economy. In recent years. Brazil. and reducing systemic risk. When fully implemented. 37 . and related to the above. where each country has one vote. and Russia have experienced strong growth and now play a larger role in the world economy.

if the government of a country in crisis does not meet its commitments. assist in the establishment of a multilateral system of payments and give confidence to members by making the Fund’s resources available to them from time to time so that maladjustments in their balance of payments can be corrected without any extensive damage. a government borrows money from the IMF.CRITICISM OF THE IMF To understand the IMF’s role in the global economy and associated problems. Imagine that you live beyond your means and are unable to pay your credit card bill. the Fund loses the only concrete tool at its disposal that gives it the lever. In case of doubt. the bank will take legal action and confiscate your car to obtain the money. If governments and countries live beyond their means on borrowed money. the Fund fulfils four functions in the broader sense: it undertakes surveillance of the global economy and the economies of its members. which gives you money. While it is both understandable and desirable that the IMF’s loans should be the prime target of public attention and criticism. in the words of Stanley Fischer. The IMF’s largely politically determined weakness to enforce conditions not only harms its reputation but also misleads borrowers into believing that the conditions it imposes are not to be taken too seriously. The following purposes are set out in the IMF charter: promote international monetary cooperation. facilitate the expansion and balanced growth of international trade. 38 . Consequently. In more concrete terms and. it serves as a permanent institution which provides the machinery for consultation and collaboration on international monetary problems and it lends to its member countries. However. provided you promise to pay back according to the repayment schedule. it provides technical assistance to its members.age to attain its goals. If you do not abide by the repayment schedule. the IMF’s former First Deputy Managing Director. promote exchange stability. the countries do not have to wait for too long before being granted fresh loans. however. You raise a loan from a bank. it is useful to draw an analogy. The IMF operates in a similar fashion. it is only a matter of time before their creditors lose confidence. At this point. withdraw their capital and trigger a financial crisis. The Fund lends money on the condition that the government pledges to undertake economic reform. to whom does the IMF turn? There are no known cases of the Fund having confiscated cars in Russia or Brazil. its functions are not confined to lending.

economic critics finds fault with the economic policy pursued by the Fund in its role of advisor and lender.The IMF has attracted opposition from all political quarters from left-wing antiglobalisationists at one end of the spectrum to liberal economists at the other. however. it is helpful to distinguish between three forms of criticism – political critics of the Fund are bothered by the fact that non-elected IMF technocrats interfere in the politics of (not exclusively) democratically elected governments. political-economic critics focus on how the Fund creates the problems it really should be solving. 39 . For the purposes of this discussion. The criticism focuses on the IMF’s tasks and the manner in which these tasks are executed by the bureaucracy. In many cases. the arguments are confused and often difficult to delink.

Without IMF-generated distortions. mean hardship. to put it mildly. the corrective and preventive mechanisms of the financial markets would work better and crises would be averted. stability-oriented economic policies. It seems utopian to believe that the IMF could be done away with in the foreseeable future. in individual cases and for short periods. the IMF has developed into an important global economic player constantly expanding its purview. Having to sacrifice lavish IMF loans could. Well-known economists plead for the Fund to be shut down altogether. After the spectacular financial crises in the second half of the 1990s. during which the Fund played. 40 . What speaks in favour of this argument is that the IMF has lost sight of its original mission since the beginning of the 1970s and the trend towards flexible exchange rates makes balance of payments crises per definition less likely. but in the medium term. criticism of the IMF has become more vocal.CONCLUSION IMF – Abolish or Reform? Over the past decades. an unfortunate role. Another reason to do away with the IMF would be that the problem of moral hazard would disappear from the world once and for all and there would be greater pressure on governments in developing countries or emerging markets to pursue many of the negative effects of the IMF’s work could be avoided if the institution and its tasks were to undergo fundamental reform. It is therefore expedient to first be clear about the purpose that the Fund could serve to. it would have a more long-lasting effect on raising the standard of living in these countries than having them lurch from one crisis to the next. However.

scribd. World Bank and the WTO Websites 41 .org/external/index.imf.asp http://www.htm Books: The IMF and Economic Development by James Raymond Vreeland Unholy Trinity: http://www.