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

Related Links

• IMF at a Glance
• IMF Annual Report
• IMF Articles of Agreement
• More on globalization
• More on emerging markets
• More on IMF's work in low-income countries

Highlights of this section:

• Key IMF Activities

• Original Aims
• Adapting to Change

With its near-global membership of 186 countries, the IMF is uniquely placed to help
member governments take advantage of the opportunities—and manage the challenges—
posed by globalization and economic development more generally. The IMF tracks
global economic trends and performance, alerts its member countries when it sees
problems on the horizon, provides a forum for policy dialogue, and passes on know-how
to governments on how to tackle economic difficulties.

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

Marked by massive movements of capital and abrupt shifts in comparative advantage,

globalization affects countries' policy choices in many areas, including labor, trade, and
tax policies. Helping a country benefit from globalization while avoiding potential
downsides is an important task for the IMF. The global economic crisis has highlighted
just how interconnected countries have become in today’s world economy.

Key IMF activities

The IMF supports its membership by providing

• policy advice to governments and central banks based on analysis of economic

trends and cross-country experiences;
• research, statistics, forecasts, and analysis based on tracking of global, regional,
and individual economies and markets;
• loans to help countries overcome economic difficulties;
• concessional loans to help fight poverty in developing countries; and
• technical assistance and training to help countries improve the management of
their economies.

IMF and the global financial crisis

• Click here to read about our work in crisis countries

Original aims

The IMF was founded more than 60 years ago toward the end of World War II (see
History). The founders aimed to build a framework for economic cooperation that would
avoid a repetition of the disastrous economic policies that had contributed to the Great
Depression of the 1930s and the global conflict that followed.

Since then the world has changed dramatically, bringing extensive prosperity and lifting
millions out of poverty, especially in Asia. In many ways the IMF's main purpose—to
provide the global public good of financial stability—is the same today as it was when
the organization was established. More specifically, the IMF continues to

• provide a forum for cooperation on international monetary problems

• facilitate the growth of international trade, thus promoting job creation, economic
growth, and poverty reduction;
• promote exchange rate stability and an open system of international payments;
and
• lend countries foreign exchange when needed, on a temporary basis and under
adequate safeguards, to help them address balance of payments problems.

The IMF's way of operating has changed over the years and has undergone rapid change
since the beginning of the 1990s as it has sought to adapt to the changing needs of its
expanding membership in an globalized world economy. Most recently, the IMF's
Managing Director, Dominique Strauss-Kahn, has launched an ambitious reform agenda,
aimed at making sure the IMF continues to deliver the economic analysis and multilateral
consultation that is at the core of its mission—ensuring the stability of the global
monetary system.

Video (11:17) Dan Rather interviews IMF Managing Director, Dominique Strauss-Kahn

An adapting IMF

With cross-border financial flows increasing sharply in recent decades, the

interdependence of countries has deepened (see slideshow on capital inflows). The
turbulence in advanced economy credit markets in 2007-08 has demonstrated that
domestic and international financial stability cannot be taken for granted, even in the
world's wealthiest countries. The spike in food and fuel prices, which has hit import-
dependent poor and middle-income countries particularly hard, is another aspect of the
globalized economy we all are part of.

In response, the IMF has rethought its operations in several ways:

• Enhancing IMF lending facilities. The IMF has upgraded its lending facilities to
enable it to better serve its members. It has created a new Short-Term Liquidity
Facility designed to help emerging market countries with a track record of sound
policies address fallout from the current financial crisis. To make its financial
support more flexible and tailored to the diversity of low-income countries, it has
established a new Poverty Reduction and Growth Trust, which has three new
lending windows. As part of a wide-ranging reform of its lending practices, the
IMF has also redefined the way it engages with countries on issues related to
structural reform of the economy. (See Lending).
• Strengthening the monitoring of global, regional, and country economies.
The IMF has taken several steps to improve economic and financial surveillance,
which is its framework for providing advice to member countries on
macroeconomic policies (see Our Work). It is emphasizing research into the links
between the financial sector and the real economy and the sharing of cross-
country experiences. It has published new guidance on how to analyze and advise
on exchange rates, and is paying more attention to the impact of the world's most
important economies on other countries' economies. And it is improving its ability
to warn member countries of risks and vulnerabilities in their economies.
• Helping resolve global economic imbalances. The IMF's analysis of global
economic developments, contained in its World Economic Outlook, provide
 finance ministers and central bank governors with a common framework for
discussing the global economy. The IMF now also has the ability to call for
multilateral consultations to discuss specific problems facing the global economy
with a select group of countries—an innovative way of facilitating collective
action among key players in the global economy. The first such consultation took
place in 2006. It sought to reduce global payments imbalances and involved
China, the euro area, Japan, Saudi Arabia, and the United States (see Tackling
Current Challenges).
• Analyzing capital market developments.The IMF is devoting more resources to
the analysis of global financial markets and their linkages with macroeconomic
policy. Twice a year, it publishes the Global Financial Stability Report, which
provides up-to-date analysis of developments in global financial markets. IMF
staff also work with member countries to help them identify potential risks to
financial stability, including through the Financial Sector Assessment Program
(described in more detail below). The IMF also offers training to country officials
on how to manage their financial systems, monetary and exchange regimes, and
capital markets. The IMF is currently facilitating the drafting of voluntary
guidelines for Sovereign Wealth Funds and works closely with the Financial
Stability Board to promote international financial stability.
• Assessing financial sector vulnerabilities.Resilient, well-regulated financial
systems are essential for macroeconomic stability in a world of ever-growing
capital flows. The IMF and the World Bank jointly run the Financial Sector
Assessment Program, aimed at alerting countries to vulnerabilities and risks in
their financial sectors. IMF and World Bank staff also advise on how to
strengthen oversight and supervision of banks and other financial institutions.
• Working to cut poverty. At present, more than a billion people are living on less
than $1 a day, and more than three-quarters of a billion people are malnourished.
The IMF's role in low-income countries is changing as these countries grow and
mature. But its central goal remains the same: to help promote economic stability
and growth, laying the ground work for deep and lasting poverty reduction. Its
current main priority is to help low- and middle-income countries cope with the
adverse effects of the global economic crisis. To that effect, it is stepping up
lending to low-income countries to combat the impact of the global recession.
• Improving IMF governance. In May 2008, the IMF's membership approved a
two-year package of reforms to improve representation of members at the Fund.
For the IMF to be fully effective in its role, it must be perceived as representing
all countries in a fair manner. With that in mind, governance reform is being
accelerated to ensure a decision-making structure that reflects current global
realities. The IMF is also becoming leaner and more efficient. It is trimming
expenditures and reorganizing the way it earns revenue to pay for its operations
(See Governance).
• Greater accountability and transparency. The IMF publishes almost all of its
annual economic health checks of member countries, updates about its lending
programs, and a wealth of other information on its website. The IMF's
performance is assessed on a regular basis by an Independent Evaluation Office.
IMF Support For Low-Income Countries

July 29, 2009

As the global financial crisis has swept from developed to developing economies, the
IMF has upgraded its support for low-income countries. New initiatives are expected to
boost concessional IMF lending to $17 billion through 2014. These low interest-rate
loans now come with policy programs that have more flexible conditions. The IMF has
also overhauled its lending instruments, especially to address more directly countries'
needs for short-term and emergency support.

Signs of success

The IMF's support for low-income countries needed an upgrade, first of all, because of
the improved economic conditions in these countries. Many have made great strides
toward macroeconomic stability. In the 1990s, the vast majority of low-income countries
faced long-standing economic problems that required radical, long-term policy changes
often accompanied by debt relief or cancellation.

Now, however, many of these economies are becoming more open and integrated into the
global economy. Low-income countries are joining international capital markets, entering
markets for goods and services, attracting foreign investment, nurturing their own private
financial sectors, and benefiting from money sent home by citizens working abroad.

But with this greater international openness and integration comes greater vulnerability
and exposure to the ups and downs of the global economy. This was highlighted by the
impact that sudden jumps in world food and fuel prices had on several countries'
economies in 2007 and 2008. Spillover from the global financial crisis soon followed. It
was apparent that the new generation of more stable but more vulnerable low-income
countries needed a new generation of IMF loan facilities to support them.

More money

To combat the immediate ill effects on low-income countries of higher commodity prices
and a slumping world economy, top priority for the IMF was making more money
available. A first step was to modify the IMF's main vehicle for helping countries that are
hit by forces outside their control—the Exogenous Shocks Facility. Changes in
September 2008 made this facility easier and more flexible to use, and 13 countries have
already made use of it since then.

Then the IMF doubled its low-income country access limits—the ceilings on how much
each country can borrow from the IMF. And it ramped up its total concessional lending to
these countries, which is now expected to reach $8 billion over 2009–10 and $17 billion
through 2014.
In addition, more than $18 billion of a planned $250 billion allocation of IMF Special
Drawing Rights (SDRs) will go to low-income countries. These countries can benefit by
either counting the SDRs as extra assets in their reserves, or selling their SDRs for hard
currency to meet balance of payments needs.

Changes in lending instruments

To make its financial support more flexible and tailored to the diversity of low-income
countries, the IMF has established a new Poverty Reduction and Growth Trust, which
has three new lending windows. The new windows, which are expected to become
effective later in 2009 when donor countries have given their final consent, are

The Extended Credit Facility (ECF), which replaces the Poverty Reduction and
Growth Facility (PRGF). The ECF

• Provides sustained engagement in case of medium-term balance of payments

needs
• Should be based on a country's' own poverty reduction strategy, and
• Offers more flexible timing requirements than the PRGF for countries to produce
a formal poverty reduction strategy document.

The Standby Credit Facility (SCF), replacing the Exogenous Shocks Facility's High
Access Component, is similar to the Stand-By Arrangement for middle-income countries.
The SCF

• Provides flexible support to low-income countries with short-term financing and

adjustment needs caused by domestic or external shocks, or policy slippages
• Targets countries that no longer face protracted balance of payments problems but
may need help from time to time, and
• Can also be used on a precautionary basis to provide insurance.

The Rapid Credit Facility (RCF), which

• Provides limited financial support in a single, up-front payout for low-income

countries facing urgent financing needs
• Substitutes for a regular IMF loan when use of the other two facilities, which
involve one- to three-year policy programs, is either not necessary or not possible,
and
• Offers highly flexible financing that provides single-use loans that replace the
Exogenous Shocks Facility's Rapid Access Component and the subsidized
Emergency Natural Disaster Assistance; and offers successive drawings for
countries in post-conflict or other fragile situations, replacing and expanding
subsidized Emergency Post-Conflict Assistance.

For policy advice and signaling to donors, countries can request non-financial assistance
under the existing Policy Support Instrument (PSI), which
 • Supports low-income countries that have secured macroeconomic stability and
thus do not need IMF financial assistance, and
• Can provide accelerated access to the new SCF in case of subsequent financial
needs.

Low-income countries will receive exceptional forgiveness through end-2011 on all

interest payments due to the IMF under its concessional lending instruments.

Increased IMF financial support for low-income countries has been joined by changes in
the design and assembly of the agreed policy packages—called programs—that
accompany IMF loans. These changes aim to

• Strengthen the focus on supporting poverty alleviation and growth, for all these
programs
• Protect public spending even as economic downswings cut revenues
• Prioritize national budgets in the direction of spending targeted at the poor, and
• Focus loan conditions on critical areas, such as transparent management of public
resources.
IMF Announces Unprecedented Increase
in Financial Support to Low-Income
Countries
Press Release No. 09/268
July 29, 2009

The Executive Board of the International Monetary Fund (IMF) has approved
unprecedented measures that will sharply increase the resources available to low-income
countries in this time of global crisis. The resources—including from the sale of IMF
gold— are expected to boost the Fund’s concessional lending by up to $17 billion
through 2014, including up to $8 billion over the next two years. In addition, the IMF
announced zero interest payments on outstanding concessional loans through end-2011
for all low-income members. A new set of lending instruments will underpin this
increased support.

“This is an unprecedented scaling up of IMF support for the poorest countries, in Sub-
Saharan Africa and all over the world,” said IMF Managing Director Dominique Strauss-
Kahn. “The G20 asked the Fund to help respond to the global economic crisis, which has
hit the low-income nations so hard, and we are responding with a historic set of actions in
terms of support for the world’s poor. The new resources and new means of delivering
them should help prevent millions of people from falling into poverty.”

As part of its response to the global economic crisis, the IMF has more than doubled its
financial assistance to low-income countries. The new measures represent a significant
additional effort in the coming years. The IMF support package includes:

• Scaled-up concessional financial assistance to low-income countries to boost the

Fund’s concessional lending capacity by up to $17 billion through 2014, including up to
$8 billion in the first two years. This exceeds the G20 call for $6 billion in new lending
over two to three years.

• Interest relief, with zero payments through end-2011 on the IMF’s concessional
facilities to help low-income countries cope with the crisis.

• Permanently higher concessionality of Fund financial support, with a mechanism for

updating interest rates after 2011.

• A new set of financial instruments tailored to the diverse needs of low-income

countries and better suited to meet the crisis challenges:

– the Extended Credit Facility provides flexible medium-term support;

– the Standby Credit Facility addresses short-term and precautionary needs; and

– the Rapid Credit Facility offers emergency support with limited conditionality

In addition, the IMF’s Executive Board recently backed the Managing Director's proposal
for a new general SDR allocation of $250 billion, of which more than $18 billion will
help bolster the foreign exchange reserves of low-income countries. If approved by the
IMF's Board of Governors, the proposed SDR allocation would take place at the end of
August.

In order for the IMF to meet the new financing commitments, additional loan resources
of SDR 9 billion will need to be mobilized from bilateral contributions. In addition, new
subsidy resources of SDR 1.5 billion will need to be mobilized from the IMF’s internal
resources—including from the use of revenue from the envisaged gold sales, and through
bilateral contributions—to help cover the cost of concessional interest rates.

Mr. Strauss-Kahn said that “All this represents a historic effort by the Fund to help the
world’s poor.” He added that there would be greater emphasis in Fund-supported
programs on poverty reduction and growth objectives across all its new lending
instruments, including targets to safeguard social and other priority spending.

The IMF already announced this year a more flexible approach to conditionality in the
programs it supports: structural reform conditions have been streamlined for all Fund-
supported programs. Structural conditionality in medium-term, low-income country
programs will become more flexible and focused on core goals tailored to each country.
IMF-supported programs have also accommodated larger fiscal deficits during the crisis
in most low-income countries.

“Since the crisis hit, we have been listening and responding to our member countries,”
said Mr. Strauss-Kahn. “The scaling up of the IMF’s support not only will help these
low-income countries weather a crisis that is not of their making. Once the crisis has
passed, it also will pave the way for progress in the battle against poverty.”
Statement by the IMF Mission on the
2009 Article IV Consultations for the
Islamic Republic of Mauritania and
Discussions on a PRGF-Supported
Program
Press Release No. 09/468
December 17, 2009

An IMF mission headed by Mr. Boileau Loko visited Nouakchott from December 2 to
17, 2009 to carry out the 2009 Article IV consultations and to discuss a new three-year
arrangement supported by the Poverty Reduction and Growth Facility (PRGF). The
mission held talks with the Prime Minister, Dr. Moulaye Ould Mohamed Laghdhaf, the
Minister of Finance, Mr. Ousmane Kane; the Minister of Economic Affairs and
Development, Mr. Sidi Ould Tah; the Governor of the Central Bank, Mr. Sid’Áhmed
Ould Raiss, as well as with other members of government. In addition, the mission met
with other senior economic and financial policymakers, members of parliament, and
representatives of the diplomatic, banking, and business communities.

At the end of the mission, Mr. Loko, IMF Mission Chief for Mauritania, issued the
following statement:

“In the context of the Article IV consultations, the mission reviewed recent economic and
financial developments, and the challenges facing the Mauritanian economy. Non-oil
gross domestic product (GDP) contracted in 2009 on the back of the international crisis
and the decline in the prices of iron, Mauritania’s main export commodity. These trends,
coupled with a slowdown in oil production, have caused a decline in revenues and a
relatively high budget deficit.

“Falling international food prices and prudent monetary policy allowed inflation to
decrease from 7.3 percent in 2008 to 2 percent in 2009. At end-November 2009, the
foreign exchange reserves of the Central Bank of Mauritania (BCM) have reached 2.5
months of imports of goods and services.

“Discussions focused on policies to strengthen the economy’s resiliency to exogenous

shocks and to create the conditions for higher economic growth in order to overcome
unemployment and reduce poverty. The mission and the authorities share the view that
these challenges should be addressed through fiscal consolidation efforts, continued
prudent monetary policy, and accelerated structural reforms, particularly in public
financial management (PFM) and in the financial sector. Improving the business climate
and strengthening social policies are also crucial for achieving strong and sustained
growth and thereby reducing poverty.

“The second objective of the mission addressed the content and the implementation of the
reform program. Discussions focused on the path of fiscal consolidation, the PFM reform
program, modernizing monetary policy instruments, developing the financial system, and
improving the business climate.

“The Mauritanian government and the IMF mission reached an agreement, ad

referendum, on a macroeconomic and structural program covering the period 2010-12,
which could be supported by the PRGF. The program’s medium-term objectives include
raising the non-oil GDP growth to an average of 5 percent; maintaining inflation below 5
percent; bringing down the non-oil basic deficit from 6.8 percent to 1.3 percent of non-oil
GDP; and accumulating foreign exchange reserves to the equivalent of 3 months of
imports by the end of the program. For 2010, the program aims to achieve non-oil growth
of 5.2 percent, decrease the non-oil basic deficit to 3.9 percent of non-oil GDP, and keep
inflation around 4 percent.

“The government’s request for a new program will be submitted to the IMF Executive
Board in early 2010.”

The mission wishes to thank the authorities for their warm hospitality and cooperation.
IMF Staff and Jamaica Reach Broad
Agreement on the Key Elements of
US$1.3 Billion Loan
Press Release No. 09/467
December 17, 2009

Mr. Trevor Alleyne, chief of an International Monetary Fund (IMF) mission to Jamaica,
issued the following statement today in Kingston:

“The Jamaican authorities and an IMF staff mission have reached agreement on the key
elements of a program that the IMF would support with a loan under a Stand-By
Arrangement (SBA). We will remain in close contact with the authorities over the
coming days as they finalize their economic program in a Letter of Intent, which would
then be reviewed by IMF management. The current timetable envisages that the IMF’s
Executive Board would consider Jamaica’s SBA early in the new year. The SBA under
discussion is for a SDR 802.5 million (about US$1.3 billion) over 27 months.

“The program’s main goal is to address the country’s economic imbalances and put
Jamaica on a path of sustainable growth. The program with the IMF is also expected to
catalyze significant additional financing from other international institutions.

“Jamaica has been hard hit by the global economic crisis, in particular through a sharp
decline in bauxite and alumina output, a fall in remittances and a slowdown in tourism
revenues. The economy is expected to shrink by around 3.3 percent in 2009.

“The program seeks to resolve the problem of an unsustainable debt position currently at
over 130 percent of GDP and other weaknesses in the economy. Key to its success will
be implementing a credible medium-term fiscal framework and a pro-active debt
management strategy to put the debt-to-GDP ratio on a clear downward path.

“This involves a coordinated set of fiscal reforms to: (i) strengthen public finances,
including through new fiscal responsibility legislation; (ii) reform public enterprises and
public sector employment; and (iii) make the tax structure more efficient.

“Measures could include a mixture of controls on public sector salaries, some tax
increases, as well as cuts in other spending.

“At the same time, the program allows for an increase in social safety net spending to
protect the most vulnerable, in particular a 50 percent rise in the budget of the PATH
(Program of Advancement through Health and Education) cash transfer and the school
feeding programs. In addition, General Consumption Tax (GCT) exemptions on rice and
counter flour will be maintained.
“Additional reforms are envisaged to strengthen the resilience of the financial sector.”

Jamaica, which became a member of the IMF on February 21, 1963, has a current IMF
quota of SDR273.50 million (about US$ 434 million).

For additional information on Jamaica and the IMF see:

www.imf.org/external/country/JAM/index.htm