SUMMARY

The International Monetary Fund (IMF) is an international organization that was initiated in
1944 at the Bretton Woods Conference and forally created in 194! "y #9 e"er countries$
The IMF%s stated goal was to assist in the reconstruction of the world%s international &ayent
syste &ost'World War II$ Countries contri"ute oney to a &ool through a (uota syste fro
which countries with &ayent i"alances can "orrow funds te&orarily$ Through this acti)ity
and others such as sur)eillance of its e"ers% econoies and the deand for self*correcting
&olicies+ the IMF wor,s to i&ro)e the econoies of its e"er countries$
The IMF descri"es itself as -an organization of 1.. countries+ wor,ing to foster glo"al onetary
coo&eration+ secure financial sta"ility+ facilitate international trade+ &roote high e&loyent
and sustaina"le econoic growth+ and reduce &o)erty around the world$/ The organization%s
stated o"0ecti)es are to &roote international econoic co*o&eration+ international trade+
e&loyent+ and e1change rate sta"ility+ including "y a,ing financial resources a)aila"le to
e"er countries to eet "alance of &ayents needs$ Its head(uarters are in Washington+ 2$C$+
3nited 4tates$
3&on initial IMF foration+ its two &riary functions were5 to o)ersee the fi1ed e1change rate
arrangeents "etween countries+ thus hel&ing national go)ernents anage their e1change rates
and allowing these go)ernents to &rioritize econoic growth and to &ro)ide short*ter ca&ital
to aid "alance*of*&ayents$ This assistance was eant to &re)ent the s&read of international
1
econoic crises$ The Fund was also intended to hel& end the &ieces of the international
econoy &ost the 6reat 2e&ression and World War II$
HISTORY
The International Monetary Fund was originally laid out as a &art of the Bretton Woods syste
e1change agreeent in 1944$2uring the earlier 6reat 2e&ression+ countries shar&ly raised
"arriers to foreign trade in an atte&t to i&ro)e their failing econoies$ This led to the
de)aluation of national currencies and a decline in world trade$
This "rea,down in international onetary co*o&eration created a need for o)ersight$ The
re&resentati)es of 4! go)ernents et at the Bretton Woods Conference in the Mount
Washington 7otel in the area of Bretton Woods+ 8ew 7a&shire in the 3nited 4tates+ to discuss
fraewor, for &ost*World War II international econoic co*o&eration$ The &artici&ating
countries were concerned with the re"uilding of 9uro&e and the glo"al econoic syste after the
war$
2
There were two )iews on the role the IMF should assue as a glo"al econoic institution$
British econoist :ohn Maynard ;eynes iagined that the IMF would "e a coo&erati)e fund
u&on which e"er states could draw to aintain econoic acti)ity and e&loyent through
&eriodic crises$ This )iew suggested an IMF that hel&ed go)ernents and to act as the 34
go)ernent had during the 8ew 2eal in res&onse to World War II$ The International Monetary
Fund forally cae into e1istence on #< 2ece"er 194!+ when the first #9 countries ratified its
=rticles of =greeent$ By the end of 194> the Fund had grown to ?9 e"ers$ @n 1 March
194<+ the IMF "egan its financial o&erations+ and on . May France "ecae the first country to
"orrow fro it$
The IMF was one of the ,ey organizations of the international econoic systeA its design
allowed the syste to "alance the re"uilding of international ca&italis with the a1iization of
national econoic so)ereignty and huan welfare+ also ,nown as e"edded li"eralis$
B#9C
The
IMF%s influence in the glo"al econoy steadily increased as it accuulated ore e"ers$ The
3
increase reflected in &articular the attainent of &olitical inde&endence "y any =frican
countries and ore recently the 1991 dissolution of the 4o)iet 3nion "ecause ost countries in
the 4o)iet s&here of influence did not 0oin the IMF$
The Bretton Woods syste &re)ailed until 19<1+ when the 34 go)ernent sus&ended the
con)erti"ility of the 34D (and dollar reser)es held "y other go)ernents) into gold$ This is
,nown as the 8i1on 4hoc,$
B#4C
=s of :anuary #E1#+ the largest "orrowers fro the fund in order
are 6reece+ Fortugal+ Ireland+ Goania and 3,raine$
4
BENEFITS
The loan conditions ensure that the "orrowing country will "e a"le to re&ay the Fund and that the
country won%t atte&t to sol)e their "alance of &ayent &ro"les in a way that would negati)ely
i&act the international econoy$ The incenti)e &ro"le of oral hazard+ which is the actions
of econoic agents a1iizing their own utility to the detrient of others when they do not "ear
the full conse(uences of their actions+ is itigated through conditions rather than &ro)iding
collateralA countries in need of IMF loans do not generally &ossess internationally )alua"le
collateral anyway$
Conditionality also reassures the IMF that the funds lent to the will "e used for the &ur&oses
defined "y the =rticles of =greeent and &ro)ides safeguards that country will "e a"le to rectify
its acroeconoic and structural i"alances$ In the 0udgent of the Fund+ the ado&tion "y the
e"er of certain correcti)e easures or &olicies will allow it to re&ay the Fund+ there"y
ensuring that the sae resources will "e a)aila"le to su&&ort other e"ers$
=s of #EE4+ "orrowing countries ha)e had a )ery good trac, record for re&aying credit e1tended
under the Fund%s regular lending facilities with full interest o)er the duration of the loan$ This
indicates that Fund lending does not i&ose a "urden on creditor countries+ as lending countries
recei)e ar,et*rate interest on ost of their (uota su"scri&tion+ &lus any of their own*currency
su"scri&tions that are loaned out "y the Fund+ &lus all of the reser)e assets that they &ro)ide the
Fund$
5
CRITICISMS
In soe (uarters+ the IMF has "een criticized for "eing %out of touch% with local econoic
conditions+ cultures+ and en)ironents in the countries they are re(uiring &olicy refor$
B>C
The
Fund ,nows )ery little a"out what &u"lic s&ending on &rogras li,e &u"lic health and education
actually eans+ es&ecially in =frican countriesA they ha)e no feel for the i&act that their
&ro&osed national "udget will ha)e on &eo&le$ The econoic ad)ice the IMF gi)es ight not
always ta,e into consideration the difference "etween what s&ending eans on &a&er and how it
is felt "y citizens$
The )iew is that conditionality underines doestic &olitical institutions$ The reci&ient
go)ernents are sacrificing &olicy autonoy in e1change for funds+ which can lead to &u"lic
resentent of the local leadershi& for acce&ting and enforcing the IMF conditions$ Folitical
insta"ility can result fro ore leadershi& turno)er as &olitical leaders are re&laced in electoral
"ac,lashes$
B>C
IMF conditions are often criticized for their "ias against econoic growth and
reduce go)ernent ser)ices+ thus increasing une&loyent$
=nother criticis is that IMF &rogras are only designed to address &oor go)ernance+ e1cessi)e
go)ernent s&ending+ e1cessi)e go)ernent inter)ention in ar,ets+ and too uch state
ownershi&$
B1.C
This assues that this narrow range of issues re&resents the only &ossi"le
&ro"lesA e)erything is standardized and differing conte1ts are ignored$ = country ay also "e
co&elled to acce&t conditions it would not norally acce&t had they not "een in a financial
crisis in need of assistance$
6
MEMBER COUNTRIES
The 1.. e"ers of the IMF include 1.< e"ers of the 38 and the Ge&u"lic of ;oso)o
$
=ll
e"ers of the IMF are also International Ban, for Geconstruction and 2e)elo&ent (IBG2)
e"ers and )ice )ersa$ Forer e"ers are Cu"a (which left in 19>4) and the Ge&u"lic of
China+ which was e0ected fro the 38 in 19.E after losing the su&&ort of then 34 Fresident
:iy Carter and was re&laced "y the Feo&le%s Ge&u"lic of China$ 7owe)er+ HTaiwan Fro)ince
of ChinaH is still listed in the official IMF indices$ =&art fro Cu"a+ the other 38 states that do
not "elong to the IMF are =ndorra+ Iiechtenstein+ Monaco+ 8auru and 8orth ;orea$ The forer
Czechoslo)a,ia was e1&elled in 19!4 for Hfailing to &ro)ide re(uired dataH and was readitted
in 199E+ after the Jel)et Ge)olution$ Foland withdrew in 19!EKallegedly &ressured "y the
4o)iet 3nionK"ut returned in 19.>$
7
QUALIFICATIONS
=ny country ay a&&ly to "e a &art of the IMF$ Fost*IMF foration+ in the early &ostwar &eriod+
rules for IMF e"ershi& were left relati)ely loose$ Me"ers needed to a,e &eriodic
e"ershi& &ayents towards their (uota+ to refrain fro currency restrictions unless granted
IMF &erission+ to a"ide "y the Code of Conduct in the IMF =rticles of =greeent+ and to
&ro)ide national econoic inforation$ 7owe)er+ stricter rules were i&osed on go)ernents
that a&&lied to the IMF for funding
$
The countries that 0oined the IMF "etween 194! and 19<1 agreed to ,ee& their e1change rates
secured at rates that could "e ad0usted only to correct a Hfundaental dise(uili"riuH in the
"alance of &ayents+ and only with the IMF%s agreeent$
8
LEADERSHIP
Board of Governor:
The Board of 6o)ernors consists of one go)ernor and one alternate go)ernor for each e"er
country$ 9ach e"er country a&&oints its two go)ernors$ The Board norally eets once a
year and is res&onsi"le for electing or a&&ointing e1ecuti)e directors to the 91ecuti)e Board$
The Board of 6o)ernors is ad)ised "y the International Monetary and Financial Coittee and
the 2e)elo&ent Coittee$ The International Monetary and Financial Coittee has #4
e"ers and onitors de)elo&ents in glo"al li(uidity and the transfer of resources to
de)elo&ing countries$ The 2e)elo&ent Coittee has #! e"ers and ad)ises on critical
de)elo&ent issues and on financial resources re(uired to &roote econoic de)elo&ent in
de)elo&ing countries$ They also ad)ise on trade and glo"al en)ironental issues
$
Exe!"#ve Board:
#4 91ecuti)e 2irectors a,e u& 91ecuti)e Board$ The 91ecuti)e 2irectors re&resent all 1..
e"er*countries$ Countries with large econoies ha)e their own 91ecuti)e 2irector+ "ut ost
countries are grou&ed in constituencies re&resenting four or ore countries$
Following the #EE. =endent on Joice and Fartici&ation+ eight countries each a&&oint an
91ecuti)e 2irector5 the 3nited 4tates+ :a&an+ 6erany+ France+ the 3nited ;ingdo+ China+ the
Gussian Federation+ and 4audi =ra"ia$ The reaining 1> 2irectors re&resent constituencies
consisting of 4 to ## countries$ The 91ecuti)e 2irector re&resenting the largest constituency of
## countries accounts for 1$!!L of the )ote$
9
Mana$#n$ D#re"or:
The IMF is led "y a anaging director+ who is head of the staff and ser)es as Chairan of the
91ecuti)e Board$ The anaging director is assisted "y a First 2e&uty anaging director and
three other 2e&uty Managing 2irectors$ 7istorically the IMF%s anaging director has "een
9uro&ean and the &resident of the World Ban, has "een fro the 3nited 4tates$ 7owe)er+ this
standard is increasingly "eing (uestioned and co&etition for these two &osts ay soon o&en u&
to include other (ualified candidates fro any &art of the world
$
In #E11 the world%s largest de)elo&ing countries+ the BGIC nations+ issued a stateent declaring
that the tradition of a&&ointing a 9uro&ean as anaging director underined the legitiacy of
the IMF and called for the a&&ointent to "e erit*"ased$ The head of the IMF%s 9uro&ean
de&artent is =ntonio Borges of Fortugal+ forer de&uty go)ernor of the Ban, of Fortugal$ 7e
was elected in @cto"er #E1E$
%o"#n$ Po&er:
Joting &ower in the IMF is "ased on a (uota syste$ 9ach e"er has a nu"er of H"asic )otesH
(each e"er%s nu"er of "asic )otes e(uals !$!E#L of the total )otes)+ &lus one additional )ote
for each 4&ecial 2rawing Gight (42G) of 1EE+EEE of a e"er country%s (uota$ The 4&ecial
2rawing Gight is the unit of account of the IMF and re&resents a clai to currency$ It is "ased on
a "as,et of ,ey international currencies$ The "asic )otes generate a slight "ias in fa)our of sall
countries+ "ut the additional )otes deterined "y 42G outweigh this "ias$
10
11
IMF ' GLOBALI(ATION
6lo"alization enco&asses three institutions5 glo"al financial ar,ets and transnational
co&anies+ national go)ernents lin,ed to each other in econoic and ilitary alliances led "y
the 34+ and rising Hglo"al go)ernentsH such as World Trade @rganization (WT@)+ IMF+ and
World Ban,$ Charles 2e"ar argues in his "oo, Feo&le "efore Frofit+ HThese interacting
institutions create a new glo"al &ower syste where so)ereignty is glo"alized+ ta,ing &ower and
constitutional authority away fro nations and gi)ing it to glo"al ar,ets and international
"odies$H Titus =le1ander argues that this syste institutionalizes glo"al ine(uality "etween
western countries and the Ma0ority World in a for of glo"al a&artheid+ in which the IMF is a
,ey &illar$
The esta"lishent of glo"alised econoic institutions has "een "oth a sy&to of and a
stiulus for glo"alization$ The de)elo&ent of the World Ban,+ the IMF regional de)elo&ent
"an,s such as the 9uro&ean Ban, for Geconstruction and 2e)elo&ent (9BG2)+ and+ ore
recently+ ultilateral trade institutions such as the WT@ indicates the trend away fro the
doinance of the state as the e1clusi)e unit of analysis in international affairs$ 6lo"alization has
thus "een transforati)e in ters of a reconce&tualizing of state so)ereignty
34 Fresident Bill Clinton%s adinistration%s aggressi)e financial deregulation ca&aign in the
199Es+ glo"alization leaders o)erturned long*standing restrictions "y go)ernents that liited
foreign ownershi& of their "an,s+ deregulated currency e1change+ and eliinated restrictions on
how (uic,ly oney could "e withdrawn "y foreign in)estors$
12
OB)ECTI%ES
Consultation and colla"oration on international onetary &ro"les$
Maintenance of high le)el e&loyent and real incoe$
Froote e1change sta"ility and a)oid co&etiti)e e1change de&reciation$
9sta"lish ultilateral syste of &ayents and eliinate foreign e1change restrictions$
6i)e confidence to e"ers through fund su&&lies shorten the dise(uili"ria in "alance of
&ayents$
The IMF holds a relatively large amount of gold among its assets, not only for
reasons of financial soundness, but also to meet unforeseen contingencies. The
IMF holds a"out #+.14 etric tons+ of gold at designated de&ositories$ The IMF%s
holdings aount to a"out D1>E "illion$
FUNCTIONS
Ge)iewing and onitoring glo"al financial de)elo&ents$
Iending hard currencies and refor &olicies to &roote sustaina"le growth$
13
@ffering wide range of technical assistance and training for go)ernent and central "an,
officials$
Wor,ing with its e"er go)ernents+ international organizations+ regulatory "odies and
&ri)ate sector to strengthen financial syste$
Ma,e assessent of e"er countries to identify actual and &otential wea,ness I&ro)e
regulatory standards$
Fre&aration of re&orts &u"lishing inforation
ORGANISATIONAL STRUCTURE
Cen"ra* off#e:

In Washington =utonoous "ody affiliated to 38@ 7ighest authority* Board go)ernors of each
e"er countries* also &olicy a,ing "odies Meets once a years$
Da+ "o da+ de#,#on -a.#n$:
91ecuti)e "oard International onetary and financial coittee* #4 go)ernors re&resenting
grou& of countries* eet twice a year* discuss ,ey &olicy issues of IMF :oint coittee of IMF
14
M world "an, called de)elo&ent coittee ad)ises and re&orts to go)ernors on de)elo&ental
issues concerning de)elo&ing countries$
15
FINANCIAL ORGANISATIONS
Re,o!re,:
Nuota of e"er countries and su&&leent "orrowings$
Q!o"a,:
4u"scri&tion "y e"er countries to ca&ital fund *fi1ed for each country "ased on econoic
size *fors the "asis for deciding 42Gs+ )oting &ower+ and share in allocation of 42Gs *#!L of
countries (uota should "e &aid in goldO34 dollars *<!L in own currency *re)iewed at inter)als of
!years$ The ore &owerful the country the larger the (uota *e"er country can draw to eet
B@F deficits$
The IMF wor,s to foster glo"al growth and econoic sta"ility$ It &ro)ides &olicy ad)ice and
financing to e"ers in econoic difficulties and also wor,s with de)elo&ing nations to hel&
the achie)e acroeconoic sta"ility and reduce &o)erty$ The rationale for this is that &ri)ate
international ca&ital ar,ets function i&erfectly and any countries ha)e liited access to
financial ar,ets$ 4uch ar,et i&erfections+ together with "alance of &ayents financing+
&ro)ide the 0ustification for official financing+ without which any countries could only correct
large e1ternal &ayent i"alances through easures with ad)erse effects on "oth national and
international econoic &ros&erity$ The IMF can &ro)ide other sources of financing to countries
in need that would not "e a)aila"le in the a"sence of an econoic sta"ilization &rogra
su&&orted "y the Fund$
16
The IMF%s role was fundaentally altered after the floating e1change rates &ost 19<1$ It shifted
to e1aining the econoic &olicies of countries with IMF loan agreeents to deterine if a
shortage of ca&ital was due to econoic fluctuations or econoic &olicy$ The IMF also
researched what ty&es of go)ernent &olicy would ensure econoic reco)ery$ The new
challenge is to &roote and i&leent &olicy that reduces the fre(uency of crises aong the
eerging ar,et countries+ es&ecially the iddle*incoe countries that are o&en to assi)e
ca&ital outflows$ Gather than aintaining a &osition of o)ersight of only e1change rates+ their
function "ecae one of -sur)eillance/ of the o)erall acroeconoic &erforance of its e"er
countries$ Their role "ecae a lot ore acti)e "ecause the IMF now anages econoic &olicy
instead of 0ust e1change rates$
17
SUR%IELLENCE TO GLOBAL ECONOMY
The IMF is andated to o)ersee the international onetary and financial syste and onitor the
econoic and financial &olicies of its 1.. e"er countries$ This acti)ity is ,nown as
sur)eillance and facilitates international co*o&eration$ 4ince the deise of the Bretton Woods
syste of fi1ed e1change rates in the early 19<Es+ sur)eillance has e)ol)ed largely "y way of
changes in &rocedures rather than through the ado&tion of new o"ligations$ The res&onsi"ilities
of the Fund changed fro those of guardian to those of o)erseer of e"ersP &olicies$
The Fund ty&ically analyses the a&&ro&riateness of each e"er countryPs econoic and
financial &olicies for achie)ing orderly econoic growth+ and assesses the conse(uences of these
&olicies for other countries and for the glo"al econoy$
In 199! the International Monetary Fund "egan wor, on data disseination standards with the
)iew of guiding IMF e"er countries to disseinate their econoic and financial data to the
&u"lic$ The International Monetary and Financial Coittee (IMFC) endorsed the guidelines for
the disseination standards and they were s&lit into two tiers5 The 6eneral 2ata 2isseination
4yste (6224) and the 4&ecial 2ata 2isseination 4tandard (4224)$
The &riary o"0ecti)e of the 6224 is to encourage IMF e"er countries to "uild a fraewor,
to i&ro)e data (uality and increase statistical ca&acity "uilding$ 3&on "uilding a fraewor,+ a
country can e)aluate statistical needs+ set &riorities in i&ro)ing the tieliness+ trans&arency+
relia"ility and accessi"ility of financial and econoic data$ 4oe countries initially used the
6224+ "ut later u&graded to 4224$
18
GOOD GO%ERNANCE/ IMF0S ROLE
6ood go)ernance is i&ortant for countries at all stages of de)elo&ent$ $ $ $ @ur a&&roach is to
concentrate on those as&ects of good go)ernance that are ost closely related to our sur)eillance
o)er acroeconoic &olicies$
The International Monetary Fund has long &ro)ided ad)ice and technical assistance that has
hel&ed to foster good go)ernance+ such as &rooting &u"lic sector trans&arency and
accounta"ility$ Traditionally the IMFPs ain focus has "een on encouraging countries to correct
acroeconoic i"alances+ reduce inflation+ and underta,e ,ey trade+ e1change+ and other
ar,et refors needed to i&ro)e efficiency and su&&ort sustained econoic growth$ While
these reain its first order of "usiness in all its e"er countries+ increasingly the IMF has
found that a uch "roader range of institutional refors is needed if countries are to esta"lish
and aintain &ri)ate sector confidence and there"y lay the "asis for sustained growth$
Mirroring the greater i&ortance the e"ershi& of the IMF &laces on this atter+ the
declaration Fartnershi& for 4ustaina"le 6lo"al 6rowth that was ado&ted "y the IMFPs Interi
Coittee at its eeting in Washington on 4e&te"er #9+ 199>+ identified H&rooting good
go)ernance in all its as&ects+ including ensuring the rule of law+ i&ro)ing the efficiency and
accounta"ility of the &u"lic sector+ and tac,ling corru&tionH as an essential eleent of a
fraewor, within which econoies can &ros&er$ The IMFPs 91ecuti)e Board then et a nu"er
of ties to de)elo& guidance for the IMF regarding go)ernance issues$
19
The 6uidance 8ote re&rinted in this &a&hlet+ ado&ted "y the Board in :uly 199<+ reflects the
strong consensus aong 91ecuti)e 2irectors on the significance of good go)ernance for
econoic efficiency and growth$ The IMFPs role in these issues has "een e)ol)ing &ragatically
as ore was learned a"out the contri"ution that greater attention to go)ernance issues could
a,e to acroeconoic sta"ility and sustaina"le growth$ 91ecuti)e 2irectors were strongly
su&&orti)e of the role the IMF has "een &laying in this area in recent years$ They also
e&hasized that the IMFPs in)ol)eent in go)ernance should "e liited to its econoic as&ects$
Ta,ing into account lessons fro e1&erience and the 91ecuti)e BoardPs discussions+ the
guidelines see, to &roote greater attention "y the IMF to go)ernance issues+ in &articular
through5
= ore co&rehensi)e treatent in the conte1t of "oth =rticle IJ consultations and
IMF*su&&orted &rogras of those go)ernance issues within the IMFPs andate and e1&ertiseA
= ore &roacti)e a&&roach in ad)ocating &olicies and the de)elo&ent of institutions and
adinistrati)e systes that eliinate the o&&ortunity for "ri"ery+ corru&tion+ and fraudulent
acti)ity in the anageent of &u"lic resourcesA
=n e)enhanded treatent of go)ernance issues in all e"er countriesA and
9nhanced colla"oration with other ultilateral institutions+ in &articular the World Ban,+
to a,e "etter use of co&leentary areas of e1&ertise$
20
ROLE OF IMF IN GO%ERNMENT ISSUES
1$ Geflecting the increased significance that e"er countries attach to the &rootion of good
go)ernance+ on :anuary 1!+ 199<+ the 91ecuti)e Board held a &reliinary discussion on the role
of the IMF in go)ernance issues+ followed "y a discussion on May 14+ 199<+ on guidance to the
staff$
1
The discussions re)ealed a strong consensus aong 91ecuti)e 2irectors on the i&ortance
of good go)ernance for econoic efficiency and growth$ It was o"ser)ed that the IMFPs role in
these issues had "een e)ol)ing &ragatically as ore was learned a"out the contri"ution that
greater attention to go)ernance issues could a,e to acroeconoic sta"ility and sustaina"le
growth in e"er countries$ 2irectors were strongly su&&orti)e of the role the IMF has "een
&laying in this area in recent years through its &olicy ad)ice and technical assistance$
#$ The IMF contri"utes to &rooting good go)ernance in e"er countries through different
channels$ First+ in its &olicy ad)ice+ the IMF has assisted its e"er countries in creating
systes that liit the sco&e for ad hoc decision a,ing+ for rent see,ing+ and for undesira"le
&referential treatent of indi)iduals or organizations$ To this end+ the IMF has encouraged+
aong other things+ li"eralization of the e1change+ trade+ and &rice systes+ and the eliination
of direct credit allocation$ 4econd+ IMF technical assistance has hel&ed e"er countries in
enhancing their ca&acity to design and i&leent econoic &olicies+ in "uilding effecti)e
&olicya,ing institutions+ and in i&ro)ing &u"lic sector accounta"ility$
21
Third+ the IMF has &rooted trans&arency in financial transactions in the go)ernent "udget+
central "an,+ and the &u"lic sector ore generally+ and has &ro)ided assistance to i&ro)e
accounting+ auditing+ and statistical systes$ In all these ways+ the IMF has hel&ed countries to
i&ro)e go)ernance+ to liit the o&&ortunity for corru&tion+ and to increase the li,elihood of
e1&osing instances of &oor go)ernance$ In addition+ the IMF has addressed s&ecific issues of
&oor go)ernance+ including corru&tion+ when they ha)e "een 0udged to ha)e a significant
acroeconoic i&act$
?$ Building on the IMFPs &ast e1&erience in dealing with go)ernance issues and ta,ing into
account the two 91ecuti)e Board discussions+ the following guidelines see, to &ro)ide greater
attention to IMF in)ol)eent in go)ernance issues+ in &articular through5
a ore co&rehensi)e treatent in the conte1t of "oth =rticle IJ consultations and IMF*
su&&orted &rogras of those go)ernance issues that are within the IMFPs andate and
e1&ertiseA
a ore &roacti)e a&&roach in ad)ocating &olicies and the de)elo&ent of institutions and
adinistrati)e systes that ai to eliinate the o&&ortunity for rent see,ing+ corru&tion+ and
fraudulent acti)ityA
an e)enhanded treatent of go)ernance issues in all e"er countriesA and
9nhanced colla"oration with other ultilateral institutions+ in &articular the World Ban,+
to a,e "etter use of co&leentary areas of e1&ertise$
22
The IMFs Role in the Post Breton Woods era: externalites and public goods?
The decades following the "rea,down of the &ar )alue syste in 19<? witnessed a sea
change in the international en)ironent fro that en)isioned "y the architects of the Bretton
Woods syste$ The &ar )alue syste was gone and with it the IMFPs ain function as the u&ire
of the rules of the gae of that syste$ In the new en)ironent+ e"er countries could freely
choose their e1change rate arrangeentsK&egged e1change rates to secure the "enefits of a
noinal anchor and onetary and fiscal disci&line+ or floating rates for &olicy inde&endence and
insulation fro e1ternal shoc,s$ The o)e "y ost ad)anced countries towards floating+ which
in theory at least &ro)ided &olicy inde&endence and a reduced need for international reser)es+
eant that the only role seeingly left for the Fund was sur)eillance designed to achie)e
res&onsi"le e1change rate &olicies under the aended =rticle IJ$ The IMF &ro)ided inforation
and &olicy ad)ice+ and acted as a ediu for &olicy coordination$
= second de)elo&ent that had &rofound i&lications for the IMF was the increasing
integration of the world econoy$ This reflected a reduction in trade and trans&ortation costs
and es&ecially financial integration$ The draatic o&ening u& of &ri)ate international ca&ital
ar,ets+ which had "een su&&ressed through the Bretton Woods years "y IMF sanctioned ca&ital
controls+ i&lied that &ri)ate ca&ital could su"stitute for official financing of &ayents
i"alances$ This indeed "ecae the case for the ad)anced countries$
23
INTERNATIONAL POLITICS AND IMF
It reains to e1aine a final+ and contro)ersial+ area+ in which the IMF has undou"tedly
&layed a role which has "een useful for the general national interest of the 3nited 4tates+ "ut
which ay on occasion lead to conflict with the ore narrowly concei)ed econoic rationale for
the IMF$ What are the general &olitical and security i&lications of the e1istence of an
institution such as the IMFQ
The IMF was originally largely a creation of the 3nited 4tates+ oti)ated "y the "elief
that * as Treasury 4ecretary Morgenthau &ut it when addressing the inaugural session of the
Bretton Woods conference * HFros&erity+ li,e &eace is indi)isi"le$ We cannot afford to ha)e it
scattered here or there aong the fortunate or to en0oy it at the e1&ense of others$H
1
The
institution was a way of &ro0ecting a &articular way of thin,ing a"out the world$ Behind this
thin,ing lay the calculation that a ore &ros&erous world would also "e a safer world+ and that
the transition to such sta"ility was well worth &aying a liited financial &rice$
4ince the colla&se of counis+ the "asic )ision of Bretton Woods has "ecoe a atter
of a glo"al consensus$ In the 199EPs+ a wides&read recognition de)elo&ed that econoic sta"ility
and &olitical sta"ility go together$
#
But this lin,age is inter&reted uch ore &recisely than at the
tie of Bretton Woods5 this eans a o)e toward the ar,et and at the sae tie o)es toward
1
2
24
deocracy and accounta"le institutions$ It is in the interest of the 3nited 4tates to &roote this
de)elo&ent$
The colla&se of the counist econoies+ or (in the case of China) their transforation
into ar,et econoies was the last stage in the creation of the new consensus$ The conse(uence
has "een an increasing hoogeneity of &olitical outloo,+ as well as of the econoic order$
Indeed+ one ,ey insight is that the two are lin,ed5 that econoic efficiency de&ends on a
functioning ci)il society+ on the rule of law+ and on res&ect for &ri)ate &ro&erty$ Thus in the
199EPs+ the IMF (and the World Ban,) ha)e "ecoe intensely concerned with &ro"les of
go)ernance$
4uch issues raise (uestions of &olitical costs and liitations that ay not always coincide
with econoic rationality+ howe)er$ There is a strategic or geo*&olitical eleent to soe of the
wor, of the Fund$ =ttac,ing e1cessi)e ilitary e1&enditure+ corru&tion+ and undeocratic
&ractices is easier for international institutions in the cases of sall countries+ such as Croatia+
;enya or Goania+ or e)en in isolated states such as Fa,istan or 8igeria$ But it is li,ely to "e
hard and contro)ersial in large states with su"stantial ilitary and econoic &otential+ for
instance+ in say Gussia or China$ The &u"lic &osition is that e1&ressed "y the IMFPs Managing
2irector when he recalls telling Fresident Reltsin that the IMF would treat Gussia in e1actly the
sae way it treated Bur,ina Faso$
?
But Gussia+ and its strategic sta"ility+ is clearly of direct
concern to the 3nited 4tates+ and to other a0or countries+ in a way that Bur,ina Faso is not$
3
25
2uring the Cold War era+ there was &olitical &ressure fro the international counity
(i$e$ the West) to su&&ort financially &articular states for foreign &olicy reasons+ "ecause they
were essential to the sta"ility of a &articular region (9gy&t+ or Saire)$
IMF/E%ALUIATING THE PERFORMANCE OF INTERNATIONAL
ORGANISATON
=n organizational assessent is a systeatic &rocess for o"taining )alid inforation a"out the
&erforance of an organization and the factors that affect &erforance$ It differs fro other
ty&es of e)aluations "ecause the assessent focuses on the organization as the &riary unit of
analysis$
@rganizations are constantly trying to ada&t+ sur)i)e+ &erfor and influence$ 7owe)er+ they are
not always successful$ To "etter understand what they can or should change to i&ro)e their
a"ility to &erfor+ organizations can conduct organizational assessents$ This diagnostic tool
can hel& organizations o"tain useful data on their &erforance+ identify i&ortant factors that aid
or i&ede their achie)eent of results+ and situate thesel)es with res&ect to co&etitors$
Interestingly+ the deand for such e)aluations is gaining ground$ 2onors are increasingly trying
to dee&en their understanding of the &erforance of organizations which they fund (e$g$+
go)ernent inistries+ International Financial Institutions and other ultilateral organizations+
26
86@s+ as well as research institutions) not only to deterine the contri"utions of these
organizations to de)elo&ent results+ "ut also to "etter gras& the ca&acities these organizations
ha)e in &lace to su&&ort the achie)eent of results$
IMF Q!o"a,1 Con,"r!"#n$ an In"erna"#ona* Or$an#2a"#on U,#n$ Infer#or
B!#*d#n$ B*o.,
The International Monetary FundPs structure and rules are "ased on the (uota syste that
was constructed when the Fund was set u& in 194>$ Nuotas affect contri"utions and resource
a)aila"ility at the Fund+ access to resources+ the distri"ution of 4&ecial 2rawing Gights+ and
)oting rights$ 2es&ite &eriodic re)iews and odifications+ the (uota syste has gradually "een
eroded and underined$ The fundaental &ro"le is that a single syste is atte&ting to ser)e
four se&arate and inco&ati"le functions$ We illustrate how this erosion has ta,en &lace+ and how
an unrefored (uota syste will co&roise the future o&erations of the IMF and the
international onetary and financial syste$ =lthough the difficulties associated with reforing
(uotas are yriad and co&le1+ the legacy of an unrefored (uota syste ay "e &rofoundly
undesira"le$ We argue that a refined IMF structure ust accoodate a clearer se&aration of a
e"erPs contri"utions to the IMF+ its access to IMF resources+ and its )oting rights at the
institution$
Nuotas are significant to the FundPs o&erations "ecause they affect )oting rights+ su"scri&tions+
the size of ordinary drawing rights and access to s&ecial facilities+ as well as the distri"ution of
4&ecial 2rawing Gights (42Gs)$ 7owe)er fro the outset of the FundPs o&erations in 194> the
27
forula used to calculate (uotas was s&urious+ since agreeent had already "een reached a"out
the total aount of (uotas and the relati)e sizes of the (uotas for the ost &owerful countries$ =
trial*and*error &rocess was then used to de)ise a forula ' the Bretton Woods forula* that
generated the desired results$
IMF/COUNCIL ON INTERNATIONAL ORGANI(ATIONS
The International Monetary Fund (IMF) has undergone considera"le change as chief steward of
the world%s onetary syste$ The IMF is officially charged with anaging the glo"al regie of
e1change rates and international &ayents that allows nations to do "usiness with one another$
The Fund recast itself in a "roader+ ore acti)e role following the 19<? colla&se of fi1ed
e1change rates+ and has since recei)ed "oth criticis and credit for its efforts to &roote
financial sta"ility+ &re)ent crises+ facilitate trade+ and reduce &o)erty$
In #E1E+ the IMF cata&ulted "ac, onto the international stage as the 9uro&ean so)ereign de"t
crisis unfolded+ and once again+ the organization%s fiscal firefighting &rowess is in high deand$
4oe econoists clai the Fund is in the idst of a a0or transforation+ citing its )ast
e1&ansion of lending ca&acity+ go)ernance refor+ and the o)e away fro free ar,et
fundaentalis$ 7owe)er+ others suggest the IMF ust go further in i&leenting changes that
will i&ro)e the &light of the world%s &oor and guarantee the Fund%s rele)ance in a shifting
glo"al econoy$
Forty*four allied nations con)ened at the Bretton Woods Conference in 1944 to esta"lish a &ost*
war financial order that would facilitate econoic coo&eration and &re)ent a rehash of the
28
currency warfare (Foreign =ffairs) that hel&ed usher in the 6reat 2e&ression$ The new regie
was intended to foster sustaina"le econoic growth+ &roote higher standards of li)ing+ and
reduce &o)erty$ The historic accord founded the twin institutions of the World Ban, and the IMF+
and re(uired signatory countries to &eg their currencies to the 3$4$ dollar$
The IMF is a,in to a credit union that &erits its e"ershi& access to a coon &ool of
resources**funds that re&resent the financial coitent or (uota contri"uted "y each nation
(relati)e to its size)$ In theory+ e"ers with "alance*of*&ayents trou"le see, recourse with the
IMF to "uy tie to rectify their econoic &olicies and restore econoic growth$ The Fund
&ursues its ission in three fundaental ways5
34 S!rve#**ane:
= foral syste of re)iew that onitors the financial and econoic &olicies of e"er
countries to ensure they are li)ing within their eans**trac,ing de)elo&ents on a
national+ regional+ and glo"al le)el$ In this &rocess+ IMF officials consult regularly with
e"er countries and offer acroeconoic and financial &olicy ad)ice$
54 Te6n#a* A,,#,"ane:
Fractical su&&ort and training directed ainly at low* and iddle*incoe countries to
hel& anage their econoies (e$g$+ &ro)iding ad)ice on ta1 &olicy+ e1&enditure
anageent+ onetary and e1change rate &olicy+ financial syste regulation+
&ri)atization+ trade li"eralization+ etc$)$
74 Lend#n$:
29
6i)ing short* to id*ter loans to e"er nations that are struggling to eet their
international o"ligations$ Ioans (or "ailouts) are &ro)ided in return for i&leenting
s&ecific IMF conditions designed to hel& restore the acroeconoic dynaics conduci)e
to sustaina"le growth$
ECONOMIC STATISTICS
Macroeconoic statstcs !IMF"
The IMF is coordinating international efforts to i&ro)e the a)aila"ility of acroeconoic data
essential for trac,ing financial and econoic de)elo&ent$ In late #EE.+ the 4tatistics
2e&artent of the IMF created the Inter*=gency 6rou& on 9conoic and Financial 4tatistics *
in)ol)ing the Ban, for International 4ettleents (BI4)+ the 9uro&ean Central Ban, (9CB)+
9urostat+ the @rganization for 9conoic Co*o&eration and 2e)elo&ent (@9C2)+ the 3nited
8ations (38)+ and the World Ban, (WB)* to address econoic and financial data ga&s needed to
onitor financial de)elo&ents$ @ne of the ,ey outcoes of the Inter*=gency 6rou& was the
launching of Frinci&al 6lo"al Indicators We"site (F6I we"site) in =&ril #EE9$
In 2ece"er #EE9 the we"site was re)a&ed to allow &resentation of its rich collection of data
in a ore user*friendly fashion "y shifting e&hasis to cross*country indicators***currently o)er
forty indicators$ =ong the new additions include5
T =dditional cross*country ta"les of ,ey indicators with ore data transforation in haronized
units of easureent to facilitate co&arati)e analysisA
T Ionger runs of historical data )ia real*tie access to the underlying F6I data"aseA
T @n*line access to referential etadata which &ro)ide inforation on the data sources+ econoic
30
conce&ts+ or national &ractices used in co&iling the dataA and
T Jisual dis&lay of ,ey cross*country indicators$
Reports on #bser$ance o% &tandards and 'odes !R#&'s"
The IMF also conducts two * to three*wee, on*site issions to its e"er countries to assess the
(uality of data and assist in their further de)elo&ent$ The G@4C data odule &ro)ides an
assessent of data (uality in fi)e areas of acroeconoic statistics * national accounts (8=)+
&rices (consuer and &roducer &rice indices)+ go)ernent finance+ onetary+ and "alance of
&ayents (B@F)* "ased on the :uly #EE? 2ata Nuality =ssessent Fraewor, (2N=F)+ as well
as an assessent of whether the data disseination &ractices are in accordance with those
s&ecified in the 4&ecial 2ata 2isseination 4tandard (4224)$
The assessents are disseinated as data odules of the Ge&orts on @"ser)ance of 4tandards
and Codes$ =s of 2ece"er #E1E+ 1#4 data odule G@4Cs had "een co&leted+ including
u&dates and reassessents$ These include * using the IMF%s World 9conoic @utloo, country
grou& classification * #< fro ad)anced econoies+ #< fro =frica+ 9 fro de)elo&ing =sia+ #E
fro Central and 9astern 9uro&e+ 1> fro the Coonwealth of Inde&endent 4tates (CI4)+ 4
fro the Middle 9ast+ and #1 fro Western 7eis&here countries (including one regional central
"an,)$
31
Macroeconoic statstcs !IMF"
The IMF is coordinating international efforts to i&ro)e the a)aila"ility of acroeconoic data
essential for trac,ing financial and econoic de)elo&ent$ In late #EE.+ the 4tatistics
2e&artent of the IMF created the Inter*=gency 6rou& on 9conoic and Financial 4tatistics *
in)ol)ing the Ban, for International 4ettleents (BI4)+ the 9uro&ean Central Ban, (9CB)+
9urostat+ the @rganization for 9conoic Co*o&eration and 2e)elo&ent (@9C2)+ the 3nited
8ations (38)+ and the World Ban, (WB)* to address econoic and financial data ga&s needed to
onitor financial de)elo&ents$ @ne of the ,ey outcoes of the Inter*=gency 6rou& was the
launching of Frinci&al 6lo"al Indicators We"site (F6I we"site) in =&ril #EE9$ The F6I we"site
"rings together tiely data a)aila"le at &artici&ating international agencies co)ering financial+
go)ernental+ e1ternal+ and real sector data+ with lin,s to data at we"sites of international and
national agencies$
In 2ece"er #EE9 the we"site was re)a&ed to allow &resentation of its rich collection of data
in a ore user*friendly fashion "y shifting e&hasis to cross*country indicators***currently o)er
forty indicators$ =ong the new additions include5
32
T =dditional cross*country ta"les of ,ey indicators with ore data transforation in haronized
units of easureent to facilitate co&arati)e analysisA
T Ionger runs of historical data )ia real*tie access to the underlying F6I data"aseA
T @n*line access to referential etadata which &ro)ide inforation on the data sources+ econoic
conce&ts+ or national &ractices used in co&iling the dataA and
T Jisual dis&lay of ,ey cross*country indicators$
Reports on #bser$ance o% &tandards and 'odes !R#&'s"
The IMF also conducts two * to three*wee, on*site issions to its e"er countries to assess the
(uality of data and assist in their further de)elo&ent$ The G@4C data odule &ro)ides an
assessent of data (uality in fi)e areas of acroeconoic statistics * national accounts (8=)+
&rices (consuer and &roducer &rice indices)+ go)ernent finance+ onetary+ and "alance of
&ayents (B@F) * "ased on the :uly #EE? 2ata Nuality =ssessent Fraewor, (2N=F)+ as well
as an assessent of whether the data disseination &ractices are in accordance with those
s&ecified in the 4&ecial 2ata 2isseination 4tandard (4224)$
The assessents are disseinated as data odules of the Ge&orts on @"ser)ance of 4tandards
and Codes$ =s of 2ece"er #E1E+ 1#4 data odule G@4Cs had "een co&leted+ including
u&dates and reassessents$ These include * using the IMF%s World 9conoic @utloo, country
grou& classification * #< fro ad)anced econoies+ #< fro =frica+ 9 fro de)elo&ing =sia+ #E
fro Central and 9astern 9uro&e+ 1> fro the Coonwealth of Inde&endent 4tates (CI4)+ 4
fro the Middle 9ast+ and #1 fro Western 7eis&here countries (including one regional central
"an,)$
33
Internatonal trade and balance o% pa(ents !IMF"
Internatonal Trade:
T The IMF &artici&ates in the de)elo&ent and &roulgation of standards and ethodology for
trade statistics co&ilation such as the 38%s International Merchandise Trade 4tatistics$ The IMF
has acti)ely &artici&ated to the Intersecretariat Tas, Force on Merchandise Trade 4tatistics+
chaired "y the World Trade @rganization (WT@)$ The Tas, Force%s initiati)es include de)elo&ing
international hand"oo,s on conce&ts and co&ilation ethods for erchandise trade statistics
and to reconcile erchandise trade data collected "y the IMF+ the 3nited 8ations+ and the WT@$
T The IMF collects and aintains the onthly 2irection of Trade 4tatistics data"ase and
disseinates associated onthly electronic and (uarterlyOannual hardco&y &u"lications 2irection
of Trade 4tatistics+ "oth (uarterly and annual$ @nline )ersion of the 2@T4 was released in
:anuary #EE<$ The 2irection of Trade 4tatistics Rear"oo, (2@T4R) data"ase &ro)ides annual
"ilateral trade data on the )alue of i&orts and e1&orts of goods for 1.# countries and a0or
regional grou&s$ 91&orts and i&orts are "ased u&on "oth country data and estiation
34
&rocedures designed to reduce ga&s in re&orted )alues$ The 2@T4 (uarterly data"ase is widely
used within the IMF for trade &olicy analysis$ This (uarterly &u"lication &resents data for 1!.
countries and a0or regional areas$ It is su&&leented "y a onthly C2*G@M and online
data"ase$
Balance o% Pa(ents and Internatonal In$estent Positon &tatstcs
T The IMF%s 4tatistics 2e&artent released the 9nglish )ersion of the si1th edition of the Balance
of Fayents and International In)estent Fosition Manual (BFM>) at the end #EE9 as an u&date
to BFM!$ The release of the BFM> re&resents the culination of se)eral years of wor, "y the
4tatistics 2e&artent under the aus&ices of the IMF Coittee on Balance of Fayents
4tatistics (Coittee) in colla"oration with a range of interested &arties such as data users+
national statistical co&ilers+ s&ecialized e1&ert grou&s+ and other international organizations$
The BFM> retains the "asic fraewor, of the BFM!+ and the re)ision was underta,en in &arallel
with the u&date of the #EE. 48=+ there"y enhancing the haronization of acroeconoic
statistics$
T The IMF &ro)ides technical assistance and training in e1ternal sector statistics to su&&ort
countries in i&leenting the BFM>$
Trade in &er$ices:
The IMF &artici&ates in the Inter*=gency Tas, Force on 4tatistics of International Trade in
4er)ices (ITF4IT4)$ The ITF4IT4 has re)ised the Manual on 4tatistics of International Trade in
35
4er)ices (M4IT4) in accordance with re)isions to the #EE. 48= and the si1th edition of the
IMF%s Balance of Fayents and International In)estent Fosition Manual (BFM>)$ The #E1E
M4IT4 was a&&ro)ed "y the 3nited 8ations 4tatistical Coission at its eeting in Fe"ruary
#E1E$ The IMF &rootes the de)elo&ent and i&ro)eent of data on international trade in
ser)ices as an integral &art of its acti)ities relating to the i&leentation of the BFM>$ These
efforts include the organization of and &artici&ation in regional seinars on statistics of
international trade in ser)ices+ in colla"oration with other ITF4IT4 e"ers$
'urrenc( 'opositon o% #)cial Foreign *xchange Reser$es
T The IMF has "een collecting (uarterly data on the currency co&osition of official foreign
e1change reser)es (C@F9G) since the 19>Es fro indi)idual countries on a strict confidentiality
"asis+ with disseination liited to selected aggregates only$ The data"ase distinguishes official
reser)es denoinated in 3$4$ dollars+ euros+ &ounds sterling+ :a&anese yen+ 4wiss francs+ and
other currencies$ In res&onse to heightened &olicy and &u"lic interest+ the IMF launched the
(uarterly &u"lication of aggregate C@F9G data on its we"site on 2ece"er #1+ #EE!$ Before this
launch+ annual aggregate C@F9G data had only "een &u"lished in the IMF%s =nnual Ge&orts$ The
&u"lished data are &resented in aggregate for for each currency for three grou&ings5 world+
ad)anced econoies+ and eerging and de)elo&ing econoies$ The classification of countries
and the definition of foreign e1change reser)es follow those currently used in the IMF%s IF4$
*xternal +ebt &tatstcs
T 3nder the aegis of the Inter*=gency Tas, Force on Finance 4tatistics (TFF4)+ chaired "y the
IMF+ the 91ternal 2e"t 4tatistics5 6uide for Co&ilers and 3sers (924 6uide) was &u"lished in
#EE? to set the standards in this field of statistics$ The TFF4 agreed that wor, on the u&date of
the 924 6uide will "e underta,en "eginning in #E11 with the o"0ecti)e of ha)ing the ne1t 924
36
6uide ready "y #E1?$ @n the whole+ the 924 6uide reains largely consistent with the u&dated
standards$ = liited nu"er of changes in the ethodological treatents in the 924 6uide are
discussed in the &a&er5 3&date of the 91ternal 2e"t 6uide on Issues 9erging fro BFM>
(March #EE9)$ The TFF4 is hosted "y the IMF and was launched in 2ece"er #EE.$
,o$ernent Finance &tatstcs !,F&"
T 3nder the aegis of the Inter*=gency Tas, Force on Finance 4tatistics (TFF4) the IMF
de)elo&ed a Fu"lic 4ector 2e"t 4tatistics 6uide for Co&ilers and 3sers$ It is e1&ected to "e
disseinated in Fe"ruary #E11$ In addition+ the IMF and WB launched the Nuarterly Fu"lic
4ector 2e"t 4tatistics 2ata"ase in 2ece"er #E1EU$ This co)ers currently ?E countries and will
"e e1&anded$
T The IMF%s 6o)ernent Finance 4tatistics Rear"oo, (6F4R) contains annual fiscal data for
%general go)ernent% &lus su"sectors for a"out 1EE countries$ It continues to "e a)aila"le in
hardco&y and C2*G@M forat$ Monthly+ (uarterly+ and annual fiscal statistics are &u"lished in
the International Financial 4tatistics (IF4)$ The IF4 includes high*fre(uency fiscal data for a"out
9E countries Farticular attention is gi)en to the a)aila"ility and tieliness of fiscal data for 6*#E
econoies$
T The IMF &ro)ides technical assistance in 6F4 to e"er countries through a )ariety of
channels+ including staff or e1&ert issions to indi)idual countries and long ter ad)isors in the
field$ 9ach year+ the IMF organizes 6F4 courses at head(uarters and at regional centers and
37
hands*on short wor,sho&s for high le)el officials (e$g$ India+ 4e&te"er #E1E)+ and for ission
chiefs and fiscal econoists in the IMF$
T The IMF is &hasing in the 6F4M #EE1 &resentation for staff re&orts$ The World 9conoic
@utloo, ado&ted the 6F4M #EE1 &resentation in 2ece"er #EE9+ and staff assists fiscal
econoists to ad0ust the fiscal sector files$ 4taff also &artici&ates in area de&artent issions
focusing on fiscal data re&orting to the IMF$
T Wor, on u&dating the 6o)ernent Finance 4tatistics Manual has "egun$ = 6o)ernent
Finance 4tatistics =d)isory Coittee has "een esta"lished and will "e discussing the ain
ethodological areas for re)iew+ including the changes introduced in the #EE. 4yste of
8ational =ccounts$ The first eeting is &lanned for Fe"ruary #E11$ = 6F4M discussion foru
for selected ethodological issues is now a)aila"le online$
T With su&&ort fro the 3$;$ 2FI2+ staff is de)elo&ing a Co&ilation 6uide for 2e)elo&ing
Countries e1&ected to "e a)aila"le for electronic distri"ution in #E11$
T Coo&eration with international organizations continues$ The IMF+ World Ban,+ @9C2+ 9CB+
and 9urostat are de)elo&ing a coordinated strategy for fiscal data &resentation and collection$
Coo&eration with the International Fu"lic 4ector =ccounting Board (IF4=4B) continues$
The IMF collects and aintains the onthly 2irection of Trade 4tatistics data"ase and
disseinates associated onthly electronic and (uarterlyOannual hardco&y &u"lications 2irection
of Trade 4tatistics+ "oth (uarterly and annual$ @nline )ersion of the 2@T4 was released in
:anuary$ The 2irection of Trade 4tatistics Rear"oo, (2@T4R) data"ase &ro)ides annual "ilateral
38
trade data on the )alue of i&orts and e1&orts of goods for 1.# countries and a0or regional
grou&s$ 91&orts and i&orts are "ased u&on "oth country data and estiation &rocedures
designed to reduce ga&s in re&orted )alues$ The 2@T4 (uarterly data"ase is widely used within
the IMF for trade &olicy analysis$ This (uarterly &u"lication &resents data for 1!. countries and
a0or regional areas$ It is su&&leented "y a onthly C2*G@M and online data"ase$
IMF S!rve+ Ma$a2#ne: IMF Re,ear6
F#nan#a* Cr#,e, Y#e*d More S+n6ron#2ed Eono-# O!"8!":
Gegional and glo"al out&ut see increased correlations during financial crises
4ize of out&ut s&illo)ers de&ends on ty&e of shoc, and strength of lin,ages with
originating econoy
Financial glo"alization doesnPt necessarily induce greater out&ut synchronization across
countriesKtill crisis hits
The glo"al &anic set in otion "y the #EE.*E9 financial crises generated an un&recedented out&ut
colla&se around the world that te&orarily had countries o)ing in close loc,ste&+ according to
a new study "y the IMF$
39
The out&ut &erforance of the worldPs econoies o)ed together during the &ea, of the glo"al
financial crisis as ne)er "efore in the recent history+ according to a study &u"lished in the IMFPs
@cto"er #E1? World Economic Outlook re&ort$ Correlations of )arious countriesP 62F growth
rates had "een odest "efore the crisis "ut rose draatically during #EE<'E9$
40
41
The increased correlation or -co o)eent/ was not confined to the ad)anced econoiesK
which suffered ost fro the crisisK"ut was o"ser)ed across all geogra&hic regions$ =s in &ast
e&isodes when out&ut correlations s&i,ed+ the increase was te&orary$ In fact since #E1E out&ut
co o)eents ha)e returned close to &recrisis le)els des&ite continued econoic turoil in
9uro&e$
Ii)ely de"ate &ersists on what caused the glo"ally synchronized colla&se and reco)ery and ore
generally what a,es countriesP econoies o)e together$
Trade and financial lin,ages are the ost li,ely e1&lanation "ecause they can transit country*
s&ecific shoc,s to other countries$
= second &ossi"ility is that greater co o)eents in out&ut were induced "y large+ coon
shoc,s siultaneously affecting any countries at a&&ro1iately the sae tieKsuch as a
sudden increase in financial uncertainty or a -wa,e*u& call/ that triggered a change in in)estorsP
&erce&tions of the world$
Finally+ it could "e that the nature of shoc,s changed$ 4hoc,s to countriesP financial sectors+ such
as "an,ing crises and li(uidity freezes+ were ore &re)alent during the glo"al financial crisis$
These financial shoc,s ight "e transitted to other countries in a ore )irulent anner during
crises than are the su&&ly and deand shoc,sKthat are ore &re)alent during noral ties$
G*o9a* ,8#.e, :
42
9)en though financial lin,ages ay ha)e &layed soe role in &ushing u& co o)eents+ the
study finds that "ig s&i,es in regional and glo"al out&ut correlations tend to occur during
financial crises+ such as those in Iatin =erica in the 19.Es and in =sia in the 199Es$ Moreo)er+
when the crisis occurs in an econoy li,e the 3nited 4tatesKwhich is "oth large and a glo"al
financial hu"Kthe effects on glo"al out&ut synchronization are dis&ro&ortionately large$ 3$4$
financial shoc,s generated s&illo)er effects during the crisis years of #EE<'E9 that were a"out
(uadru&le that during other &eriods$ In other words+ the glo"al financial crisis had a uch
stronger i&act on out&ut than would ha)e "een &redicted "y the size of the underlying 3$4$
financial shoc,$
Cro,,/o!n"r+ *#n.a$e,:
The fact that co o)eents are now lower does not ean &olicya,ers can ignore the effects of
e1ternal shoc,s+ such as growth slowdowns or onetary and fiscal tightening in a0or
econoies$ But they need not worry e(ually a"out all &otential shoc,s$
First+ size atters$ The 3nited 4tates still atters ost fro a glo"al &ers&ecti)e+ although the
euro area+ China+ and :a&an are i&ortant sources of s&illo)ers within their res&ecti)e regions$
4econd+ the e1tent of the s&illo)ers de&ends on the nature of the shoc, and the strength of
lin,ages with the econoy where the shoc, originates$
43
Co,", and 9enef#", of f#nan#a* #n"e$ra"#on:
44
The con)entional wisdo that financial glo"alization necessarily induces greater out&ut co
o)eent across countries is not true until a crisis hits$ Financial lin,ages do transit financial
stresses across "orders+ "ut in noral ties when real su&&ly and deand shoc,s are doinant+
financial lin,ages facilitate the efficient international allocation of ca&ital$ They shift ca&ital
where it is ost &roducti)e$ The ,ey is to &reser)e the "enefits of increased financial integration
while iniizing the attendant ris,s through "etter o)ersight+ including strengthened &olicy
coordination and colla"oration$
The IMF su&er)ised a odified gold standard syste of &egged+ or sta"le+ currency e1change
rates$ 9ach e"er declared a )alue for its currency relati)e to the 3$4$ dollar+ and in turn the
3$4$ Treasury tied the dollar to gold "y agreeing to "uy and sell gold to other go)ernents at D?!
&er ounce$ = countryPs e1change rate could )ary only 1 &ercent a"o)e or "elow its declared
)alue$ 4ee,ing to eliinate co&etiti)e de)aluations+ the IMF &eritted e1change rate
o)eents greater than 1 &ercent only for countries in -fundaental "alance*of*&ayents
dise(uili"riu/ and only after consultation with and a&&ro)al "y+ the fund$ In =ugust 19<1 3$4$
Fresident Gichard 8i1on ended this syste of &egged e1change rates "y refusing to sell gold to
other go)ernents at the sti&ulated &rice$ 4ince then each e"er has "een &eritted to choose
the ethod it uses to deterine its e1change rate5 a free float+ in which the e1change rate for a
countryPs currency is deterined "y the su&&ly and deand of that currency on the international
currency ar,ets$
O88or"!n#"#e, and F!"!re O!"*oo. for "6e IMF
45
The international counity recognized that the IMFPs financial resources were as i&ortant as
e)er and were li,ely to "e stretched thin "efore the crisis was o)er$ With "road su&&ort fro
creditor countries+ the IMFPs lending ca&acity tri&led to around D<!E "illion$ To use those funds
effecti)ely+ the IMF o)erhauled its lending &olicies$ It created a fle1i"le credit line for countries
with strong econoic fundaentals and a trac, record of successful &olicy i&leentation$
@ther refors targeted low*incoe countries$ These factors ena"led the IMF to dis"urse )ery
large sus (uic,lyA the dis"urseents were "ased on the needs of "orrowing countries and were
not as tightly constrained "y (uotas as in the &ast$-6lo"alization and the Crisis (#EE!'Fresent)+/
International Monetary Fund+ accessed :uly #>+ #E1E$
The founders of the Bretton Woods syste had ta,en for granted that &ri)ate ca&ital flows would
ne)er again resue the &roinent role they had in the nineteenth and early twentieth centuries+
and the IMF had traditionally lent to e"ers facing current account difficulties$ The #EE.
glo"al crisis unco)ered fragility in the ad)anced financial ar,ets that soon led to the worst
glo"al downturn since the 6reat 2e&ression$ 4uddenly+ the IMF was inundated with re(uests for
stand"y arrangeents and other fors of financial and &olicy su&&ort$
The IMFPs re(uireents are not always &o&ular "ut are usually effecti)e+ which has led to its
e1&anding influence$ The IMF has sought to correct soe of the criticissA according to a
Foreign Folicy in Focus essay designed to stiulate dialogue on the IMF+ the fundPs strengths
and o&&ortunities include the following*
F*ex#9#*#"+ and ,8eed/ In March #EE9+ the IMF created the Fle1i"le Credit Iine (FCI)+
which is a fast*dis"ursing loan facility with low conditionality aied at reassuring
46
in)estors "y in0ecting li(uidityVTraditionally+ IMF loan &rogras re(uire the i&osition
of austerity easures such as raising interest rates that can reduce foreign in)estentVIn
the case of the FCI+ countries (ualify for it not on the "asis of their &roises+ "ut on the
"asis of their history$ :ust as indi)idual "orrowers with good credit histories are eligi"le
for loans at lower interest rates than their ris,y counter&arts
C6eer*ead#n$/ The Fund is &ositioning itself to "e less of an ad)ersary and ore of a
cheerleader to e"er countries$ For soe countries that need loans ore for
reassurance than refor+ these changes to the Fund tool,it are welcoe$/Martin 4$
9dwards+ -The IMFPs 8ew Tool,it5 8ew @&&ortunities+ @ld Challenges+/ Foreign Folicy
in Focus+ 4e&te"er 1<+ #EE9+ accessed :une #.+ #E1E+ this ena"les ore doestic
&olitical and econoic sta"ility$
Ada8"a9#*#"+/ Instead of &ro)iding the sae edicine to all countries regardless of their
&articular &ro"les+ the new loan facilities are intended to aid refor*inded
go)ernents "y &ro)iding short*ter resources to reassure in)estors$
Tran,8aren+/ The IMF has ade efforts to i&ro)e its own trans&arency and continues
to encourage its e"er countries to do so$ 4u&&orters note that this creates a "arrier to
any one or ore countries that ha)e ore geo&olitical influence in the organization$ In
reality+ the a0or econoies continue to e1ert influence on &olicy and i&leentation$
CONCLUSION
47
The IMF also has an International Monetary and Financial Coittee of #4 re&resentati)es of
the e"er*countries that eets twice yearly to &ro)ide ad)ice on the international onetary
and financial syste to the IMFPs staff$
In si&ler ters+ the goals are to5
1$ Facilitate the coo&eration of countries on onetary &olicy+ including &ro)iding the
necessary resources for "oth consultation and the esta"lishent of onetary &olicy in
order to iniize the effects of international financial crises$
#$ =ssist the li"eralization of international trade "y hel&ing countries increase their real
incoes while lowering une&loyent$
?$ 7el& to sta"ilize e1change rates "etween countries$ 9s&ecially after the glo"al de&ression
of the 19?Es+ it was considered )ital to esta"lish currencies that could hold their )alue+
ser)e as edius of international e1change+ and resist any s&eculati)e attac,s$
4$ Maintain a ultilateral syste of &ayents that eliinates foreign e1change restrictions$
Countries are thus free to trade with each other without worrying a"out the effects of
interest rates and currency de&reciation on their &ayents$
!$ Fro)ide a safeguard to e"ers of the IMF against "alance of &ayents crises+ i$e$+ when
go)ernents cannot "alance the oney they ha)e with the oney they owe to other
countries$ IMF e"ers can ha)e the confidence to ad0ust the i"alances in their
national accounts without resorting to &ainful easures that would ha&er their
&ros&erity+ such as de)aluing their currency in relation to other countriesP$
48
BIBLIOGRAPHY
BOO:S REFERRED:
Models of IMF+ "y Feter Fuses$
IMF* Gesearch Ge&orts$
Jiews of IMF+ "y 2a)id 4towell$
;EBSITES REFERRED:
www$google$co
www$yahoo$co
www$Getail"an,ing$co
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