History, Objectives and Other Details

 The establishment of International Monetary

Fund is a great landmark in the history of
international monetary cooperation.
 After First World War, commercial rivalry rose
among the major countries of the world.
 International Monetary Fund started its
functioning from 1st March 1947. IMF was
established with the motto to increase
international liquidity of the member
countries to make the balance of payment,
favourable.
 IMF was established to overcome all trade
restrictions and impediments and further to
promote multilateral trade.

 Thus, the Fund is most deliberate attempt to

organise the conduct of international
monetary affairs.
 1. International Monetary Co-operation:
 The foremost objective of the Fund was to
establish monetary co-operation amongst the
various member countries. IMF provides the
machinery for consultation and collaboration
on international monetary problems.
 2. To Promote Exchange Stability:
 Before the Second World War, great instability
was prevailing in the foreign exchange rates
of different countries which had adversely
affected the international trade.
 3. To Eliminate Exchange Control:
 Another significant objective of IMF is to
eliminate the control over foreign exchange.
During war period, almost every country has
fixed the exchange rate at a particular level
 4. Establishment of Multilateral Trade and
Payment:
 IMF aimed at establishing and multilateral trade
and payment system in place of old bilateral
trade by the elimination of exchange restrictions
which hampers the growth of smooth trade
relations in the world trade.
 5. Growth of International Trade:

 IMF is useful to promote international trade

by removing all obstacles and bottlenecks
which had created unnecessarily restrictions.
In this way, a significant role has been
assigned to it so as to accelerate the growth
of international trade by maintaining
equilibrium in the balance of payment
 6. Balanced Economic Growth:
 IMF helps the member countries to achieve the
balanced economic growth. It facilitates the
expansion of balanced growth by the promotion
and maintenance of high level of employment as
the primary objective of economic policy.
 7. To remove the Disequilibrium in the Balance of
Payment:
 IMF helps the member nations to eliminate the
disequilibrium in the balance of payment by
selling or lending foreign currencies to the
member countries.
 8. Expansion of Capital Investment in Under-
develop Countries:
 IMF provides assistance to import capital
from the rich countries to the poor countries
so that the poor or underdeveloped country
get a chance to expand their capital
investment on productive activities or social
overheads which in turn helps to raise
standard of living and to achieve prosperity
among member countries.
 9. Generating of Higher Employment and Income:
 10. To Develop Confidence:
 11. Help during Emergency:
 Organisation and Management of the Fund:
 The Fund is an autonomous/organisation which
is affiliated to the UNO. The management of the
Fund is carried out by the Board of Executive
Directors under the direction of the Managing
Director. There are 21 Executive Directors of the
Board, out of which 7 are permanent and 14 are
elected from the remaining members. The
permanent members are from the USA, UK,
France, Germany, Japan, Italy and Canada.
 The fund has two types of members as stated below:
 (1) Original Members and
 (2) Ordinary Members.
 All those countries whose representatives took part in
Bretton Woods Conference and who agreed to be the
member of the Fund prior to 31st December, 1945,
are called the original members of the Fund. All those
who become its member subsequently are called
ordinary members.
 However, any country can cease to be its member
after giving a notice in writing to that effect. I.M.F.
can also terminate the membership of such a country
as does not observe its rules. In 1947, the number of
member-countries was 40 presently, there are 180
countries as members.
 (i) The Board of Governors.
 (ii) The Board of Directors
 Every member country appoints one Governor
to participate in the meeting of the Board of
Governors. The Board of Governors make the
general policy to carry on day-to-day
working of IMF.
 The Board of Directors of the IMF holds the
meeting at the office in Washington. One of
the Directors is designated on the Managing
Director of IMF. He is the chief executive.
 Origin:
 The World Bank (WB) was originally created as
the International Bank for Reconstruction and
Development (IBRD) in 1944 along with its
twin, the IMF. Together they came to be
known as the ‘Bretton Woods’ twin sisters’
 Functions:
 Being twin sisters, membership in the IMF is a
prerequisite for membership in World Bank
(188 countries in May, 2012).
 The Bank performs the following functions:
 I. To assist in the construction and develop-
ment of the territories of its members by
facilitating investment of capital for
productive purposes, including the
‘restoration of economies destroyed or
disrupted by war’, and the encouragement of
the “development” of productive facilities and
resources in less developed countries.
 II. To promote private investment and long
run balanced growth of international trade
and BOP equilibrium by means of guarantees
or participation in international loans and
investments.
 III. To arrange loans made or guaranteed by
it. so that more useful and urgent projects
receive preference.
 IV. To provide finance to projects from its
own capital, funds raised by it and by
participating with other members.
 The purposes and objectives are constantly
changing. For instance, in the early years, the
Bank’s investment concentrated on
infrastructural build-up like power, transport,
communications and irrigation.
 For all its clients, the Bank emphasizes the need
for:
 (i) Investing in people, particularly through basic
health and education;
 (ii) Focusing on social development, governance
and institution-building as the major elements of
poverty alleviation;
 (iii) Strengthening the ability of the govern-
ments to deliver quality services with greater
efficiency and transparency;
 (iv) Protecting the environment;
 (v) Supporting and encouraging private
business development and long-term
planning.
 The WB offers two basic types of loans
investment loans for the support of economic
and social development projects, and
development policy loans to support countries’
policy and institutional reforms.
 The WB grants loans only to the developing
countries (and not all the 188 members) annually
at nearly $ 20 billion a year usually for a period
of 15 to 20 years for the purpose of building
roads, dams, and other physical capital that
contribute to their economic development. Its
lending rate is somewhat low and is fixed every
six months.