INTERNATIONAL

MONETARY FUND
International Business Environment

NAME- ADITYA AGRAWAL

ROLL NO- 01
SY’UMLA 2025
 Contents
Introduction:..........................................................................................................................................2
History:..................................................................................................................................................2
Mission:.................................................................................................................................................2
Objectives:.............................................................................................................................................2
Membership:..........................................................................................................................................3
Organisation and Governance:...............................................................................................................3
Resources of IMF:...............................................................................................................................5
a) Quotas and Subscriptions:......................................................................................................5
SPECIAL DRAWING RIGHTS:..................................................................................................5
b) Borrowings:..............................................................................................................................6
c) Interests and Fees from Loans:...............................................................................................6
d) INVESTMENT ACCOUNT (2005):.......................................................................................6
IMF – Policies and Facilities.................................................................................................................7
Lending.............................................................................................................................................7
Main lending facilities.......................................................................................................................8
Lending to low-income countries.....................................................................................................9
Debt relief.........................................................................................................................................9
Technical Assistance.........................................................................................................................9
Surveillance.....................................................................................................................................10
IMF AND INDIA................................................................................................................................12
Benefits to India from IMF’s membership.......................................................................................12
The changing position ….................................................................................................................13
Future perspective as per IMF.........................................................................................................13
Critique..........................................................................................................................................14
Conclusion...........................................................................................................................................15
Reference:............................................................................................................................................16

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Introduction:
International Monetary Fund is world’s central organisation for international monetary
cooperation and for stability of international monetary system – the System of exchange
rates and international payments. It works to foster global growth and economic stability.
It provides policy advice and financing to its members in economic difficulties. Also it
works with developing nation to help them achieve macroeconomic stability and reduce
poverty. It oversees the global financing system by following macroeconomic of its
member countries, in particular those policies which have an impact on exchange rates and
Balance of payments. Besides it is and international forum to discuss the consequences of
such policies.
• Headquarters: Washington, D.C., United States.
• Current Managing Director: Dominique Strauss Kahn

History:
The IMF was conceived in July 1944, when representatives of 45 governments meeting in
the town of Bretton Woods, New Hampshire, in the north-eastern United States, agreed on
a framework for international economic cooperation. They believed that such a framework
was necessary to avoid a repetition of the disastrous economic policies that had
contributed to the Great Depression of the 1 930s.
During that decade, attempts by countries to shore up their failing economies—by limiting
imports, devaluing their currencies to compete against each other for export markets, and
curtailing their citizens' freedom to buy goods abroad and to hold foreign exchange—
proved to be self-defeating. World trade declined sharply, and employment and living
standards plummeted in many countries.
Seeking to restore order to international monetary relations, the IMF's founders charged
the new institution with overseeing the international monetary system to ensure exchange
rate stability and encouraging member countries to eliminate exchange restrictions that
hindered trade. The IMF came into existence in December 1945, when its first 29 member
countries signed its Articles of Agreement. Since then, the IMF has adapted itself as often
as needed to keep up with the expansion of its membership—186 countries as on March
29, 2010 —and changes in the world economy.
The IMF began its financial operations on March 1, 1947.

Mission:
Stability of International monetary and financial system.

Objectives:

 To promote international monetary cooperation,

 To facilitate expansion and balance growth of international trade,
 To promote exchange stability and maintain orderly exchange arrangements
among members

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  To assist in eliminating foreign exchange restrictions
 To make resources available to members
 To maintain equilibrium in the Balance of Payments of members
 To contribute towards increased employment opportunities and improved
economic conditions of member countries.

Functions of I.M.F:

The work of the IMF is of three main types. Surveillance involves the monitoring of
economic and financial developments, and the provision of policy advice, aimed especially
at crisis-prevention. The IMF also lends to countries with balance of payments difficulties,
to provide temporary financing and to support policies aimed at correcting the underlying
problems; loans to low-income countries are also aimed especially at poverty reduction.
Third, the IMF provides countries with technical assistance and training in its areas of
expertise. Supporting all three of these activities is IMF work in economic research and
statistics.

In recent years, as part of its efforts to strengthen the international financial system, and to
enhance its effectiveness at preventing and resolving crises, the IMF has applied both its
surveillance and technical assistance work to the development of standards and codes of
good practice in its areas of responsibility, and to the strengthening of financial sectors.

The IMF also plays an important role in the fight against money-laundering and terrorism.

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.

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 The IMF provides policy advice and financing to members in economic difficulties and
also works with developing nations to help them achieve macroeconomic stability and
reduce poverty. Marked by massive movements of capital and abrupt shifts in comparative
advantage, globalization affects countries' policy choices in many areas, including labour,
trade, and tax policies. Helping a country, benefit from globalization while avoiding
potential downsides is an important task for the IMF. The global economic crisis has
highlighted just how interconnected countries have become in today’s world economy.

Key IMF activities

The IMF supports its membership by providing

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

trends and cross-country experiences;

• research, statistics, forecasts, and analysis based on tracking of global, regional,

and individual economies and markets;

• loans to help countries overcome economic difficulties;

• concessional loans to help fight poverty in developing countries; and

• Technical assistance and training to help countries improve the management of

their economies.

Membership:

Membership of IMF is open to every country that controls its foreign relations and is able
and prepared to fulfil the obligations of IMF. Membership of IMF is a prerequisite for the
membership of Word Bank. As on March 29, 2010; IMF has 186 countries as its members.

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Subscription A member's quota subscription determines the maximum amount of financial
resources the member is obliged to provide to the IMF. A member must pay its
subscription in full upon joining the IMF: up to 25 percent must be paid in the IMF's own
currency, called Special Drawing Rights (SDRs) or widely accepted currencies (such as
the dollar, the euro, the yen, or pound sterling), while the rest is paid in the member's own
currency.

Voting power The quota largely determines a member's voting power in IMF decisions.
Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of
quota. Accordingly, the United States has 371,743 votes (16.77 percent of the total), and
Palau has 281 votes (0.01 percent of the total). The newly agreed quota and voice reform
will result in a significant shift in the representation of dynamic economies, many of which
are emerging market countries, through a quota increase for 54 member countries. A
tripling of the number of basic votes is also envisaged as a means to give poorer countries
a greater say in running the institution.

Access to financing The amount of financing a member can obtain from the IMF (its
access limit) is based on its quota. Under Stand-By and Extended Arrangements, which are
types of loans, a member can borrow up to 200 percent of its quota annually and 600
percent cumulatively. However, access may be higher in exceptional circumstances.

SDR allocations Allocations of SDRs, the IMF's unit of account, is used as an

international reserve asset. A member's share of general SDR allocations is established in
proportion to its quota. The most recent general allocation of SDRs took place in 2009.

Voting power The quota largely determines a member's voting power in IMF decisions.
Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of
quota. Accordingly, the United States has 371,743 votes (16.77 percent of the total), and
Palau has 281 votes (0.01 percent of the total). The newly agreed quota and voice reform
will result in a significant shift in the representation of dynamic economies, many of which
are emerging market countries, through a quota increase for 54 member countries. A
tripling of the number of basic votes is also envisaged as a means to give poorer countries
a greater say in running the institution.

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 Access to financing The amount of financing a member can obtain from the IMF (its
access limit) is based on its quota. Under Stand-By and Extended Arrangements, which are
types of loans, a member can borrow up to 200 percent of its quota annually and 600
percent cumulatively. However, access may be higher in exceptional circumstances.

SDR allocations Allocations of SDRs, the IMF's unit of account, is used as an

international reserve asset. A member's share of general SDR allocations is established in
proportion to its quota. The most recent general allocation of SDRs took place in 2009.

Organisation and Governance:

i) The IMF is governed by, and is accountable to, its member countries through its
Board of Governors. There is one Governor from each member country,
typically the finance minister or central bank governor. The Governors usually

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 meet once a year, in September or October, at the Annual Meetings of the IMF
and the World Bank. It is the highest decision-making body of IMF.
ii) Key policy issues related to the international monetary system are considered
twice a year by a committee of Governors called the International Monetary
and Financial Committee, the IMFC.
iii) A joint committee of the Boards of Governors of the IMF and the World Bank—
the Development Committee—advises and reports to the Governors on
development policy and other matters of concern to developing countries.
iv) The day-to-day work of the IMF is carried out by the Executive Board, which
receives its powers from the Board of Governors, and the IMF's internationally
recruited staff. Of the 24 Executive Directors on the Board, 8 are appointed by
single countries—the IMF's 5 largest quota-holders (the United States, Japan,
Germany, France, and the United Kingdom) and China, Russia, and Saudi Arabia.
The other 16 Executive Directors are elected for two-year terms by groups of
countries known as "constituencies."
v) Executive Board selects the IMF's Managing Director, who is appointed for a
renewable five-year term. The Managing Director reports to the Board and serves
as its chair and the chief of the IMF's staff.
vi) IMF employees, who come from over 140 countries, are International Civil
Servants. Their responsibility is to the IMF, not to the national authorities of the
countries of which they are citizens. About one-half of the IMF's approximately
2,700 staff members are economists.

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 Quota Increases Board of Finance Minister/ R
e
SDR allocations Governor o f Central
Membership Admittance/Governors p
AdvicesBank
/ r
Withdrawal e
Amendments in articles of Reports
IMF 24 s
Delegates e
agreements Governors
power to C
Guides
n
t
a
t
Conducts Business Executive 24 i
Operational & AdministrativeBoard Directors v

Policies Surveillance
Membe e
s
Discusses Economic Issues
Elects r
Countri
Conducts Managing es
Surveillance
Overall Director Technical
Business
Informs/ Appoints Assistance &
Advices Training
Staff of International Civil Policy Advice
Servants

Resources of IMF:

8
 Sources of
Income

Interest charges
Subscription by Borrowings and Fees levied
members on Loans

General New
Quotas Subscriptions Agreement to Agreements to
Borrow borrow

a) Quotas and Subscriptions:

The IMF's resources come mainly from the quotas that countries deposit when they
join the IMF. Quotas broadly reflect the size of each member's economy: the larger a
country's economy in terms of output, and the larger and more variable its trade, the
larger its quota tends to be. For example, the United States, the world's largest
economy, has the largest quota in the IMF. Quotas are reviewed periodically and can
be increased when deemed necessary by the Board of Governors.

Each member subscribes to the IMF fund an amount equal to quota. Countries
deposit 25 percent of their quota subscriptions in Special Drawing Rights or major
currencies, such as U.S. dollars or Japanese yen. The IMF can call on the remainder,
payable in the member's own currency, to be made available for lending as needed.

Quotas, together with the equal number of basic votes each member has, determine
countries' voting power. They also determine the member’s access to IMF’s
resources.

Quota’s also help to determine the amount of financing countries can borrow from the
IMF, and their share in SDR allocations. Under Stand By and Extended Arrangements
which are types of loans a member can borrow up to 200% of its quota annually and
600% cumulatively. In extreme cases the access could be even higher.

SPECIAL DRAWING RIGHTS:

The SDR, or Special Drawing Right, is an international reserve asset that member
countries can add to their foreign currency and gold reserves and use for payments
requiring foreign exchange. Its value is set daily using a basket of four major
currencies: the euro, Japanese yen, pound sterling, and U.S. dollar.

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 The IMF introduced the SDR in 1969 because of concern that the stock and
prospective growth of international reserves might not be sufficient to support the
expansion of world trade. (The main reserve assets at the time were gold and U.S.
dollars.) The SDR was introduced as a supplementary reserve asset, which the IMF
could "allocate" periodically to members when the need arose, and cancel, as
necessary.

IMF member countries may use SDRs in transactions among themselves, with 16
"institutional" holders of SDRs, and with the IMF. The SDR is also the IMF's unit of
account. A number of other international and regional organizations and international
conventions use it as a unit of account or as the basis for a unit of account.

b) Borrowings:
If necessary, the IMF may borrow from a number of its financially strongest member
countries to supplement the resources available from its quotas. It has done so on several
occasions when borrowing countries needed large amounts of financing and a failure to
help them might have put the international monetary system at risk.

GAB (1962) and NAB (1998) are two sources of supplementary financing.

i) Under GAB (1962); General Arrangements to Borrow, IMF is able to borrow

specific amount of currencies from 11 industrialised nations or their central banks
at market related interest rates.
ii) NAB (1998); New Arrangements to Borrow is a credit arrangement between
IMF and 25 members and institutions; prepared to provide IMF with
supplementary funds. Participants in NAB commit accounts based primarily on
their relevant economic strength measured by IMF quotas.

c) Interests and Fees from Loans:

Like other financial institutions, the IMF also earns income from the interest charges
and fees levied on its loans. It uses this income to meet funding costs, pay for
administrative expenses, and maintain precautionary balances.

d) INVESTMENT ACCOUNT (2005): To diversify its income sources, the IMF

established an investment account in 2005. The funds in the account are invested in
eligible marketable obligations denominated in SDRs or in the securities of members
whose currencies are included in the SDR basket. The Fund also began to explore other
options for reducing its dependence on lending for its income.

IMF – Policies and Facilities

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The IMF's fundamental mission is to help ensure stability in the international system. It does
so in three ways: keeping track of the global economy and the economies of member
countries; lending to countries with balance of payments difficulties; and giving practical
help to members.

Lending
The IMF provides loans to countries that have trouble meeting their international payments
and cannot otherwise find sufficient financing on affordable terms. This financial assistance
is designed to help countries restore macroeconomic stability by rebuilding their international
reserves, stabilizing their currencies, and paying for imports—all necessary conditions for
relaunching growth. The IMF also provides concessional loans to low-income countries to
help them develop their economies and reduce poverty.

IMF loans are meant to help member countries tackle balance of payments problems,
stabilize their economies, and restore sustainable economic growth. The IMF is not a
development bank and, unlike the World Bank and other development agencies, it does not
finance projects.

Today, IMF lending serves three main purposes.

First, it can smooth adjustment to various shocks, helping a member country avoid disruptive
economic adjustment or sovereign default, something that would be extremely costly, both
for the country itself and possibly for other countries through economic and financial ripple
effects (known as contagion).

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Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders.
This is because the program can serve as a signal that the country has adopted sound policies,
reinforcing policy credibility and increasing investors' confidence.

Third, IMF lending can help prevent crisis. The experience is clear: capital account crises
typically inflict substantial costs on countries themselves and on other countries through
contagion. The best way to deal with capital account problems is to nip them in the bud
before they develop into a full-blown crisis.

Emergency assistance. The IMF provides emergency assistance to countries that have
experienced a natural disaster or are emerging from conflict. Emergency loans are subject
to the basic rate of charge, although interest subsidies are available for PRGF-eligible
countries, subject to availability. Loans must be repaid within 3¼–5 years.

Collaboration with Others:

The IMF collaborates with the World Bank, the regional development banks, the World
Trade Organization (WTO), UN agencies, and other international bodies. While all of
these organizations are involved in global economic issues, each has its own unique areas
of responsibility and specialization. The IMF also interacts with think tanks, civil society,
and the media on a daily basis.

Working with the World Bank

The IMF and the World Bank are different, but complement each other's work. Whereas
the IMF's focus is chiefly on macroeconomic and financial sector issues, the World Bank
is concerned mainly with longer-term development and poverty reduction. Its loans
finance infrastructure projects, the reform of particular sectors of the economy, and
broader structural reforms. Countries must join the IMF to be eligible for World Bank
membership.

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Given the World Bank's focus on antipoverty issues, the IMF collaborates closely with
the Bank in the area of poverty reduction and helping countries draw up poverty
reduction strategies. Other areas of collaboration include assessments of member
countries' financial sectors, development of standards and codes, and improvement of the
quality, availability, and coverage of data on external debt.

Cooperating with other international organizations

The IMF is a member of the Switzerland-based Financial Stability Board, which brings
together government officials responsible for financial stability in the major international
financial centres, international regulatory and supervisory bodies, committees of central
bank experts, and international financial institutions. It also works with standard-setting
bodies

The process of IMF lending

Upon request by a member country, an IMF loan is usually provided under an

“arrangement,” which may, when appropriate, stipulate specific policies and measures a
country has agreed to implement to resolve its balance of payments problem. The
economic program underlying an arrangement is formulated by the country in
consultation with the IMF and is presented to the Fund’s Executive Board in a “Letter of
Intent.” Once an arrangement is approved by the Board, the loan is usually released in
phased instalments as the program is implemented.

IMF Facilities

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Over the years, the IMF has developed various loan instruments, or “facilities,” that are
tailored to address the specific circumstances of its diverse membership. Low-income
countries may borrow at a concessional interest rate through the Poverty Reduction and
Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). These facilities are
expected to be replaced by a new set of instruments when donor countries have given
their final consent to a wide-ranging reform of the Fund’s concessional facilities and
financing framework. No concessional loans are provided mainly through Stand-By
Arrangements (SBA), the Flexible Credit Line (FCL), and the Extended Fund Facility
(which is useful primarily for longer-term needs). The IMF also provides emergency
assistance to support recovery from natural disasters and conflicts, in some cases at
concessional interest rates. Except for the PRGF and the ESF, all facilities are subject to
the IMF’s market-related interest rate, known as the “rate of charge,” and large loans
(above certain limits) carry a surcharge. The rate of charge is based on the SDR interest
rate, which is revised weekly to take account of changes in short-term interest rates in
major international money markets. The amount that a country can borrow from the Fund
—its “access limit ”—varies depending on the type of loan, but is typically a multiple of
the country’s IMF quota. This limit may be exceeded in exceptional circumstances. The
Flexible Credit Line has no pre-set cap on access.

Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility
(ESF). PRGF-supported programs for low-income countries are underpinned by
comprehensive country-owned strategies, delineated in their Poverty Reduction Strategy
Papers (PRSPs). The interest rate levied on PRGF and ESF loans is only 0.5 percent, and
loans are to be repaid over a period of 5½–10 years. The ESF, which was modified in
September 2008 to make it more flexible and increase access levels, aims to meet the
needs of low-income member countries for rapid and adequately-sized shock assistance
with streamlined conditionality requirements.

Stand-By Arrangements (SBA). The bulk of Fund assistance to middle-income

countries is provided through SBAs. The SBA is designed to help countries address
short-term balance of payments problems. Program targets are designed to address these
problems and Fund disbursements are made conditional on achieving these targets
(‘conditionality’). The length of a SBA is typically 12–24 months, and repayment is due
within 3¼-5 years of disbursement. SBAs may be provided on a precautionary basis—

14
 where countries choose not to draw upon approved amounts but retain the option to do so
if conditions deteriorate—both within the normal access limits and in cases of
exceptional access. The SBA provides for flexibility with respect to phasing, with front-
loaded access where appropriate.

Flexible Credit Line (FCL). The FCL is for countries with very strong fundamentals,
policies, and track records of policy implementation and is particularly useful for crisis
prevention purposes. FCL arrangements are approved for countries meeting pre-set
qualification criteria. The length of the FCL is 6 months or 1 year (with a mid-term
review) and the repayment period the same as for the SBA. Access is determined on a
case-by-case basis, is not subject to the normal access limits, and is available in a single
up-front disbursement rather than phased. Disbursements under the FCL are not
conditioned on implementation of specific policy understandings as is the case under the
SBA. There is flexibility to draw on the credit line at the time it is approved, or it may be
treated as precautionary.

Extended Fund Facility (EFF). This facility was established in 1974 to help countries
address longer-term balance of payments problems requiring fundamental economic
reforms. Arrangements under the EFF are thus longer than SBAs—usually 3 years.
Repayment is due within 4½–10 years from the date of disbursement.

Main lending facilities

The Stand-By Arrangement is a key lending facility established in 1952. Although its use has
been declining in recent years, it has remained the most popular facility for middle-income
countries that seek financial assistance. Under its structure, financing is provided in support
of adjustment to a balance of payments need and disbursed in tranches based on conditions
spelled out in the program. The IMF's largest loans have traditionally been provided under
SBAs.

The IMF has introduced a new Flexible Credit Line (FCL) for countries with very strong
fundamentals, policies, and track record of policy implementation. Once approved according
to pre-set qualification criteria, countries can tap all resources available under the credit line
at any time, as disbursements would not be phased and conditioned on compliance with a

15
traditional Fund-supported program. This is justified by the very strong track records of
countries that qualify to the FCL, which give confidence that their economic policies will
remain strong or that corrective measures will be taken in the face of shocks.

The establishment of the FCL represents a significant shift in delivering Fund financial
assistance. The FCL's flexibility includes:

 Assuring qualified countries of automatic and upfront access to Fund resources with
no ongoing (ex post) conditions;
 Lack of restrictions in renewing the credit line, which at the country’s discretion could
be for either a six-month period, or a 12-month period with a review of eligibility
after six months;
 Longer repayment period (3¼ to 5 years).

The Extended Fund Facility is used to help countries address balance of payments difficulties
related partly to structural problems that may take longer to correct than macroeconomic
imbalances. A program supported by an extended arrangement usually includes measures to
improve the way markets and institutions function, such as tax and financial sector reforms,
privatization of public enterprises, and steps to make labor markets more flexible.

The IMF also provides Emergency Assistance to countries coping with balance of payments
problems caused by natural disasters or military conflicts. The interest rates are subsidized for
low-income countries.

The Trade Integration Mechanism allows the IMF to provide loans under one of its facilities
to a developing country whose balance of payments is suffering because of multilateral trade
liberalization, either because its export earnings decline when it loses preferential access to
certain markets or because prices for food imports go up when agricultural subsidies are
eliminated.

Lending to low-income countries

Low-income countries can borrow from the IMF at a very low, or concessional, interest rate.
They can use the Poverty Reduction and Growth Facility, which is the main vehicle by which
the IMF provides financial support to countries' poverty-reduction strategies. The facility's
core objectives are to promote sustainable balance of payments positions and to foster
sustainable growth, leading to higher living standards and a reduction in poverty. In recent
years, the largest number of IMF loans has been made through the PRGF.

Member countries can also access the Exogenous Shocks Facility, which helps deal with
economic shocks, such as food and fuel price hikes or a natural disaster, that are beyond the
control of a government but have a significant negative impacts on the economies.

The interest rate levied on PRGF and ESF loans is only 0.5 percent, and loans are to be repaid
over a period of 5½-10 years.

Several low-income countries have made significant progress in recent years toward
economic stability and no longer require IMF financial assistance. But many of these
countries still seek the IMF's advice, and the monitoring and endorsement of their economic

16
policies that comes with it. To help these countries, the IMF has created a program for policy
support and signaling, called the Policy Support Instrument.

Debt relief

In addition to concessional loans, some low-income countries are also eligible for debts to be
written off under two key initiatives.

The Heavily Indebted Poor Countries (HIPC) Initiative, introduced in 1996 and enhanced in
1999, whereby creditors provide debt relief, in a coordinated manner, with a view to restoring
debt sustainability; and

The Multilateral Debt Relief Initiative (MDRI), under which the IMF, the International
Development Association (IDA) of the World Bank, and the African Development Fund
(AfDF) canceled 100 percent of their debt claims on certain countries to help them advance
toward the Millennium Development Goals.

Technical Assistance
The IMF shares its expertise with member countries by providing technical assistance and
training in a wide range of areas, such as central banking, monetary and exchange rate policy,
tax policy and administration, and official statistics. The objective is to help improve the
design and implementation of members' economic policies, including by strengthening skills
in institutions such as finance ministries, central banks, and statistical agencies. The IMF has
also given advice to countries that have had to re-establish government institutions following
severe civil unrest or war.

The IMF provides technical assistance and training mainly in four areas:

 monetary and financial policies (monetary policy instruments, banking system

supervision and restructuring, foreign management and operations, clearing settlement
systems for payments, and structure development of central banks);
 fiscal policy and management (tax and customs policies and administration, budget
formulation, expenditure management, design of social safety nets, and management
of domestic and foreign debt);
 compilation, management, dissemination, and improvement of statistical data;
 economic and financial legislation.

Surveillance
When a country joins the IMF, it agrees to subject its economic and financial policies to the
scrutiny of the international community. It also makes a commitment to pursue policies that
are conducive to orderly economic growth and reasonable price stability, to avoid

17
manipulating exchange rates for unfair competitive advantage, and to provide the IMF with
data about its economy. The IMF's regular monitoring of economies and associated provision
of policy advice is intended to identify weaknesses that are causing or could lead to financial
or economic instability. This process is known as surveillance.

Country surveillance

Country surveillance is an ongoing process that culminates in regular (usually annual)

comprehensive consultations with individual member countries, with discussions in between
as needed.

An IMF team of economists visits a country to assess economic and financial developments
and discuss the country's economic and financial policies with government and central bank
officials. IMF staff missions also often meet with parliamentarians and representatives of
business, labor unions, and civil society.

The team reports its findings to IMF management and then presents them for discussion to
the Executive Board, which represents all of the IMF's member countries. A summary of the
Board's views is subsequently transmitted to the country's government. In this way, the views
of the global community and the lessons of international experience are brought to bear on
national policies. Summaries of most discussions are released in Public Information Notices
and are posted on the IMF's web site, as are most of the country reports prepared by the staff.

Regional surveillance

Regional surveillance involves examination by the IMF of policies pursued under currency
unions—including the euro area, the West African Economic and Monetary Union, the
Central African Economic and Monetary Community, and the Eastern Caribbean Currency
Union. Regional economic outlook reports are also prepared to discuss economic
developments and key policy issues in Asia Pacific, Europe, Middle East and Central Asia,
Sub-Saharan Africa, and the Western Hemisphere.

Global surveillance

Global surveillance entails reviews by the IMF's Executive Board of global economic trends
and developments. The main reviews are based on the World Economic Outlook reports and
the Global Financial Stability Report, which covers developments, prospects, and policy
issues in international financial markets. Both reports are published twice a year, with
updates being provided on a quarterly basis. In addition, the Executive Board holds more
frequent informal discussions on world economic and market developments.

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IMF AND INDIA
India is one of the founder members of IMF. It joined on 12/27/45. It has a close
relationship with IMF. It is giving its contribution in the execution of its functioning and
policy making. India ranked 5th till 1970 among the countries which had the largest quota
in IMF. At present India has lost her permanent membership because her quota in IMF
ranks 11th which is less than the first five countries.

Finance minister is the ex-officio governor in the board of governors of IMF.

RBI is the alternate governor. India is represented at the IMF by an executive director
who represents three other countries, viz. Sri Lanka, Bangladesh and Bhutan.

Resident Representative: A resident representative’s office was opened in November

1991. Mr. Sanjaya Panth has been Senior Resident Representative since August 2008.

Benefits to India from IMF’s membership

It is good that India joined IMF .There is no doubt that this membership has been greatly
beneficial to India.

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 1) International regulation by IMF in the field of money has certainly contributed
towards expansion of international trade and thus prosperity .India has, to that
extent, benefited from these results.
2) Large financial assistance: The most important contribution of IMF has been the
availability of financial help provided by IMF at the most crucial timings i.e.
 Post partition period: at this time India had serious balance of payments
deficits, particularly with the dollar and other hard currency countries.
Moreover to counter all this it could not reduce her imports since these
consisted of essential foodstuff, capital equipment, industrial raw materials
etc. on the other hands exports could not be expanded immediately under
the conditions of limited production in the country. Under such conditions
it was the IMF that came to help.
 During 1991: India had serious foreign exchange crisis. at that time also
IMF helped India.
So it can be said that India has been the most frequent borrowers. in November
1981, India was given a massive loan of about Rs. 5000 crores to overcome foreign exchange
crisis resulting from persistent deficit in balance of payments on current account.

3) Aid from World Bank and other international financial agencies:

 The membership of IMF has benefited India in a way that Membership of
IMF is necessary condition precedent to membership of world bank and its
affiliates i.e. IFC (international Financial Corporation) and IDA
(International Development Association).
 So it has been able to borrow money for various developmental projects
etc. IFC has made substantial investment in Indian companies engaged in
the production of fertilizers, caustic soda, ball and bearings, pumps etc.
The loans from IDA are payable over 50 years , are interest free and bear a
service charge of 0.75 percent per annum.
 Since 1975-76 , the World Bank has been extending the ‘third window’
facility , for countries having per capita income of less than
$ 375. India got a substantial share out of it.

4) Services of specialists: India has availed the service of specialists of IMF for the
purpose of assessing the state of the Indian economy. teams of experts have been
coming to India and submitting reports so India had the benefit of independent
scrutiny and advice.
5) Contribution to International Monetary Concord: India has been contributing to
international monetary concord apart from her own gains.
6) Provision of oil facility: The balance of payments position had gone utterly out of
gear on account of oil price escalation since 1973. Since then IMF has started
making available oil facility by setting up a special fund for the purpose.

The changing position …..

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  India has become a lender from borrower
 RBI has done its bit to help economies struggling from the global financial
crisis, by lending $10 billion to the International Monetary war fund chest
 The central bank i.e. RBI will buy notes worth the amount as a part of the
international efforts to support IMF’s lending capacity to member nations.
Till now the EU and US are the largest donors to the fund with sums at
around $178 billion and $100 billion,
 RBI said the purchase of notes is a temporary bilateral arrangement for an
initial period of one year, which may be extended by a period of up to two
years.
 India and IMF established a joint training programme in national banking
management Institute at Pune. First training programme was started in July
2006. India also donates money in Subsidy Account of IMF. India has paid
10 lakh dollars as 13th annual instalment in the Subsidy Account of
Poverty Reduction Growth Facility (PRGF) during July 2006. India
provided 205 million (dollar in two separate instalments of IMF as loan
under Financial Transaction Plan in May 2003.

Future perspective as per IMF

As discussed that India has the benefit of independent scrutiny and advice. This section
discusses that what the IMF thinks of India’s future.

 Growth expected to be back at potential in 2010/11

 Conditions ripe for withdrawing monetary and fiscal stimulus
 Financial sector reform key to strengthening infrastructure

India was one of the first countries to emerge from the global crisis, but Asia’s third largest
economy is now facing policy trade-offs earlier than other countries and should return to its
longer-term reform agenda, according to the IMF.

1) Growth : In its annual review of the Indian economy, the Fund projects the country’s
growth will rise from 6 ¾ percent in 2009/10 to 8 percent the following year, off the
back of an expected pick-up in private consumption and investment

2) Exiting from stimulus: But alongside recovery, India’s policymakers are facing new
challenges. Inflation is rising, partly due to increased food prices, but also because of
demand pressures. In recent years, food production has failed to keep up with
increased demand and this trend has been intensified by the poor monsoon and the
cyclical recovery from the crisis. With signs of the recovery becoming well
entrenched, the IMF said that conditions were “ripe for a progressive normalization of
the monetary stance.” It welcomed the recent decision by the Reserve Bank of India
(RBI) to begin the process of monetary tightening, and called for a further gradual
withdrawal of monetary accommodation. During the global crisis, India benefited
from fiscal stimulus which was already in the pipeline and the authorities responded

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 to the downturn with further injections of fiscal and monetary stimulus. But this has
left the country with a double-digit deficit and public debt stands at close to 80
percent—one the highest levels in the emerging world.
3) Tackling the deficit: The IMF welcomed measures announced by the Indian
authorities to tackle the country’s ballooning deficit starting from the next budget.
New Delhi plans to reduce the central government deficit by 1½ percentage points to
5½ percent of GDP in 2010, but further measures could be necessary, according to
IMF’s mission
4) Financial sector reform: The IMF has identified the need for financial sector reforms
to facilitate infrastructure investment and fiscal consolidation. Currently, commercial
banks in India are limited in what they can do because of the short-term nature of their
deposits set against the long-term and risky needs of infrastructure projects. A
deepening and widening of the financial system, including the further development of
the corporate bond markets, are possible solutions

Critique

IMF at one side has benefited its member countries by providing help in balance of
payments, determining their exchange rates, spreading of technical knowledge, improving
international economic relations, acting as a friend at the time of need and making
member countries free from political pressure while on the other side, it has often failed
in achieving stability in exchange rates (the value of various currencies is increasing or
decreasing in the open market), achieving stability in the prices of gold; establishing a
free trade system, getting stability in international money market.

1. It has been severely criticized for serving the needs of G-7 countries and has
failed to stimulate global stability for which it was set up.
2. Its policy of providing financial assistance to the poor developing countries
subject to the fulfilment of certain conditions by the latter has come in for
severe criticism. These conditionalities refer to the structural adjustment
policies, namely a) privatization of public enterprises b) capital market
liberalization c) liberalization of foreign trade and investment. If conditions
related to all these are not forthcoming it doesn’t provide any financial
assistance. Infect capital market liberalization has proved to be disastrous for
many counties because they were not able to deal with great volatility of
capital inflows and outflows. This policy only resulted in East Asian crisis in
the late nineties.
3. Elimination of subsidies on food and fuel has been resisted by developing
countries. In 1998 riots broke out in Indonesia due to this.
4. It has not been able to solve the twin problems of poverty and unemployment.

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Conclusion
However IMF functions as a light-house for monetary and financial hindrances. It manages
the financial oil for the economic machine of the world. It is in reality an international
institution which helps the needy countries at the time of financial difficulties

finally it may be said that IMF has strengthened the monetary discipline among its members
by timely assisting them to tide over their balance of payments deficits. It has helped the
members in technical matters relating to fiscal and monetary policies, debt servicing, balance
of payments, currency devaluation etc. IMF working during last 62 years since 1947 shows
that all has not been well with it. It has met only with limited success. Members have violated
Fund's rules regarding the alteration in the par values of the currencies. The countries whose
currencies were in short-supply did not take any material step to rectify it. The success of the
IMF towards the establishment of multi-lateral system of trading will depend upon the degree
to which the underdeveloped countries can implement their development plans with the
framework of financial stability free from the distorting effects of inflation.

References:

Indian Economy by RudraDutt

Indian Economy by K.P. Sundaram

Business Environment by Salim Sheikh

www.imf.org

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