International Monetary Fund


(i) (ii)

(iii) (iv) (v)

The International Monetary Fund (IMF) was conceived at the United Nations Bretton Woods Conference in United States in July 1944 that sought to build a framework for economic cooperation to avoid the trade destructive and beggar thy neighbour policies that had contributed to the Great Depression of 1930s. The institution was created in 1945. Its original objectives was concretised into Articles of Agreement as Promoting international monetary cooperation; Facilitating the expansion and balanced growth of international trade; Promoting exchange stability; Assisting in the establishment of a multilateral system of payments Making resources available to members experiencing balance of payments difficulties.

IMF Factsheet 
Membership ± 187 countries  Executive Board ± 24 Directors representing countries or groups of countries.  Total Quotas ± US $328 billion as on August 31, 2010.  Pledged Resources ± US $ 600 billion.  Biggest Borrowers ± Romania, Ukraine and Hungary.


IMF Board of Governors 
Highest decision making body of the IMF.  Consists of one Governor and one alternate Governor for each member country.  It has delegated most of the powers to the Executive Board except right to approve quotas, special drawing right allocations, admittance of new members, compulsory withdrawal of members and amendments to articles and by-laws.  Elects or appoints Executive Directors.  Ultimate arbiter on issues related to the interpretation of the IMF¶s articles of agreement.  Normally meets once a year.

The Executive Board 
Conducts daily business of IMF.  Consists of 24 members.  Five Executive Directors are appointed by the member countries holding five largest quotas (United States, Japan, Germany, France and the United Kingdom).  19 Directors are elected by the remaining member countries.  Starting 2012, all 24 Directors will be elected by the member countries.  The Board discusses almost all issues concerning the IMF.  Normally makes decisions based on consensus but sometimes formal votes are taken.

IMFC issues a communique summarizing its views which provides guidance for the IMF¶s work program during the six months leading up to the next Spring or Annual meeting.  At the end of each meeting.  IMFC works on consensus and not formal votes.  Meets twice a year ± IMF-World Bank Spring and Annual Meetings.  Consists of 24 members drawn from 187 governors.Ministerial Committees ± IMFC  IMFC is the advisory wing of IMF. .  Discusses matters of common concern governing the world economy and advises the IMF on the direction of its work.

and analysis based on tracking of global.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. and individual economies and markets. regional.  Research.  Concessional loans to help fight poverty in developing countries.  Loans to help countries overcome economic difficulties. forecasts. statistics. and  Technical assistance and training to help countries improve the management of their economies. .

including: . based broadly on its relative size in the world economy. each member of the IMF is assigned a quota.Membership  The IMF currently has a near-global membership of 187 countries. a country must apply and then be accepted by a majority of the existing members. To become a member.  Upon joining.  A member's quota delineates basic aspects of its financial and organizational relationship with the IMF.

.  Lending: In the event that member countries experience difficulties financing their balance of payments.  Research and data: Supporting all three of these activities is the IMF's economic and financial research and statistics.  Technical assistance and training: offers technical assistance and training to help member countries strengthen their capacity to design and implement effective policies.How IMF Helps Member Countries  Surveillance: The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. This process of monitoring and discussing countries¶ economic and financial policies is known as bilateral surveillance. the IMF is also a fund that can be tapped to facilitate recovery.


lending reserve assets to some of its member countries from resources subscribed by all its members. Two official sources ± General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB).Structure and Operation of Fund¶s Finances  The Fund is a cooperative of member countries.  Fund¶s resources are largely sourced from quota subscriptions.  The Fund¶s pool may also be increased through additions to its precautionary balances consisting of reserves and resources set aside in two special contingent accounts.  IMF Borrowing: The Fund may borrow from official and private sources. .  Essence of Lending: To give borrowing members confidence and the opportunity to correct maladjustments in their balance of payments without resorting to practices destructive of national or international prosperity.

and from Saudi Arabia under an associated agreement. Under such an agreement. the member commits to allow the Fund to make drawings up to a specified ceiling during the period for which drawings can be made. The notes would be transferable within the official sector but could not be held privately.5 billion from 11 industrial countries or their central banks. A NPA would enable creditors to commit to purchase notes up to a specified ceiling during an agreed period.Sources of Fund¶s Finances  GAB.  The IMF may also borrow through bilateral loan agreements. . originally established in 1962 enables the Fund to borrow upto SDR 18. at the request of the Fund.  The Fund may borrow through note purchase agreements (NPAs). It is the facility of first recourse should the Fund need to borrow.  NAB became operational in 1998 enables the Fund to borrow up to SDR 34 billion from 25 official lenders.

 The Fund¶s accounts are organised under three separate headings. In addition. Special Drawing Rights Departments and Administered accounts. The GD consists of General Resources Account used for the Fund¶s main lending operations and its borrowing. a part of the subscribed capital is interest free. precautionary balances also represent interest free resource for the Fund.Sources of the Fund¶s Finances  The Fund pays interest on member¶s claims on it. However. The General Department (GD). .

the purpose of lending to the IMF is to provide them with the opportunity to correct maladjustments in BoP.  Today the purpose has expanded into helping countries deal with short term trade fluctuations to supporting adjustment and addressing a wide range of BoP problems resulting from terms of trade shocks. poverty reduction and economic development. sovereign debt restructuring and confidence driven banking and currency crisis. natural disasters. broad economic transition.Philosophy behind Lending  Originally. as per the Articles of Agreement. post conflict situations. .

2. Helps unlock other financing.Philosophy behind Lending  In a nutshell it serves three basic purposes 1. Smoothes adjustment to various shocks and enables a country to avoid disruptive economic adjustment. Crisis prevention. 3. .

IMF Concessional Lending .

2009.IMF Lending ± Concessional Assistance  A member country may request IMF financial assistance if it has a balance of payments need²that is. The access limit was 140 per cent of the quota or 185 per cent of quota in exceptional circumstances.  Poverty Reduction and Growth Facility (PRGF) was introduced in 1999 to eliminate deep seated balance of payments need of structural nature and to induce poverty reducing growth. .  On July 23. if it cannot find sufficient financing on affordable terms to meet its net international payments while maintaining adequate reserve buffers going forward. the IMF¶s Executive Board approved far-reaching reforms of the concessional lending facilities for low-income countries (LICs).  IMF created a new architecture of facilities that is more flexible and tailored to the increasing diversity of LICs and their needs.

the Executive Board approved a new concessional financing framework under which a new Poverty Reduction and Growth Trust (PRGT) that replaced the erstwhile PRGF-ESF Trust. A.Reforms  As part of the reform package. This has three new lending windows. all under highly concessional terms. and formal poverty reduction strategy document requirements.  Separate loan and subsidy accounts have been established under the PRGT to receive and provide resources to finance new LIC lending facilities under the new Trust. . The Extended Credit Facility (ECF):  Provides sustained engagement in case of medium-term balance of payments needs.Concessional Lending . the timing of structural reforms.  Allows significantly higher access to financing and offers more concessional terms than previously.  Offers more flexibility than before on program extensions.

or policy slippages. The Standby Credit Facility (SCF)  The SCF supersedes the Exogenous Shocks Facility's High Access Component.Concessional Lending .  The SCF provides flexible support to low-income countries with short-term financing and adjustment needs caused by domestic or external shocks.Reforms B.  It is similar to the Stand-By Arrangement for middle-income countries. .  Targets countries that no longer face protracted balance of payments problems but may need help from time to time  Can also be used on a precautionary basis to provide insurance.

up-front payout for low-income countries facing urgent financing needs.Concessional Lending .  Provides flexible assistance without program-based conditionality when use of the other two facilities is either not necessary (limited nature of need) or not possible (institutional or capacity constraints). The Rapid Credit Facility (RCF)  Provides rapid financial support in a single. and offers successive drawings for countries in post-conflict or other fragile situations. .Reforms C.

Debt Relief .

with the aim of ensuring that external debt burdens of the most heavily indebted poor countries are reduced to sustainable levels. .  In 2005. the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI).  The MDRI allows for 100 percent relief on eligible debts by three multilateral institutions²the IMF. poverty reduction.  strengthened the links between debt relief. and the African Development Fund (AfDF)²for countries completing the HIPC Initiative process and to advance them towards Millennium Development Goals. to help accelerate progress toward the United Nations Millennium Development Goals (MDGs).Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)  The HIPC Initiative was launched in 1996 by the IMF and World Bank. the World Bank. and social policies.

IMF Non-Concessional Assistance .

and to support policies designed to help them emerge from crisis and restore sustainable growth. consistent with addressing short-term balance of payments problems.  Eligibility. But mostly used by middle income member countries.  It allows the Fund to respond quickly to countries¶ external financing needs.IMF Lending ± Non-Concessional I.  Duration. . All member countries facing external financing needs are eligible for SBAs subject to all relevant IMF policies. IMF Stand-By Arrangement  It is the workhorse lending instrument for emerging market countries to help them overcome their balance of payments problems. Length of a SBA is flexible. 12-24 months < SBA Duration < 36 months.

countries facing acute financing needs have been able to tap exceptional access SBAs. . which enables rapid approval of IMF lending. During the current global economic crisis.  Rapid access: Fund support under the SBA can be accelerated under the Fund¶s Emergency Financing Mechanism. Borrowing limits up to 200 percent of quota for any 12 month period. This mechanism was utilized in several instances during the recent crisis.  Exceptional access: The IMF can lend amounts above normal limits on a case-by-case basis under its Exceptional Access policy.IMF Stand-By Arrangement (Contd) Borrowing terms :  Normal access.  Front-loaded access: The new SBA framework provides increased flexibility to front load funds where warranted by the strength of the country¶s policies and the nature of its financing needs. and 600 percent of total credit outstanding . which entails enhanced scrutiny by the Fund¶s Executive Board.

Hungary. Georgia. and in 2010 for Greece. (ii) a staff team is quickly deployed to the country.  When can it be used? When a member country faces an exceptional situation that threatens its financial stability and a rapid response is needed to contain the damage to the country or the international monetary system.IMF Stand-By Arrangement (Contd) Some More on The Emergency Financing Mechanism  It was used in 1997 during the Asian crisis. Latvia. . Pakistan. the Board considers the request to support a program within 48-72 hours. in 2001 for Turkey. (iii) as soon as staff reaches an understanding with the government. in 200809 for Armenia.  How does it work? (i) The Executive Board is informed about a member¶s request for assistance. and Ukraine. Iceland.

These commitments. it agrees to adjust its economic policies to overcome the problems that led it to seek funding in the first place. .  Quantitative conditions. consistent with program goals. are described in the member country¶s letter of intent (which often has a memorandum of economic and financial policies). including specific conditionality.IMF Stand-By Arrangement (Contd) Conditionalities  When a country borrows from the IMF. Examples include targets for international reserves and government deficits or borrowing. Member countries progress is monitored using quantitative program targets. Fund disbursements are tied to the observance of such targets.

Regular reviews by the IMF¶s Executive Board play a critical role in assessing performance under the program and allowing the program to adapt to economic developments.IMF Stand-By Arrangement (Contd) Conditionalities  Structural measures.  Frequency of reviews. The SBA framework allows flexibility in the frequency of reviews based on the strength of the country¶s policies and the nature of its financing needs. . Instead. The new SBA framework has eliminated structural performance criteria. progress in implementing structural measures that are critical to achieving the objectives of the program are assessed in a holistic way in the context of program reviews.

 Lending rate. known as the basic rate of charge. Large loans carry a surcharge of 200 basis points. . and is designed to discourage large and prolonged use of IMF resources. paid on the amount of credit outstanding above 300 percent of quota. which is itself linked to the Special Drawing Rights (SDR) interest rate. It is repaid in eight equal quarterly installments beginning 3¼ years after the date of each disbursement. The lending rate is tied to the IMF¶s market-related interest rate. Repayment of borrowed resources under the SBA are due within 3¼-5 years of disbursement. If credit remains above 300 percent of quota after three years. this surcharge rises to 300 basis points.IMF Stand-By Arrangement (Contd) Lending Terms  Repayment.

A service charge of 50 basis points is applied on each amount drawn. As a result.IMF Stand-By Arrangement (Contd) Lending Terms  Commitment fee. These fees are refunded if the amounts are borrowed during the course of the relevant period. .  Service charge. if the country borrows the entire amount committed under an SBA.000 percent of quota and 60 basis points on amounts exceeding 1. Resources committed under all SBAs are subject to a commitment fee levied at the beginning of each 12 month period on amounts that could be drawn in the period (15 basis points for committed amounts up to 200 percent of quota. the commitment fee is fully refunded. while no refund is made under a precautionary SBA under which countries do not draw.000 percent of quota). 30 basis points on committed amounts above 200 percent and up to 1.

 ‡ Longer repayment period.  ‡ No hard cap on access to Fund resources.Streamlining IMF Lending Toolkit ± New Instruments  Flexible Credit line (FCL) for countries with strong macro fundamentals. . and  ‡ Flexibility to draw at any time on the credit line or to treat it as a precautionary instrument (which was not allowed under the SLF). or a 12-month period with a review of eligibility after six months. policies. which will be assessed on a case-by-case basis. and track records of policy implementation.  Renewable credit line. which at the country¶s discretion could initially be for either a six-month period.

.Precautionary Credit Line  The Fund has also introduced a precautionary credit line (PCL) to provide resources to members with sound fundamentals and policy frameworks but also moderate vulnerabilities that preclude FCL eligibility.  Bridges the gap between the FCL and the HAPA  The PCL combines a qualification process (similar to that for the FCL) with focused ex-post conditionality aimed at addressing vulnerabilities identified during qualification. Countries that qualify under the PCL have large frontloaded access. with up to 500 percent of quota made available on approval of the arrangement and up to a total of 1000 percent of quota after 12 months upon satisfactory progress in reducing their vulnerabilities. with duration between one and two years.  The PCL works as a renewable credit line.

access to resources can be brought forward. But the PCL can also play a crisis-resolution role: if a large balance of payments need arises unexpectedly. . the PCL is only available to countries that do not face an actual balance of payments need at the time of approval.Precautionary Credit Line  As a dedicated credit line for crisis-prevention.

political turmoil or international armed conflict.  For BoP needs related to natural disaster.  Introduced in 1995. may be exceeded in exceptional circumstances.  25 per cent of quota. Emergency Natural Disaster Assistance  Introduced in 1962.  For BoP needs related to the aftermath of civil unrest.  25 per cent of quota. annually but 50 per cent of quota over three years.Emergency Assistance A. . Emergency Post-Conflict Assistance. B.

Japanese yen.Special Drawing Rights (SDRs)  What is SDR?  It is an international reserve asset created by the IMF in 1969 to serve as a supplement to member countries international reserves.  In November 2010. the weights of the currencies in the SDR basket was revised based on the value of exports of goods and services and the amount of reserves denominated in the respective currencies that were held by other members of the IMF.  These currencies include the euro.  This basket is reviewed every five years. on the basis of exchange rates quoted at noon each day at London market. . pound sterling and US dollar.  Value of SDR  The value of SDR is calculated as the sum of specific amounts of four basket currencies valued in US dollar.

 It increased SDR allocations from SDR 21.1 billion  The general SDR allocation has been made to IMF members that are participants in the Special Drawing Rights Department (currently all 186 members) in proportion to their existing quotas in the Fund.  It is a claim on freely usable currencies of IMF members. the IMF Board of Governors approved a general allocation of SDRs equivalent to US $ 250 billion to provide liquidity to the global economic system by supplementing Fund¶s member countries¶ foreign exchange reserves.Special Drawing Rights (SDRs)  So What Actually is SDR?  It is not a currency. Acceptability of SDR  SDR is purely official asset.4 billion to SDR 204.  It is not a claim on IMF. It can be held and used by member country participants in the SDR Department. which are based broadly on their relative size in the global economy .  In August 2009.

Voluntary Trading Arrangement .

.Voluntary Trading Arrangement (VTAs)  Under VTAs. a number of participants with strong balance of payments and creditor positions in the Fund stand ready to buy or sell SDRs in voluntary transactions.


1. 1.IMF Quotas  Quotas are the basic financial resource of the IMF.91 per cent of total quotas.SDR 4158.  Allotment of Quotas  Ideally based on a quota formula. 41. (2) Voting Power ± Each Member has 250 votes + one additional vote for each SDR 100.2 million.832 votes. . (India¶s quota .  Key Roles : (1) Subscription ± Determines the maximum amount of financial resources a member is obliged to pay to IMF.000 of quota.88 per cent of total votes) (3) Access to Financing ± Determines the amount of financing a member can obtain in IMF.

 Quotas are denominated in SDRs. every five years. a quota review is to be undertaken (i) to increase the overall financial resources at the disposal of the IMF and. economic variability and international reserves. Quota Reviews  Under the Articles of Agreement of the IMF. (ii) a readjustment of quota allocation within the member countries in order to adequately reflect the emerging trends in the global economy. .  Till date fourteen general quota reviews have taken place. openness. Twelfth and Thirteenth quota reviews did not recommend any rise.IMF Quotas  Quota formula is a weighted average of GDP.

IMF Quota Formula  No official document on what basis initial quotas were arrived at. and international reserves (5 percent).  Original Bretton Woods¶ formula involved a process of µnegotiation and compromise¶. openness (30 percent). Difference between current receipts and five year moving average of exports. calculated over a thirteen year period was used. Quota = w1 (National Income) + w2 (Gold and Foreign Exchange Reserves) + w3 (Average Annual Imports) + w4 (Max Fluctuation in Exports)  In 1965.  Current Quota Formula is a weighted average of GDP (weight of 50 percent). the measure of variability of exports was transformed. . economic variability (15 percent).

the blend in the GDP component and the issues in inclusion of 'openness' and 'variability' variables are well known and in April 2008 it was decided that the issue requires to be revisited before the formula is used again . Relative share of the different variables.  Further. as decided during the 2008 communique. certain elements of the formula require re-examination.IMF Quota Formula  The current quota formula fails to reflect global economic realities with the calculated quota shares of many EMDCs including India much below their PPP-GDP share.

.  Quota allocation seems unfair as it does not reflect the economic realities of a rapidly integrating global economy.Ad hoc Increase in Quotas  Final Distribution of Quotas has not been strictly on the basis of formula.  Plausible alternative proposed by IMF ± ad hoc increase in quotas for countries whose calculated quotas are way above the actual allocation either through overall increase in quota levels or redistribution between countries with surplus quotas to countries with deficit quotas.

0 per cent from over-represented to underrepresented countries.0 per cent of quota shares to dynamic emerging market and developing countries.0 per cent of the total voting power had cast votes in favour of the resolution on Quota and Reform of the Executive Board. (4) More than 6. while protecting the quota shares of poorest members. Salient features of the Review (1) Doubling of Quotas to SDR 476.Fourteenth General Review  The 14th General Review of Quotas was completed on December 15. . (2) Rollback of the New Arrangements to Borrow (NAB).8 billion or US $ 733. (3) Major realignment of the Quotas resulting in shift of more than 6. 2010.  Over 95.9 billion.

Fourteenth General Review (contd) (5) A move to a more representative all elected Executive Board.  Advanced European countries to reduce their combined board representation by two chairs. The goal is to continue the dynamic process of adjusting quota shares to reflect shifts in the global economy.  Provision for appointing second alternative EDs to enhance representation of multi-country constituencies.´ . ³ Completion of the 15th General Review of Quotas to be brought forward by about two years to January 2014. All ED¶s to be elected. (6) Comprehensive Review of the Quota formula to be completed by January 2013.  Size of the Executive Board to b maintained at 24 members.  The practice of appointed executive directors to be put to an end.

China 10. Japan 3.02 3.23 3. India 9. US 2.50 4.95 Rank/Coun Posttry Second Round 1.Italy 8.16 2. Italy 8.71 2. Italy 7.59 4.02 5.75 2.23 6. Japan 3. Germany 5.46 6.67 6. Saudi A 10.23 4. India 17.98 6.China 4.32 .30 3. UK 7.56 6. Germany 4. France 5.39 5.09 5. Japan 3. Russia 10.49 2.00 3.Quota Shares of Largest Members Rank/Coun Pretry Singapore 1. US 2. France 5.98 2.27 2. India 17.44 Rank/Coun Proposal try 14th Review 1.Brazil 17. US 2.93 2.41 6. Russia 11. UK 6.Russia 13.78 1.50 4. Germany 4. UK 6. Saudi A 9.France 6. China 7.31 2.11 4.


. the Fund oversees members¶ exchange rate policies and domestic and financial sector policies.  Focus of Surveillance: (a) In bilateral surveillance. IMF Executive Board conducts Article IV consultations with each member country. typically once a year. This involves both bilateral and multilateral surveillance.IMF Surveillance  The IMF is charged with overseeing the international monetary system to ensure its effective operation and monitoring each member¶s compliance with policy obligations. (b) In multilateral surveillance. the Fund oversees the international monetary system and hence examines a broad range of issues that are relevant for its effective operation.  Under bilateral surveillance.

IMF publishes two semi-annual publications produced by the Fund (a) World Economic Outlook (WEO) (b) Global Financial Stability Report (GFSR)  Besides.  The WEO provides detailed analysis of the state of the world economy. The GFSR provides an up-to-date assessment of global financial markets and prospects. GFSR and cross country analysis of key themes in bilateral surveillance. and highlights imbalances and vulnerabilities that could pose risks to financial market stability. broad developments in the exchange rates of systemically important countries are reviewed periodically by the Executive Board through discussion of the WEO. . addressing issues of pressing interest. such as the current global financial turmoil and economic downturn.IMF Surveillance  Under multilateral surveillance.

 In September 2009. the IMF¶s Executive Board adopted a "Statement of Surveillance Priorities" (SSP) that laid out the economic and operational priorities for surveillance until 2011. They called for more sustained and systematic international cooperation and asked the Fund to support the G-20¶s mutual assessment efforts through a forward-looking analysis of whether policies pursued by member countries were collectively consistent with sustained and balanced growth for the global economy. providing more detailed analysis for the five major regions of the world. .IMF Surveillance  The IMF also publishes Regional Economic Outlook reports.  At the G-20 Summit in Pittsburgh. This emphasized the orderly unwinding of crisis-related policy interventions and the policy requirements for sustaining world growth. world leaders highlighted the role of IMF surveillance in resolving the global crisis.

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