International Monetary Fund (IMF)

ROLE AND FUNCTION OF IMF

Arun Mishra
9893686820
arunjimishra@gmail.com
 HISTORY
• The International Monetary Fund was conceived
in July 1944 originally with 45 members and
came into existence in December 1945 when
29 countries signed the agreement.
• IMF started to make service with IBRD in 1947.
• The IMF works to improve the economies
of its member countries.
• Its HQ is Washington, D.C.,
• It is governed by almost 189 countries.
 International Monetary Fund
• IMF is the inter-governmental organization that
oversees the global financial system by
following the macroeconomic policies of its
member countries, in particular those with an
impact on exchange rate and the balance of
payments.
• It is an organization formed with a stated
objective of stabilizing international
exchange rates and facilitating development
through the enforcement of liberalizing
economic policies on other countries as a
condition for loans, restructuring or aid.
 International Monetary Fund
• The IMF was created to support orderly
international currency exchanges & to
help nations having balance of payment
problems through short term loans of cash.

• Its headquarters are in Washington, United

States.
 Purposes of the IMF
o Promote international monetary
cooperation.
o Expansion & balanced growth of
international trade.
o Promote exchange rate stability.
o The elimination of restrictions on
the international flow of capital.
o Make resources of the Fund
available to members
Purposes of the IMF
o Help establish multilateral system of
payments and eliminate foreign exchange
restrictions.
o Shorten the duration and lessen the degree
of disequilibrium in international balances
of payment.
o Foster economic growth and high levels of
employment.
o Temporary financial assistance to
countries to help the balance of payments
adjustments.
ROLE OF IMF
• Promoting research in various areas of
international economics and monetary
economics.
• Providing a forum for discussion and
consultation among member
countries.
• Focusing on its core macroeconomic and
financial areas of responsibility.
• Working in a complementary fashion
with other institutions established.
FUNCTIONS OF IMF
• Surveillance (like a doctor) Gathering
data and assessing economic policies of
countries.

• Technical Assistance (like a teacher)

Strengthening human skills and
institutional capacity of countries.

• Financial Assistance (like a banker)

Lending to countries to support reforms
Collaborating with Other Institutions
• The IMF collaborates with
▫ the World Bank,
▫ the regional development banks,
▫ the World Trade Organization,
▫ United Nations agencies, and
▫ other international bodies.

Each of these institutions has its own area of

responsibility and specialization and its
particular contribution to make to the
world economy.
Organisational Structure of IMF
1. Board of Governors
Interim Committee Development Committee

2. Executive Board

3. A Managing Director

4. IMF secretariat helps managing

director
Board of Governors
• Decision-making organ of the fund.
• It is the highest body.
• It exercises powers & takes the decisions.
• Consists of one Governor and one Alternate
Governor by each member country.
• Governor has the right to vote.
• Usually countries appoint its Finance Minister or
RBI Governor.
• Alternate Governor had Voting rights only in the
absence of Governor.
• The Board of Governors meets once a year
The Executive Board
• Has 21 members.
• 5 major members are appointed by the coutries
having largest Quota.
• Sixth ED is appointed by the Kingdom of Saudi
Arabia
• The remaining 15 are elected by the remaining
member countries.
Managing Director
• Elected by the Executive Directors.
• Can be a Politician or an imp. International official.
• Is anon-voting chairman of the board &
• Head of the fund staff.
Interim Committee
• At present 22 members.
• Created in 1974.
• Objective is to advice BoG on;
• Supervising the management
• Adaptation of international monetary system
The Development Committee
• At present 22 members. Created in 1974.
• Objective is to advice & report BoG on all aspects.
The Executive Board
• Has 21 members.
• 5 major members are appointed by the coutries having
largest Quota.
• Sixth ED is appointed by the Kingdom of Saudi Arabia
• The remaining 15 are elected by the remaining member
countries.

Managing Director
• Elected by the Executive Directors.
• Can be a Politician or an imp. International official.
• Is anon-voting chairman of the board &
• Head of the fund staff.
Quotas & subscriptions
• Quota subscriptions generate most of the IMF's
financial resources.
• Each member country of the IMF is assigned a
quota, based broadly on its relative size in the
world economy.
• A member's quota determines its maximum
financial commitment to the IMF and its voting
power, and has a bearing on its access to IMF
financing.
• A new country is assigned an initial quota in the
same range as the quotas of existing members.
Quotas & subscriptions
• The quota formula is a weighted average of GDP (weight
of 50%), openness (30%), economic variability (15%), &
international reserves (5%)
• For this purpose, GDP is measured as a blend of GDP
based on a market exchange rates (weight of 60%) & on
PPP exchange rates (40%).
• Quotas are denominated in Special Drawing Rights
(SDRs)
• The formula also includes a “compression factor” that
reduces the dispersion in calculated quota shares across
members.
Voting Rights
VOTING RIGHTS & QUOTA for
INDIA in IMF
• India’s quota in IMF to rise to 2.7 per cent from
the existing 2.44 per cent 
• Voting share of India would rise to 2.6 per cent
from the current 2.34 per cent
• For the first time, four emerging market
countries — BRIC will be among the 10 largest
members of the IMF.
Special Drawing Rights (SDR)
• The SDR is an international reserve asset, created by the
IMF in 1969 to supplement its member countries' official
reserves.
• Its value is based on a basket of four key international
currencies, and SDRs can be exchanged for freely usable
currencies.
• With a general SDR allocation that took effect on August
28 and a special allocation on September 9, 2009, the
amount of SDRs increased from SDR 21.4 billion to SDR
204.1 billion (currently equivalent to about $324 billion).
• The value of the SDR was initially defined as
equivalent to 0.888671 grams of fine gold.
• the SDR was redefined as a basket of currencies,
today consisting of the euro, Japanese yen,
pound sterling, and U.S. dollar.
• The U.S. dollar-value of the SDR is posted daily
on the IMF's website.
• It is calculated as the sum of specific amounts of
the four currencies valued in U.S. dollars, on the
basis of exchange rates quoted at noon each day
in the London market.
Lending Policies
• A member country may request IMF financial
assistance if it has a balance of payments need—
that is, if it cannot find sufficient financing on
affordable terms to meet its net international
payments while maintaining adequate reserve
buffers going forward.
• An IMF loan provides a cushion that eases the
adjustment policies and reforms that a country
must make to correct its balance of payments
problem and restore conditions for strong
economic growth.
IMF Facilities
• the IMF has developed various loan instruments,
or “facilities,” that are tailored to address the
specific circumstances of its diverse
membership.
• IMF financial policies govern the modalities for
the use of its financial resources under existing
IMF facilities.
Different Programmes of IMF
• Stand-by Arrangements:
▫ Under this arrangement a credit tranche which is
equal to 100 per cent of member country’s quota is
available for lending to it.
▫ Typically, stand-by arrangements last for 12-18
months period.
▫ Repayments of loans under this arrangement are
made within 3-5 years of each drawing the money
from IMF.
Different Programmes of IMF
• Extended Fund Facility (EFF):
▫ was created in 1974 to help the developing countries
over longer periods (upto 3 years)
▫ The loans taken under this facility can be paid back
over a period of 4-10 years.
▫ developing countries can borrow more than their
quota.
• The important special facilities are:
▫ Poverty Reduction and Growth Facility (PRGF)
▫ Supplemental Reserve Facility (SRF)
▫ Contingent Credit Line (CCL)
▫ Special Oil Facility.
Criticism of IMF

• Related to Conditionality:
• Related to myopic “one-size-fits-all” approach
• Privatization to state-run undertakings as pre-
condition for sanctioning aid.
• Delay in responding to crises.
India: Transactions with the Fund from May 01, 1984 to
Dec. 31, 2020
INDIA: At a Glance
• 2021 Projected Real GDP (% Change) : -10.3
• 2021 Projected Consumer Prices (%
Change): 4.9
• Country Population: 1,381.588 million
• Date of Membership: December 27, 1945
• Special Drawing Rights (SDR): 1048.46
million
• Quota (SDR): 13114.4 million
• Number of Arrangements since membership: 7