INTERNATIONAL MONITORY FUND 1.

INTRODUCTION TO IMF:
International Monetary Fund:
The International Monetary Fund (IMF) is an international organization that ro!ides

"inan#ial assistan#e and ad!i#e to $e$%er #ountries& The International Monetary Fund (IMF) is the international organization that o!ersees the glo%al "inan#ial syste$ %y "ollo'ing the $a#roe#ono$i# oli#ies o" its $e$%er #ountries( in arti#ular those 'ith an i$ a#t on e)#hange rate and the %alan#e o" ay$ents& It is an organization "or$ed 'ith a stated o%*e#ti!e o" sta%ilizing international e)#hange rates and "a#ilitating de!elo $ent through the en"or#e$ent o" li%eralizing e#ono$i# oli#ies on other #ountries as a #ondition "or loans+ restru#turing or aid& It also o""ers loans 'ith !arying le!els o" #onditionality+ $ainly to oorer #ountries& Its headquarters are in Washington, D.C., United tates & The IMF,s relati!ely high in"luen#e in 'orld a""airs and de!elo $ent has dra'n hea!y #riti#is$ "ro$ so$e sour#es& The IMF 'or-s to "oster glo%al gro'th and e#ono$i# sta%ility& It ro!ides oli#y ad!i#e and "inan#ing to $e$%ers in e#ono$i# di""i#ulties and also 'or-s 'ith de!elo ing nations to hel the$ a#hie!e $a#roe#ono$i# sta%ility and redu#e o!erty& The International Monetary Fund 'as #on#ei!ed in .uly /011 originally 'ith 12 $e$%ers and #a$e into e)isten#e in De#e$%er /012 'hen 30 #ountries signed the agree$ent+ 'ith a goal to sta%ilize e)#hange rates and assist the re#onstru#tion o" the 'orld,s international ay$ent syste$& 4ountries #ontri%uted to a ool 'hi#h #ould %e %orro'ed "ro$+ on a te$ orary %asis+ %y #ountries 'ith ay$ent i$%alan#es& The IMF 'as i$ ortant 'hen it 'as "irst #reated %e#ause it hel ed the 'orld sta%ilize the e#ono$i# syste$& The IMF 'or-s to i$ ro!e the e#ono$ies o" its $e$%er #ountries& The IMF des#ri%es itsel" as 5an organization o" /67 #ountries+ 'or-ing to "oster glo%al $onetary #oo eration+ se#ure "inan#ial sta%ility+ "a#ilitate international trade+ ro$ote high e$ loy$ent and sustaina%le e#ono$i# gro'th+ and redu#e o!erty5&

SIES COLLEGE

Page 1

INTERNATIONAL MONITORY FUND

!istory:
The International Monetary Fund 'as #on#ei!ed in .uly /011 during the United Nations Monetary and Finan#ial 4on"eren#e& The re resentati!es o" 12 go!ern$ents $et in the Mount 8ashington 9otel in the area o" :retton 8oods+ Ne' 9a$ shire+ United ;tates+ 'ith the delegates to the #on"eren#e agreeing on a "ra$e'or- "or international e#ono$i# #oo eration& The IMF 'as "or$ally organized on De#e$%er 37+ /012+ 'hen the "irst 30 #ountries signed its Arti#les o" Agree$ent& The statutory ur oses o" the IMF today are the sa$e as 'hen they 'ere "or$ulated in /01<. The IMF,s in"luen#e in the glo%al e#ono$y steadily in#reased as it a##u$ulated $ore $e$%ers& The nu$%er o" IMF $e$%er #ountries has $ore than =uadru led "ro$ the 11 states in!ol!ed in its esta%lish$ent+ re"le#ting in arti#ular the attain$ent o" oliti#al inde enden#e %y $any de!elo ing #ountries and $ore re#ently the #olla se o" the ;o!iet %lo#& The e) ansion o" the IMF>s $e$%ershi + together 'ith the #hanges in the 'orld e#ono$y+ has re=uired the IMF to ada t in a !ariety o" 'ays to #ontinue ser!ing its ur oses e""e#ti!ely& At the 3??0 @A3? London su$$it+ it 'as de#ided that the IMF 'ould re=uire additional "inan#ial resour#es to $eet ros e#ti!e needs o" its $e$%er #ountries during the ongoing glo%al "inan#ial #risis& As art o" that de#ision+ the @A3? leaders ledged to in#rease the IMF,s su le$ental #ash ten"old to B2?? %illion+ and to allo#ate to $e$%er #ountries another B32? %illion !ia ; e#ial Dra'ing Rights& On O#to%er 3<+ 3?/?+ the Ministers o" Finan#e o" @A3?+ go!erning $ost o" the IMF $e$%er =uotas+ agreed to re"or$ IMF and shi"t a%out CD o" the !oting shares to $a*or de!elo ing nations and #ountries 'ith e$erging $ar-ets& As o" August 3?/? Ro$ania (B/<&0 %illion)+ U-raine (B/3&CC %illion)+ 9ungary (B//&7 %illion) and @ree#e (B<? %illion) are the largest %orro'ers o" the "und&

Organi"ation # Finan$es
The IMF has a $anage$ent tea$ and /7 de art$ents that #arry out its #ountry+ oli#y+ analyti#al+ and te#hni#al 'or-& One de art$ent is #harged 'ith $anaging the IMF,s resour#es& This se#tion also e) lains 'here the IMF gets its resour#es and ho' they are used& The IMF is led %y a Managing Dire#tor+ 'ho is head o" the sta"" and 4hair$an o" the E)e#uti!e :oard& 9e is assisted %y a First De uty Managing Dire#tor and t'o other De uty Managing Dire#tors& The Manage$ent tea$ o!ersees the 'or- o" the sta""+ and $aintains
SIES COLLEGE Page 2

INTERNATIONAL MONITORY FUND

highAle!el #onta#ts 'ith $e$%er go!ern$ents+ the $edia+ nonAgo!ern$ental organizations+ thin- tan-s+ and other institutions& The IMF,s resour#es #o$e $ainly "ro$ the $oney that #ountries ay as their #a ital

su%s#ri tion 'hen they %e#o$e $e$%ers& Euotas %roadly re"le#t the size o" ea#h $e$%er,s e#ono$yF the larger a #ountry,s e#ono$y in ter$s o" out ut and the larger and $ore !aria%le its trade+ the larger its =uota tends to %e& For e)a$ le+ the 'orld,s %iggest e#ono$y+ the United ;tates+ has the largest =uota in the IMF& Euotas+ together 'ith the e=ual nu$%er o" %asi# !otes ea#h $e$%er has+ deter$ine #ountries, !oting o'er& They also hel deter$ine ho' $u#h #ountries #an %orro' "ro$ the IMF and their share in allo#ations o" s e#ial dra'ing rights or ;DRs (the reser!e #urren#y #reated %y the IMF in /0C0)&4ountries ay 32 er#ent o" their =uota su%s#ri tions in ;DRs or $a*or #urren#ies+ su#h as U&;& dollars+ Euros+ ounds sterling+ or .a anese yen& They ay the re$aining 72 er#ent in their o'n #urren#ies& Euotas are re!ie'ed e!ery "i!e years and #an %e in#reased 'hen dee$ed ne#essary %y the :oard o" @o!ernors& In 3??0+ the @A3? agreed that the Fund should %ring "or'ard the ti$eta%le "or the ne)t general =uota in#rease& The ne)t general re!ie' 'as originally s#heduled to %e #o$ leted %y 3?/<& The agree$ent no' is that it 'ould %e #o$ leted %y .anuary 3?//+ t'o years ahead o" s#hedule& The general =uota re!ie' o ro!ides an ortunity to in#rease the Fund>s general resour#es and 'ould also ro!ide s#o e "or a

"urther re%alan#ing o" =uota and !oting shares to'ard dyna$i# e$erging $ar-ets and other e#ono$ies&

Me%&ershi'
The IMF #urrently has a nearAglo%al $e$%ershi o" /67 #ountries& To %e#o$e a $e$%er+ a #ountry $ust a ly and then %e a##e ted %y a $a*ority o" the e)isting $e$%ers& In .une 3??0+ the "or$er Yugosla! re u%li# o" Goso!o *oined the IMF+ %e#o$ing the institution,s /6Cth $e$%er& U on *oining+ ea#h $e$%er o" the IMF is assigned a =uota+ %ased %roadly on its relati!e size in the 'orld e#ono$y& The IMF,s $e$%ershi agreed in May 3??6 on a re%alan#ing o" its =uota syste$ to re"le#t the #hanging glo%al e#ono$i# realities+ es e#ially the in#reased 'eight o" $a*or e$erging $ar-ets in the glo%al e#ono$y& Me$%ers o" the IMF are /6C o" the UN $e$%ers and Goso!o& For$er $e$%ers areF 4u%a (le"t in /0C1)+ Tai'an (e) elled in /06? due to oliti#al reasons)& The other nonA$e$%ers areF North Gorea+ Andorra+ Mona#o+ Lie#htenstein+ Nauru+ 4oo- Islands+ Niue+ Hati#an 4ity
SIES COLLEGE Page 3

INTERNATIONAL MONITORY FUND

and the rest o" the re#ognition& All $e$%er states arti#i ate dire#tly in the IMF& Me$%er states are re resented on a 31A$e$%er E)e#uti!e :oard ("i!e E)e#uti!e Dire#tors are a ointed %y the "i!e $e$%ers 'ith the largest =uotas+ nineteen E)e#uti!e Dire#tors are ele#ted %y the re$aining $e$%ers)+ and all $e$%ers a oint a @o!ernor to the IMF,s :oard o" @o!ernors& All $e$%ers o" the IMF are also I:RD $e$%ers+ and !i#e !ersa&

IMF $e$%er states IMF $e$%er states not a##e ting the so$e o%ligations o" IMF

SIES COLLEGE

Page 4

INTERNATIONAL MONITORY FUND (. )O*+RN,NC+:

The IMF is a##ounta%le to the go!ern$ents o" its $e$%er #ountries&

)o-ernan$e tru$ture
The IMF,s $andate and go!ernan#e ha!e e!ol!ed along 'ith #hanges in the glo%al e#ono$y+ allo'ing the organization to retain a #entral role 'ithin the international "inan#ial ar#hite#ture& The diagra$ %elo' ro!ides a stylized !ie' o" the IMF,s #urrent go!ernan#e stru#ture& .oard o/ )o-ernors The :oard o" @o!ernors is the highest de#isionA$a-ing %ody o" the IMF& It #onsists o" one go!ernor and one alternate go!ernor "or ea#h $e$%er #ountry& The go!ernor is a ointed %y the $e$%er #ountry and is usually the $inister o" "inan#e or the head o" the #entral %an-& 8hile the :oard o" @o!ernors has delegated $ost o" its o'ers to the IMF,s E)e#uti!e :oard+ it retains the right to a ro!e =uota in#reases+ s e#ial dra'ing right (;DR) allo#ations+ the ad$ittan#e o" ne' $e$%ers+ #o$ ulsory 'ithdra'al o" $e$%ers+ and a$end$ents to the Arti#les o" Agree$ent and :yALa's& The :oard o" @o!ernors also ele#ts or a oints e)e#uti!e dire#tors and is the ulti$ate ar%iter on issues related to the inter retation o" the IMF,s Arti#les o" Agree$ent& Hoting %y the :oard o" @o!ernors usually ta-es la#e %y $ailAin %allot& The :oards o" @o!ernors o" the IMF and the 8orld :an- @rou nor$ally $eet on#e a year+ during the IMFA8orld :an- ; ring and Annual Meetings+ to dis#uss the 'or- o" their res e#ti!e institutions& The Meetings+ 'hi#h ta-e #ountry in the third year& )o-ernan$e Re/or% I$ ortant rogress 'as $ade in the re"or$ o" the Fund,s go!ernan#e in 3??CA?6+ in#luding the initiation o" a ro#ess to realign $e$%ers, !oting o'er (see 4ountry Re resentation)& 9o'e!er+ enhan#ing the Fund,s legiti$a#y and e""e#ti!eness $ust also deal 'ith the =uestion o" 'hether the signi"i#ant #hanges sin#e the esta%lish$ent o" the Fund re=uire
SIES COLLEGE Page 5

la#e in ;e te$%er or O#to%er+ ha!e

#usto$arily %een held in 8ashington "or t'o #onse#uti!e years and in another $e$%er

INTERNATIONAL MONITORY FUND

re"or$ o" the institutional "ra$e'or- through 'hi#h $e$%ers, !oting o'er is a#tually e)er#ised& A$ong other things+ this re=uires #are"ul #onsideration o" the res e#ti!e roles and res onsi%ilities o" the :oard o" @o!ernors+ the IMF4+ the E)e#uti!e :oard+ and IMF $anage$ent& )o-ernan$e re/or% is $urrently &eing a$$elerated. In A ril 3??0+ the International Monetary and Finan#ial 4o$$ittee (IMF4)+ 'hi#h ad!ises on IMF oli#ies+ #alled "or a ro$ t start to a "resh re!ie' o" =uotas (the Fourteenth @eneral Re!ie')+ and in A ril 3?/? the IMF4 re=uested #o$ letion o" the re!ie' %e"ore .anuary 3?//Iso$e t'o years ahead o" the original s#hedule& The Fourteenth @eneral Re!ie' is no' under'ay and 'ill address the realign$ent o" =uota shares and the size o" the o!erall =uota in#rease& In O#to%er 3??0+ the IMF4 endorsed a #all %y @A3? leaders "or a shi"t in =uota share to dyna$i# e$erging $ar-et and de!elo ing #ountries o" at least "i!e er#ent "ro$ o!erAre resented to underAre resented #ountries using the #urrent =uota "or$ula as the %asis to 'or- "ro$& In addition+ there is a #o$$it$ent to rote#ting the !oting share o" the oorest $e$%ers&

SIES COLLEGE

Page 6

INTERNATIONAL MONITORY FUND 0. RO1+ OF IMF:

The International Monetary Fund is a glo%al organisation "ounded in /011& It ai$s 'as to hel sta%ilise e)#hange rates and ro!ide loans to #ountries in need& Nearly all $e$%ers o" the United Nations are $e$%ers o" the IMF 'ith a "e' e)#e tions su#h as 4u%a+ Li#htenstein and Andorra& The IMF is inde endent o" the 8orld :an- although %oth are United Nations agen#ies and %oth are ai$ing to in#rease li!ing standards& The 8orld :an#on#entrates on long ter$ loans to de!elo ing #ountries& are: o%e Main Fun$tions o/ IMF

Fun$tions o/ IMF
International Monetary 4oo eration Jro$ote e)#hange Rate sta%ility To hel deal 'ith :alan#e o" Jay$ents ad*ust$ent 9el Deal 8ith E#ono$i# 4risis %y ro!iding international #oordination

What the IMF does

8ith its nearAglo%al $e$%ershi o" /67 #ountries+ the IMF is uni=uely la#ed to hel $e$%er go!ern$ents ta-e ad!antage o" the o
SIES COLLEGE

ortunitiesIand $anage the #hallengesI

Page 7

INTERNATIONAL MONITORY FUND

osed %y glo%alization and e#ono$i# de!elo $ent $ore generally& The IMF tra#-s glo%al e#ono$i# trends and er"or$an#e+ alerts its $e$%er #ountries 'hen it sees ro%le$s on the horizon+ ro!ides a "oru$ "or oli#y dialogue+ and asses on -no'Aho' to go!ern$ents on ho' to ta#-le e#ono$i# di""i#ulties& The IMF ro!ides oli#y ad!i#e and "inan#ing to $e$%ers in e#ono$i# di""i#ulties and also 'or-s 'ith de!elo ing nations to hel the$ a#hie!e $a#roe#ono$i# sta%ility and redu#e o!erty& Mar-ed %y $assi!e $o!e$ents o" #a ital and a%ru t shi"ts in #o$ arati!e ad!antage+ glo%alization a""e#ts #ountries, oli#y #hoi#es in $any areas+ in#luding la%our+ trade+ and ta) oli#ies& 9el ing a #ountry %ene"it "ro$ glo%alization 'hile a!oiding otential do'nsides is an i$ ortant tas- "or the IMF& The glo%al e#ono$i# #risis has highlighted *ust ho' inter#onne#ted #ountries ha!e %e#o$e in today>s 'orld e#ono$y&

2ey IMF a$ti-itiesF The IMF su orts its $e$%ershi %y ro!iding

oli#y ad!i#e to go!ern$ents and #entral %an-s %ased on analysis o" e#ono$i# trends and #rossA#ountry e) erien#es(

resear#h+ statisti#s+ "ore#asts+ and analysis %ased on tra#-ing o" glo%al+ regional+ and indi!idual e#ono$ies and $ar-ets(

loans to hel #ountries o!er#o$e e#ono$i# di""i#ulties( #on#essional loans to hel "ight o!erty in de!elo ing #ountries( and Te#hni#al assistan#e and training to hel #ountries i$ ro!e the $anage$ent o" their e#ono$ies&

Original ai%sF

The IMF 'as "ounded $ore than C? years ago to'ard the end o" 8orld

8ar II& The "ounders ai$ed to %uild a "ra$e'or- "or e#ono$i# #oo eration that 'ould a!oid a re etition o" the disastrous e#ono$i# oli#ies that had #ontri%uted to the @reat De ression o" the /0<?s and the glo%al #on"li#t that "ollo'ed& ;in#e then the 'orld has #hanged dra$ati#ally+ %ringing e)tensi!e ros erity and li"ting $illions out o" o!erty+ es e#ially in Asia& In $any 'ays the IMF3s %ain 'ur'oseIto ro!ide the glo%al u%li# good o" "inan#ial sta%ilityIis the sa$e today as it 'as 'hen the organization 'as esta%lished& More s e#i"i#ally+ the IMF #ontinues to

SIES COLLEGE

Page 8

INTERNATIONAL MONITORY FUND

ro!ide a "oru$ "or #oo eration on international $onetary ro%le$s "a#ilitate the gro'th o" international trade+ thus ro$oting *o% #reation+ e#ono$i# gro'th+ and o!erty redu#tion(

ro$ote e)#hange rate sta%ility and an o en syste$ o" international ay$ents( and Lend #ountries "oreign e)#hange 'hen needed+ on a te$ orary %asis and under ade=uate sa"eguards+ to hel the$ address %alan#e o" ay$ents ro%le$s&

!o4 they do it
The IMF,s $ain goal is to ensure the sta%ility o" the international $onetary and "inan#ial syste$& It hel s resol!e #rises+ and 'or-s 'ith its $e$%er #ountries to ro$ote gro'th and alle!iate o!erty& It has three $ain tools at its dis osal to #arry out its $andateF sur!eillan#e+ te#hni#al assistan#e and training+ and lending& These "un#tions are under inned %y the IMF,s resear#h and statisti#s& ur-eillan$e: The IMF ro$otes e#ono$i# sta%ility and glo%al gro'th %y en#ouraging #ountries to ado t sound e#ono$i# and "inan#ial oli#ies& To do this+ it regularly $onitors glo%al+ regional+ and national e#ono$i# de!elo $ents& It also see-s to assess the i$ a#t o" the indi!idual #ountries on other e#ono$ies& This ro#ess o" $onitoring and dis#ussing #ountries> e#ono$i# and "inan#ial oli#ies is -no'n as %ilateral sur!eillan#e& On a regular %asisIusually on#e ea#h yearIthe IMF #ondu#ts in de th a raisals o" ea#h $e$%er #ountry,s e#ono$i# situation& It dis#usses 'ith the #ountry,s authorities the oli#ies that are $ost #ondu#i!e to a sta%le and ros erous e#ono$y& 4onsistent 'ith the de#ision on %ilateral sur!eillan#e ado ted in .une 3??7+ the $ain "o#us o" the dis#ussions is 'hether there are ris-s to the e#ono$y>s do$esti# and e)ternal sta%ility that 'ould argue "or ad*ust$ents in e#ono$i# or "inan#ial oli#ies& Te$hni$al assistan$e and training: IMF o""ers te#hni#al assistan#e and training to hel #a a#ity to design and i$ le$ent e""e#ti!e $e$%er #ountries strengthen their oli#ies o"

oli#ies& Te#hni#al assistan#e is o""ered in

SIES COLLEGE

Page 9

INTERNATIONAL MONITORY FUND

se!eral areas+ in#luding "is#al oli#y+ $onetary and e)#hange rate oli#ies+ %an-ing and "inan#ial syste$ su er!ision and regulation+ and statisti#s&

The IMF ro!ides te#hni#al assistan#e and training $ainly in "our areasF

Monetary and "inan#ial

oli#ies ($onetary

oli#y instru$ents+ %an-ing syste$

su er!ision and restru#turing+ "oreign $anage$ent and o erations+ #learing settle$ent syste$s "or ay$ents+ and stru#tural de!elo $ent o" #entral %an-s)

Fis#al oli#y and $anage$ent (ta) and #usto$s oli#ies and ad$inistration+ %udget "or$ulation+ e) enditure $anage$ent+ design o" so#ial sa"ety nets+ and $anage$ent o" do$esti# and "oreign de%t)

4o$ ilation+ $anage$ent+ disse$ination+ and i$ ro!e$ent o" statisti#al data E#ono$i# and "inan#ial legislation&

1ending
In the e!ent that $e$%er #ountries e) erien#e di""i#ulties "inan#ing their %alan#e o" ay$ents+ the IMF is also a "und that #an %e ta ed to "a#ilitate re#o!ery& A oli#y rogra$ su orted %y "inan#ing is designed %y the national authorities in #lose #oo eration 'ith the ort is #onditional on the e""e#ti!e i$ le$entation o" this IMF& 4ontinued "inan#ial su rogra$& The IMF also ro!ides lo'Ain#o$e #ountries 'ith loans at a #on#essional interest rate through the Jo!erty Redu#tion and @ro'th Fa#ility (JR@F) and the E)ogenous ;ho#-s Fa#ility (E;F)& Resear$h and data ;u orting all three o" these a#ti!ities is the IMF,s e#ono$i# and "inan#ial resear#h and ra#ti#e in its areas o"

statisti#s& In re#ent years+ the IMF has a lied %oth its sur!eillan#e and te#hni#al assistan#e 'or- to the de!elo $ent o" standards and #odes o" good res onsi%ility+ and to the strengthening o" "inan#ial se#tors& These are art o" the IMF,s #ontinuing e""orts to strengthen the international "inan#ial syste$ and i$ ro!e its a%ility to re!ent and resol!e #rises&
SIES COLLEGE Page 10

INTERNATIONAL MONITORY FUND

5. 6+CI,1 DR,WIN) RI)!T 7 DR8:

The ;DR 'as #reated %y the IMF in /0C0 to su ort the :retton 8oods "i)ed e)#hange rate

syste$& A #ountry arti#i ating in this syste$ needed o""i#ial reser!esIgo!ern$ent or #entral %an- holdings o" gold and 'idely a##e ted "oreign #urren#iesIthat #ould %e used to ur#hase the do$esti# #urren#y in "oreign e)#hange $ar-ets+ as re=uired $aintaining its e)#hange rate& :ut the international su dollarI ro!ed inade=uate "or su ly o" t'o -ey reser!e assetsIgold and the U&;& orting the e) ansion o" 'orld trade and "inan#ial

de!elo $ent that 'as ta-ing la#e& There"ore+ the international #o$$unity de#ided to #reate a ne' international reser!e asset under the aus i#es o" the IMF& 9o'e!er+ only a "e' years later+ the :retton 8oods syste$ #olla sed and the $a*or #urren#ies shi"ted to a "loating e)#hange rate regi$e& In addition+ the gro'th in international #a ital $ar-ets "a#ilitated %orro'ing %y #redit'orthy go!ern$ents& :oth o" these de!elo $ents lessened the need "or ;DRs& The ;DR is neither a #urren#y+ nor a #lai$ on the IMF& Rather+ it is a otential #lai$ on the "reely usa%le #urren#ies o" IMF $e$%ers& 9olders o" ;DRs #an o%tain these #urren#ies in e)#hange "or their ;DRs in t'o 'aysF /irst, through the arrange$ent o" !oluntary e)#hanges %et'een $e$%ers( and se$ond+ %y the IMF designating $e$%ers 'ith strong e)ternal ositions to ur#hase ;DRs "ro$ $e$%ers 'ith 'ea- e)ternal ositions& In addition to its role as a su le$entary reser!e asset+ the ;DR ser!es as the unit o" a##ount o" the IMF and so$e other international organizations&

.as9et o/ $urren$ies deter%ines the -alue o/ the DR

The !alue o" the ;DR 'as initially de"ined as e=ui!alent to ?&666C7/ gra$s o" "ine goldI 'hi#h+ at the ti$e+ 'as also e=ui!alent to one U&;& dollar& A"ter the #olla se o" the :retton 8oods syste$ in /07<+ ho'e!er+ the ;DR 'as rede"ined as a %as-et o" #urren#ies+ today #onsisting o" the euro+ .a anese yen+ ound sterling+ and U&;& dollar& The U&;& dollarA e=ui!alent o" the ;DR is osted daily on the IMF>s 'e%site& It is #al#ulated as the su$ o"
SIES COLLEGE Page 11

INTERNATIONAL MONITORY FUND

s e#i"i# a$ounts o" the "our %as-et #urren#ies !alued in U&;& dollars+ on the %asis o" e)#hange rates =uoted at noon ea#h day in the London $ar-et& The %as-et #o$ osition is re!ie'ed e!ery "i!e years %y the E)e#uti!e :oard to ensure that it re"le#ts the relati!e i$ ortan#e o" #urren#ies in the 'orld,s trading and "inan#ial syste$s&

The DR interest rate

The ;DR interest rate ro!ides the %asis "or #al#ulating the interest #harged to $e$%ers on regular (nonA#on#essional) IMF loans+ the interest aid to $e$%ers on their ;DR holdings and #harged on their ;DR allo#ations+ and the interest aid to $e$%ers on a ortion o" their =uota su%s#ri tions& The ;DR interest rate is deter$ined 'ee-ly and is %ased on a 'eighted a!erage o" re resentati!e interest rates on shortAter$ de%t in the $oney $ar-ets&

SIES COLLEGE

Page 12

INTERNATIONAL MONITORY FUND

:. CURR+NT ,)+ND,; OF IMF:

Ta$9ling $urrent $hallenges
The IMF is hel ing $any e$erging $ar-et #ountries ta#-le the ro%le$s %rought on %y the de!astating glo%al e#ono$i# #risis& Its lending to lo'Ain#o$e #ountries has also %een ste ed u + as these #ountries start to "eel the e""e#ts o" the #risis& And it is ro!iding oli#y ad!i#e to ad!an#ed #ountries+ "or instan#e on ho' to address ro%le$s in their "inan#ing and %an-ing se#tors+ and ho' to design e""e#ti!e sti$ulus a#-ages& As art o" its res onse+ the IMF has already $ore than dou%led its "inan#ial assistan#e to lo'Ain#o$e #ountries+ 'ith ne' IMF #on#essional lending #o$$it$ents to lo'Ain#o$e #ountries through $idA.uly 3??0 rea#hing B3&0 %illion #o$ ared 'ith B/&2 %illion "or the 'hole o" 3??6& As the glo%al e#ono$y #ontinues to struggle in 3??0+ and 'ith %oth trade and #a ital "lo's lu$$eting+ the IMF is "oreseeing $ounting ro%le$s "or $any #ountries& The Fund is there"ore see-ing to add to its resour#es+ and has already negotiated %orro'ing agree$ents 'ith a nu$%er o" #ountries& The Fund has already $ade good rogress to'ard its target o" B32? %illion in %ilateral go!ern$ent loans as art o" $o!es to tri le the IMF>s lenda%le resour#es to B72? %illion& Agree$ents are already in la#e 'ith .a an (B/?? %illion)+ 4anada (B/? %illion)+ and Nor'ay (B1&2 %illion)+ and a nu$%er o" other #ountries ha!e #o$$itted "unds either through loans or the ur#hase o" IMF notes& In addition+ the Fund is #losely tra#-ing e#ono$i# and "inan#ial de!elo $ents 'orld'ide so that it #an ro!ide oli#y$a-ers 'ith the latest "ore#asts and analysis o" de!elo $ents in "inan#ial $ar-ets& And it is engaging 'ith the @rou o" 3? (@A3?) leading e#ono$ies and other sta-eholders on issues related to the e!olution o" the international "inan#ial syste$& Currently IMF %ain ,genda;s are:

+%ergen$y lending to e%erging %ar9ets

E$erging $ar-et #ountries are "a#ing in#reasing di""i#ulties around the 'orld %e#ause o" the s reading glo%al e#ono$i# #risis+ 'ith de$and "alling "or their e) orts+ in!est$ent
SIES COLLEGE Page 13

INTERNATIONAL MONITORY FUND

slu$ ing+ and #rossA%order lending drying u & A gro'ing nu$%er o" e$erging e#ono$ies ha!e "ound roo$ "or o""i#ial su oli#y $anoeu!re %e#o$ing in#reasingly li$ited+ and largeAs#ale ort has %een needed "ro$ %ilateral and $ultilateral sour#es&

;in#e 3??6+ the IMF has #o$$itted $ore than B/C? %illion in lending to a nu$%er o" #ountries a""e#ted %y the #risis+ in#luding :elarus+ 9ungary+ I#eland+ Lat!ia+ Ja-istan+ Joland+ Ro$ania+ ;er%ia+ ;ri Lan-a+ and U-raine& It announ#ed a re#autionary loan "or El ;al!ador and an IMF tea$ has also %een in negotiations 'ith Tur-ey&

!el'ing lo4<in$o%e $ountries /ight the $risis

The glo%al e#ono$i# #risis is threatening to under$ine re#ent e#ono$i# gains and to #reate a hu$anitarian #risis in the 'orld>s oorest #ountries& In res onse+ the IMF has ste ed u lending to lo'Ain#o$e #ountries to #o$%at the i$ a#t o" the glo%al re#ession 'ith a ne' "ra$e'or- "or loans to the 'orld>s oorest nations+ in#luding in#reased resour#es+ a dou%ling o" %orro'ing li$its+ zero interest rates until the end o" 3?//+ and ne' lending instru$ents that o""er $ore "le)i%le ter$s& Most lo'Ain#o$e #ountries es#a ed the early hases o" the glo%al #risis+ 'hi#h %egan in the "inan#ial se#tors o" ad!an#ed e#ono$ies& :ut it is no' hitting the$ hard+ $ainly through trade+ as "inan#ial ro%le$s in ad!an#ed #ountries trigger re#essions that da$ en de$and "or i$ orts "ro$ lo'Ain#o$e #ountries& In addition+ $ore than B/6 %illion o" a lanned B32? %illion allo#ation o" IMF ; e#ial Dra'ing Rights (;DRs) 'ill go to lo'Ain#o$e #ountries& These #ountries #an %ene"it %y either #ounting the ;DRs as e)tra assets in their reser!es+ or selling their ;DRs "or hard #urren#y to $eet %alan#e o" ay$ents needs&

Re/or%ing the international /inan$ial syste%

The glo%al e#ono$i# #risis has s ar-ed a rethin-ing o" ho' the international "inan#ial syste$ is stru#tured& The IMF is assisting the @A3? industrialized and e$erging e#ono$ies 'ith re#o$$endations to resha e the syste$ o" international regulation and go!ernan#e& To a large e)tent+ glo%al e""orts thus "ar ha!e %een "o#used on the #risis at hand+ %ut re"or$s are in rogress 'ith a !ie' to'ard the ostA#risis 'orld& As in ut into the re"or$ ro#ess+ the IMF u%lished a #o$ rehensi!e study o" the #auses o" the glo%al "inan#ial #risis& The study ta-es sto#- o" the initial lessons learnt "ro$ the #risis and resses "or a 'orld'ide rethin- o" ho' to handle syste$i# ris- $anage$ent&
SIES COLLEGE Page 14

INTERNATIONAL MONITORY FUND

Although e#ono$i# and "inan#ial se#tor oli#ies 'ill re$ain ri$arily the %usiness o" national go!ern$ents+ ongoing #hanges to the glo%al "inan#ial ar#hite#tureIin#luding to the IMFI#an redu#e the "re=uen#y and de th o" "uture #rises& Additional #hanges #ould also in#lude addressing so$e o" the short#o$ings o" the de#isionA$a-ing stru#ture o" the @A3? %y allo'ing greater s#o e "or *oint de#ision $a-ing on a 'ider set o" international e#ono$i# and "inan#ial issues+ 'ith the IMF in its ne'ly e) anded role as a #entral layer&

SIES COLLEGE

Page 15

INTERNATIONAL MONITORY FUND

=. T!+ IMF ,ND IT CRITIC :

O!er ti$e+ the IMF has %een su%*e#t to a range o" #riti#is$s+ generally "o#used on the #onditions o" its loans& The IMF has also %een #riti#ised "or its la#- o" a##ounta%ility and 'illingness to lend to #ountries 'ith %ad hu$an rights re#ord& T'o #riti#is$s "ro$ e#ono$ists ha!e %een that "inan#ial aid is al'ays %ound to soA#alled 54onditionalities5+ in#luding ;tru#tural Ad*ust$ent Jrogra$s (;AJ)& It is #lai$ed that 4onditionalities (e#ono$i# er"or$an#e targets esta%lished as a re#ondition "or IMF loans) retard so#ial sta%ility and hen#e inhi%it the stated goals o" the IMF+ 'hile ;tru#tural Ad*ust$ent Jrogra$s lead to an in#rease in o!erty in re#i ient #ountries. Many Criti$is%s o/ IMF in$ludeF

1. Conditions o/ 1oansF
On gi!ing loans to #ountries+ the IMF $a-es the loan #onditional on the i$ le$entation o" #ertain e#ono$i# oli#ies& These oli#ies tend to in!ol!eF

Redu#ing go!ern$ent %orro'ing A 9igher ta)es and lo'er s ending 9igher interest rates to sta%ilize the #urren#y& Allo' "ailing "ir$s to go %an-ru t& ;tru#tural ad*ust$ent& Jri!atization+ deregulation+ redu#ing #orru tion and

%ureau#ra#y& The ro%le$ is that these oli#ies o" stru#tural ad*ust$ent and $a#roe#ono$i#

inter!ention $a-e the situation 'orse&

For e)a$ le+ in the Asian #risis o" /007+ $any #ountries su#h as Indonesia+ Malaysia and Thailand 'ere re=uired %y IMF to ursue tight $onetary oli#y (higher interest rates) and tight "is#al oli#y to redu#e the %udget de"i#it and strengthen e)#hange rates& 9o'e!er+ these oli#ies #aused a $inor slo'do'n to turn into a serious re#ession 'ith $ass une$ loy$ent&

SIES COLLEGE

Page 16

INTERNATIONAL MONITORY FUND

In 3??/+ Argentina 'as "or#ed into a si$ilar oli#y o" "is#al restraint& This led to a de#line in in!est$ent in u%li# ser!i#es 'hi#h argua%ly da$aged the e#ono$y&

(. +>$hange Rate Re/or%sF

8hen the IMF inter!ened in Genya in the /00?s+ they $ade the 4entral %an- re$o!e #ontrols o!er "lo's o" #a ital& The #onsensus 'as that this de#ision $ade it easier "or #orru t oliti#ians to trans"er $oney out o" the e#ono$y (-no'n as the @old$an s#andal)& 4riti#s argue this is another e)a$ le o" ho' the IMF "ailed to understand the dyna$i#s o" the #ountry that they 'ere dealing 'ith A insisting on %lan-et re"or$s&

The e#ono$ist .ose h ;tieglitz has #riti#ised the $ore $onetarist a roa#h o" the IMF in re#ent years& 9e argues it is "ailing to ta-e the %est oli#y to i$ ro!e the 'el"are o" de!elo ing #ountries saying the IMF 5'as not #o$$unity&5 arti#i ating in a #ons ira#y+ %ut it 'as re"le#ting the interests and ideology o" the 8estern "inan#ial

0. De-aluations
In earlier days+ the IMF ha!e %een #riti#ised "or allo'ing in"lationary de!aluations&

5. Neo 1i&eral Criti$is%s

There is also #riti#is$ o" neo li%eral oli#ies su#h as ri!atisation& Argua%ly these "ree $ar-et oli#ies 'ere not al'ays suita%le "or the situation o" the #ountry& For e)a$ le+ ri!atisation #an #reate lead to the #reation o" ri!ate $ono olies 'ho e) loit #onsu$ers&

:. Free Mar9et Criti$is%s o/ IMF

As 'ell as %eing #riti#ised "or i$ le$enting ,"ree $ar-et re"or$s, other #ities the IMF "or %eing too inter!entionist& :elie!ers in "ree $ar-ets argue that it is %etter to
SIES COLLEGE Page 17

INTERNATIONAL MONITORY FUND

let #a ital $ar-ets o erate 'ithout atte$ ts at inter!ention& They argue atte$ ts to in"luen#e e)#hange rates only $a-e things 'orse A it is %etter to allo' #urren#ies to rea#h their $ar-et le!el&

There is also a #riti#is$ that %ailout #ountries 'ith large de%t #reate $oral hazard& :e#ause o" the ossi%ility o" getting %ailed out it en#ourages eo le to %orro' $ore&

=. 1a$9 o/ Trans'aren$y and in-ol-e%ent:

The IMF ha!e %een #riti#ised "or i$ osing oli#y 'ith little or no #onsultation 'ith a""e#ted #ountries& .e""rey ;a#hs+ the head o" the 9ar!ard Institute "or International De!elo $ent saidF

5In Gorea the IMF insisted that all residential #andidates i$$ediately 5endorse5 an agree$ent 'hi#h they had no art in dra"ting or negotiating+ and no ti$e to understand& The situation is out o" hand&&&It de"ies logi# to %elie!e the s$all grou o" /+??? e#ono$ists on /0th ;treet in 8ashington should di#tate the e#ono$i# #onditions o" li"e to 72 de!elo ing #ountries 'ith around /&1 %illion eo le&5 K

?.

u''orting Military di$tatorshi's:

The IMF ha!e %een #riti#ised "or su #ountries& orting $ilitary di#tatorshi s in :razil and

Argentina+ su#h as 4astillo :ran#o in /0C?s re#ei!ed IMF "unds denied to other

Res'onse to Criti$is% o/ IMF

Crisis ,l4ays lead to so%e Di//i$ulties: :e#ause the IMF deal 'ith e#ono$i# #risis+ 'hate!er oli#y they o""er+ there is li-ely to %e di""i#ulties& It is not ossi%le to deal 'ith a %alan#e o" ay$ents 'ithout so$e ain"ul read*ust$ent& IMF has had o%e u$$esses:

SIES COLLEGE

Page 18

INTERNATIONAL MONITORY FUND

The Failures o" the IMF tend to %e 'idely u%li#ised& :ut+ its su##esses less so& Also #riti#is$ tends to "o#us on short ter$ ro%le$s and ignores longer ter$ !ie'

Con/iden$eF The "a#t there is a lender o" last resort ro!ides an i$ ortant #on"iden#e %oost "or in!estors& This is i$ ortant during #urrent "inan#ial tur$oil&

Countries are not O&liged to ta9e an IMF loan: It is #ountries that a roa#h the IMF "or a loan& The "a#t so $any ta-e loans suggests there $ust %e at least so$e %ene"its o" the IMF&

IMF +asy target: ;o$eti$es #ountries $ay 'ant to underta-e ain"ul short ter$ ad*ust$ent %ut there is a la#- o" oliti#al 'ill& An IMF inter!ention ena%les the go!ern$ent to se#ure a loan and then ass the %la$e on to the IMF "or the di""i#ulties& O!erall+ the IMF su##ess re#ord is er#ei!ed as li$ited& 8hile it 'as #reated to hel sta%ilize the glo%al e#ono$y+ sin#e /06? #riti#s #lai$ o!er /?? #ountries (or re utedly $ost o" the Fund,s $e$%ershi ) ha!e e) erien#ed a %an-ing #olla se that they #lai$ ha!e redu#ed @DJ %y "our er#ent or $ore+ "ar $ore than at any ti$e in JostADe ression history& The #onsidera%le delay in the IMF,s res onse to any #risis+ and the "a#t that it tends to only res ond to the$ (or e!en #reate the$) rather than re!ent the$+ has led $any e#ono$ists to argue "or re"or$& In 3??C+ an IMF re"or$ agenda #alled the Mediu$ Ter$ ;trategy 'as 'idely endorsed %y the institution,s $e$%er #ountries& The agenda in#ludes #hanges in IMF go!ernan#e to enhan#e the role o" de!elo ing #ountries in the institution,s de#isionA$a-ing ro#ess and ste s to dee en the e""e#ti!eness o" its #ore $andate+ 'hi#h is -no'n as e#ono$i# sur!eillan#e or hel ing $e$%er #ountries ado t $a#roe#ono$i# oli#ies that 'ill sustain glo%al gro'th and redu#e o!erty& On .une /2+ 3??7+ the E)e#uti!e :oard o" the IMF ado ted the 3??7 De#ision on :ilateral ;ur!eillan#e+ a land$ar- $easure that re la#ed a <?AyearAold de#ision o" the Fund,s $e$%er #ountries on ho' the IMF should analyze e#ono$i# out#o$es at the #ountry le!el&

SIES COLLEGE

Page 19

INTERNATIONAL MONITORY FUND

?. IM6,CT OF IMF ON *,RIOU F,CTOR :

The IMF oli#ies and rules ha!e an i$ a#t on so$e "a#tors li-e a##ess to "ood+ en!iron$ent+ u%li# health et#&F I%'a$t on a$$ess to /ood A nu$%er o" #i!il so#iety organizations ha!e #riti#ized the IMF,s oli#ies "or their i$ a#t on eo le,s a##ess to "ood+ arti#ularly in de!elo ing #ountries& In O#to%er 3??6+ "or$er U; Jresident :ill 4linton *oined this #horus in a s ee#h to the United Nations 8orld Food Day+ 'hi#h #riti#ized the 8orld :an- and IMF "or their oli#ies on "ood and agri#ulture& I%'a$t on 'u&li$ health In 3??6+ a study %y analysts "ro$ 4a$%ridge and Yale Uni!ersity>s u%lished on the o enA a##ess Ju%li# Li%rary o" ;#ien#e #on#luded that stri#t #onditions on the international loans %y the IMF resulted in thousands o" deaths in Eastern Euro e %y tu%er#ulosis as u%li# health #are had to %e 'ea-ened& In the 3/ #ountries to 'hi#h the IMF had gi!en loans+ tu%er#ulosis deaths rose %y /C&CD& In 3??0+ a %oo- %y Ri#- Ro'den titled+ The Deadly Ideas of Neoliberalism: How the IMF has Undermined Public Health and the Fight gainst ids+ #lai$ed that the IMF,s
SIES COLLEGE Page 20

INTERNATIONAL MONITORY FUND

$onetarist a roa#h to'ards rioritizing ri#e sta%ility (lo' in"lation) and "is#al restraint (lo' %udget de"i#its) 'as unne#essarily restri#ti!e and has re!ented de!elo ing #ountries "ro$ %eing a%le to s#ale u longAter$ u%li# in!est$ent as a er#ent o" @DJ in the underlying u%li# health in"rastru#ture& The %oo- #lai$ed the #onse=uen#es ha!e %een #hroni#ally under"unded u%li# health syste$s+ leading to dila idated health in"rastru#ture+ inade=uate nu$%ers o" health ersonnel+ and de$oralizing 'or-ing #onditions that ha!e "uelled the 5 ush "a#tors5 dri!ing the %rain drain o" nurses $igrating "ro$ oor #ountries to ri#h ones+ all o" 'hi#h has under$ined u%li# health syste$s and the "ight against 9IHLAID; in de!elo ing #ountries& I%'a$t on en-iron%ent IMF oli#ies ha!e %een re eatedly #riti#ized "or $a-ing it di""i#ult "or inde%ted #ountries to a!oid e#osyste$Ada$aging ro*e#ts that generate #ash "lo'+ in arti#ular oil+ #oal and "orestA destroying lu$%er and agri#ulture ro*e#ts& E#uador "or e)a$ le had to de"y IMF ad!i#e re eatedly in order to ursue the rote#tion o" its rain "orests+ though arado)i#ally this need 'as #ited in IMF argu$ent to su ort that #ountry& The IMF a#-no'ledged this arado) in a Mar#h 3?/? sta"" osition re ort 'hi#h ro osed the IMF @reen Fund+ a $e#hanis$ to issue ; e#ial Dra'ing Rights dire#tly to ay "or #li$ate har$ re!ention and otentially other e#ologi#al rote#tion as ursued generally %y other en!iron$ental "inan#e& Criti$is% /ro% /ree<%ar9et ad-o$ates Ty i#ally the IMF and its su su orters ad!o#ate a $onetarist a roa#h& As su#h+ adherents o" lyAside

lyAside e#ono$i#s generally "ind the$sel!es in o en disagree$ent 'ith the IMF& The

IMF "re=uently ad!o#ates #urren#y de!aluation+ #riti#ized %y ro onents o" su 'ith e#ono$i# #ontra#tion&

e#ono$i#s as in"lationary& ;e#ondly they lin- higher ta)es under 5austerity rogra$$es5

4urren#y de!aluation is re#o$$ended %y the IMF to the go!ern$ents o" oor nations 'ith struggling e#ono$ies& ;o$e e#ono$ists #lai$ these IMF oli#ies are destru#ti!e to e#ono$i# ros erity& 4o$ laints ha!e also %een dire#ted to'ard the International Monetary Fund gold reser!e %eing under!alued& At its in#e tion in /012+ the IMF egged gold at U;B<2 er Troy oun#e o" gold& In /07<+ the ad$inistration o" U; Jresident Ri#hard Ni)on li"ted the "i)ed asset

SIES COLLEGE

Page 21

INTERNATIONAL MONITORY FUND

!alue o" gold in "a!our o" a 'orld $ar-et ri#e& This need to li"t the "i)ed asset !alue o" gold had largely #o$e a%out %e#ause Petrodollars outside the United ;tates 'ere 'orth $ore than #ould %e %a#-ed %y the gold at Fort Gno) under the "i)ed e)#hange rate syste$& Follo'ing this+ the "i)ed e)#hange rates o" #urren#ies tied to gold 'ere s'it#hed to a "loating rate+ also %ased on $ar-et ri#e and e)#hange& The "i)ed rate syste$ had only ser!ed to li$it the no$inal a$ount o" assistan#e the organization #ould ro!ide to de%tAridden #ountries& In the %edia !ife and Debt+ a do#u$entary "il$+ deals 'ith the IMF,s oli#ies, in"luen#e on .a$ai#a and its e#ono$y "ro$ a #riti#al oint o" !ie'& The De%t o" Di#tators e) lores the lending o" %illions o" dollars %y the IMF+ 8orld :an- $ultinational %an-s and other international "inan#ial institutions to %rutal di#tators throughout the 'orld&

@. INDI, ,ND T!+ IMF:

IMF ;ur!eyF IndiaF Ra id @ro'th 'ith Jro$ising Mediu$Ater$ Jros e#ts 8ith ro%ust gro'th s urring ele!ated le!els o" in"lation+ India should s eed u its return to reA#risis $onetary and "is#al oli#ies to -ee the e#ono$y in #he#-+ suggests the IMF in its annual assess$ent o" one o" the 'orld>s "astest gro'ing e#ono$ies& In its re ort on the Indian e#ono$yI-no'n as the Arti#le IH #onsultationIIMF e#ono$ists said they e) e#t the ;outh Asian #ountry to gro' a%o!e trend this year+ 'ith high le!els o" gro'th #ontinuing o!er the $ediu$ ter$ M8e e) e#t real @DJ to gro' 6N er#ent in 3?/?L//+ 'ith ro%ust gro'th su orted %y high in!est$ent in in"rastru#ture and rodu#ti!ity gains+O said the IMF>s $ission #hie" "or India+ Masahi-o Ta-eda& India 'eathered the re#ent glo%al "inan#ial #risis 'ell+ and sin#e $idA3??0 do$esti# de$and has o'ered a !igorous re#o!ery& The #ountry>s gro'th rate re$ains a$ong the strongest in the 'orld& To4ard a %ore nor%al 'oli$y stan$e

SIES COLLEGE

Page 22

INTERNATIONAL MONITORY FUND

In its re ort+ the IMF %a#-ed the authorities> oli#y o" e)iting "ro$ the sti$ulus i$ le$ented in the ast t'o years& :ut this e)it strategy re$ains in#o$ lete& @i!en the high le!el o" go!ern$ent de%t+ e)isting strong do$esti# de$and+ and large #a ital in"lo's+ IMF e#ono$ists said that "is#al oli#y is the re"erred $ethod "or tightening& The IMF also su orted the o%*e#ti!e to raise u%li# in!est$ent+ es e#ially in in"rastru#ture+ and to i$ ro!e so#ial out#o$es& The #hallenge 'ill %e to $a-e sa!ings else'here to $eet these o%*e#ti!es 'hile re$aining on the #onsolidation ath& Ta$9ling in/lation The IMF re ort also re#o$$ends "urther tightening $onetary oli#y to $eet the authorities> in"lation o%*e#ti!es and an#hor in"lation e) e#tations& 8ith little or no s are #a a#ity in the e#ono$y+ #ou led 'ith the threat o" rising "ood ri#es+ in"lation is #urrently ele!ated in the range o" 6PI/?P er#ent& In"lation is e) e#ted to #o$e do'n slo'ly as last year>s high "ood ri#es #aused %y oor rain"all dro out o" the in"lation #al#ulation+ %ut underlying ri#e ressures are still strong+ say IMF e#ono$ists& O!er the last year+ the authorities ha!e raised oli#y rates and the #ash reser!e re=uire$ent+ %ut "urther in#reases in oli#y rates 'ould hel %ring real shortAter$ interest rates in line 'ith histori#al nor$s+ and hel #ontain in"lation+ they add&

Ca'ital in/lo4s /und $urrent a$$ount de/i$it The #urrent a##ount de"i#it is ro*e#ted to rea#h <&< er#ent o" @DJ in 3?/?L// and <&2 er#ent ne)t year+ say the e#ono$ists in their re ort& The de"i#it has so "ar %een "inan#ed $ainly %y "oreign dire#t in!est$ent and e=uity in"lo's+ %ut the authorities need to -ee an eye on the le!el o" the #urrent a##ount de"i#it& As the de"i#it rises+ so does the otential i$ a#t o" a sudden sto or re!ersal o" #a ital "lo's& Another ris- is that the s#ale o" the in"lo's #ould e)#eed India>s #a a#ity to a%sor% the$& In this e!ent+ IMF e#ono$ists suggest that e)#hange rate a re#iation should re$ain the "irst line o" de"en#e& I" a re#iation %e#o$es too large+ inter!ention in the "oreign e)#hange $ar-et or $a#ro rudential $easures #ould also %e ta-en& Meeting in/rastru$ture targets

SIES COLLEGE

Page 23

INTERNATIONAL MONITORY FUND

In"rastru#ture in!est$ent has gro'n ra idly in India o!er the ast "e' years+ and the authorities lan to dou%le the $oney s ent on this se#tor "ro$ B2?? %illion in the "i!e years ending 3?//L/3 to B/ trillion in the "ollo'ing hal" a de#ade& Jri!ate arti#i ation is e) e#ted to a##ount "or hal" o" the total& In#reased in"rastru#ture s ending should sustain higher gro'th+ %ut there are se!eral o%sta#les to a#hie!ing set targets& These in#lude a!aila%ility o" "inan#ing+ land a#=uisition+ $ulti le #learan#es+ #a a#ity #onstraints+ and go!ernan#e issues along 'ith !arious se#torA s e#i"i# #on#erns& The IMF %elie!es stru#tural re"or$s in these areas are needed to lo'er the #ost o" in"rastru#ture+ en#ourage resour#es& ri!ate in!est$ent+ and allo' $ore e""i#ient use o" u%li#

A. IMF # )1O.,1IB,TION:
@lo%alization en#o$ asses three institutionsF glo%al "inan#ial $ar-ets and transnational #o$ anies+ national go!ern$ents lin-ed to ea#h other in e#ono$i# and $ilitary allian#es led %y the U;+ and rising Mglo%al go!ern$entsO su#h as 8orld Trade Organization (8TO)+ IMF+ and 8orld :an-& 4harles Der%er argues in his %oo- Peo"le #efore Profit$ 5These intera#ting institutions #reate a ne' glo%al o'er syste$ 'here so!ereignty is glo%alized+ ta-ing o'er and #onstitutional authority a'ay "ro$ nations and gi!ing it to glo%al $ar-ets and international %odies&5 Titus Ale)ander argues that this syste$ institutionalises glo%al ine=uality %et'een 'estern #ountries and the Ma*ority 8orld in a "or$ o" glo%al a artheid+ in 'hi#h the IMF is a -ey illar&QC?R The esta%lish$ent o" glo%alized e#ono$i# institutions has %een %oth a sy$ to$ o" and a sti$ulus "or glo%alization& The de!elo $ent o" the 8orld :an-+ the IMF+Regional de!elo $ent %an-s su#h as the Euro ean :an- "or Re#onstru#tion and De!elo $ent (E:RD)+ and $ore re#ently+ $ultilateral trade institutions su#h as the 8TO indi#ates the trend a'ay "ro$ the do$inan#e o" the state as the e)#lusi!e unit o" analysis in
SIES COLLEGE Page 24

INTERNATIONAL MONITORY FUND

international a""airs& @lo%alization has thus %een trans"or$ati!e in ter$s o" a re#on#e tualizing o" state so!ereignty& Follo'ing U&;& Jresident :ill 4linton,s ad$inistration>s aggressi!e "inan#ial deregulation #a$ aign in the /00?s+ glo%alization leaders o!erturned longAstanding restri#tions %y go!ern$ents that li$ited "oreign o'nershi o" their %an-s+ deregulated #urren#y e)#hange+ and eli$inated restri#tions on ho' =ui#-ly $oney #ould %e 'ithdra'n %y "oreign in!estors&

1C. CONC1U ION:

The IMF #olla%orates 'ith the 8orld :an-+ the regional de!elo $ent %an-s+ the 8orld Trade Organization (8TO)+ UN agen#ies+ and other international %odies to 'or- glo%ally&

IMF $a-es resour#es o" the Fund a!aila%le to $e$%ers& Foster e#ono$i# gro'th and high le!els o" e$ loy$ent&

IMF ro$otes international $onetary #oo eration+ e) ansion and %alan#ed gro'th o" international trade&

The IMF 'or-s to "oster glo%al gro'th and e#ono$i# sta%ility& It ro!ides oli#y ad!i#e and "inan#ing to $e$%ers in e#ono$i# di""i#ulties and also 'or-s 'ith de!elo ing nations to hel the$ a#hie!e $a#roe#ono$i# sta%ility and redu#e o!erty&
SIES COLLEGE Page 25

INTERNATIONAL MONITORY FUND

The suggestion #ould %e that IMF should dee ly study the e#ono$i# #ondition o" the #ountries and should design and i$ le$ent the %est oli#y to handle the e#ono$i# di""i#ulties& IMF should not "or#e the #ounties to ado t the oli#ies o""ered %y hi$& IMF $ust in!ol!e the a""e#ted #ountry to 'hile de#ision or oli#y $a-ing ro#ess&

1C. .I.1IO)R,6!D:

htt FLL'''&i$"&orgLe)ternalL htt FLL'''&google&#o$ htt FLLen&'i-i edia&orgL'i-iLInternationalSMonetarySFund htt FLL%usiness&$a so"india&#o$L"inan#eA$inistryLi$"&ht$l htt FLL'''&%ritanni#a&#o$LE:#he#-edLto i# International Mar-eting :y T;a- On-!isit T.ohn .& ;ha'

SIES COLLEGE

Page 26