IMFInternational Monetary Fund

The IMF, an international organisation with 184 member countries, was established in 1944 to promote international monetary cooperation, exchange rate stability, and orderly exchange arrangements; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Based in Washington D.C. the managing director (traditionally a European national) is Dominique Strauss Kahn; the Fund currently has 2,693 staff from 141 countries; and 75 countries owe the Fund around $34 billion. Its operations include surveillance (of member countries economies and the global economy), technical assistance and financial support. The latter is provided in the form of loans to which conditions are attached. The nature of the financial and organisational relationship a member state has with the IMF is determined by its quota, which is set when the country joins the Fund. The quotas are assigned as SDRs, the unit of account at the IMF, and are determined using a formula which takes into account the size and characteristics of a country's economy. The amount the member contributes, can potentially borrow and the number of votes allocated to it are determined by the quota. The USA has the largest quota which affords their representative 16.83 per cent of the total votes - as a majority vote of 85 per cent is required to make some decisions (including changes to voting rules) the USA has veto over some types of IMF decision; the 25 EU member states have 31.4 per cent of votes (France, Germany and the UK have a combined vote of 15.64 per cent giving veto power over some decisions); by comparison the combined vote of the 47 African Nations is just above 6 per cent. Lending The IMF lends to member states which enter into balance of payment difficulties i.e. the country cannot reasonably finance its international debt payments. The profile of IMF lending, over time, varies sharply. Due to the nature of the reason for loans the highest volume has been during times of international financial instability, for example: the oil price shocks that occurred in the 1970s; the debt crisis of the 1980s; the economic transition of the former socialist countries, in central and eastern Europe and central Asia, in the early 1990s; or the wave of exchange rate and financial crisis in the second half of the same decade.

The process of lending involves the drafting of a "letter of intent" by a country's government in conjunction with the IMF - the letter of intent must then be accepted by the IMF's executive board. The letter contains the economic policy and structural adjustment conditions a country's government has agreed to fulfil in order to obtain the loan. As the Fund sometimes acts as a lender of last resort in crisis situations, governments are often not in a position to decline or negotiate conditions. Conditions attached to loans have been criticised as being too specific in their requirements, not tailored specifically to a country's needs and often damaging to governments' social programmes which impact the poorest in society most. There are a number of 'instruments' through which countries can borrow money, they include the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shock Facility (ESF), which make loans available to low-income member states at a concessional rate of interest. PRGFs were established in 1999 to replace Enhanced Structural Adjustment Facilities (ESAFs) with the official aim of making poverty and growth more central to the Fund's lending. ESAFs had been criticised for their restrictive conditionality and detrimental effect on poverty; however PRGFs have come under similar criticism for imposing strict conditions especially in the area of public expenditure. The ESF provides loans at short notice for countries to solve balance of payments or other macro-economic problems caused by external shocks to the economy, for instance, a sudden rise in the oil price. Poor countries are often severely effected by external shocks and protection mechanisms, such as building up foreign exchange reserves, are often unavailable to these countries. Other lending instruments include: Stand-By Arrangements (SBA); the Extended Fund Facility (EFF); the Supplemental Reserve Facility (SRF); and the Compensatory Financing Facility (CFF). Loans via these instruments are made at non-concessional rates. The price, known as "the rate of charge," determined by the Special Drawing Right (SDR) interest rate which is adjusted on a weekly basis to account for fluctuations in international money markets. Surveillance Surveillance can otherwise be described as monitoring and consultation and its aim is to monitor world economic developments while encouraging international dialogue over the effects of member states' domestic economic policy. The IMF periodically undertakes Article IV consultation reports for individual member state

assessing strengths and weaknesses of their financial systems. Global and regional surveillance results are published in to biannual publications the World Economic Outlook and Global Financial Stability Report - the former is a more general overview of the world economy, the latter focuses on the financial sector and capital markets. Technical Assistance The third component of IMF activities is technical assistance which any member state can obtain free of charge. Around three quarters of technical assistance goes to low or low-middle income countries and there is a high level of activity in postconflict countries such as Iraq, Afghanistan and the Democratic Republic of Congo. The Fund provides technical assistance in many areas including, but not exclusively, macroeconomic, fiscal (government spending and taxation) and monetary policy; exchange rates; and financial and macroeconomic statistics. The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Overview During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts proved to be self-defeating. World trade declined sharply (see chart below), and employment and living standards plummeted in many countries. This breakdown in international monetary cooperation led the IMF's founders to plan an institution charged with overseeing the international monetary systemthe system of exchange rates and international payments that enables countries and their citizens to buy goods and services from each other. The new global entity would ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade. The Bretton Woods agreement The IMF was conceived in July 1944, when representatives of 45 countries meeting in the town of Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for international economic cooperation, to be established after the Second World War. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression. The IMF came into formal existence in December 1945, when its first 29 member countries signed its Articles of Agreement. It began operations on March 1, 1947. Later that year, France became the first country to borrow from the IMF.

The IMF's membership began to expand in the late 1950s and during the 1960s as many African countries became independent and applied for membership. But the Cold War limited the Fund's membership, with most countries in the Soviet sphere of influence not joining. Par value system The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (the value of their currencies in terms of the U.S. dollar and, in the case of the United States, the value of the dollar in terms of gold) pegged at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement. This par value systemalso known as the Bretton Woods systemprevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold. 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. 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 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. 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 reestablish government institutions following severe civil unrest or war. In 2008, the IMF embarked on an ambitious reform effort to enhance the impact of its technical assistance. The reforms emphasize better prioritization, enhanced performance measurement, more transparent costing and stronger partnerships with donors. Beneficiaries of technical assistance Technical assistance is one of the IMF's core activities. It is concentrated in critical areas of macroeconomic policy where the Fund has the greatest comparative advantage. Thanks to its near-universal membership, the IMF's technical assistance program is informed by experience and knowledge gained across diverse regions and countries at different levels of development. About 80 percent of the IMF's technical assistance goes to low- and lower-middle-income countries, in particular in sub-Saharan Africa and Asia. Post-conflict countries are major beneficiaries. The IMF is also providing technical assistance aimed at strengthening the

architecture of the international financial system, building capacity to design and implement poverty-reducing and growth programs, and helping heavily indebted poor countries (HIPC) in debt reduction and management. A country in severe financial trouble, unable to pay its international bills, poses potential problems for the stability of the international financial system, which the IMF was created to protect. Any member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it has a balance of payments needthat is, if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain a safe level of reserves. 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. The IMF is led by a Managing Director, who is head of the staff and Chairman of the Executive Board. He is assisted by a First Deputy Managing Director and two other Deputy Managing Directors. The Management team oversees the work of the staff, and maintain high-level contacts with member governments, the media, non-governmental organizations, think tanks, and other institutions. Managing Director: Duties and selection According to the IMF's Articles of Agreement, the Managing Director "shall be chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund. Subject to the general control of the Executive Board, he shall be responsible for the organization, appointment, and dismissal of the staff of the Fund." The IMF's Executive Board is responsible for selecting the Managing Director. Any Executive Director may submit a nomination for the position, consistent with past practice. When more than one candidate is nominated, as has been the case in recent years, the Executive Board aims to reach a decision by consensus. The current management team

Dominique Strauss-Kahn, a French national, became the IMF's tenth Managing Director in November 2007. Previously, he was the Finance Minister of France during 1997-99.

John Lipsky, an American, has been First Deputy Managing Director since September 2006. Before coming to the IMF, he worked for JPMorgan Investment Bank.

Murilo Portugal, from Brazil, became Deputy Managing Director of the IMF in December 2006. From 2005 to 2006, he was Brazil's Deputy Minister of Finance.

Naoyuki Shinohara, a Japanese national, joined the IMF as Deputy Managing Director in March 2010. Previously, he was Japan's Vice-Minister of Finance for International Affairs.