You are on page 1of 20

IMF

MISSION STATEMENT
We

strive to be a distinctive specialist banking group driven by commitment to our core philosophies and values

IMF The

International Monetary Fund (IMF) is an organization of 185 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.
3

Strategic focus Deliver sustainable growth by: Remaining focused Delivering a distinctive offering to clients Delivering on financial targets

IMF FUNCTIONS

The work of the IMF is of three main types. Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention.

The

IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to lowincome countries are also aimed especially at poverty reduction.
6

Third,

the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics.

In

recent years, as part of its efforts to strengthen the international financial system, and to enhance its effectiveness at preventing and resolving crises, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors.
8

THE PROMISE OF GLOBAL INSTITUTIONS (CONT.)

IMF was founded on the belief that there was a need for collective action at the global level for economic stability IMF is a public institution established with money provided by taxpayers around the world Major developed countries run the show, with only the USA having effective veto

THE PROMISE OF GLOBAL INSTITUTIONS (CONT.)


Around early 1980s, the activities of the IMF and World Bank became intertwined The Bank went beyond lending for projects to providing broadbased support, in the form of structural adjustment loans, approved by IMF However, there was division of labour: IMF restricted itself to matters of macroeconomics in dealing with a country; World Bank was in charge of structural issues

10

THE PROMISE OF GLOBAL INSTITUTIONS (CONT.)

These institutions could have provided alternative perspectives on challenges to development and transition but were driven by the will of G-7 The IMF has failed in its mission of promoting global instability; has also been unsuccessful in guiding transition of countries from communism to a market economy Jobs have been systematically destroyed before countries industrial & agricultural sectors were able to grow strong and create new jobs Maintaining tight monetary policies has led to interest rates that would make job creation impossible Those who lost jobs were forced into poverty

11

THE PROMISE OF GLOBAL INSTITUTIONS (CONT.)

Structural adjustment programmes did not bring sustained growth even to those who adhered to strictures (eg. Bolivia) Underlying problem of the institutions is: problem of governance- who decides what they do

12

THE PROMISE OF GLOBAL INSTITUTIONS (CONT.)


Reasons for this problem:

Heads chosen behind closed doors, and it has never been viewed as a prerequisite that the head should have experience in the developing world Trade barriers raising prices consumers pay/subsidies imposed on taxpayers is a matter of less concern than profits of producers Heads see the world through the eyes of the financial community Current system is one of taxation without representation
13

THE OPERATION OF THE IMF


IMF

is an international financial organization comprised of 185 member countries Purposes, as stipulated in its Articles of Agreement, are to

Promote international monetary cooperation Facilitate the expansion of international trade Promote exchange stability and a multilateral system of payments Make temporary financial resources available to members under adequate safeguards Reduce the duration and degree of international payments imbalances
14

THE OPERATION OF THE IMF


Most

important feature of IMF is its quota system

Determine both the amount members can borrow from the IMF and their relative voting power

Higher a members quota, the more it can borrow and the greater its voting power

Members

quotas are their subscriptions to the IMF

Based on their relative sizes in the world economy Pays one fourth of its quota in widely-accepted reserve currencies (US dollar, British pound, euro, or yen) or in Special Drawing Rights Pays remaining three-quarters of quota in its own national currency
15

THE OPERATION OF THE IMF

The IMF engages in four areas of activity


Economic surveillance or monitoring Dispensing of policy advice Lending

Perhaps most important

Technical assistance

16

TRANCHE
If

an IMF member faces balance of payments difficulties


Can automatically borrow one fourth of its quota in the form of a reserve tranche When the IMF lends to a member country, what actually happens is domestic country purchases international reserves from the IMF using its own domestic currency reserves
Member country is then obliged to repay IMF by repurchasing its own domestic currency reserves with international reserve assets IMF lending is known as a purchase-repurchase arrangement

17

TRANCHE
Credit tranches Originally, each were equal to of the members quotas In the late 1970s, credit tranches were increased to 37.5% of quota First credit tranche is more or less automatic Second through fourth credit tranches require that the member adopt policies (conditionality) that will solve balance of payments problem at hand Effectively limits a member countrys credit to 150 percent of its quota As IMF evolved, it created a number of special credit facilities that extend potential credit beyond 150% level Drawings on IMF by its members have to be repaid Five-year limit was established

18

IMF LENDING

19

AN ASSESSMENT
Reform

of existing IMF framework could involve Reconstituting it more along the lines of a world central bank Reaffirming role of the SDR as a reserve asset Giving IMF independent responsibility for regulating world liquidity through expanded quotas and SDR management Redesigning adjustment mechanisms to spread responsibility over deficit and surplus countries Changes are radical and would require a complete redrafting of the IMFs Articles of Agreement
20