IMF

&

ITS IMPACT ON INDIA

a presentation by:

SUNIL KUMAR AGRAWAL

Head, Faculty of Management Studies

RP Inderaprastha Institute of Technology
Bastara, Distt. Karnal.
SUNILGENIUS@GMAIL.COM

International Monetary Fund

The International Monetary Fund was formally created in July 1944 during
the United Nations Monetary and Financial Conference. The
representatives of 44 governments met in the Mount Washington Hotel in
the area of Bretton Woods, New Hampshire, United States of America, with
the delegates to the conference agreeing on a framework for international
economic cooperation.

IMF MEMBER STATES

CREATION
The IMF was formally organised on December 27, 1945. The
International Monetary Fund was created with a goal to stabilize
exchange rates and assist the reconstruction of the world's
international payment system. Countries contributed to a pool
which could be borrowed from, on a temporary basis, by countries
with payment imbalances.
The IMF describes itself as "an organization of 186 countries
(Kosovo being the 186th, as of June 29, 2009).
With the exception of Taiwan (expelled in 1980), North Korea, Cuba
(left in 1964), Andorra, Monaco, Liechtenstein, Tuvalu and Nauru, all
UN member states participate directly in the IMF.
Most are represented by other member states on a 24-member
Executive Board but all member countries belong to the IMF's
Board of Governors.

OBJECTIVES
According to Articles of Association of the IMF, its main objectives are:

To promote international monetary co-operation.

To ensure balanced international trade.

To ensure exchange rate stability.

To eliminate or to minimize exchange restrictions by promoting the

system of multilateral payments.

To grant economic assistance to member countries for eliminating

the adverse imbalance in balance of payments.

To minimize imbalances in quantum and duration of international

trade.

IMF vs. WORLD BANK

World Bank provides long-term loans for promoting
balanced economic development, while IMF
provides short-term loans to member countries for
eliminating BOP disequilibrium.
Both these institutions are complementary to each
other. Few economists have even suggested that
the two organizations should be merged.

MEMBERSHIP & VOTING RIGHT

IMF is controlled and managed by a Board of Governors.
Each member country nominates a Governor. All the nominated Governors make the
Board of Governors.
Each country also nominates an alternate Governor, who casts his vote in the absence of
the Governor.
Each Governor is allotted a number of votes which is determined by the quota allotted to
the respective country in the capital of IMF.
Each Governor has got the right of 250 votes on the basis of the membership. And one
additional vote for each SDR 1,00,000 of quota. The addition of theser two types of votes
becomes the actual voting right of the member country.
Indias current voting right is 250 + 41582 = 41832, representing 1.89% of votes. Finance
Minister Pranab Mukherjee is the Governor and D. Subbarao is the alternate Governor.

CAPITAL RESOURCES
The main source of IMF resources is the quotas allotted to member
countries.
Till 1971, all the amounts of quotas and the assistance provided were
denominated in USD, but since December 1971 all the the quotas and
transactions of IMF are expressed in SDRs (Special Drawing Rights),
also known as the Paper Gold.
In 1971, The value of the SDR was initially defined as equivalent to
0.888671 grams of fine gold which, at the time, was also equivalent
to one U.S. dollar but due to the subsequent decline in dollar value, 1
SDR became equivalent to USD 1.585 by the end of April 1995.
Since November 2005, the value fo SDR is being determined by the
basket of 4 major currencies. These are USD, Euro, Yen, and Pound
Sterling.

The currency value of SDR is determined each day by summarizing the values
in US dollars, based on the market exchange rates of a basket of currencies.
The IMF finacial year is from 1 May to 30th April.
IMF lends to various member countries in the form of various facilities
(Extended Fund Facility, Standby Facility, Contingent Credit Lines,
Compensatory Facility etc.) designed to serve specific purpose, but essentially
aimed at balance of payments stabilization or meeting the emergent foreign
exchange needs.

The IMF's influence in the global economy has steadily increased as it

accumulated more members. The number of IMF member countries has more
than quadrupled from the 44 states involved in its establishment, reflecting in
particular the attainment of political independence by many developing
countries and more recently the collapse of the Soviet bloc. The expansion of
the IMF's membership, together with the changes in the world economy, have
required the IMF to adapt in a variety of ways to continue serving its purposes
effectively.

In 2008, faced with a shortfall in revenue, the International Monetary

Fund's executive board agreed to sell part of the IMF's gold reserves.
On April 27, 2008, IMF Managing Director Dominique Strauss-Kahn
welcomed the board's decision April 7, 2008 to propose a new
framework for the fund, designed to close a projected $400 million
budget deficit over the next few years. The budget proposal includes
sharp spending cuts of $100 million until 2011 that will include up to
380 staff dismissals.
At the 2009 G-20 London summit, it was decided that the IMF would
require additional financial resources to meet prospective needs of its
member countries during the ongoing global crisis. As part of that
decision, the G-20 leaders pledged to increase the IMF's supplemental
cash tenfold to $500 billion, and to allocate to member countries
another $250 billion via Special Drawing Rights.

IMF & POOR COUNTRIES

IMF helps the poor countries by funding from Poverty Reduction and
Growth Facility. As on June 2004, the IMF was lending to 13 members
in the form of Standby Facility, to 2 members under Extended
Arrangements and 38 poor countries under Poverty Reduction and
Growth Facility. The total credit outstanding was 45.686 billion, o.877
billion and 5.515 billion SDRs respectively.
The quota allotted by the IMF to each member country has to be
deposited partly in the members own currency and the remainder in
the form of foreign exchange.

IMF & INDIA

Indias current quota in the IMF is SDR 4158.2 millonin the total quota of SDR
213 billion, giving it a shareholding of 1.95 per cent. Indias relative position
based on quota is 13th. However, based on voting share, India (together with its
constituent countries, viz., Bangladesh, Bhutan and Sri Lanka) is ranked 21st in
the list of 24 constitutencies.
The IMF members can either retain SDRs, use them in payments etc. or sell
them to other member countries.
IMF has played an important role in Indian economy. IMF has provided
economic assistance from time to time to India and has also provided
appropriate consultancy in determination of various policies in the country.
Till 1970, India was among the first five nations having the highest quota with
IMF and due to this status India was allotted a permanent place in Executive
Board of Directors.
In July 2004, India and IMF joint training programme at the National Institute of
Bank Management, Pune was established.