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Chapter: 11th 12th std standard Indian Economy Economic status Higher secondary school College

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International Monetary Fund (IMF)

A landmark in the history of world economic co-operation is the creation of the International Monetary Fund (IMF). The decision to start IMF was taken at Bretton woods conference and it commenced its operation in March 1947.

International Monetary Fund (IMF)

 

A landmark in the history of world economic co-operation is the creation of the International Monetary Fund (IMF). The decision to start IMF was taken at Bretton woods conference and it commenced its operation in March 1947. According to the Articles of Agreement of IMF, the objectives of IMF are:

 

To promote international monetary cooperation

 

To promote stability in foreign exchange rates;

 

To eliminate exchange control

 

To establish a system of multilateral trade and payments

 

To set right the disequilibria in the balance of payments.

 

The following are the major functions of the IMF

 

Functions as a short term credit institution.

 

Provides machinery for the orderly adjustments of exchange rates.

 

Acts as a reservoir of the currencies of all the member countries from which a borrower nation can borrow the currency of other nations.

 

Functions as a sort of lending institution in foreign exchange. It grants loans for financing current transactions only and not capital transactions.

It also provides machinery for altering sometimes the par value of the currency of a member country.

 

It also provides machinery for international consultations.

 

Provides technical experts to member countries having BOP difficulties and other problems.

 

Conducts research studies and publishes them in IMF Staff papers, Finance and development etc.

 

The structure of IMF

 

The highest authority of the fund is the Board of Governors. It consists of Executive Board, a Managing Director, a council and staff with its headquarters in Washington, U.S.A. There are ad hoc and standing committees appointed by the Board of Governors and Executive Board. The Board of Governors and the Executive Board are decision-making organs of the fund. The decisions are binding on the fund and its members.

 

Working of the Fund

 

The capital of the Fund included quotas of member countries, amount received from the sale of gold and loans from member countries. When a country joins the fund it is assigned a quota that governs the size of its subscription, its voting power and its drawing rights. At the time of formation of the fund each member has to pay 25% of its quota in gold. The remaining 75% was to be furnished in the country's own currency.

 

Fund borrowing

 

The bulk of its financial resources comes from quota subscriptions, besides, selling gold, borrowing from central banks or private institutions of industrialized countries.


Fund lending

 

The fund gives loans to members to rectify the temporary disequilibria in BOP on current account. If a member has less currency with the Fund than its quota the difference is called reserve trench. It can draw up to 25% on its reserve trench interest free but payable within a period of 3 to 5 years. A member can further draw annually from the balance quota in 4 instalments up to 100% of its quota from credit trenches

 

Other credit facilities

 

Buffer stock Financing Facility (BSFF)

 

Extended Fund Facility (EFF)

 

Supplementary Financing Facility (SFF)

 

Structural Adjustment Facility (SAF)

 

Enhanced Structural Adjustment Facility (ESAF)

 

Compensatory and contingency Financing Facility (CCFF)

 

Systematic Transformation Facility (STF)

 

Emergency structural Adjustment Loans (ESAL)

 

Contingency credit Line (CCL)

 

IMF has shown sufficient flexibility to mould itself in keeping with the changing international economic conditions. The usefulness and success of the fund lies in its membership, which has increased from 44 in 1947 to 182 in 2000.


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