International Monetary Fund (IMF)

International Monetary Fund (IMF)

International Monetary fund (IMF) is an international organization  headquartered in Washington DC. It  has  a  membership of 189 countries. It was established in 27th December 1945 on the recommendation of the Bretton Wood Conference. It provides shorter loan to member countries to their correct balance of payments disequilibrium.

Objectives of IMF

The objective of IMF are mentioned below.

a.        Promoting international monetary cooperation

b.        Ensuring balanced international trade

c.         Ensuring exchange rate stability

d.        Eliminating or minimizing exchange restrictions by promoting multilateral payments.

e.         Providing economic assistance to member countries for correcting imbalance in balance of payments of countries

f.          Minimizing imbalance in quantum and duration of balance of payment.

Functions of IMF

The functions of IMF are enumerated below

a.        It acts as short term credit institution at the international level.

b.        It provides machinery for ordinary adjustments of exchange rates.

c.         It has a reservoir of currencies of the membercountriesfromwhichaborrower can borrow currencies of other nations.

d.        It promotes economic stability and global growth by encouraging countries adopt sound economic and financial policies.

e.         It offers technical assistance and training to help member countries strengthen and implement effective policies. Technical assistance is offered in formulating banking, fiscal, monetary and exchange policies.

f.          It helps member countries correct their imbalance in balance of payment.

IMF AND INDIA

Free Convertibility of Indian Rupee

Indian rupee has become independent after the establishment of IMF. Earlier it was linked with pound sterling. Its value is now determined in terms of Gold. Hence it is freely convertible.

1. Loan For Development Activities

India got several loan facilities from IMF for its several development projects.

2. Ability To Purchase Foreign Currency

Government of India is able to purchase foreign currencies from time to time to meet the ever growing requirement of development activities.

3. Expert Advice

India used to get expert advice from IMF for solving the economic problems. It has given valuable advice to India with regard to financing its 5 year plan.

4. Timely Help

India has received timely help from IMF many a time to eliminate the deficit in its balance of payments. India got help from IMF during 1966 in the aftermath of war with Pakistan. It received assistance from IMF for combating oil shock. Between 1980 and 1983 India got assistance from IMF to manage global economic recession.

5. Financial Assistance during Natural Calamity

India has got a lot of financial assistance from IMF to solve the economic crises arising from natural calamities like, floods, famine, earthquake, aggressions of Chinese and Pakistan etc. It gets technical assistance from IMF.

6. Membership in World Bank

By virtue of its membership in IMF India could become member in the World Bank.

7. Help During 1991 Economic Crisis

During 1990, India faced serious economic crisis. Indian Government was almost nearing bankruptcy. It got assistance from IMF by pledging its gold reserve with it to solve its balance of payments crisis.