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Mandate, Functions - The International Monetary Fund(IMF) | 12th Political Science : Chapter 11 : International Organisations

Chapter: 12th Political Science : Chapter 11 : International Organisations

The International Monetary Fund(IMF)

The International Monetary fund or the Fund is the world’s largest premier international financial institution.

The International Monetary Fund(IMF)

The International Monetary fund or the Fund is the world’s largest premier international financial institution. It was conceived at the Bretton Woods conference in 1944 as a global response to the great economic depression of the 1930s. The fundamental idea for setting up an international financial institution was to help avoid the ‘beggar thy neighbour’ policies that characterized that period.

It was established to provide short term and medium term finance to member countries facing balance of payments difficulties so that they could pursue policies of economic adjustment that did not rely on competitive devaluation and protectionist trade policies.


The Mandate of the International Monetary Fund

The International Monetary Fund (IMF) is an independent international Organisation with 185 member countries with the objective to promote economic stability and growth. The member countries are the shareholders in the cooperative and provide capital for the International Monetary Fund through quota subscription. The IMF in return provides its members with macroeconomic policy advice, financial aid in times of balance payments need and technical assistance and training to improve national economic management. The IMF is one of the several autonomous Organisations of the UN with the designation of specialized agency and is also a permanent observer of the UN. Article 1 of the IMF mandate sets out the following objectives:

• TO promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

• TO facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

• TO promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

• TO assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

• TO give confidence to members by making the general resources of the IMF temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

• TO shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

• The mandate of the IMF gives it a unique character as an international monetary institution having broad oversight responsibilities for the proper functioning and development of the international and monetary financial system.


Functions of the International Monetary Fund:

The IMF pursues a wide range of functions in accordance with its mandate. It is as follows:


Surveillance of Members’ Economic Policies: nations who are members agree to pursue economic policies that are consistent with the objectives of the IMF and the articles of agreement confer on the IMF the legal authority to oversee compliance with this obligation which makes the IMF the only Organisation that has the mandate to examine regularly the economic conditions of virtually all countries in the world.


Financing Temporary Balance of Payment Needs: in order to enable countries to make orderly corrective measures and avoid disorderly adjustment of the external imbalance, the IMF lends to its member countries to provide a temporary respite from balance of payments. In addition to providing direct funding to member countries, the IMF also plays a catalytic role in mobilizing external financing for countries’ balance of payment needs.


Combatting Poverty in Low Income Countries: The IMF provides low-income member countries with concessional loans to help these countries in their efforts to eradicate poverty. In this endeavour, the IMF works closely with the World Bank and other development partners. In addition, the IMF participates in two international initiatives to provide debt relief (i) Heavily Indebted Poor Countries (HIPC) and (ii) Multilateral Debt Relief Initiative (MDRI).


Mobilizing External Financing: The IMF’s endorsement of a countries policies serve as an important catalyst in mobilizing external funding from bilateral and multilateral lenders and donors. Policy assessments and recommendations of the IMF also provide important signals to investors and financial markets regarding a country’s economic future and the impact on investor and market confidence in the economy.


Strengthening the International Monetary System: Being the central institution in the international monetary system, the IMF serves as a forum for consultation and collaboration by members on international and monetary matters. It works with other multilateral institutions to devise international rules that would help prevent and promote an orderly resolution of international economic problems.


Increasing the Global Supply of International Reserves: If there is a global need to supplement existing reserves, the IMF has the authority to issue an international asset called the Special Drawing Right (SDR). These SDRs belong to the net international reserves of members and can be exchanged for convertible currencies.


Building Capacity Through Technical Assistance and Training: The IMF with its expertise provides training and technical assistance for member countries to design economic policies and improve economic management capabilities. This helps in reduction of policy failures and resilience to shocks and facilitates program design and implementation. These activities are important particularly for developing countries where resources are scarce and institutions are often weak.


Dissemination of Information and Research: The IMF is a premier source for Economic analysis of its member countries’ economic policies and statistical information. The IMF disseminates information through numerous reports, research studies and specialized statistical publications. It also conducts research in areas that are in accordance with its mandate and operations mainly to improve its economic analysis and its advice to member countries. These publications often appear in books, articles in journal, working papers, occasional papers and the internet.


However there prevails a general criticism that the MIF, at present, function as an institution to promote corporate interests, through commercialisation of the services, including education and health, and by subordinating peoples’ welfare and development to profiteering business interest, and the sovereign states are compelled to be subservient to international corporate business.

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