Introduction

The International Monetary Fund is a mysterious and often-feared institution. One of the many myths that surround the Fund is that its staff travels around the world imposing unnecessarily harsh adjustment policies to the developing countries.

Strictly speaking this is incorrect; the IMF cannot impose any policy to any country. However, occasionally frequently, may be a more accurate word countries require assistance, both technical and financial, from the Fund. In most cases before

providing financial help, and this is the catch, the country has to agree to follow a given set of macroeconomic policies. Since the eruption of the debt crisis in 1982 the Fund has played an important role in the effort to bring about an orderly adjustment to the world economy. Not only did the Fund provide financial help to the highly indebted countries, but it was also instrumental in coordinating the private banks involvement in the first

emergency packages.

Since 1982 the Funds evaluation of a countrys

performance has become a key element in the process of debt restructuring and refinancing. The Fund provides a seal of approval that assures the banks that the country in question is indeed making a serious effort to improve things. People from very different persuasions have recognized the important, indeed crucial, role of the Fund in helping avert a global international financial collapse following the debt crisis. However, more and more observers are now questioning the wisdom of the Funds current approach toward the debt crisis and adjustment. Interestingly enough, these criticisms are coming from all sides of the ideological and political spectrum.

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About IMF
The International Monetary Fund (IMF) is an association of 186 nations, working towards strengthening the international fiscal system, protecting monetary stability, assisting international trade, endorsing greater employment, maintaining fiscal growth, and diminishing poverty rate across the globe.

The organization maintains its association by facilitating:

Policy guidance to administrations and nationalized financial institutions on the basis of the assessment of fiscal trends cross national know-how;

Providing study data, statistics, predictions and assessments based on the survey of international, local and respective financial systems and markets.

Providing loans to assist nations to surmount financial difficulties; Providing provisional finances to help evade poverty in progressing nations and Providing technological support and training to aid nations enhance the administration of their financial systems.

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Creation of IMF
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.

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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.

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Membership & Voting Rights

There are two types of members: 1) ORIGINAL MEMBERS: All those countries whose representatives took part in BRETTONWOODS CONFERENCE and who agreed to be the members of the fund prior to 31st December,1945. 2) ORDINARY MEMBERS: All those who became its members subsequently.

*BANK has the authority to suspend any member and similarly every member is free to resign.

Voting Rights 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.

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Main Function of IMF

Determining the rate of exchange by every country Fund lending Credit tranches A central banks bank Training and technical assistance Consultancy role

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IMF V/S 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.

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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
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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.

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IMF with 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.

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Need of IMF
Before people from different countries can buy or sell anything to each other, they have to solve a basic problem. Buyers have to be able to change their money from their country's currency to the seller's national currency. This is called "foreign exchange." Each currency, whether it's the US dollar or the indian rupees, has a value in terms of other currencies.

This is the "exchange rate." Without a reliable supply of foreign exchange in each country, and without relatively stable exchange rates, world trade would drop drastically. You wouldn't be wearing tennis shoes made in Asia, or eating an apple grown in New Zealand.

The International Monetary Fund was founded over 50 years ago to allow currency to be exchanged freely and easily between member countries. Today, the IMF works to help member countries ensure that they always have enough foreign exchange to continue to do business with the rest of the world. This is the "exchange rate." Without a reliable supply of foreign exchange in each country, and without relatively stable exchange rates, world trade would drop drastically. You wouldn't be wearing tennis shoes made in Asia, or eating an apple grown in New Zealand. The International Monetary Fund was founded over 50 years ago to allow currency to be exchanged freely and easily between member countries. Today,

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the IMF works to help member countries ensure that they always have enough foreign exchange to continue to do business with the rest of the world.

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IMF and India Relation India is among one of the developing economies that effectively employed the various Fund programmes to fortify its fiscal structure. Through productive engagement with the IMF, India formulated a consistent approach to expand domestic and global assistance for economic reforms. Whenever India underwent balance of payments crises, it sought the help of IMF and in turn the internationally recognized reserve willingly helped India to overcome the difficulties.

Recently, India purchased IMF gold to lend money to developing countries. This proves that the fiscal reforms set in motion by the previous finance ministers have finally started gaining momentum, transforming India from fiscal borrower to major lender.

The speed at which the gold was purchased by India on September 18, 2009 astonished the market observers, who later considered it as a smart move towards shoring its bullion funds and steadily trying to stake on the US dollar. Some analysts predict that India is purchasing gold to move forward for higher voting share in the IMF. India is also seeking for a considerable say in global fiscal affairs and greater account in the IMF.

The Reserve Bank of India forfeited USD 1,045/ ounce of yellow metal paying the amount in hard exchange and not in the IMF's internal division of account.

The history of India's engagement with IMF illustrates that with premeditated planning it is possible to alleviate a macroeconomic calamity and sustain the rights of
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reform package without negotiating on democratic organizations or international policy autonomy.

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Purpose of IMF
The IMF purposes are outlined in Article I of the IMF Articles of Agreement. They are the promotion of international monetary cooperation. The expansion and balanced growth of international trade. Exchange rate stability. The elimination of restrictions on the international flow of capital. The orderly adjustment of balance of payment (BOP) imbalances.

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Function of IMF
IMF describes itself as "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". The primary mission of the IMF is to provide financial assistance to countries that experience serious financial difficulties. Member states with balance of payments problems may request loans and/or organizational management of their national economies. In return, the countries are usually required to launch certain reforms. These reforms are generally required because countries with fixed exchange rate policies can engage in fiscal, monetary, and political practices which may lead to the crisis itself..

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IMF with Indian Economy

The International Monetary Fund (IMF) predicted 8% expansion during 2010-11. However, the growth will be affected by high inflation and increasing monetary deficit in the concerned fiscal year.

India's long term economic prospects will continue to remain sturdy in 2010-11 followed by lower growth rate at 7.7% for the FY 2011-12. Other than high inflation and rising financial deficit, the major areas of concern are rise in asset cost and the prospects of an unanticipated slowdown in the influx of foreign investment in India caused due by the chaos in worldwide financial markets. The International Monetary Fund (IMF) is an international organization that provides financial assistance and advice to member countries. This article will discuss the main functions of the organization, which has become an enduring institution integral to the creation of financial markets worldwide and to the growth of developing countries.

What Does It Do? The IMF was born at the end of World War II, out of the Bretton Woods Conference in 1945. It was created out of a need to prevent economic crises like the Great Depression. With its sister organization, the World Bank, the IMF is the largest public lender of funds in the world. It is a specialized agency of the United Nations and is run by its 186 member countries. Membership is open to any country that conducts foreign policy and accepts the organization's statutes.

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The IMF is responsible for the creation and maintenance of the international monetary system, the system by which international payments among countries take place. It thus strives to provide a systematic mechanism for foreign exchange transactions in order to foster investment and promote balanced global economic trade. To achieve these goals, the IMF focuses and advises on the macroeconomic policies of a country, which affect its exchange rate and its government's budget, money and credit management. The IMF will also appraise a country's financial sector and its regulatory policies, as well as structural policies within the macroeconomy that relate to the labor market and employment. In addition, as a fund, it may offer financial assistance to nations in need of correcting balance of payments discrepancies. The IMF is thus entrusted with nurturing economic growth and maintaining high levels of employment within countries.

How Does It Work? The IMF gets its money from quota subscriptions paid by member states. The size of each quota is determined by how much each government can pay according to the size of its economy. The quota in turn determines the weight each country has within the IMF - and hence its voting rights - as well as how much financing it can receive from the IMF.

Twenty-five percent of each country's quota is paid in the form of special drawing rights (SDRs), which are a claim on the freely usable currencies of IMF members. Before SDRs, the Bretton Woods system had been based on a fixed exchange rate, and it was feared that there would not be enough reserves to finance global economic growth. Therefore, in 1968, the IMF created the SDRs, which are a kind of
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international reserve asset. They were created to supplement the international reserves of the time, which were gold and the U.S. dollar. The SDR is not a currency; it is a unit of account by which member states can exchange with one another in order to settle international accounts. The SDR can also be used in exchange for other freelytraded currencies of IMF members. A country may do this when it has a deficit and needs more foreign currency to pay its international obligations.

The SDR's value lies in the fact that member states commit to honor their obligations to use and accept SDRs. Each member country is assigned a certain amount of SDRs based on how much the country contributes to the Fund (which is based on the size of the country's economy). However, the need for SDRs lessened when major economies dropped the fixed exchange rate and opted for floating rates instead. The IMF does all of its accounting in SDRs, and commercial banks accept SDR denominated accounts. The value of the SDR is adjusted daily against a basket of currencies, which currently includes the U.S. dollar, the Japanese yen, the euro, and the British pound. The larger the country, the larger its contribution; thus the U.S. contributes about 18% of total quotas while the Seychelles Islands contribute a modest 0.004%. If called upon by the IMF, a country can pay the rest of its quota in its local currency. The IMF may also borrow funds, if necessary, under two separate agreements with member countries. In total, it has SDR 212 billion (USD 290 billion) in quotas and SDR 34 billion (USD 46 billion) available to borrow.

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IMF with India

Joint india-imf training program (ITP) is established in pune. The ITP provides policy-oriented training in economics and related operational fields to officials in india. Courses covers macroeconomics management and policies,financial

programming,monetory policy,exchange rate policy and foreign exchange operations. The cost of running the ITP program is shared by the IMF,reserve bank of india,government of australia.

From,1970,India no longer appointed its own executive director, as it lost its place among the five countries with the largest quota.It was replased by japan. IMF gives a lost of recommentations ,when they visit India,and the Indian government flush them down the toilet.

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IMF Benefits
The IMF offers its assistance in the form of surveillance, which it conducts on a yearly basis for individual countries, regions and the global economy as a whole. However, a country may ask for financial assistance if it finds itself in an economic crisis, whether caused by a sudden shock to its economy or poor macroeconomic planning. A financial crisis will result in severe devaluation of the country's currency or a major depletion of the nation's foreign reserves. In return for the IMF's help, a country is usually required to embark on an IMF-monitored economic reform program, otherwise known as Structural Adjustment Policies (SAPs). (For more insight, see Can The IMF Solve Global Economic Problems?)

There are three more widely implemented facilities by which the IMF can lend its money. A stand-by agreement offers financing of a short-term balance of payments, usually between 12 to 18 months. The extended fund facility (EFF) is a medium-term arrangement by which countries can borrow a certain amount of money, typically over a three- to four-year period. The EFF aims to address structural problems within the macroeconomy that are causing chronic balance of payment inequities. The structural problems are addressed through financial and tax sector reform and the privatization of public enterprises. The third main facility offered by the IMF is known as the poverty reduction and growth facility (PRGF). As the name implies, it aims to reduce poverty in the poorest of member countries while laying the foundations for economic development. Loans are administered with especially low interest rates. (For related reading, check out What Is The Balance Of Payments?) The IMF also offers technical assistance to transitional economies in the changeover from centrally planned to market run economies. The IMF also offers emergency
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funds to collapsed economies, as it did for Korea during the 1997 financial crisis in Asia. The funds were injected into Korea's foreign reserves in order to boost the local currency, thereby helping the country avoid a damaging devaluation. Emergency funds can also be loaned to countries that have faced economic crisis as a result of a natural disaster. (For a better look at how economies make the transition from being state run to free markets, see State-Run Economies: From Private To Public.)

All facilities of the IMF aim to create sustainable development within a country and try to create policies that will be accepted by the local populations. However, the IMF is not an aid agency, so all loans are given on the condition that the country implement the SAPs and make it a priority to pay back what it has borrowed. Currently, all countries that are under IMF programs are developing, transitional and emerging market countries (countries that have faced financial crisis).

Not Everyone Has the Same Opinion Because the IMF lends its money with "strings attached" in the form of its SAPs, many people and organizations are vehemently opposed to the its activities. Opposition groups claim that structural adjustment is an undemocratic and inhumane means of loaning funds to countries facing economic failure. Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones. Thus, by being required to open up their economies to foreign investment, to privatize public enterprises, and to cut government spending, these countries suffer an inability to properly fund their education and health programs. Moreover, foreign corporations often exploit the situation by taking advantage of local cheap labor while showing no regard for the environment. The oppositional groups say that locally cultivated

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programs, with a more grassroots approach towards development, would provide greater relief to these economies. Critics of the IMF say that, as it stands now, the IMF is only deepening the rift between the wealthy and the poor nations of the world.

Indeed, it seems that many countries cannot end the spiral of debt and devaluation. Mexico, which sparked the infamous "debt crisis" of 1982 when it announced it was on the verge of defaulting on all its debts in the wake of low international oil prices and high interest rates in the international financial markets, has yet to show its ability to end its need for the IMF and its structural adjustment policies. Is it because these policies have not been able to address the root of the problem? Could more grassroots solutions be the answer? These questions are not easy. There are, however, some cases where the IMF goes in and exits once it has helped solve problems. Egypt is an example of a country that embarked upon an IMF structural adjustment program and was able to finish with it.

The Bottom Line Providing assistance with development is an ever-evolving and dynamic endeavor. While the international system aims to create a balanced global economy, it should strive to address local needs and solutions. On the other hand, we cannot ignore the benefits that can be achieved by learning from others.

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Criticism
The united states is the biggest shareholders in the IMF,holding nearly 18% in shares,and the IMF is generally considered a tool of the U.S.treasury. IMF steps in and provide money,reform are not forthcoming.forexampledespite a post-crisis recovery in some asian countries,fundamental strutural reform has not taken place in any of of the asians countries. IMF says, it makes loans in exachange for policy reform,it has not been successful in turning countries to the free market.Instead,the fund has created loan addicts, more than 70 nations have depended on imf aid for 20 or more years,24 countries have received IMF creidts for 30 or more years. One of the biggest critiques of the IMF and world bank is that they hardly ever co-ordinate their activities

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The IMF and the Asian Financial Meltdown

The IMF, with other donors, put together packages to rescue Thailand ($US 17 billion), Indonesia ($US 40 billion) and South Korea, following their 1997 currency and stockmarket crashes. However, the IMF's remedies have been criticised, raising questions as to how best to help a country in financial trouble and how to avoid contagion (ie stopping a crisis in one country spreading to others). Martin Feldstein, a former chairman of the President's Council of Economic Advisers (US), argues that the IMF has made three key mistakes: imposing excessively contractionary monetary and fiscal policies on debtor countries; encouraging unnecessary and radical changes in the basic economic structure of those countries; and undermining the confidence of global lenders in their financial stability (Australian Financial Review, 8 October 1998). Similarly, Henry Kissinger, former US Secretary of State, argues that 'in the name of free-market orthodoxy, [the IMF] usually attempts to remove all at once every weakness in the economic system of the afflicted country, regardless of whether these caused the crisis or not', all too often compounding the political instability (Australian Financial Review, 14 October 1998). The handling of recent crises has been less than perfect and there are lessons to be learned. How should future financial crises be dealt with? To begin with, the IMF simply lacks the necessary funds to engage in further massive rescues. As The Economist has noted, an IMF equipped to supply Mexico style packages on demand would have to be funded much more generously. But even if member countries were willing to increase their contributions, the IMF would still face

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the problem of moral hazard. Every time the IMF rescued a troubled economy, it faces the classic dilemma of the lender of last resort. If it is seen as an 'easy touch', ever willing to come to the rescue, policy makers may respond by continuing to pursue bad policies. They know they will be bailed out!

We don't have a universally agreed solution to these problems, although many

economists are developing policy options which promise better outcomes. It is likely that such solutions will result in changes to the structure and policy of the IMF. If they are to remain viable, institutions such as the IMF must necessarily adapt to changed circumstances.

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Conclusions
The International Monetary Fund is an important institution. Throughout years it has played a crucial role in helping maintain an efficient international financial system and in bringing about an orderly adjustment to the world economy. In particular, the Funds role in coordinating the first stages of the debt crisis was instrumental in helping avoid the collapse of the international financial system. In many areas the

Fund has shown dynamism and flexibility, adapting to new times and circumstances. However, in other areas, and in particular with respect to its own operational

analytical frame work, it has shown itself to be slow to change. The analysis in this paper has actually shown that the basic model used by the Fund for program design basically the same developed by JJ. Folak 30 years ago. In any ways the IMF is now facing a crucial period in its existence. wide consensus has now developed regarding the need to move to a new stage

This step will probably require that all agents involved recognize this, and that countries and banks start serious bilateral negotiation processes. It is still to be seen whether the IMF will take process the same kind of leadership it took in 1982-83, or if it will the main conclusions of this study can be summarized as follows (1) Th. IMP advice and meets specifically IMP programs, have shown flexibility and a somewhat eclectic view of the world. Contrary to the most popular and simplistic criticisms it is not true that the IMP has always imposed the same policy package, irrespective of the specific characteristics of the country. However, the general
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framework used to design programs the so called financial programing

is

badly

outdated. There is an urgent flee to seriously revise this framework incorporating some of the most important developments in the theory of economic policy that have taken place In the Later 15 years or so. The analysis in Section II provides three examples on how these modern developments could affect the IMP advice. There are, of course, other areas of IMF policy advice that would be affected by new developments. (2) The historical evidence indicates that in a narrow sense IMP programs have worked. This means that, on average, the external situation of program countries improved relative to the situation prevailing before the program. Existing studies also suggest that Fund programs have had some success with respect to lowering inflation and less success in terms of achieving growth targets. In a deeper sense, however, the existing empirical literature has failed to develop fully satisfactory analyses on the effectiveness of Fund programs. The problem, of course, has to do with constructing adequate comparison benchmarks; ideally one would want to know whether Fund programs are able to induce adjustment in a more efficient way than alternative packages without conditionality (or maybe with a different type of conditionality). The problem is not easy, and we would probably have to wait for some time before more adequate empirical evaluation of Funds programs effectiveness is developed. (3) The relatively low recent rate of compliance of the Funds intermediate targets and the profusion of waivers provides some indication that recent conditionality

programs may not have been fully adequate to deal with the debt crisis. Moreover, there is direct evidence that some of the recent programs have been approved under political pressure, and under conditions where the staff strongly doubted their viability.54 There are a number of undesirable consequences of this practice of
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approving unrealistic programs. First, the Funds resources are imperiled; second, the much-needed direct negotiations between banks and countries on possible write-offs Is postponed. (4) Traditionally, Fund programs have paid little attention to issues related to the supply side and in particular to income distribution. More specifically, critics of the Fund have pointed out again and again that Fund policies, and in particular its devaluation components result in output contraction, in increased unemployment and in a worsening of income distribution. In this paper I developed a minimal framework to analyze the effects of devaluations, and other Fund-related policies on output and employment. Empirical results obtained for a group Qf 12 countries and reported in Section V indicate that, contrary to the assumption made in the Fund basic model, devaluations have indeed had a negative short run effect on output. However, the analysis also suggests that alternative policies such as exchange and trade controls also have negative effects on output growth. In that section I also provide preliminary results on the income distribution effects of devaluations; this analysis shows no significant effect of devaluations on the labours share of national income. The IMFs primary purpose is to safeguard the stability of the international monetary systemthe system of exchange rates and international payments that enables countries (and their citizens) to buy goods and services from each other. This is essential for achieving sustainable economic growth and raising living standards. providing advice to members on adopting policies that can help them prevent or resolve a financial crisis, achieve macroeconomic stability, accelerate economic growth, and alleviate poverty;

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making financing temporarily available to member countries to help them address balance of payments problemsthat is, when they find themselves short of foreign exchange because their payments to other countries exceed their foreign exchange earnings; and

offering technical assistance and training to countries at their request, to help them build the expertise and institutions they need to implement sound economic policies.

An economist said India could grow faster than IMFs estimate. Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year, said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd.

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