INTERNATIONAL MONETRAY FUND (IMF)

CONTENTS

IMF- INTRODUCTION HISTORY STRUCTURE FUNCTIONS OBJECTIVES BENEFITS CRITICISM AND DEBATE INSTITUTIONAL IMPLICATIONS OF THE CHANGING ROLE OF IMF

INTRODUCTION

The Internationa Monetar! F"n# $IMF% i& an internationa or'ani(ation that )ro*i#e& +inan,ia a&&i&tan,e an# a#*i,e to -e-.er ,o"ntrie&/ The +"n,tion& o+ the or'ani(ation ha& .e,o-e an en#"rin' in&tit"tion inte'ra to the ,reation o+ +inan,ia -ar0et& 1or #1i#e an# to the 'ro1th o+ #e*e o)in' ,o"ntrie&/

What Does It Do? The IMF 1a& .orn at the en# o+ 2or # 2ar II3 o"t o+ the Bretton 2oo#& Con+eren,e in 4567/ It 1a& ,reate# o"t o+ a nee# to )re*ent e,ono-i, ,ri&e& i0e the Great De)re&&ion/ 2ith it& &i&ter or'ani(ation3 the 2or # Ban03 the IMF i& the ar'e&t )". i, en#er o+ +"n#& in the 1or #/ It i& a &)e,ia i(e# a'en,! o+ the Unite# Nation& an# i& r"n .! it& 489 -e-.er ,o"ntrie&/ Me-.er&hi) i& o)en to an! ,o"ntr! that ,on#",t& +orei'n )o i,! an# a,,e)t& the or'ani(ation:& &tat"te&/ The IMF i& re&)on&i. e +or the ,reation an# -aintenan,e o+ the internationa -onetar! &!&te-3 the &!&te- .! 1hi,h internationa )a!-ent& a-on' ,o"ntrie& ta0e ) a,e/ It th"& &tri*e& to )ro*i#e a &!&te-ati, -e,hani&- +or +orei'n e;,han'e tran&a,tion& in or#er to +o&ter in*e&t-ent an# )ro-ote .a an,e# ' o.a e,ono-i, tra#e/

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the -a,roe,ono-i, )o i,ie& o+ a ,o"ntr!3 1hi,h a++e,t it& e;,han'e rate an# it& 'o*ern-ent:& ."#'et3 -one! an# ,re#it -ana'e-ent/ The IMF 1i a))rai&e a ,o"ntr!:& +inan,ia &e,tor an# it& re'" ator! )o i,ie&3 a& 1e

&tr",t"ra )o i,ie& 1ithin the -a,ro e,ono-! that re ate to the a.or -ar0et an# e-) o!-ent/ In a##ition3 a& a +"n#3 it -a! o++er +inan,ia a&&i&tan,e to nation& in nee# o+ ,orre,tin' .a an,e o+ )a!-ent& #i&,re)an,ie&/ The IMF i& th"& entr"&te# 1ith n"rt"rin' e,ono-i, 'ro1th an# -aintainin' hi'h e*e & o+ e-) o!-ent 1ithin ,o"ntrie&/

How Does It Work? The IMF 'et& it& -one! +ro- <"ota &".&,ri)tion& )ai# .! -e-.er &tate&/ The &i(e o+ ea,h <"ota i& #eter-ine# .! ho1 -",h ea,h 'o*ern-ent ,an )a! a,,or#in' to the &i(e o+ it& e,ono-!/ The <"ota in t"rn #eter-ine& the 1ei'ht ea,h ,o"ntr! ha& 1ithin the IMF - an# hen,e it& *otin' ri'ht& - a& 1e a& ho1 -",h +inan,in' it ,an re,ei*e +ro- the IMF/ T1ent!-+i*e )er,ent o+ ea,h ,o"ntr!:& <"ota i& )ai# in the +or- o+ &)e,ia #ra1in' ri'ht& $SDR&%3 1hi,h are a , ai- on the +ree ! "&a. e ,"rren,ie& o+ IMF -e-.er&/ Be+ore SDR&3 the Bretton 2oo#& &!&te- ha# .een .a&e# on a +i;e# e;,han'e rate3 an# it 1a& +eare# that there 1o" # not .e eno"'h re&er*e& to +inan,e ' o.a e,ono-i, 'ro1th/ There+ore3 in 45983 the IMF ,reate# the SDR&3 1hi,h are a 0in# o+ internationa re&er*e a&&et/ The! 1ere ,reate# to &")) e-ent the internationa re&er*e& o+ the ti-e3 1hi,h 1ere 'o # an# the U/S/ #o ar/ The SDR i& not a ,"rren,!= it i& a "nit o+ a,,o"nt .! 1hi,h -e-.er &tate& ,an e;,han'e 1ith one another in or#er to &ett e internationa a,,o"nt&/ The SDR ,an a &o .e "&e# in e;,han'e +or other +ree !-tra#e# ,"rren,ie& o+ IMF -e-.er&/ A ,o"ntr! -a! #o thi& 1hen it ha& a #e+i,it an# nee#& -ore +orei'n

,"rren,! to )a! it& internationa o. i'ation&/ The SDR:& *a "e ie& in the +a,t that -e-.er &tate& ,o--it to honor their o. i'ation& to "&e an# a,,e)t SDR&/ Ea,h -e-.er ,o"ntr! i& a&&i'ne# a ,ertain a-o"nt o+ SDR& .a&e# on ho1 -",h the ,o"ntr! ,ontri."te& to the F"n# $1hi,h i& .a&e# on the &i(e o+ the ,o"ntr!:& e,ono-!%/ Ho1e*er3 the nee# +or SDR& e&&ene# 1hen -a>or e,ono-ie& #ro))e# the +i;e# e;,han'e rate an# o)te# +or + oatin' rate& in&tea#/ The IMF #oe& a o+ it& a,,o"ntin' in SDR&3 an# ,o--er,ia .an0& a,,e)t SDR #eno-inate# a,,o"nt&/ The *a "e o+ the SDR i& a#>"&te# #ai ! a'ain&t a .a&0et o+ ,"rren,ie&3 1hi,h ,"rrent ! in, "#e& the U/S/ #o ar3 the Ja)ane&e !en3 the e"ro3 an# the Briti&h )o"n#/ The ar'er the ,o"ntr!3 the ar'er it& ,ontri."tion= th"& the U/S/ ,ontri."te& a.o"t 48? o+ tota <"ota& 1hi e the Se!,he e& I& an#& ,ontri."te a -o#e&t @/@@6?/ I+ ,a e# ")on .! the IMF3 a ,o"ntr! ,an )a! the re&t o+ it& <"ota in it& o,a ,"rren,!/ The IMF -a! a &o .orro1 +"n#&3 i+ ne,e&&ar!3 "n#er t1o &e)arate a'ree-ent& 1ith -e-.er ,o"ntrie&/ In tota 3 it ha& SDR A4A .i ion $USD A5@ .i ion% in <"ota& an# SDR B6 .i ion $USD 69 .i ion% a*ai a. e to .orro1/

HISTORY

The Internationa Monetar! F"n# 1a& ori'ina ! ai# o"t a& a )art o+ the Bretton 2oo#& &!&te- e;,han'e a'ree-ent in 4566/ D"rin' the ear ier Great De)re&&ion3 ,o"ntrie& &har) ! rai&e# .arrier& to +orei'n tra#e in an atte-)t to i-)ro*e their +ai in' e,ono-ie&/ Thi& e# to the #e*a "ation o+ nationa ,"rren,ie& an# a #e, ine in 1or # tra#e/ Thi& .rea0#o1n in internationa -onetar! ,o-o)eration ,reate# a nee# +or o*er&i'ht/ The re)re&entati*e& o+ 67 'o*ern-ent& -et at the Bretton 2oo#& Con+eren,e in the Mo"nt 2a&hin'ton Hote in the area o+ Bretton 2oo#&3 Ne1 Ha-)&hire in the Unite# State&3 to #i&,"&& +ra-e1or0 +or )o&t-2or # 2ar II internationa the 1ar/ There 1ere t1o *ie1& on the ro e the IMF &ho" # a&&"-e a& a ' o.a e,ono-i, in&tit"tion/ Briti&h e,ono-i&t John Ma!nar# Ce!ne& i-a'ine# that the IMF 1o" # .e a ,oo)erati*e +"n# ")on 1hi,h -e-.er &tate& ,o" # #ra1 to -aintain e,ono-i, a,ti*it! an# e-) o!-ent thro"'h )erio#i, ,ri&e&/ Thi& *ie1 &"''e&te# an IMF that he )e# 'o*ern-ent& an# to a,t a& the US 'o*ern-ent ha# #"rin' the Ne1 Dea in re&)on&e to 2or # 2ar II/ A-eri,an #e e'ate Harr! De;ter 2hite +ore&a1 an IMF that +"n,tione# -ore i0e a .an03 -a0in' &"re that e,ono-i, ,o-o)eration/ The )arti,i)atin' ,o"ntrie& 1ere ,on,erne# 1ith the re."i #in' o+ E"ro)e an# the ' o.a e,ono-i, &!&te- a+ter

.orro1in' &tate& ,o" # re)a! their #e.t& on ti-e/ Mo&t o+ 2hite:& ) an 1a& in,or)orate# into the +ina a,t& a#o)te# at Bretton 2oo#&/ The Internationa Monetar! F"n# +or-a ! ,a-e into e;i&ten,e on AD De,e-.er 45673 1hen the +ir&t A5 ,o"ntrie& rati+ie# it& Arti, e& o+ A'ree-ent/ B! the en# o+ 4569 the F"n# ha# 'ro1n to B5 -e-.er&/ On 4 Mar,h 456D3 the IMF .e'an it& +inan,ia o)eration& an# on 8 Ma! Fran,e .e,a-e the +ir&t ,o"ntr! to .orro1 +ro- it/ The IMF 1a& one o+ the 0e! or'ani(ation& o+ the internationa e,ono-i, &!&te-= it& #e&i'n a o1e# the &!&te- to .a an,e the re."i #in' o+ internationa ,a)ita i&- 1ith the -a;i-i(ation o+ nationa e,ono-i, &o*erei'nt! an# h"-an 1e +are3 a &o 0no1n a& e-.e##e# i.era i&-/ The IMF:& in+ "en,e in the ' o.a e,ono-! &tea#i ! in,rea&e# a& it a,,"-" ate# -ore -e-.er&/ The in,rea&e re+ e,te# in )arti," ar the attain-ent o+ )o iti,a in#e)en#en,e .! -an! A+ri,an ,o"ntrie& an# -ore re,ent ! the 4554 #i&&o "tion o+ the So*iet Union .e,a"&e -o&t ,o"ntrie& in the So*iet &)here o+ in+ "en,e #i# not >oin the IMF/ The Bretton 2oo#& &!&te- )re*ai e# "nti 45D43 1hen the US 'o*ern-ent &"&)en#e# the ,on*erti.i it! o+ the USE $an# #o ar re&er*e& he # .! other 'o*ern-ent&% into 'o #/ Thi& i& 0no1n a& the Ni;on Sho,0/ A& o+ Jan"ar! A@4A3 the ar'e&t .orro1er& +ro- the +"n# in or#er are Gree,e3 Port"'a 3 Ire an#3 Ro-ania an# U0raine/

ORGANIZATION: The IMF i& hea#e# .! a .oar# o+ 'o*ernor&3 ea,h o+ 1ho- re)re&ent& one o+ the or'ani(ationF& a))ro;i-ate ! 48@ -e-.er &tate&/ The 'o*ernor&3 1ho are "&"a ! their ,o"ntrie&F +inan,e -ini&ter& or ,entra .an0 #ire,tor&3 atten# ann"a -eetin'& on IMF i&&"e&/ The +"n#F& #a!-to-#a! o)eration& are a#-ini&tere# .! an e;e,"ti*e .oar#3 1hi,h ,on&i&t& o+ A6 e;e,"ti*e #ire,tor& 1ho -eet at ea&t

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$China3 Fran,e3 Ger-an!3 Ja)an3 R"&&ia3 Sa"#i Ara.ia3 the Unite# Cin'#o-3 an# the Unite# State&%3 an# the other 49 re)re&ent the +"n#F& re-ainin' -e-.er&3 'ro")e# .! 1or # re'ion&/ Be,a"&e it -a0e& -o&t #e,i&ion& .! ,on&en&"&3 the e;e,"ti*e .oar# rare ! ,on#",t& +or-a *otin'/ The .oar# i& ,haire# .! a -ana'in' #ire,tor3 1ho i& a))ointe# .! the .oar# +or a rene1a. e +i*e-!ear ter- an# &")er*i&e& the +"n#F& &ta++ o+ near ! B3@@@ e-) o!ee& +ro-ore than 4A@ ,o"ntrie&/ The -ana'in' #ire,tor i& "&"a ! a E"ro)ean an#G.! tra#itionGnot an A-eri,an/ The +ir&t +e-a e -ana'in' #ire,tor3 Chri&tine La'ar#e o+ Fran,e3 1a& a))ointe# in J"ne A@44/ Ea,h -e-.er ,ontri."te& a &"- o+ -one! ,a e# a <"ota &".&,ri)tion/ H"ota& are re*ie1e# e*er! +i*e !ear& an# are .a&e# on ea,h ,o"ntr!F& 1ea th an# e,ono-i, )er+or-an,eGthe ri,her the ,o"ntr!3 the ar'er it& <"ota/ The <"ota& +or- a )oo o+ oana. e +"n#& an# #eter-ine ho1 -",h -one! ea,h -e-.er ,an .orro1 an# ho1 -",h *otin' )o1er it 1i ha*e/ For e;a-) e3 the Unite# State&F a))ro;i-ate ! E7@ .i ion ,ontri."tion to #ate i& the -o&t o+ an! IMF -e-.er3 a,,o"ntin' +or a))ro;i-ate ! 48 )er,ent o+ tota <"ota&/ A,,or#in' !3 the Unite# State& re,ei*e& a.o"t 48 )er,ent o+ the tota *ote& on .oth the .oar# o+ 'o*ernor& an# the e;e,"ti*e .oar#/ The Gro") o+ Se*en in#"&tria i(e# nation& $Cana#a3 Fran,e3 Ger-an!3 Ita !3 Ja)an3 the Unite# Cin'#o-3 an# the Unite# State&% ,ontro & near ! 7@ )er,ent o+ the +"n#F& tota *ote&/

STRUCTURE OF IMF

The IMF:& -an#ate an# 'o*ernan,e ha*e e*o *e# a on' 1ith ,han'e& in the ' o.a e,ono-!3 a o1in' the or'ani(ation to retain a ,entra ro e 1ithin the internationa +inan,ia ar,hite,t"re/ The #ia'ra- .e o1 )ro*i#e& a &t! i(e# *ie1 o+ the IMF:& ,"rrent 'o*ernan,e &tr",t"re/

FUNCTIONS

IMF )er+or-& the +o o1in' +"n,tion&I $i% Pro*i#in' &hort ter-& ,re#it to -e-.er ,o"ntrie& +or -eetin' te-)orar! #i++i," tie& #"e to a#*er&e .a an,e o+ )a!-ent&/ $ii% Re,on,i in' ,on+ i,tin' , ai-& o+ -e-.er ,o"ntrie&/ $iii% Pro*i#in' a re&er*oir o+ ,"rren,ie& o+ -e-.er-,o"ntrie& an# ena. in' -e-.er& to .orro1 on another:& ,"rren,!/ $i*% Pro-otin' or#er ! a#>"&t-ent o+ e;,han'e rate&/ $*% A#*i&in' -e-.er ,o"ntrie& on e,ono-i,3 -onetar! an# te,hni,a -atter&/

Resources: IMF i& a )oo o+ ,entra .an0 re&er*e& an# nationa ,"rren,ie& that are a*ai a. e to -e-.er ,o"ntrie& "n#er &)e,i+ie# ,on#ition&/ The ,a)ita o+ the IMF ,on&i&t& o+ the a''re'ate o+ the <"ota& a otte# to the -e-.er ,o"ntrie& -e-.er ,an )a! it& <"ota in it& nationa ,"rren,!/ The IMF "ti i(e& it& 'o # ho #in'& to a,<"ire #o ar& an# other ,"rren,ie& +or it& o)eration&/

Operations: The IMF ha& &ho1n 'reat intere&t in the e,ono-i, #e*e o)-ent o+ "n#er #e*e o)-ent ,o"ntrie&/ It ha& -a#e a &tea#! )ro're&& to1ar#& the e&ta. i&h-ent o+ a -" ti atera &!&te- o+ )a!-ent in re&)e,t o+ ,"rrent tran&a,tion&/ It ha& &i-) i+ie# the -" ti) e e;,han'e &!&te-/ The IMF ha& )ro-ote# e;,han'e rate &ta.i it! an# e;)an&ion o+ 1or # tra#e/ It ha& )ro*i#e# an e;,e ent +or"- +or the #i&,"&&ion an# &o "tion o+ e,ono-i,3 +i&,a an# +inan,ia )ro. e-& ha*in' an internationa i-)a,t/ The IMF ha& 'rante# "n#"e ,re#it to &o-e ,o"ntrie&/ It& in&i&ten,e on #e*a "ation in &o-e ,a&e& )ro*e# i a#*i&e#/ It ha& +o o1e# a 1ee0 )o i,! in the +i;ation o+ e;,han'e rate/ It ha& .een ,har'e# a& .ein' )artia to #e*e o)e# ,o"ntrie& an# not he )in' a#e<"ate ! the "n#er #e*e o)e# ,o"ntrie&/

OBJECTIVES

IMF &ee0& to a,hie*e the +o o1in' o.>e,ti*e&I $I% To )ro-ote internationa -onetar! ,oo)eration/ $ii% To +a,i itate the e;)an&ion o+ internationa tra#e/ $iii% To en&"re &ta.i it! to +orei'n e;,han'e rate&/ $i*% To re#",e #i&e<"i i.ri"- in the internationa .a an,e o+ )a!-ent& o+ -e-.er ,o"ntrie&/ $*% To )ro-ote ,a)ita ,o"ntrie&/ $*i% To a&&i&t in the e&ta. i&h-ent o+ a -" tinationa &!&te- o+ )a!-ent& in re&)e,t o+ ,"rrent tran&a,tion& .et1een the -e-.er ,o"ntrie&/ $*ii% To &e,"re -" ti atera ,on*erti.i it! $i/e/3 to ,on*ert the ,"rren,! o+ an! -e-.er into the ,"rren,! o+ an! other -e-.er%/ $*iii% To )ro*i#e &hort ter- -onetar! he ) to -e-.er& #"rin' e-er'en,!/ $i;% To a,hie*e .a an,e# e,ono-i, 'ro1th an# hi'h e*e o+ e-) o!-ent in -e-.er ,o"ntrie&/ in*e&t-ent in .a,01ar# an# "n#er#e*e o)-ent

BENEFITS

IMF o++er& it& a&&i&tan,e in the +or- o+ &"r*ei an,e3 1hi,h it ,on#",t& on a !ear ! .a&i& +or in#i*i#"a ,o"ntrie&3 re'ion& an# the ' o.a e,ono-! a& a 1ho e/ Ho1e*er3 a ,o"ntr! -a! a&0 +or +inan,ia a&&i&tan,e i+ it +in#& it&e + in an e,ono-i, ,ri&i&3 1hether ,a"&e# .! a &"##en &ho,0 to it& e,ono-! or )oor -a,roe,ono-i, ) annin'/ A +inan,ia ,ri&i& 1i re&" t in &e*ere #e*a "ation o+ the ,o"ntr!:& ,"rren,! or a -a>or #e) etion o+ the nation:& +orei'n re&er*e&/ In ret"rn +or the IMF:& he )3 a ,o"ntr! i& "&"a ! re<"ire# to e-.ar0 on an IMF-onitore# e,ono-i, re+or- )ro'ra-3 other1i&e 0no1n a& Str",t"ra A#>"&t-ent Po i,ie& There are three -ore 1i#e ! i-) e-ente# +a,i itie& .! 1hi,h the IMF ,an en# it& -one!/ A &tan#-.! a'ree-ent o++er& +inan,in' o+ a &hort-ter- .a an,e o+ )a!-ent&3 "&"a ! .et1een 4A to 48 -onth&/ The e;ten#e# +"n# +a,i it! $EFF% i& a -e#i"--ter- arran'e-ent .! 1hi,h ,o"ntrie& ,an .orro1 a ,ertain a-o"nt o+ -one!3 t!)i,a ! o*er a three- to +o"r-!ear )erio#/ The EFF ai-& to a##re&& &tr",t"ra )ro. e-& 1ithin the -a,ro e,ono-! that are ,a"&in' ,hroni, .a an,e o+ )a!-ent ine<"itie&/ The &tr",t"ra )ro. e-& are a##re&&e# thro"'h +inan,ia an# ta; &e,tor re+or- an# the )ri*ati(ation o+ )". i, enter)ri&e&/ The thir# -ain +a,i it! o++ere# .! the IMF i& 0no1n a& the )o*ert! re#",tion an# 'ro1th +a,i it! $PRGF%/ A& the na-e i-) ie&3 it ai-& to re#",e )o*ert! in the )oore&t o+ -e-.er ,o"ntrie& 1hi e a!in' the +o"n#ation& +or e,ono-i, #e*e o)-ent/ Loan& are a#-ini&tere# 1ith e&)e,ia ! o1 intere&t rate&/ The IMF a &o o++er& te,hni,a a&&i&tan,e to tran&itiona e,ono-ie& in the ,han'eo*er +ro- ,entra ! ) anne# to -ar0et r"n e,ono-ie&/ The IMF a &o o++er& e-er'en,! +"n#& to ,o a)&e# e,ono-ie&3 a& it #i# +or Corea #"rin' the 455D +inan,ia ,ri&i& in A&ia/ The +"n#& 1ere in>e,te# into Corea:& +orei'n re&er*e& in or#er to .oo&t the o,a ,"rren,!3 there.! he )in' the ,o"ntr! a*oi# a #a-a'in' #e*a "ation/ E-er'en,! +"n#& ,an a &o .e oane# to ,o"ntrie& that ha*e +a,e# e,ono-i, ,ri&i& a& a re&" t o+ a nat"ra #i&a&ter/

A +a,i itie& o+ the IMF ai- to ,reate &"&taina. e #e*e o)-ent 1ithin a ,o"ntr! an# tr! to ,reate )o i,ie& that 1i .e a,,e)te# .! the o,a )o)" ation&/ oan& are 'i*en on the ,on#ition Ho1e*er3 the IMF i& not an ai# a'en,!3 &o a ha& .orro1e#/ C"rrent !3 a +a,e# +inan,ia ,ri&i&%/

that the ,o"ntr! i-) e-ent the SAP& an# -a0e it a )riorit! to )a! .a,0 1hat it ,o"ntrie& that are "n#er IMF )ro'ra-& are #e*e o)in'3 tran&itiona an# e-er'in' -ar0et ,o"ntrie& $,o"ntrie& that ha*e

CRITICISM AND DEBATE

The i-)a,t o+ IMF oan& ha& .een 1i#e ! #e.ate#/ O))onent& o+ the IMF ar'"e that the oan& ena. e -e-.er ,o"ntrie& to )"r&"e re,0 e&& #o-e&ti, e,ono-i, )o i,ie& 0no1in' that3 i+ nee#e#3 the IMF 1i .ai the- o"t/ Thi& &a+et! net3 ,riti,& ,har'e3 #e a!& nee#e# re+or-& an# ,reate& on'-ter- #e)en#en,!/ O))onent& a &o ar'"e that the IMF re&,"e& internationa .an0er& 1ho ha*e -a#e .a# oan&3 there.! en,o"ra'in' the- to a))ro*e e*er ri&0ier internationa in*e&t-ent&/