CHAPTER 1

INTRODUCTION
International Monetary Fund:
The International Monetary Fund (IMF) is an international organization that provides financial
assistance and advice to member countries. The International Monetary Fund (IMF) is the
international organization that oversees the global financial system by following the
macroeconomic policies of its member countries; in particular those with an impact on exchange
rate and the balance of payments. It is an organization formed with a stated objective of
stabilizing international exchange rates and facilitating development through the enforcement of
liberalizing economic policies on other countries as a condition for loans, restructuring or aid. It
also offers loans with varying levels of conditionality, mainly to poorer countries. Its
headquarters are in Washington, D.C., United States. The IMF's relatively high influence in
world affairs and development has drawn heavy criticism from some sources.
The IMF works to foster global growth and economic stability. It provides policy advice and
financing to members in economic difficulties and also works with developing nations to help
them achieve macroeconomic stability and reduce poverty. The International Monetary Fund was
conceived in July 1944 originally with 45 members and came into existence in December 1945
when 29 countries signed the agreement, 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 was important when it was first created because it helped the world stabilize the
economic system. The IMF works to improve the economies of its member countries. The IMF
describes itself as "an organization of 187 countries, working to foster global monetary
cooperation, secure financial stability, facilitate international trade, promote high employment
and sustainable economic growth, and reduce poverty".

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WHAT IS IMF?

The IMF is the worlds central organization for international monetary cooperation. With 186
member countries (as of June 2009), it is an organization in which almost all of the countries in
the world work together to promote the common good. 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
one another. This is essential for achieving sustainable economic growth and raising living
standards.

Definition

International Monetary Fund. An organization set up in 1944 to lower trade barriers between
countries and to stabilize currencies by monitoring the foreign exchange systems of member
countries, and lending money to developing nations.

Advantages of the IMF

IMF can be seen as lender of last resort. When a country is seeing an exodus of currency
due to a balance of payments crisis, the IMF can provide crucial loans to stabilize the
economy and prevent a collapse of confidence .e.g. Recent loans to:

Supporters argue that the IMF can also impose necessary reforms on an economy.
Reforms such as privatization, fiscal responsibility, control of Money supply, and

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attacking corruption. These policies may cause short term pain, but, are essential for
preventing future crisis and long term development.

Provides an external assessment of the economy, which helps the government to

implement popular ideas.
Yet, despite the potential benefits of having a monetary fund which can provide an

effective counter to financial crisis, the role of the IMF has proved very controversial.
Its critics argue the IMF is dominated by the perspective of the G8 industrialized nations. They
argue the IMF insists on blanket policies of structural adjustment which may actually harm the
economies they are intervening. See: Criticisms of IMF yet, whilst it is easy to criticize the
doctor which prescribes a bitter pill, there is a consensus that, now more than ever, we need an
effective international organization which can deal with the many financial crises that are
occurring around the world.

ADVANTAGES OF IMF
1

Promotes international monetary cooperation.

Helps to improve the countries balance of payments.

It encourages the economic growth.

It gives financial advice to countries about how to run their economies.

DISADVANTAGES OF IMF

Mostly power is in the hand of rich countries

IMF imposes hard conditions to provide loans

Conditions imposed results in increase in poverty and low per capita income

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History:
The International Monetary Fund was conceived in July 1944 during the United Nations
Monetary and Financial Conference. The representatives of 45 governments met in the Mount
Washington Hotel in the area of Bretton Woods, New Hampshire, United States, with the
delegates to the conference agreeing on a framework for international economic cooperation. The
IMF was formally organized on December 27, 1945, when the first 29 countries signed its
Articles of Agreement. The statutory purposes of the IMF today are the same as when they were
formulated in 1943.
The IMF's influence in the global economy 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
IMFs membership, together with the changes in the world economy, has required the IMF to
adapt in a variety of ways to continue serving its purposes effectively.
At the 2009 G-20 London summit, it was decided that the IMF would require additional financial
resources to meet prospective needs of its member countries during the ongoing global financial
crisis. As part of that decision, the G-20 leaders pledged to increase the IMF's supplemental cash
tenfold to $500 billion, and to allocate to member countries another $250 billion via Special
Drawing Rights. On October 23, 2010, the Ministers of Finance of G-20, governing most of the
IMF member quotas, agreed to reform IMF and shift about 6% of the voting shares to major
developing nations and countries with emerging markets. As of August 2010 Romania ($13.9
billion), Ukraine ($12.66 billion), Hungary ($11.7 billion) and Greece ($30 billion) are the
largest borrowers of the fund.
Organization & Finances
The IMF has a management team and 17 departments that carry out its country, policy,
analytical, and technical work. One department is charged with managing the IMF's resources.
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This section also explains where the IMF gets its resources and how they are used. The IMF is
led by a Managing Director, who is head of the staff and Chairman of the Executive Board. He is
assisted by a First Deputy Managing Director and two other Deputy Managing Directors. The
Management team oversees the work of the staff, and maintains high-level contacts with member
governments, the media, non-governmental organizations, think tanks, and other institutions.
The IMF's resources come mainly from the money that countries pay as their capital subscription
when they become members. Quotas broadly reflect the size of each member's economy: the
larger a country's economy in terms of output and the larger and more variable its trade, the
larger its quota tends to be. For example, the world's biggest economy, the United States, has the
largest quota in the IMF. Quotas, together with the equal number of basic votes each member
has, determine countries' voting power. They also help determine how much countries can
borrow from the IMF and their share in allocations of special drawing rights or SDRs (the
reserve currency created by the IMF in 1969).Countries pay 25 percent of their quota
subscriptions in SDRs or major currencies, such as U.S. dollars, Euros, pounds sterling, or
Japanese yen. They pay the remaining 75 percent in their own currencies. Quotas are reviewed
every five years and can be increased when deemed necessary by the Board of Governors. In
2009, the G-20 agreed that the Fund should bring forward the timetable for the next general
quota increase. The next general review was originally scheduled to be completed by 2013. The
agreement now is that it would be completed by January 2011, two years ahead of schedule. The
general quota review provides an opportunity to increase the Funds general resources and would
also provide scope for a further rebalancing of quota and voting shares toward dynamic emerging
markets and other economies.
Membership
The IMF currently has a near-global membership of 187 countries. To become a member, a
country must apply and then be accepted by a majority of the existing members. In June 2009,
the former Yugoslav republic of Kosovo joined the IMF, becoming the institution's 186th
member. Upon joining, each member of the IMF is assigned a quota, based broadly on its
relative size in the world economy. The IMF's membership agreed in May 2008 on a rebalancing
of its quota system to reflect the changing global economic realities, especially the increased
weight of major emerging markets in the global economy.
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Members of the IMF are 186 of the UN members and Kosovo. Former members are: Cuba (left
in 1964), Taiwan (expelled in 1980 due to political reasons). The other non-members are: North
Korea, Andorra, Monaco, Liechtenstein, Nauru, Cook Islands, Niue, Vatican City and the rest of
the recognition. All member states participate directly in the IMF. Member states are represented
on a 24-member Executive Board (five Executive Directors are appointed by the five members
with the largest quotas, nineteen Executive Directors are elected by the remaining members), and
all members appoint a Governor to the IMF's Board of Governors. All members of the IMF are
also IBRD members, and vice versa.

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CHAPTER 2
GOVERNANCE:
The IMF is accountable to the governments of its member countries.
Governance Structure
The IMF's mandate and governance have evolved along with changes in the global economy,
allowing the organization to retain a central role within the international financial architecture.
The diagram below provides a stylized view of the IMF's current governance structure.

Board of Governors
The Board of Governors is the highest decision-making body of the IMF. It consists of one
governor and one alternate governor for each member country. The governor is appointed by the
member country and is usually the minister of finance or the head of the central bank.
While the Board of Governors has delegated most of its powers to the IMF's Executive Board, it
retains the right to approve quota increases, special drawing right (SDR) allocations, the
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admittance of new members, compulsory withdrawal of members, and amendments to the

Articles of Agreement and By-Laws.
The Board of Governors also elects or appoints executive directors and is the ultimate arbiter on
issues related to the interpretation of the IMF's Articles of Agreement. Voting by the Board of
Governors usually takes place by mail-in ballot.
The Boards of Governors of the IMF and the World Bank Group normally meet once a year,
during the IMF-World Bank Spring and Annual Meetings, to discuss the work of their respective
institutions. The Meetings, which take place in September or October, have customarily been
held in Washington for two consecutive years and in another member country in the third year.
Governance Reform
Important progress was made in the reform of the Fund's governance in 2006-08, including the
initiation of a process to realign members' voting power (see Country Representation). However,
enhancing the Fund's legitimacy and effectiveness must also deal with the question of whether
the significant changes since the establishment of the Fund require reform of the institutional
framework through which members' voting power is actually exercised. Among other things, this
requires careful consideration of the respective roles and responsibilities of the Board of
Governors, the IMFC, the Executive Board, and IMF management. Governance reform is
currently being accelerated.
In April 2009, the International Monetary and Financial Committee (IMFC), which advises on
IMF policies, called for a prompt start to a fresh review of quotas (the Fourteenth General
Review), and in April 2010 the IMFC requested completion of the review before January 2011
some two years ahead of the original schedule. The Fourteenth General Review is now underway
and will address the realignment of quota shares and the size of the overall quota increase. In
October 2009, the IMFC endorsed a call by G-20 leaders for a shift in quota share to dynamic
emerging market and developing countries of at least five percent from over-represented to
under-represented countries using the current quota formula as the basis to work from. In
addition, there is a commitment to protecting the voting share of the poorest members.

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CHAPTER 3
ROLE OF IMF:

The International Monetary Fund is a global organisation founded in 1944. It aims was to help
stabilise exchange rates and provide loans to countries in need. Nearly all members of the United
Nations are members of the IMF with a few exceptions such as Cuba, Lichtenstein and Andorra.
The IMF is independent of the World Bank although both are United Nations agencies and both
are aiming to increase living standards. The World Bank concentrates on long term loans to
developing countries. Some Main Functions of IMF are:
Functions of IMF

International Monetary Cooperation

Promote exchange Rate stability

To help deal with Balance of Payments adjustment

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Help Deal With Economic Crisis by providing international coordination

What the IMF does?

With its near-global membership of 187 countries, the IMF is uniquely placed to help member
governments take advantage of the opportunitiesand manage the challengesposed by
globalization and economic development more generally. The IMF tracks global economic trends
and performance, alerts its member countries when it sees problems on the horizon, provides a
forum for policy dialogue, and passes on know-how to governments on how to tackle economic
difficulties. The IMF provides policy advice and financing to members in economic difficulties
and also works with developing nations to help them achieve macroeconomic stability and
reduce poverty.
Marked by massive movements of capital and abrupt shifts in comparative advantage,
globalization affects countries' policy choices in many areas, including labour, trade, and tax
policies. Helping a country benefit from globalization while avoiding potential downsides is an
important task for the IMF. The global economic crisis has highlighted just how interconnected
countries have become in todays world economy.
Key IMF activities: The IMF supports its membership by providing

policy advice to governments and central banks based on analysis of economic trends and
cross-country experiences;

research, statistics, forecasts, and analysis based on tracking of global, regional, and
individual economies and markets;

loans to help countries overcome economic difficulties;

concessional loans to help fight poverty in developing countries; and

Technical assistance and training to help countries improve the management of their
economies.

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Original aims: The IMF was founded more than 60 years ago toward the end of World War II.
The founders aimed to build a framework for economic cooperation that would avoid a repetition
of the disastrous economic policies that had contributed to the Great Depression of the 1930s and
the global conflict that followed.
Since then the world has changed dramatically, bringing extensive prosperity and lifting millions
out of poverty, especially in Asia. In many ways the IMF's main purposeto provide the
global public good of financial stabilityis the same today as it was when the organization was
established. More specifically, the IMF continues to

provide a forum for cooperation on international monetary problems

facilitate the growth of international trade, thus promoting job creation, economic growth,
and poverty reduction;

promote exchange rate stability and an open system of international payments; and

Lend countries foreign exchange when needed, on a temporary basis and under adequate
safeguards, to help them address balance of payments problems.

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How they do it?

The IMF's main goal is to ensure the stability of the international monetary and financial system.
It helps resolve crises, and works with its member countries to promote growth and alleviate
poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical
assistance and training, and lending. These functions are underpinned by the IMF's research and
statistics.
Surveillance:
The IMF promotes economic stability and global growth by encouraging countries to adopt
sound economic and financial policies. To do this, it regularly monitors global, regional, and
national economic developments. It also seeks to assess the impact of the policies of individual
countries on other economies.
This process of monitoring and discussing countries economic and financial policies is known as
bilateral surveillance. On a regular basisusually once each yearthe IMF conducts in depth
appraisals of each member country's economic situation. It discusses with the country's
authorities the policies that are most conducive to a stable and prosperous economy. Consistent
with the decision on bilateral surveillance adopted in June 2007, the main focus of the
discussions is whether there are risks to the economys domestic and external stability that would
argue for adjustments in economic or financial policies.
Technical assistance and training:
IMF offers technical assistance and training to help member countries strengthen their capacity
to design and implement effective policies. Technical assistance is offered in several areas,

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including fiscal policy, monetary and exchange rate policies, banking and financial system
supervision and regulation, and statistics.
The IMF provides technical assistance and training mainly in four areas:

Monetary and financial policies (monetary policy instruments, banking system

supervision and restructuring, foreign management and operations, clearing settlement
systems for payments, and structural development of central banks)

Fiscal policy and management (tax and customs policies and administration, budget
formulation, expenditure management, design of social safety nets, and management of
domestic and foreign debt)

Compilation, management, dissemination, and improvement of statistical data

Economic and financial legislation.

Lending
In the event that member countries experience difficulties financing their balance of payments,
the IMF is also a fund that can be tapped to facilitate recovery. A policy program supported by
financing is designed by the national authorities in close cooperation with the IMF. Continued
financial support is conditional on the effective implementation of this program.
The IMF also provides low-income countries with loans at a concessional interest rate through
the Poverty Reduction and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF).
Research and data
Supporting all three of these activities is the IMF's economic and financial research and statistics.
In recent years, the IMF has applied both its surveillance and technical assistance work to the
development of standards and codes of good practice in its areas of responsibility, and to the
strengthening of financial sectors. These are part of the IMF's continuing efforts to strengthen the
international financial system and improve its ability to prevent and resolve crises.

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Where does the IMF get its money?

The IMF's resources come mainly from the quotas that countries deposit when they join
the IMF. Quotas broadly reflect the size of each member's economy: the larger a country's
economy in terms of output, and the larger and more variable its trade, the larger its quota tends
to be. For example, the United States, the world's largest economy, has the largest quota in the
IMF. Quotas are reviewed periodically and can be increased when deemed necessary by the
Board of Governors.

Countries deposit 25 percent of their quota subscriptions in Special Drawing Rights or

major currencies, such as U.S. dollars or Japanese yen. The IMF can call on the remainder,
payable in the member's own currency, to be made available for lending as needed.

Quotas, together with the equal number of basic votes each member has, determine
countries' voting power. Quotas also help to determine the amount of financing countries can
borrow from the IMF, and their share in SDR allocations.

Most IMF loans are financed out of members' quotas. The exceptions are loans under the
Poverty Reduction and Growth Facility, which are paid out of trust funds administered by the

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IMF and financed by contributions from the IMF itself and a broad spectrum of its member
countries.
If necessary, the IMF may borrow from a number of its financially strongest member
countries to supplement the resources available from its quotas. It has done so on several
occasions when borrowing countries needed large amounts of financing and a failure to help
them might have put the international monetary system at risk.
Like other financial institutions, the IMF also earns income from the interest charges and
fees levied on its loans. It uses this income to meet funding costs, pay for administrative
expenses, and maintain precautionary balances. In the early 2000s, there was a decline in the
demand for the IMF's no concessional loans, reflecting benign global economic and financial
conditions as well as policies in many emerging market countries that had reduced their
vulnerability to crises. To diversify its income sources, the IMF established an investment
account in 2005. The funds in the account are invested in eligible marketable obligations
denominated in SDRs or in the securities of members whose currencies are included in the SDR
basket. The Fund also began to explore other options for reducing its dependence on lending for
its income.

How IMF helps International Monetary System (IMS)

The IMF is the world's central organization for international monetary system. It is an
organization in which almost all countries in the world work together to promote the common
good.

The IMF's primary purpose is to ensure the stability of the international monetary system the
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 sustainable economic growth and
rising living standards.
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To maintain stability and prevent crises in the international monetary system, the IMF
reviews national, regional, and global economic and financial developments.

It provides advice to its 184 member countries, encouraging them to adopt policies that
foster economic stability, reduce their vulnerability to economic and financial crises, and raise
living standards, and serves as a forum where they can discuss the national, regional, and global
consequences of their policies.

IMF member states in green

The IMF also makes financing temporarily available to member countries to help them
address balance of payments problems.

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And it provides technical assistance and training to help countries build the expertise and
institutions they need for economic stability and growth.

The IMF's main business

Macroeconomic and financial sector policies

In its oversight of member countries, the IMF focuses on the following:

Macroeconomic policies relating to the government's budget, the management of money

and credit, and the exchange rate;

Macroeconomic

performancegovernment

and

consumer

spending,

business

investment, exports and imports, output (GDP), employment, and inflation;

Balance of paymentsthat is, the balance of a country's transactions with the rest of the
world;

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 Financial sector policies, including the regulation and supervision of banks and other
financial institutions; and

Structural policies that affect macroeconomic performance, such as those governing labor
markets, the energy sector, and trade.

The IMF advises members on how they might improve their policies in these areas so as
to achieve higher rates of employment, lower inflation, and sustainable economic growth.

SPECIAL DRAWING RIGHTS (SDR):

The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate
system. A country participating in this system needed official reservesgovernment or central
bank holdings of gold and widely accepted foreign currenciesthat could be used to purchase
the domestic currency in foreign exchange markets, as required maintaining its exchange rate.
But the international supply of two key reserve assetsgold and the U.S. dollarproved
inadequate for supporting the expansion of world trade and financial development that was
taking place. Therefore, the international community decided to create a new international
reserve asset under the auspices of the IMF.
However, only a few years later, the Bretton Woods system collapsed and the major currencies
shifted to a floating exchange rate regime. In addition, the growth in international capital markets
facilitated borrowing by creditworthy governments. Both of these developments lessened the
need for SDRs.
The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the
freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in
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exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges
between members; and second, by the IMF designating members with strong external positions
to purchase SDRs from members with weak external positions. In addition to its role as a
supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other
international organizations.
Basket of currencies determines the value of the SDR
The value of the SDR was initially defined as equivalent to 0.888671 grams of fine goldwhich,
at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods
system in 1973, however, the SDR was redefined as a basket of currencies, today consisting of
the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-equivalent of the SDR is
posted daily on the IMFs website. It is calculated as the sum of specific amounts of the four
basket currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day
in the London market. The basket composition is reviewed every five years by the Executive
Board to ensure that it reflects the relative importance of currencies in the world's trading and
financial systems.
The SDR interest rate
The SDR interest rate provides the basis for calculating the interest charged to members on
regular (non-concessional) IMF loans, the interest paid to members on their SDR holdings and
charged on their SDR allocations, and the interest paid to members on a portion of their quota
subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of
representative interest rates on short-term debt in the money markets.

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CHAPTER 4
CURRENT AGENDAS OF IMF:
Tackling current challenges
The IMF is helping many emerging market countries tackle the problems brought on by the
devastating global economic crisis. Its lending to low-income countries has also been stepped up,
as these countries start to feel the effects of the crisis. And it is providing policy advice to
advanced countries, for instance on how to address problems in their financing and banking
sectors, and how to design effective stimulus packages. As part of its response, the IMF has
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already more than doubled its financial assistance to low-income countries, with new IMF
concessional lending commitments to low-income countries through mid-July 2009 reaching
$2.9 billion compared with $1.5 billion for the whole of 2008.
As the global economy continues to struggle in 2009, and with both trade and capital flows
plummeting, the IMF is foreseeing mounting problems for many countries. The Fund is therefore
seeking to add to its resources, and has already negotiated borrowing agreements with a number
of countries. The Fund has already made good progress toward its target of $250 billion in
bilateral government loans as part of moves to triple the IMFs lendable resources to $750
billion. Agreements are already in place with Japan ($100 billion), Canada ($10 billion), and
Norway ($4.5 billion), and a number of other countries have committed funds either through
loans or the purchase of IMF notes.
In addition, the Fund is closely tracking economic and financial developments worldwide so that
it can provide policymakers with the latest forecasts and analysis of developments in financial
markets. And it is engaging with the Group of 20 (G-20) leading economies and other
stakeholders on issues related to the evolution of the international financial system. Currently
IMF main Agendas are:
Emergency lending to emerging markets
Emerging market countries are facing increasing difficulties around the world because of the
spreading global economic crisis, with demand falling for their exports, investment slumping,
and cross-border lending drying up. A growing number of emerging economies have found room
for policy manoeuvre becoming increasingly limited, and large-scale official support has been
needed from bilateral and multilateral sources.
Since 2008, the IMF has committed more than $160 billion in lending to a number of countries
affected by the crisis, including Belarus, Hungary, Iceland, Latvia, Pakistan, Poland, Romania,
Serbia, Sri Lanka, and Ukraine. It announced a precautionary loan for El Salvador and an IMF
team has also been in negotiations with Turkey.
Helping low-income countries fight the crisis

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The global economic crisis is threatening to undermine recent economic gains and to create a
humanitarian crisis in the worlds poorest countries. In response, the IMF has stepped up lending
to low-income countries to combat the impact of the global recession with a new framework for
loans to the worlds poorest nations, including increased resources, a doubling of borrowing
limits, zero interest rates until the end of 2011, and new lending instruments that offer more
flexible terms. Most low-income countries escaped the early phases of the global crisis, which
began in the financial sectors of advanced economies. But it is now hitting them hard, mainly
through trade, as financial problems in advanced countries trigger recessions that dampen
demand for imports from low-income countries.
In addition, more than $18 billion of a planned $250 billion allocation of IMF Special Drawing
Rights (SDRs) will go to low-income countries. These countries can benefit by either counting
the SDRs as extra assets in their reserves, or selling their SDRs for hard currency to meet balance
of payments needs.
Reforming the international financial system
The global economic crisis has sparked a rethinking of how the international financial system is
structured. The IMF is assisting the G-20 industrialized and emerging economies with
recommendations to reshape the system of international regulation and governance. To a large
extent, global efforts thus far have been focused on the crisis at hand, but reforms are in progress
with a view toward the post-crisis world.
As input into the reform process, the IMF published a comprehensive study of the causes of the
global financial crisis. The study takes stock of the initial lessons learnt from the crisis and
presses for a worldwide rethink of how to handle systemic risk management.
Although economic and financial sector policies will remain primarily the business of national
governments, ongoing changes to the global financial architectureincluding to the IMFcan
reduce the frequency and depth of future crises. Additional changes could also include
addressing some of the shortcomings of the decision-making structure of the G-20 by allowing
greater scope for joint decision making on a wider set of international economic and financial
issues, with the IMF in its newly expanded role as a central player.

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CHAPTER 5
THE IMF AND ITS CRITICS:
Over time, the IMF has been subject to a range of criticisms, generally focused on the conditions
of its loans. The IMF has also been criticised for its lack of accountability and willingness to lend
to countries with bad human rights record. Two criticisms from economists have been that
financial aid is always bound to so-called "Conditionalities", including Structural Adjustment
Programs (SAP). It is claimed that Conditionalities (economic performance targets established as
a precondition for IMF loans) retard social stability and hence inhibit the stated goals of the IMF,

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while Structural Adjustment Programs lead to an increase in poverty in recipient countries.

Many Criticisms of IMF include:
1

Conditions of Loans:
On giving loans to countries, the IMF makes the loan conditional on the implementation
of certain economic policies. These policies tend to involve:

Reducing government borrowing - Higher taxes and lower spending

Higher interest rates to stabilize the currency.

Allow failing firms to go bankrupt.

Structural adjustment. Privatization, deregulation, reducing corruption and bureaucracy.

The problem is that these policies of structural adjustment and macroeconomic
intervention make the situation worse.

For example, in the Asian crisis of 1997, many countries such as Indonesia, Malaysia and
Thailand were required by IMF to pursue tight monetary policy (higher interest rates) and
tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However,
these policies caused a minor slowdown to turn into a serious recession with mass
unemployment.

In 2001, Argentina was forced into a similar policy of fiscal restraint. This led to a
decline in investment in public services which arguably damaged the economy.

Exchange Rate Reforms:

When the IMF intervened in Kenya in the 1990s, they made the Central bank remove
controls over flows of capital. The consensus was that this decision made it easier for
corrupt politicians to transfer money out of the economy (known as the Goldman
scandal). Critics argue this is another example of how the IMF failed to understand the
dynamics of the country that they were dealing with - insisting on blanket reforms.

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The economist Joseph Stieglitz has criticised the more monetarist approach of the IMF in
recent years. He argues it is failing to take the best policy to improve the welfare of
developing countries saying the IMF "was not participating in a conspiracy, but it was
3
4

reflecting the interests and ideology of the Western financial community."

Devaluations
In earlier days, the IMF have been criticised for allowing inflationary devaluations.
Neo Liberal Criticisms
There is also criticism of neo liberal policies such as privatisation. Arguably these free
market policies were not always suitable for the situation of the country. For example,

privatisation can create lead to the creation of private monopolies who exploit consumers.
Free Market Criticisms of IMF
As well as being criticised for implementing 'free market reforms' other cities the IMF for
being too interventionist. Believers in free markets argue that it is better to let capital
markets operate without attempts at intervention. They argue attempts to influence
exchange rates only make things worse - it is better to allow currencies to reach their
market level.

There is also a criticism that bailout countries with large debt create moral hazard.
Because of the possibility of getting bailed out it encourages people to borrow more.

Lack of Transparency and involvement:

The IMF have been criticised for imposing policy with little or no consultation with
affected countries.
Jeffrey Sachs, the head of the Harvard Institute for International Development said:
"In Korea the IMF insisted that all presidential candidates immediately "endorse" an
agreement which they had no part in drafting or negotiating, and no time to understand.
The situation is out of hand...It defies logic to believe the small group of 1,000
economists on 19th Street in Washington should dictate the economic conditions of life to

75 developing countries with around 1.4 billion people." \

Supporting Military dictatorships:
The IMF have been criticised for supporting military dictatorships in Brazil and
Argentina, such as Castillo Branch in 1960s received IMF funds denied to other
countries.

Response to Criticism of IMF

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Crisis Always lead to some Difficulties:

Because the IMF deal with economic crisis, whatever policy they offer, there is likely to
be difficulties. It is not possible to deal with a balance of payments without some painful
readjustment.

IMF has had Some Successes:

The Failures of the IMF tend to be widely publicised. But, its successes less so. Also
criticism tends to focus on short term problems and ignores longer term view

Confidence:
The fact there is a lender of last resort provides an important confidence boost for
investors. This is important during current financial turmoil.

Countries are not Obliged to take an IMF loan:

It is countries that approach the IMF for a loan. The fact so many take loans suggests
there must be at least some benefits of the IMF.

IMF Easy target:

Sometimes countries may want to undertake painful short term adjustment but there is a
lack of political will. An IMF intervention enables the government to secure a loan and
then pass the blame on to the IMF for the difficulties.
Overall, the IMF success record is perceived as limited. While it was created to help
stabilize the global economy, since 1980 critics claim over 100 countries (or reputedly
most of the Fund's membership) have experienced a banking collapse that they claim
have reduced GDP by four percent or more, far more than at any time in Post-Depression
history. The considerable delay in the IMF's response to any crisis, and the fact that it
tends to only respond to them (or even create them) rather than prevent them, has led
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many economists to argue for reform. In 2006, an IMF reform agenda called the Medium
Term Strategy was widely endorsed by the institution's member countries. The agenda
includes changes in IMF governance to enhance the role of developing countries in the
institution's decision-making process and steps to deepen the effectiveness of its core
mandate, which is known as economic surveillance or helping member countries adopt
macroeconomic policies that will sustain global growth and reduce poverty. On June 15,
2007, the Executive Board of the IMF adopted the 2007 Decision on Bilateral
Surveillance, a landmark measure that replaced a 30-year-old decision of the Fund's
member countries on how the IMF should analyze economic outcomes at the country
level.

CHAPTER 6
IMPACT OF IMF ON VARIOUS FACTORS:
The IMF policies and rules have an impact on some factors like access to food, environment,
public health etc.:
Impact on access to food
A number of civil society organizations have criticized the IMF's policies for their impact on
people's access to food, particularly in developing countries. In October 2008, former US

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President Bill Clinton joined this chorus in a speech to the United Nations World Food Day,
which criticized the World Bank and IMF for their policies on food and agriculture.
Impact on public health
In 2008, a study by analysts from Cambridge and Yale Universitys published on the open-access
Public Library of Science concluded that strict conditions on the international loans by the IMF
resulted in thousands of deaths in Eastern Europe by tuberculosis as public health care had to be
weakened. In the 21 countries to which the IMF had given loans, tuberculosis deaths rose by
16.6%.
In 2009, a book by Rick Rowden titled, The Deadly Ideas of Neoliberalism: How the IMF has
Undermined Public Health and the Fight Against Aids, claimed that the IMF's monetarist
approach towards prioritizing price stability (low inflation) and fiscal restraint (low budget
deficits) was unnecessarily restrictive and has prevented developing countries from being able to
scale up long-term public investment as a percent of GDP in the underlying public health
infrastructure. The book claimed the consequences have been chronically underfunded public
health systems, leading to dilapidated health infrastructure, inadequate numbers of health
personnel, and demoralizing working conditions that have fuelled the "push factors" driving the
brain drain of nurses migrating from poor countries to rich ones, all of which has undermined
public health systems and the fight against HIV/AIDS in developing countries.

Impact on environment
IMF policies have been repeatedly criticized for making it difficult for indebted countries to
avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal and forestdestroying lumber and agriculture projects. Ecuador for example had to defy IMF advice
repeatedly in order to pursue the protection of its rain forests, though paradoxically this need was
cited in IMF argument to support that country. The IMF acknowledged this paradox in a March
2010 staff position report which proposed the IMF Green Fund, a mechanism to issue Special

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Drawing Rights directly to pay for climate harm prevention and potentially other ecological
protection as pursued generally by other environmental finance.
Criticism from free-market advocates
Typically the IMF and its supporters advocate a monetarist approach. As such, adherents of
supply-side economics generally find themselves in open disagreement with the IMF. The IMF
frequently advocates currency devaluation, criticized by proponents of supply-side economics as
inflationary. Secondly they link higher taxes under "austerity programmes" with economic
contraction.
Currency devaluation is recommended by the IMF to the governments of poor nations with
struggling economies. Some economists claim these IMF policies are destructive to economic
prosperity.
Complaints have also been directed toward the International Monetary Fund gold reserve being
undervalued. At its inception in 1945, the IMF pegged gold at US$35 per Troy ounce of gold. In
1973, the administration of US President Richard Nixon lifted the fixed asset value of gold in
favour of a world market price. This need to lift the fixed asset value of gold had largely come
about because Petrodollars outside the United States were worth more than could be backed by
the gold at Fort Knox under the fixed exchange rate system. Following this, the fixed exchange
rates of currencies tied to gold were switched to a floating rate, also based on market price and
exchange. The fixed rate system had only served to limit the nominal amount of assistance the
organization could provide to debt-ridden countries.

In the media
Life and Debt, a documentary film, deals with the IMF's policies' influence on Jamaica and its
economy from a critical point of view. The Debt of Dictators explores the lending of billions of
dollars by the IMF, World Bank multinational banks and other international financial institutions
to brutal dictators throughout the world.
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CHAPTER 7

INDIA AND THE IMF:

IMF Survey: India: Rapid Growth with Promising Medium-term Prospects

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With robust growth spurring elevated levels of inflation, India should speed up its return to precrisis monetary and fiscal policies to keep the economy in check, suggests the IMF in its annual
assessment of one of the worlds fastest growing economies.
In its report on the Indian economyknown as the Article IV consultationIMF economists
said they expect the South Asian country to grow above trend this year, with high levels of
growth continuing over the medium term We expect real GDP to grow 8 percent in 2010/11,
with robust growth supported by high investment in infrastructure and productivity gains, said
the IMFs mission chief for India, Masahiko Takeda.
India weathered the recent global financial crisis well, and since mid-2009 domestic demand has
powered a vigorous recovery. The countrys growth rate remains among the strongest in the
world.
Toward a more normal policy stance
In its report, the IMF backed the authorities policy of exiting from the stimulus implemented in
the past two years. But this exit strategy remains incomplete. Given the high level of government
debt, existing strong domestic demand, and large capital inflows, IMF economists said that fiscal
policy is the preferred method for tightening. The IMF also supported the objective to raise
public investment, especially in infrastructure, and to improve social outcomes. The challenge
will be to make savings elsewhere to meet these objectives while remaining on the consolidation
path.
Tackling inflation
The IMF report also recommends further tightening monetary policy to meet the authorities
inflation objectives and anchor inflation expectations.
With little or no spare capacity in the economy, coupled with the threat of rising food prices,
inflation is currently elevated in the range of 810 percent. Inflation is expected to come
down slowly as last years high food prices caused by poor rainfall drop out of the inflation
calculation, but underlying price pressures are still strong, say IMF economists. Over the last
year, the authorities have raised policy rates and the cash reserve requirement, but further

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increases in policy rates would help bring real short-term interest rates in line with historical
norms, and help contain inflation, they add.

Capital inflows fund current account deficit

The current account deficit is projected to reach 3.3 percent of GDP in 2010/11 and 3.5 percent
next year, say the economists in their report. The deficit has so far been financed mainly by
foreign direct investment and equity inflows, but the authorities need to keep an eye on the level
of the current account deficit. As the deficit rises, so does the potential impact of a sudden stop or
reversal of capital flows. Another risk is that the scale of the inflows could exceed Indias
capacity to absorb them.
In this event, IMF economists suggest that exchange rate appreciation should remain the first line
of defence. If appreciation becomes too large, intervention in the foreign exchange market or
macro prudential measures could also be taken.
Meeting infrastructure targets
Infrastructure investment has grown rapidly in India over the past few years, and the authorities
plan to double the money spent on this sector from $500 billion in the five years ending 2011/12
to $1 trillion in the following half a decade. Private participation is expected to account for half
of the total.
Increased infrastructure spending should sustain higher growth, but there are several obstacles to
achieving set targets. These include availability of financing, land acquisition, multiple
clearances, capacity constraints, and governance issues along with various sector-specific
concerns.
The IMF believes structural reforms in these areas are needed to lower the cost of infrastructure,
encourage private investment, and allow more efficient use of public resources.

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IMF & GLOBALIZATION:

Globalization encompasses three institutions: global financial markets and transnational
companies, national governments linked to each other in economic and military alliances led by
the US, and rising global governments such as World Trade Organization (WTO), IMF,
and World Bank. Charles Derber argues in his book People before Profit, "These interacting
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institutions create a new global power system where sovereignty is globalized, taking power and
constitutional authority away from nations and giving it to global markets and international
bodies." Titus Alexander argues that this system institutionalizes global inequality between
western countries and the Majority World in a form of global apartheid, in which the IMF is a
key pillar.
The establishment of globalized economic institutions has been both a symptom of and a
stimulus for globalization. The development of the World Bank, the IMF, Regional development
banks such as the European Bank for Reconstruction and Development (EBRD), and more
recently, multilateral trade institutions such as the WTO indicates the trend away from the
dominance of the state as the exclusive unit of analysis in international affairs. Globalization has
thus been transformative in terms of a conceptualizing of state sovereignty.
Following U.S. president Bill Clintons administration financial deregulation campaign in the
1990s, globalization leaders overturned long-standing restrictions by governments that limited
foreign ownership of their banks, deregulated currency exchange, and eliminated restrictions on
how quickly money could be withdrawn by foreign investors.

CONCLUSION

The IMF collaborates with the World Bank, the regional development banks, the World Trade
Organization (WTO), UN agencies, and other international bodies to work globally.

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 IMF makes resources of the Fund available to members. Foster economic growth and
high levels of employment.

IMF promotes international monetary cooperation, expansion and balanced growth of

international trade.

The IMF works to foster global growth and economic stability. It provides policy advice
and financing to members in economic difficulties and also works with developing
nations to help them achieve macroeconomic stability and reduce poverty.

The suggestion could be that IMF should deeply study the economic condition of the
countries and should design and implement the best policy to handle the economic
difficulties. IMF should not force the counties to adopt the policies offered by him. IMF
must involve the affected country to while decision or policy making process.

BIBLIOGRAPHY
BOOKS

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ECONOMICS OF GLOBAL TRADE AND FINANCE

JOHNSON MASCARENHAS

NEWSPAPERS

Times of India

Hindustan Times

Webliography
http://www.imf.org/external/
http://en.wikipedia.org/wiki/International_Monetary_Fund
http://business.mapsofindia.com/finance-ministry/imf.html
http://www.britannica.com/EBchecked/topic

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