Chapter One


IMF was formed by the mental act of the representatives of 45 authoritiess, in the metropolis of Bretton Woods, New Hampshire, ( north-eastern United States ) in July 1944 where they agreed to construct up a model for international economic cooperation. They had strong belief that such a model was indispensable to avoid a repeat of the awful and unsuccessful pecuniary regulations that had played a critical function to the tremendous wretchedness of early 19 hundreds..The International Monetary Fund ( IMF ) was created on December 27, 1945. Twenty nine states with common understanding signed its Articles of Agreement with the purpose and hope of forestalling the repeat of such economic policies that contributed to the United States Great Depression in the 1930 ‘s.

Other intents of the IMF include the publicity of international pecuniary cooperation, the growing of international trade, and what has become its major intent, the loaning of money to member states that can non do loan payments. However, this money is merely made available after the state necessitating the loan has implemented certain structural accommodation plans. The IMF is an international organisation of 184 member states. The purpose of IMF was to set up and promote international pecuniary cooperation and exchange stableness ; fundamentally to promote economic growing and to diminish the degree of unemployment ; and to help hapless states with fiscal aid to assist ease balance of payments accommodation.


International Monetary Fund is the universe ‘s cardinal organisation for international economic cooperation. It is an organisation in which about all states in the Earth work jointly to decide the jobs of states who are traveling through certain fiscal crises. IMF ‘s chief intents as stated in Articles of understanding are:

“To promote international pecuniary cooperation through a lasting establishment which provides the machinery for audience and coaction on international pecuniary jobs.

To ease the enlargement and balanced growing of international trade, and to lend thereby to the publicity and care of high degrees of employment and existent income and to the development of the productive resources of all members as primary aims of economic policy.

To advance exchange stableness, to keep orderly exchange agreements among members, and to avoid competitory exchange depreciation.

To help in the constitution of a many-sided system of payments in regard of current minutess between members and in the riddance of foreign exchange limitations which hamper the growing of universe trade.

To give assurance to members by doing the general resources of the Fund temporarily available to them under adequate precautions, therefore supplying them with chance to rectify maladjustments in their balance of payments without fall backing to steps destructive of national or international prosperity.

In conformity with the above, to shorten the continuance and decrease the grade of disequilibrium in the international balances of payments of members.”

3. Functions and Structure of the International Monetary Fund

IMF ‘s AOA is proposed to be a Code of Good Conduct managing members ‘ fiscal policies. “Joseph gold” , composing in 1965, characterised the acceptance of the regulations of good behavior in the pecuniary domain as:

“A singular development in international dealingss because it represents monolithic understanding on the debut of the regulation of jurisprudence into an country in which antecedently the discretion of provinces to move as they wished was about entirely unlimited”

4. The construction of the IMF.

The construction is fundamentally divided in to two variety meats, viz. the BOG that is Board of Governors and secondly the Executive Board. Every member province has one delegate ; normally it ‘s the finance curate or the cardinal bank ‘s caput, on the Board of Governors, which normally meet up one time a twelvemonth.

There are besides two really of import commissions viz. . The International Monetary and Financial Committee it ‘s their responsibility to see critical fiscal system policies. Furthermore the members of the BOG have to function these commissions.

The Development Committee is a combination of joint commission and the World Bank, their responsibility is to give advice to the Board sing the policies sing 3rduniverse or developing states.

The executive board has the duty to run and to pull off the twenty-four hours to twenty-four hours process. Its members ( 24 Executive Directors ) are elected or appointed by the member sates.

All the managers have a right to state during a determination doing procedure as each one of them has the right of ballot. The determination doing procedure between the managers is non wholly based on voting power but on general consensus. Normally the Executive Board meets up every hebdomad but can be summoned more frequently if required.

Workforce is divided into different sections and each section has its ain duties separate from the others. For illustration a figure of “regional” and “functional” sections from which 5 regional sections cover operations for the full Earth, whereas the functional sections include Finance and economic Affairs, which coach or educate national finance officers, and different administrative sections such as sections associating to policy Development, Research work and External Relations. The Executive Board has besides established the “Independent Evaluation Office” , which runs individually to measure the efficaciousness of IMF operations and policies.

Pull offing Director

Pull offing Director is the taking authorization who is above all, that is the IMF staff and Chairman of the Executive Board. The Executive Board has the duty to name a Managing Director for pull offing the bureau ‘s employees, and supplying way to the Executive Board.

6. The IMF ‘s “ Lending ” Facilities

Any developed or a underdeveloped state which is a member of IMF can turn to the IMF for fiscal aid if it unable to happen sufficient financess to decide its fiscal wellness. The IMF does non finance different undertakings and neither it ‘s some sort of a bank which helps different states when of all time that peculiar state is in demand of money. It provides loans which are fundamentally projected to help its member ‘s provinces to undertake balance of payments jobs and to stabilise their economic systems

Any member province may bespeak IMF ‘s fiscal aid. An IMF loan helps a underdeveloped state in a manner that it alleviates the accommodation policies that a state urgently needs to work out its balance of payments job so that it can reconstruct its strong economic growing.

Although there has been impressive advancement in recent old ages, but still due to the intense poorness particularly in low income states it has been a major job confronting the international community.

The measure of pecuniary assistance given by the Fund has varied well over clip. International monetary fund goes through its policies when of all time a member province entreaty or demand for pecuniary aid before taking any action. An agreement is made between IMF and that specific state, and afterwards it is handed over to the international pecuniary Fund ‘s Executive Board, in the signifier of a missive i.e. Letter of Intent. The understanding has to be permitted by the Board in any instance or state of affairs.

IMF helps developing ( hapless ) states in different ways through different channels, such as PRGF i.e. Poverty Reduction and Growth Facility. States which are traveling through fiscal crises and are in despairing demand of financess, PRGF helps such states by imparting them money on concessional footings.

“FCL borrowers can borrow on a precautional footing based on possible balance of payments needs.”

Stand-By Agreements ( SBA ) , are by and large used to supply non-concessional loans to assist provinces confronting BOP jobs. If for case a province has gone through some sort of natural catastrophe, the IMF is ever willing to supply exigency aid for fast recovery.

We are now cognizant of the fact that how and from where IMF supports member states in certain fiscal calls, the inquiry is that from where IMF gets financess resources.

“The IMF financess its loans from its General Resources Account ( GRA )

The method for skill of resources is done by the IMF through the member ‘s quota subscriptions ; it ( IMF ) fundamentally uses the money paid in quotas or other processs chiefly to assist 3rd universe states to contend with their financial jobs.

States maximal part to the IMF ‘s fund is determined by the peculiar sum of quota assigned to it. A member province usually has to pay one one-fourth of its quota in foreign currency and the remainder i.e. three-fourthss is paid by that peculiar province in its ain currency.

The size of the quota is determined by the size and the economic strength of a state.

There are immense Numberss of states which seek aid and aid from IMF, the loans provided by IMF from the fund ‘s general resources are used for multipurpose for illustration: to work out general Balance of Payment job, reconstructing militias in a province ‘s cardinal bank etc.

A member province has to demo and give grounds that it truly is in demand for fiscal aid and is unable to work out its BOP job with out the aid of IMF. After it has shown proper grounds it needs to carry through certain conditions laid down by IMF. ( Conditionality )

7. Technical Aid

Member provinces which normally encounter or bump into risky state of affairss sing to their fiscal personal businesss and who are unable to pull off their economic policies, IMF provides such states with proficient aid for illustration “Zimbabwe ” and other African states, who are in despairing demand of proficient aid so that they are able to cut down poorness and stabilise their economic system.

The IMF proficient aid can be divided into two parts foremost it aims to “strengthen their policymaking capacity”and secondly it guides on how to plan those policies, which may dwell of reforms. IMF offers proficient aid in assorted countries such as revenue enhancement policy to better the administrative and economic efficiency, revenue enhancements related to belongings etc, outgo policy etc.

Harmonizing to the IMF about 90 per centum of the proficient aid goes to the poorest states ( Low income states ) moreover in recent old ages at that place has been a immense demand for IMF ‘s proficient aid to increase the efficiency of the international fiscal system.

8. The jurisprudence of Conditionality

Conditionality is a term where by a party marks an understanding and makes a committedness with another for the needed services in return of some sort of consideration. This consideration can be of any signifier or sort, e.g. following certain policies etc.

Conditionality in the context of IMF refers to such sort of policies that a member province has to stay by in order addition aid from IMF.

These policies are fundamentally intended to assist out the state to predominate over its balance of payment jobs and to do certain that in future the fund ‘s money is repaid on clip.

“It is designed to assist member states to work out balance of payments jobs, while at the same clip it establishes sufficient precautions for the usage of IMF resources” .

9. Surveillance

Surveillance is one of the most of import map that an IMF undertakes ; under this IMF following the Articles ‘ of Agreement observes the exchange rate regulations and policies of a member states to look into that if the system is working efficaciously and expeditiously. It helps IMF to measure states credibleness and that the policies of that peculiar province are up to standard in order to accomplish a sustainable growing economically, so that IMF could assist such member provinces by warning of the extroverted danger and reding them of needed policy accommodations. There are two types of surveillance viz. Bilateral and Multilateral surveillance. Bilateral surveillance is when all the member provinces get together in order to prosecute into a duologue to discourse and analyze a specific states development conditions.

Where as in many-sided surveillance the IMF focuses on a province ‘s economic conditions

13. The Fund ‘s ability to take actions on non Conformity by the member provinces.

As a general regulation when IMF assists a member province with its Balance of payment job, the organisation ( IMF ) expects that peculiar province to follow the ordinances and policies set by IMF. If for case a member province does non stay by the regulations, IMF may command and set sensible sum of force per unit area on that peculiar member province to follow with the regulations, because it has no existent power to coerce members to follow.

By and large a state ‘s policy is described in a “letter of intent” which is subsequently presented to the IMF by a member province requesting for fiscal aid. Officially, missive of purpose is non an understanding or any type of legal contract, so a member province can non be sued by IMF for non-compliance of the policies. The lone thing that IMF can make is to set force per unit area for conformity.

There are certain points that may automatically coerce a member province to stay by the regulations and policies laid down by IMF. E.g. IMF may keep back financess and may non give it back unless or until the province comply, IMF may except the province from the administration an illustration is Czechoslovakia, IMF may confer with other member states to set force per unit area and carry the state. So finally a member province is bound to pay back the money to the Fund or every bit mentioned above certain sever actions will be taken if a state does non follow with the regulations set by IMF.

IMF confronting Financial crises

Two-thirdss of the IMF ‘s members have experienced a fiscal crisis during the last two decennaries.

• Since the mid-1990s, there have been a figure of high- rofile fiscal crises in emerging markets.

15. Background: Economic Impact of the Financial Crisis

IMF confronting fiscal crisis

Background: Economic Impact of the Financial Crisis


The universe is traveling through awful fiscal crisis at the present age and it is clip to see that what IMF truly is capable of in relation of undertaking such crises, although IMF has the capableness to counter such crisis but in some countries new reforms and alteration of pattern is required.

Time to clip many states come frontward for fiscal aid from IMF, IMF has applied certain alterations to increase its fiscal resources, so that developing states could work out their pecuniary wellness. About Two-thirdss of the IMF ‘s members have experienced a fiscal crisis during the last two decennaries. Since the mid-1990s, there have been a figure of high- profile fiscal crises in emerging markets.

There are a figure of jobs that the IMF is engaged in for illustration there has been dissensions between the political parties in connexion to a state following an economic accommodation program and acquiring fiscal aid from IMF. Furthermore due to the slow gait of IMF ‘s maps and policies many private sectors have started playing a prima function.

As we know that IMF is fundamentally governed by the most developed states in the universe such as United States and different EU states the legality of other states are being undermined.

The international pecuniary fund has been playing an of import function in different countries of fiscal aid. But it needs hence has been reformed clip to clip ; harmonizing to Martin A. Weiss Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division many perceivers argued that IMF is non executing its occupation as it should, and it ‘s no longer playing a critical function in helping, assisting or steering the universe in crises direction.

IMF recognition outstanding peaked ( on an end-of-year footing ) at about $ 100 billion at the terminal of 2005, but had declined to about $ 10 billion by the terminal of September 2008.”

Impact of fiscal crises on universe ‘s economic system

Recently on April 22, 2009 there were some figures shown by the IMF relating to the economic growing worsening by -1.3 % in the present twelvemonth of 2009. This has been the lowest rate of all time in the IMF ‘s history. However IMF has predicted that by January, conditions will better by 0.5 % ( end product ) . Furthermore the World Bank in March 2009 besides predicted that planetary economic system will hold a negative impact in 2009. The state of affairs is so worse and black that even the most developed states such as US, Japan and EU states are traveling through a period of recession.

About 50 one million people might lose their occupations ; over the Earth in 2009 as it is predicted by International Labour Organisation ( ILO ) .

“The United Nations bureau said the world-wide unemployment rate could lift from 6 % last twelvemonth to 7.1 % .”

The universe ‘s economic system is traveling through its worst conditions of all time and is seeking to contend with the recent jobs.

A interpreter for the ILO stated that if the state of affairs remains the same or goes down this twelvemonth, the recession will acquire worse aggressively throughout the world.In related intelligence, figures today have revealed that Spain ‘s economic system is in recession for the first clip since 1993.

The conditions are so bad that even one of the biggest states “China” is besides traveling through the same state of affairs as there has been a decrease in its economic growing merely like the whole universe.

The universe ‘s biggest economic systems are being knocked out by the present recession as there has been a diminution of exports and decrease of capital flows. There has been an addition in trade good monetary values for illustration in China in between 2003 to 2008 the gasoline and nutrient monetary values have risen from 320 % and 138 % severally.

Due to the huge impact of the current fiscal state of affairs people will pass less in developing states, as they will be gaining less from developed provinces, finally, there will be less or no investing doing unemployment and occupation losingss. If there are no occupations, there will be no revenue enhancements for the authorities to roll up finally doing a decrease in Government grosss. The poorest people will be the one ‘s most affected as they are wholly dependent on societal disbursement.

World poorness and fiscal crises

When it comes to the hapless states the first name that appears in one ‘s head is of the sub-Sahara African states. Although they are less involved in the universes economic market but they still are being affected by the fiscal crises that the universe is confronting at the minute.

Harmonizing to “ Shaohua Chen” and “Martin Ravallion” in their column “THE IMPACT OF THE GLOBAL FINANCIAL CRISES ON THE WORLD ‘S POOREST” The universe ‘s poorness ratio will worsen from 42 % to 39 % in the present twelvemonth, farther more before the happening of present crises the poorness degree was already deteriorating.

Note: Poverty lines in 2005 monetary values. Beginning: Chen and Ravallion ( 2008 ) .

China and India are one of those states who have been working hard on commanding their poorness ratio, and have been successful in increasing their economic growing rate, but it has been argued that states like China and India who are universes most popular states might be affected strongly at a big graduated table in the present state of affairs.

Harmonizing to the World Bank poorness all over the Earth is being affected so much that every one % age bead in the universe ‘s economic growing will increase the degree of poorness to about 20 million.

As we are cognizant of the fact that these two states are good know by their population, and if the present conditions remained the same that is “slow economic growth” , both of the states will shatter into day of reckoning by making 1000000s of people unemployed and finally interrupting their anchor i.e. their “economy” , “more over the freshly unemployed people are from developed states.”

States like India and Mexico are being affected swearly as people migrate from such developing states in hunt for occupations and employment in other developed provinces, because of occupation losingss and rising prices these workers now avoid to migrate to advanced states.

If we look upon the African states compared to Asiatic states, in present state of affairs there has been more involvement in Africa. As the victims of the present crisis are the developed states, on the west side of the Earth. But on the other manus high hopes for Africa may non populate for long. In May 2009, the African ‘s were warned by the International Monetary Fund ( IMF ) that their economic system will travel down to 1.5 % in 2009.

The IMF is now assisting and is supplying fiscal aid to back up to an increasing figure of African states.

World Bank ‘s main economic expert for Africa has forecasted that:

700,000 kids may good decease over the following few old ages as a consequence of the fiscal crisis and the resulting recession”

Although the current universe economic state of affairs is traveling into slack, the recent surveies show that poorness ratio will still be deteriorating in close hereafter.

Impact of the Crisis on the IMF

IMF is traveling through some truly serious fiscal crises, as we know that the purpose of IMF is to supply fund ‘s to states that are confronting pecuniary jobs. Normally the developed states that assist IMF in assisting hapless states and who play a critical function in lending resources with IMF, it is really unusual for such provinces to seek aid. But late the fortunes are such that developed states like United States and other western states them egos have fallen into hard place. So it is difficult for IMF to impart money to such provinces.

It was in 1976 and 1978, when some of the developed states took fiscal assistance from the Fund ( IMF ) these provinces were Italy, Spain and United Kingdom ( UK ) The International Monetary Fund has about two hundred billion dollars from which it can impart money to different member provinces and if required. IMF is capable of giving aid under exigency conditions and giving loans to work out merely nucleus jobs. Harmonizing to IMF it needs to increase its resources by 55 % . To counter the current fiscal crises IMF needs more resources than of all time or the conditions might acquire more critical in the hereafter, there was a joint understanding between the universe leaders to increase the IMF resources in the recent G-20 meeting which was held in April.

If we look back the last twelvemonth ( 2008 ) :

“IMF landing was SDR11.65 billion ( about $ 16.65 billion ) , down from a extremum of SDR76.84 billion ( so around $ 116 billion ) in September 200”

The recent one-year study of IMF undertakings, that there will be a deficit of about SDR150 million for FY2009. New challenges for IMF have been created over past old ages due to the emerging markets all over the Earth. Countries all over the universe are bettering their economic conditions from clip to clip and many of theses states e.g. Asiatic and South Americans believe that their quota should be increased. Furthermore many developing states think that IMF ‘s quota system is biased against them.

By and large if we talk about IMF confronting fiscal crises there are a figure of points that can be focused e.g. we can see that it ( IMF ) has stopped making what it used to make and it is non bring forthing sufficient gross to cover its operating costs. IMF is confronting with some existent jobs such as neglecting to build right constabularies associating to fiscal ordinance, in other words the ordinances sing finance are non decently prepared to anticipate the up coming hazards, furthermore macroeconomic policies, through which the Fund was non able to calculate out the hazards in fiscal system and in other markets.

It is clip for the debut of some truly solid reforms to equilibrate the present fiscal crises through which the universe is traveling. Some of the reform suggestions should include giving more power to the poorest states because normally they barely are given a opportunity to take part in IMF meetings associating to the defining of the universe economic system. Normally the developed states have been sabotaging these types of suggestions for old ages ; they have been outlining policies with the say of other developing states. But the recent crises are so swear that even the most powerful provinces are now believing to convey alterations in the system so that the hapless states may acquire benefit from it. But still it ‘s difficult to believe that whether such alterations will be brought or non.

If the G-20 pledges of $ 500 billion in new resources are realized, the IMF would one time once more have the fiscal resources to credibly impart to developing states impacted by the crisis, which may turn the tabular arraies up side down “hopefully” . Now we will look upon some of the reforms that IMF has brought and is be aftering to convey to alter the present system to draw out the universe from the worse crises of all time.