PRAHLADRAI DALMIA LIONS COLLEGE

OF COMMERCE & ECONOMICS

S.V. Road, Malad (W),
Mumbai- 400 064
YEAR: 2014-15

TOPIC

IMF (International Monetary Fund)

SUBMITTED BY:
Asif Shaikh
Roll no. 61

CLASS: M.Com (Accountancy)

SEMESTER II

SUBMITTED TO:
UNIVERSITY OF MUMBAI

PROJECT GUIDE:
Prof: Madhavi Nighoskar

PRAHLADRAI DALMIA LIONS COLLEGE

OF COMMERCE & ECONOMICS
S.V. Road, Malad (W),
Mumbai- 400 064

DECLARATION

I Mr. Asif Shaikh Roll No. 61 of Prahladrai Dalmia Lions College of

Commerce and Economics, Malad (W) of M.Com - Accountancy
(Semester-II) has completed project on IMF (International Monetary
Fund) in the academic year 2014-15. This information submitted is true
and original to the best of my knowledge.

Date:

Signature of student

PRAHLADRAI DALMIA LIONS COLLEGE

OF COMMERCE & ECONOMICS
S.V. Road, Malad (W),
Mumbai- 400 064

CERTIFICATE

I Ms. Madhavi Nighoskar hereby certify that Mr. Asif Shaikh.

A student of Prahladrai Dalmia Lions College of M.Com Accountancy
(Semester- II) Roll no.61 has completed Project on IMF (International
Monetary Fund) in the Academic Year 2014 -2015. This information

submitted is true and Original to the best of my Knowledge.

External Examiner:

Principal

Date:
Project Co-coordinator:

College Seal

Acknowledgement
Well to say this is my project would be totally untrue. At best this was my effort.
There are people in this world, some of them so wonderful that made this effort
become a project. I would like to thank all of them, and in particular:
Prof: Madhavi who gave her guidance very conveniently in the completion of our
project.
And also my Parents who always encouraged and motivated me for every issues
relating to my studies.
As well as Our Librarian who helped us by providing books according to our
topics.
Last but not the least it is only when one writes and realizes the true power of MS
word 2007, from grammar checks to replace-alls. It is simple. And the power of
Windows 7 the OS where MS Office is . Thank you Mr. Bill Gates and
Microsoft Corp!

Contents
International Monetary Fund....................................................................................... 7
Introduction................................................................................................................ 7
Overview.................................................................................................................... 7
Key IMF activities........................................................................................................ 8
Original aims.............................................................................................................. 8
An adapting IMF.......................................................................................................... 8
Surveillance................................................................................................................ 9
Technical assistance and training............................................................................. 10
Lending................................................................................................................. 10
Research and data.................................................................................................... 10
History...................................................................................................................... 11
Since 2000......................................................................................................... 12
Functions.................................................................................................................. 13
Surveillance of the global economy..........................................................................14
Conditionality of loans.............................................................................................. 15
Structural adjustment............................................................................................... 15
Benefits.................................................................................................................... 16
Member Countries.................................................................................................... 17
Collaborations.......................................................................................................... 18
Qualifications............................................................................................................ 20
Benefits................................................................................................................. 20
Leadership................................................................................................................ 20
Board of Governors............................................................................................... 20
Executive Board.................................................................................................... 21
Managing Director................................................................................................. 21
Staff of international civil servants........................................................................22
Voting power............................................................................................................ 24
IMF Quotas............................................................................................................... 24
Quotas play several key roles in the IMF...............................................................24
How quota reviews work....................................................................................... 25
Doubling of quotas and major realignment of quota shares..................................25
5

Effects of the quota system................................................................................... 26

Special Drawing Rights............................................................................................. 26
Developing countries................................................................................................ 27
United States influence............................................................................................ 28
Overcoming borrower/creditor divide.......................................................................28
Use........................................................................................................................... 28
Exceptional Access Framework Sovereign Debt.....................................................29
IMF and globalization................................................................................................ 30
Criticisms.................................................................................................................. 30
Conditionality........................................................................................................... 32
Reform...................................................................................................................... 33
Support of military dictatorships.............................................................................. 33
Impact on access to food.......................................................................................... 34
Impact on public health............................................................................................ 34
Impact on environment............................................................................................ 35
Conclusion................................................................................................................ 35
Bibliography............................................................................................................. 37

International Monetary Fund

Introduction
The International Monetary Fund (IMF) is an international
organization headquartered in Washington, D.C., in the United States, of 188
countries working to foster global monetary cooperation, secure financial
stability, facilitate international trade, promote high employment and
sustainable economic growth, and reduce poverty around the world.
[1] Formed in 1944 at the Bretton Woods Conference, it came into formal
existence in 1945 with 29 member countries and the goal of reconstructing
the international payment system. Countries contribute funds to a pool
through a quota system from which countries with payment imbalances can
borrow. As of 2010, the fund had SDR476.8 billion, about US$755.7 billion at
then-current exchange rates.[2]
Through this fund, and other activities such as statistics keeping and
analysis, surveillance of its members' economies and the demand for selfcorrecting policies, the IMF works to improve the economies of its member
countries.[3] The organization's objectives stated in the Articles of
Agreement are:[4] to promote international economic
cooperation, international trade, employment, and exchange-rate stability,
including by making financial resources available to member countries to
meet balance-of-payments needs.

Overview
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 IMF promotes international monetary cooperation
and exchange rate stability, facilitates the balanced growth of
internationaltrade, and provides resources to help members in balance of
payments difficulties or to assist with poverty reduction.

With its near-global membership of 188 countries, the IMF is uniquely

placed to help member governments take advantage of the opportunities
and 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 labor, 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.

Original aims
The IMF was founded more than 60 years ago toward the end of World War
II (see History). 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
8

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.

An adapting IMF
The IMF has evolved along with the global economy throughout its 65-year
history, allowing the organization to retain its central role within the
international financial architecture
As the world economy struggles to restore growth and jobs after the worst
crisis since the Great Depression, the IMF has emerged as a very different
institution. During the crisis, it mobilized on many fronts to support its
member countries. It increased its lending, used its cross-country
experience to advise on policy solutions, supported global policy
coordination, and reformed the way it makes decisions. The result is an
institution that is more in tune with the needs of its 188 member
countries.

Stepping up crisis lending. The IMF responded quickly to the

global economic crisis, with lending commitments reaching a record
level of more than US$250 billion in 2010. This figure includes a
sharp increase in concessional lending (thats to say, subsidized
lending at rates below those being charged by the market) to the
worlds poorest nations.
Greater lending flexibility. The IMF has overhauled its lending
framework to make it better suited to countries individual needs. It
is also working with other regional institutions to create a broader
financial safety net, which could help prevent new crises.
Providing analysis and advice. The IMFs monitoring, forecasts,
and policy advice, informed by a global perspective and by
experience from previous crises, have been in high demand and
have been used by the G-20.

Drawing lessons from the crisis. The IMF is contributing to the

ongoing effort to draw lessons from the crisis for policy, regulation,
and reform of the global financial architecture.
Historic reform of governance.The IMFs member countries also
agreed to a significant increase in the voice of dynamic emerging
and developing economies in the decision making of the institution,
while preserving the voice of the low-income members.

The IMFs 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 IMFs 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 bilateralsurveillance. On a regular basis
usually once each yearthe IMF conducts in depth appraisals of each
member countrys economic situation. It discusses with the countrys
authorities the policies that are most conducive to a stable and
prosperous economy, drawing on experience across its membership.
Member countries may agree to publish the IMFs assessment of their
economies, with the vast majority of countries opting to do so.
The IMF also carries out extensive analysis of global and regional
economic trends, known as multilateral surveillance. Its key outputs are
three semiannual publications, the World Economic Outlook, the Global
Financial Stability Report, and the Fiscal Monitor. The IMF also publishes
a series of regional economic outlooks.
The IMF recently agreed on a series of actions to enhance multilateral,
financial, and bilateral surveillance, including to better integrate the
three; improve our understanding of spillovers and the assessment of
emerging and potential risks; and strengthen IMF policy advice.
10

For more information on how the IMF monitors economies, go to

Surveillance in the Our Worksection.

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, 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; and
economic and financial legislation.

For more on technical assistance, go to Technical Assistance in the Our

Work section.

Lending
IMF financing provides member countries the breathing room they need
to correct balance of payments problems. 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.
In the most recent reforms, IMF lending instruments were improved
further to provide flexible crisis prevention tools to a broad range of
members with sound fundamentals, policies, and institutional policy
frameworks.
In low-income countries, the IMF has doubled loan access limits and is
boosting its lending to the worlds poorer countries, with loans at a
concessional interest rate.
11

For more on different types of IMF lending, go to Lending in the Our

Work section.

Research and data

Supporting all three of these activities is the IMFs economic and
financial research andstatistics. 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 IMFs
continuing efforts to strengthen national and global financial systems
and improve its ability to prevent and resolve crises.

History
The IMF was originally laid out as a part of the Bretton Woods
system exchange agreement in 1944.[20] During the Great Depression,
countries sharply raised barriers to trade in an attempt to improve their
failing economies. This led to the devaluation of national currencies and a
decline in world trade.[21]
This breakdown in international monetary co-operation created a need for
oversight. The representatives of 45 governments met at theBretton Woods
Conference in the Mount Washington Hotel in Bretton Woods, New
Hampshire, in the United States, to discuss a framework for postwar
international economic coperation and how to rebuild Europe.
There were two views on the role the IMF should assume as a global
economic institution. British economist John Maynard Keynesimagined that
the IMF would be a coperative fund upon which member states could draw
to maintain economic activity and employment through periodic crises. This
view suggested an IMF that helped governments and to act as the U.S.
government had during the New Dealin response to World War II. American
delegate Harry Dexter White foresaw an IMF that functioned more like a
bank, making sure that borrowing states could repay their debts on time.
[22] Most of White's plan was incorporated into the final acts adopted at
Bretton Woods.
12

The IMF formally came into existence on 27 December 1945, when the first
29 countries ratified its Articles of Agreement.[23] By the end of 1946 the
IMF had grown to 39 members.[24] On 1 March 1947, the IMF began its
financial operations,[25] and on 8 May France became the first country to
borrow from it.[24]
The IMF was one of the key organisations of the international economic
system; its design allowed the system to balance the rebuilding of
international capitalism with the maximisation of national economic
sovereignty and human welfare, also known as embedded liberalism.
[26] The IMF's influence in the global economy steadily increased as it
accumulated more members. The increase reflected in particular the
attainment of political independence by many African countries and more
recently the 1991 dissolution of the Soviet Unionbecause most countries in
the Soviet sphere of influence did not join the IMF.[21]
The Bretton Woods system prevailed until 1971, when the U.S. government
suspended the convertibility of the US$ (and dollar reserves held by other
governments) into gold. This is known as the Nixon Shock.[21]
Since 2000
In May 2010, the IMF participated, in 3:11 proportion, in the first Greek
bailout that totalled 110 billion.[27] This bailout was notable for several
reasons: the funds were funnelled directly to the (largely European) private
bondholders, which endured no haircuts, to the chagrin of the Swiss,
Brazilian, Indian, Russian, and Argentinian Directors; the Greek authorities
(at the time, George Papandreou andGiorgos Papakonstantinou) themselves
ruled out a haircut of the private bondholders; the Greek private sector was
happy to curtail the 13th and 14th month civil service pay scheme, because
the Greek government was otherwise impotent.[28]
A second bailout package of more than 100 billion was agreed over the
course of a few months from October 2011, during which time Papandreou
was forced from office. The so-called Troika, of which the IMF is part, are joint
managers of this programme, which was approved by the Executive
Directors of the IMF on 15 March 2012 for SDR23.8 billion,[29] and which saw
private bondholders take ahaircut of upwards of 50%. In the interval between
May 2010 and February 2012 the private banks of Holland, France and
13

Germany reduced exposure to Greek debt from 122 billion to 66 billion.

[28][30]
As of January 2012, the largest borrowers from the IMF in order
were Greece, Portugal, Ireland, Romania, and Ukraine.[31]
On 25 March 2013, a 10 billion international bailout of Cyprus was agreed
by the Troika, at the cost to the Cypriots of its agreement: to close
the country's second-largest bank; to impose a one-time bank deposit
levy on Bank of Cyprus uninsured deposits.[32][33] No insured deposit of
100k or less were to be affected under the terms of a novel bail-in scheme.
[34][35]
The topic of sovereign debt restructuring was taken up by the IMF in April
2013 for the first time since 2005, in a report entitled "Sovereign Debt
Restructuring: Recent Developments and Implications for the Funds Legal
and Policy Framework".[36] The paper, which was discussed by the board on
20 May,[37] summarised the recent experiences in Greece, St Kitts and
Nevis, Belize, and Jamaica. An explanatory interview with Deputy Director
Hugh Bredenkamp was published a few days later,[38] as was a
deconstruction by Matina Stevisof the Wall Street Journal.[39]
In the October 2013 Financial Monitor publication, the IMF suggested that
a capital levy capable of reducing Euro-area government debt ratios to "end2007 levels" would require a very high tax rate of about 10%.[40]
The Fiscal Affairs department of the IMF, headed by Dr. Sanjeev Gupta,
produced in January 2014 a report entitled "Fiscal Policy and Income
Inequality" which stated that "Some taxes levied on wealth, especially on
immovable property, are also an option for economies seeking
more progressive taxation...Property taxes are equitable and efficient, but
underutilized in many economies...There is considerable scope to exploit this
tax more fully, both as a revenue source and as a redistributive
instrument."[41]
At the end of March 2014, the IMF secured an $18 billion bailout fund for the
provisional government of the Ukraine in the aftermath of the 2014 Ukrainian
revolution.[42][43]

14

The U.S. executive board veto was brought up again by IMF junior members
in April 2014. The countries were fed up with the failure to ratify a four-year
old agreement to restructure the lender. Singaporean Finance Minister and
IMF steering committee chairman Tharman Shanmugaratnam said it could
cause "disruptive change" in the global economy: "We are more likely over
time to see a weakening of multilateralism, the emergence of regionalism,
bilateralism and other ways of dealing with global problems", and that would
make the world a "less safe" place.[

Functions
The IMF works to foster global growth and economic stability by providing
policy advice and financing to members, by working with developing
nations to help them achieve macroeconomic stability, and by reducing
poverty.[6] The rationale for this is that private international capital markets
function imperfectly and many countries have limited access to financial
markets. Such market imperfections, together with balance-of-payments
financing, provide the justification for official financing, without which many
countries could only correct large external payment imbalances through
measures with adverse economic consequences.[7] The IMF provides
alternate sources of financing.
Upon initial IMF formation, its two primary functions were: to oversee
the fixed exchange rate arrangements between countries,[8] thus helping
national governments manage their exchange rates and allowing these
governments to prioritise economic growth,[9] and to provide short-term
capital to aid balance of payments.[8] This assistance was meant to prevent
the spread of international economic crises. The IMF was also intended to
help mend the pieces of the international economy post the Great
Depression and World War II.[10]
The IMF's role was fundamentally altered after the floating exchange
rates post 1971. It shifted to examining the economic policies of countries
with IMF loan agreements to determine if a shortage of capital was due
to economic fluctuations or economic policy. The IMF also researched what
types of government policy would ensure economic recovery.[11] The new
15

challenge is to promote and implement policy that reduces the frequency of

crises among the emerging market countries, especially the middle-income
countries that are vulnerable to massive capital outflows.[12] Rather than
maintaining a position of oversight of only exchange rates, their function
became one of surveillance of the overall macroeconomic performance of
member countries. Their role became a lot more active because the IMF now
manages economic policy rather than just exchange rates.
In addition, the IMF negotiates conditions on lending and loans under their
policy of conditionality,[8] which was established in the 1950s.[10] Lowincome countries can borrow onconcessional terms, which means there is a
period of time with no interest rates, through the Extended Credit Facility
(ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF).
Nonconcessional loans, which include interest rates, are provided mainly
through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the
Precautionary and Liquidity Line (PLL), and the Extended Fund Facility. The
IMF provides emergency assistance via the Rapid Financing Instrument (RFI)
to members facing urgent balance-of-payments needs.[13]

Surveillance of the global economy

The IMF is mandated to oversee the international monetary and financial
system and monitor the economic and financial policies of its member
countries.[14] This activity is known as surveillance and facilitates
international cooperation.[15] Since the demise of the Bretton Woods
system of fixed exchange rates in the early 1970s, surveillance has evolved
largely by way of changes in procedures rather than through the adoption of
new obligations.[14] The responsibilities changed from those of guardian to
those of overseer of members policies.
The Fund typically analyses the appropriateness of each member countrys
economic and financial policies for achieving orderly economic growth, and
assesses the consequences of these policies for other countries and for
the global economy.[14]
In 1995 the International Monetary Fund began work on data dissemination
standards with the view of guiding IMF member countries to disseminate
their economic and financial data to the public. The International Monetary
16

and Financial Committee (IMFC) endorsed the guidelines for the

dissemination standards and they were split into two tiers: The General Data
Dissemination System (GDDS) and the Special Data Dissemination
Standard (SDDS).
The executive board approved the SDDS and GDDS in 1996 and 1997
respectively, and subsequent amendments were published in a revised Guide
to the General Data Dissemination System. The system is aimed primarily
at statisticians and aims to improve many aspects of statistical systems in a
country. It is also part of the World Bank Millennium Development Goals and
Poverty Reduction Strategic Papers.
The primary objective of the GDDS is to encourage member countries to
build a framework to improve data quality and statistical capacity building in
order to evaluate statistical needs, set priorities in improving the
timeliness, transparency, reliability and accessibility of financial and
economic data. Some countries initially used the GDDS, but later upgraded
to SDDS.
Some entities that are not themselves IMF members also contribute
statistical data to the systems:
Palestinian Authority GDDS
Hong Kong SDDS
Macau GDDS[16]
EU institutions:
the European Central Bank for the Eurozone SDDS
Eurostat for the whole EU SDDS, thus providing data from Cyprus (not using
any DDSystem on its own) and Malta (using only GDDS on its own)

Conditionality of loans
IMF conditionality is a set of policies or conditions that the IMF requires in
exchange for financial resources.[8] The IMF does require collateral from
17

countries for loans but also requires the government seeking assistance to
correct its macroeconomic imbalances in the form of policy reform. If the
conditions are not met, the funds are withheld.[8]Conditionality is perhaps
the most controversial aspect of IMF policies.[17] The concept of
conditionality was introduced in a 1952 Executive Board decision and later
incorporated into the Articles of Agreement.
Conditionality is associated with economic theory as well as an enforcement
mechanism for repayment. Stemming primarily from the work of Jacques
Polak, the theoretical underpinning of conditionality was the "monetary
approach to the balance of payments".[10]

Structural adjustment
Some of the conditions for structural adjustment can include:

Cutting expenditures, also known as austerity.

Focusing economic output on direct export and resource extraction,

Devaluation of currencies,

Trade liberalisation, or lifting import and export restrictions,

Increasing the stability of investment (by supplementing foreign direct

investment with the opening of domestic stock markets),

Balancing budgets and not overspending,

Removing price controls and state subsidies,

Privatization, or divestiture of all or part of state-owned enterprises,

Enhancing the rights of foreign investors vis-a-vis national laws,

Improving governance and fighting corruption.

These conditions have also been sometimes labelled as the Washington

Consensus.

18

Benefits
These loan conditions ensure that the borrowing country will be able to repay
the IMF and that the country will not attempt to solve their balance-ofpayment problems in a way that would negatively impact the international
economy.[18][19] The incentive problem of moral hazardwhen economic
agents maximize their own utility to the detriment of others because they do
not bear the full consequences of their actionsis mitigated through
conditions rather than providing collateral; countries in need of IMF loans do
not generally possess internationally valuable collateral anyway.[19]
Conditionality also reassures the IMF that the funds lent to them will be used
for the purposes defined by the Articles of Agreement and provides
safeguards that country will be able to rectify its macroeconomic and
structural imbalances.[19] In the judgment of the IMF, the adoption by the
member of certain corrective measures or policies will allow it to repay the
IMF, thereby ensuring that the resources will be available to support other
members.[17]
As of 2004, borrowing countries have had a very good track record for
repaying credit extended under the IMF's regular lending facilities with full
interest over the duration of the loan. This indicates that IMF lending does
not impose a burden on creditor countries, as lending countries receive
market-rate interest on most of their quota subscription, plus any of their
own-currency subscriptions that are loaned out by the IMF, plus all of the
reserve assets that they provide the IMF.[7]

Member Countries
The IMF currently has a near-global membership of 188 countries. To
become a member, a country must apply and then be accepted by a
majority of the existing members. In April 2012, Republic of South Sudan
joined the IMF, becoming the institution's 188th member.
Upon joining, each member country of the IMF is assigned a quota, based
broadly on its relative size in the world economy. The IMF's membership
agreed in November 2010 on a major overhaul of its quota system to
19

reflect the changing global economic realities, especially the increased

weight of major emerging markets in the global economy.
A member country's quota defines its financial and organizational
relationship with the IMF, including:

Subscriptions
A member country's quota subscription determines the maximum amount
of financial resources the country is obliged to provide to the IMF. A
country must pay its subscription in full upon joining the IMF: up to 25
percent must be paid in the IMF's own currency, calledSpecial Drawing
Rights (SDRs) or widely accepted currencies (such as the dollar, the euro,
the yen, or pound sterling), while the rest is paid in the member's own
currency.

Voting power
The quota largely determines a member's voting power in IMF decisions.
Each IMF member's votes are comprised of basic votes plus one additional
vote for each SDR 100,000 of quota. The number of basic votes attributed
to each member is calculated as 5.502 percent of total votes. Accordingly,
the United States has 421,965 votes (16.76 percent of the total), and
Tuvalu has 759 votes (0.03 percent of the total).

Access to financing
The amount of financing a member country can obtain from the IMF is
based on its quota. For instance, under Stand-By and Extended
Arrangements, which are types of loans, a member country can borrow up
to 200 percent of its quota annually and 600 percent cumulatively.

SDR allocations
SDRs are used as an international reserve asset. A member's share of
general SDR allocations is established in proportion to its quota. The most
recent general allocation of SDRs took place in 2009.
20

Not all member countries of the IMF are sovereign states, and therefore not
all "member countries" of the IMF are members of the United Nations.
[46] Amidst "member countries" of the IMF that are not member states of the
UN are non-sovereign areas with special jurisdictions that are officially under
the sovereignty of full UN member states, such asAruba, Curaao, Hong
Kong, and Macau, as well as Kosovo.[47][48] The corporate members
appoint ex-officio voting members, who are listed below. All members of the
IMF are also International Bank for Reconstruction and Development (IBRD)
members and vice versa.[citation needed]
Former members are Cuba (which left in 1964)[49] and the Republic of
China, which was ejected from the UN in 1980 after losing the support of
then U.S. President Jimmy Carter and was replaced by the People's Republic
of China.[50]However, "Taiwan Province of China" is still listed in the official
IMF indices.[51]
Apart from Cuba, the other UN states that do not belong to the IMF
are Andorra, Liechtenstein, Monaco, Nauru, andNorth Korea.
The former Czechoslovakia was expelled in 1954 for "failing to provide
required data" and was readmitted in 1990, after the Velvet
Revolution. Poland withdrew in 1950allegedly pressured by the Soviet
Unionbut returned in 1986.[52]

Collaborations
The IMF collaborates with the World Bank, regional development banks,
the World Trade Organization(WTO), UN agencies, and other international
bodies. While all of these organizations are involved in global economic
issues, each has its own unique areas of responsibility and specialization.
The IMF also works closely with the Group of Twenty (G-20) industrialized
and emerging market economies and interacts with think tanks, civil
society, and the media on a daily basis.

Working with the World Bank

21

The IMF and the World Bank are different, but complement each other's
work. While the IMF's focus is chiefly on macroeconomic and financial
sector issues, the World Bank is concerned mainly with longer-term
development and poverty reduction. Its loans finance infrastructure
projects, the reform of particular sectors of the economy, and broader
structural reforms. IMF loans assist countries in continuing to pay for
imports, stabilizing their currencies, and restoring conditions for strong
economic growth. Countries must join the IMF to be eligible for World Bank
membership.
Given the World Bank's focus on antipoverty issues, the IMF collaborates
closely with the Bank in the area of poverty reduction. Other areas of
collaboration include assessments of member countries' financial sectors,
development of standards and codes, and improvement of the quality,
availability, and coverage of data on external debt.

Cooperating on financial stability, banking supervision, and trade

The IMF is a member of the Switzerland-based Financial Stability Board,
which brings together government officials responsible for financial
stability in the major international financial centers, international
regulatory and supervisory bodies, committees of central bank experts,
and international financial institutions. It also works with standard-setting
bodies such as theBasel Committee on Banking Supervision and
the International Association of Insurance Supervisors.
The IMF has observer status at formal meetings of the World Trade
Organization (WTO). The IMF's determination of a country's balance of
payments situation plays a considerable part in the WTO's assessment of
trade restrictions applied in the event of balances of payments difficulties.
The IMF is also involved in the WTO-led Integrated Framework for TradeRelated Technical Assistance to Least Developed Countries, and IMF staff
contribute to the work of the WTO Working Group on Trade, Debt, and
Finance.

Collaborating with the UN

The IMF has a Special Representative to the United Nations, located at the
UN Headquarters in New York. Collaboration between the IMF and the UN
covers several areas of mutual interest, including cooperation on tax
issues and statistical services of the two organizations, as well as
reciprocal attendance and participation at regular meetings and specific
22

conferences and events. In recent years, the IMF has worked with the
International Labor Office on issues related to employment, as well as
social protection floors; the UN Children's Fund on fiscal issues and social
policy; the UN Environment Program on the green economy; and the World
Food Program on social safety nets and early assessments of vulnerability.

Working closely with the G-20

Increasingly, the IMF has been working with the Group of Twenty (G-20)
industrialized and emerging market economies. During the global financial
crisis, collective action by the G-20 was critical for avoiding even greater
economic difficulties, and in subsequent meetings the G-20 leaders have
continued to reaffirm their commitment to reinvigorate economic growth.
The IMF provides analysis on global economic conditions and on how G-20
members' policies fit togetherand whether, collectively, they can
achieve the Group's goals.

Working on employment issues

The IMF's mandate includes contributing to the promotion and
maintenance of high levels of employment and real incomes through the
expansion and balanced growth of international trade. Given the
importance of employment for sustainable and inclusive growth, IMFsupported programs often contain recommendations pertaining to the
labor market. That said, labor market policies are not a core area of IMF
expertise. For this reason, the Fund works with other international,
regional, and local organizations in this important area. We have an active
partnership with the International Labor Organization (ILO), with whom we
have been pooling expertise to better understand the impact of
macroeconomic policies on job creation.
The IMF also liaises regularly with the International Trade Union
Confederation, and its affiliates. Finally, IMF missions to member countries
meet regularly with trade union representatives to gain a better
understanding of and exchange views on national labor market dynamics.

Engaging with think tanks, civil society, and the media

The IMF also engages on a regular basis with the academic
community, civil society organizations (CSOs), and the media.
23

IMF staff at all levels frequently meet with members of the academic
community to exchange ideas and receive new input. The IMF also has an
active outreach program involving CSOs.
IMF management and senior staff communicate with the media on a daily
basis. Additionally, a biweekly press briefing is held at the IMF
headquarters, during which a spokesperson takeslive questions from
journalists.

Qualifications
Any country may apply to be a part of the IMF. Post-IMF formation, in the
early postwar period, rules for IMF membership were left relatively loose.
Members needed to make periodic membership payments towards their
quota, to refrain from currency restrictions unless granted IMF permission, to
abide by the Code of Conduct in the IMF Articles of Agreement, and to
provide national economic information. However, stricter rules were imposed
on governments that applied to the IMF for funding.[53]
The countries that joined the IMF between 1945 and 1971 agreed to keep
their exchange rates secured at rates that could be adjusted only to correct a
"fundamental disequilibrium" in the balance of payments, and only with the
IMF's agreement.[54]
Some members have a very difficult relationship with the IMF and even when
they are still members they do not allow themselves to be monitored.
Argentina, for example, refuses to participate in an Article IV Consultation
with the IMF.[55]

Benefits
Member countries of the IMF have access to information on the economic
policies of all member countries, the opportunity to influence other
members economic policies,technical assistance in banking, fiscal affairs,
and exchange matters, financial support in times of payment difficulties, and
increased opportunities for trade and investment.[56]

24

Leadership
Board of Governors
The Board of Governors consists of one governor and one alternate governor
for each member country. Each member country appoints its two governors.
The Board normally meets once a year and is responsible for electing or
appointing executive directors to the Executive Board. While the Board of
Governors is officially responsible for approving quota increases, Special
Drawing Right allocations, the admittance of new members, compulsory
withdrawal of members, and amendments to the Articles of Agreement and
By-Laws, in practice it has delegated most of its powers to the IMF's
Executive Board.[57]
The Board of Governors is advised by the International Monetary and
Financial Committee and the Development Committee. The International
Monetary and Financial Committee has 24 members and monitors
developments in global liquidity and the transfer of resources to developing
countries.[58] The Development Committee has 25 members and advises on
critical development issues and on financial resources required to promote
economic development in developing countries. They also advise on trade
and environmental issues.[58]

Executive Board
24 Executive Directors make up Executive Board. The Executive Directors
represent all 188 member countries in a geographically based roster.
[59] Countries with large economies have their own Executive Director, but
most countries are grouped in constituencies representing four or more
countries.[57]
Following the 2008 Amendment on Voice and Participation which came into
effect in March 2011,[60] eight countries each appoint an Executive Director:
the United States, Japan, Germany, France, the UK, China, the Russian
Federation, and Saudi Arabia.[59] The remaining 16 Directors represent
constituencies consisting of 4 to 22 countries. The Executive Director
representing the largest constituency of 22 countries accounts for 1.55% of
the vote.[citation needed] This Board usually meets several times each

25

week.[61] The Board membership and constituency is scheduled for periodic

review every eight years.[2]

Managing Director
The IMF is led by a managing director, who is head of the staff and serves as
Chairman of the Executive Board. The managing director is assisted by a First
Deputy managing director and three other Deputy Managing Directors.
[57] Historically the IMF's managing director has been European and the
president of the World Bank has been from the United States. However, this
standard is increasingly being questioned and competition for these two
posts may soon open up to include other qualified candidates from any part
of the world.[62][63]
In 2011 the world's largest developing countries, the BRIC nations, issued a
statement declaring that the tradition of appointing a European as managing
director undermined the legitimacy of the IMF and called for the appointment
to be merit-based.
Previous managing director Dominique Strauss-Kahn was arrested in
connection with charges of sexually assaulting a New York hotel room
attendant and resigned on 18 May.[65] On 28 June 2011 Christine
Lagarde was confirmed as managing director of the IMF for a five-year term
starting on 5 July 2011.[66][67] In 2012, Lagarde was paid a tax-exempt
salary of US$467,940, and this is automatically increased every year
according to inflation. In addition, the director receives an allowance of
US$83,760 and additional expenses for entertainment.

Staff of international civil servants

The IMF currently employs about 2,400 staff, half of whom are economists.
Most of them work at the IMF's Washington, D.C., headquarters but a few
serve in member countries around the world in small IMF overseas offices
or as resident representatives.
With its nearly universal membership, the IMF strives to employ a staff
that is as diverse and broadly based geographically as possible.
The IMF has nine functional departments that carry out its policy,
analytical, and technical work and manage its financial resources.
26

Communications Department: Works to promote public understanding of

and support for the IMF and its policies. Read bio of the Director, Gerry
Rice
Finance Department: Mobilizes, manages, and safeguards the IMF's
financial resources. Read bio of the Director, Andrew Tweedie.

Fiscal Affairs Department: Provides policy and technical advice on

public finance issues to member countries. Prepares the Fiscal Monitor.
Director, Vitor Gaspar.
Institute for Capacity Development: Provides training in macroeconomic
analysis and policy for officials of member countries and IMF staff. Read
bio of the Director, Sharmini Coorey

Legal Department: Advises management, the Executive Board, and

the staff on the applicable rules of law. Prepares decisions and other legal
instruments and provides technical assistance to member countries. Read
bio of the Director, Sean Hagan
Monetary and Capital Markets Department: Monitors financial sectors and
capital markets, and monetary and foreign exchange systems,
arrangements, and operations. Prepares the Global Financial Stability
Report. Read bio of the Director, Jos Vials

Research Department: Monitors the global economy and the

economies and policies of member countries and undertakes research on
issues relevant to the IMF. Prepares the World Economic Outlook. Read bio
of the Director, Olivier Blanchard
Statistics Department: Develops internationally accepted methodologies
and standards. Provides technical assistance and training to promote best
practices in the dissemination of economic and financial statistics. Read
bio of the Director, Louis Marc Ducharme

Strategy, Policy, and Review Department: Designs,

implements, and evaluates IMF policies on surveillance and the use of its
financial resources. Read bio of the Director, Siddharth Tiwari

27

The IMF's five area, or regional, departments are responsible for advising
member countries on macroeconomic policies and the financial sector,
and for putting together, when needed, financial arrangements to support
economic reform programs.

African Department: Covers 45 countries. Read bio of the Director,

Antoinette Sayeh

Asia and Pacific Department: Covers 33 countries.Read bio of the

Director, Changyong Rhee

European Department: Covers 46 countries (44 of which are IMF

members). Read bio of the Director, Reza Moghadam

Middle East and Central Asia Department: Covers 31

countries. Read bio of the Director, Masood Ahmed

Western Hemisphere Department: Covers 34 countries. Read

bio of the Director, Alejandro Werner

The IMF also has three support departments:

Human Resources Department: Provides staff with a full range of

information and personnel services. Manages the system of compensation
and benefits, oversees staff training, offers career and education
counseling, and provides legal services. Read bio of the Director, Mark
Plant

28

Secretary's Department: Organizes and reports on the activities of the

IMF's governing bodies and provides secretariat services to them. Assists
management in preparing the work program of the Executive Board and
other official bodies. It is the creator and custodian of IMF records. Read
bio of the Director, Jianhai Lin

Technology and General Services Department: Provides services to

manage information; facilitates communication, including across
languages; and helps build an effective work environment. Read bio of the
Director, Frank Harnischfeger

IMF offices around the world

The IMF has small offices in countries around the world. These
comprise resident representative posts; overseas offices (Guatemala City,
New York, Paris, Tokyo, Warsaw); andregional technical assistance
centers and training institutes.

Voting power
Voting power in the IMF is based on a quota system. Each member has a
number of basic votes (each member's number of basic votes equals 5.502%
of the total votes),[69] plus one additional vote for each Special Drawing
Right (SDR) of 100,000 of a member country's quota.[70] The Special
Drawing Right is the unit of account of the IMF and represents a claim to
currency. It is based on a basket of key international currencies. The basic
votes generate a slight bias in favour of small countries, but the additional
votes determined by SDR outweigh this bias.[70]

IMF Quotas
When a country joins the IMF, it is assigned an initial quota in the same
range as the quotas of existing members of broadly comparable economic
size and characteristics. The IMF uses a quota formula to help assess a
members relative position.
29

The current quota formula is a weighted average of GDP (weight of

50 percent), openness (30 percent), economic variability (15 percent), and
international reserves (5 percent). For this purpose, GDP is measured
through a blend of GDPbased on market exchange rates (weight of
60 percent)and on PPP exchange rates (40 percent). The formula also
includes a compression factor that reduces the dispersion in calculated
quota shares across members.
Quotas are denominated in Special Drawing Rights (SDRs), the IMFs unit
of account. The largest member of the IMF is the United States, with a
current quota of SDR 42.1 billion (about $65 billion), and the smallest
member is Tuvalu, with a current quota of SDR 1.8 million (about
$2.78 million).

Quotas play several key roles in the IMF

A member's quota determines that countrys financial and organizational
relationship with the IMF, including:
Subscriptions (quota share). A member's quota subscription
determines the maximum amount of financial resources the member is
obliged to provide to the IMF. A member must pay its subscription in full
upon joining the Fund: up to 25 percent must be paid in SDRs or widely
accepted currencies (such as the U.S. dollar, the euro, the yen, or the
pound sterling), while the rest is paid in the member's own currency.
Voting power (voting share). The quota largely determines a member's
voting power in IMF decisions. Each IMF members votes are comprised of
basic votes plus one additional vote for each SDR 100,000 of quota. The
2008 reform fixed the number of basic votes at 5.502 percent of total
votes. The current number of basic votes represents close to a tripling of
the number prior to the implementation of the 2008 reforms.
Access to financing. The amount of financing a member can obtain from
the IMF (its access limit) is based on its quota. For example, under StandBy and Extended Arrangements, a member can borrow up to 200 percent
of its quota annually and 600 percent cumulatively. However, access may
be higher in exceptional circumstances.

How quota reviews work

The IMF's Board of Governors conducts general quota reviews at regular
intervals (usually every five years). Any changes in quotas must be
approved by an 85 percent majority of the total voting power, and a
members quota cannot be changed without its consent. There are two
30

main issues addressed in a general quota review: the size of an overall

increase and the distribution of the increase among the members.
First, a general quota review allows the IMF to assess the adequacy of
quotas both in terms of members balance of payments financing needs
and in terms of its own ability to help meet those needs. Second, a general
review allows for increases in members quotas to reflect changes in their
relative positions in the world economy. Ad hoc increases outside general
reviews do not occur often, but the increases in quotas for 54 member
countries approved under the 2008 Reform are a recent example.

Doubling of quotas and major realignment of quota shares

On December 15, 2010, the Board of Governors, the Funds highest
decision-making body, completed the 14th General Review of Quotas,
which involved a package of far-reaching reforms of the Funds quotas and
governance. Once thereform package is approved by member countries
(it includes an amendment to the Articles of Agreement that requires
acceptance by three-fifths of the members having 85 percent of the total
voting power) and implemented, there will be an unprecedented
100 percent increase in total quotas and a major realignment of quota
shares. This will better reflect the changing relative weights of the IMFs
member countries in the global economy.
The reform package builds on earlier reforms from 2008, which became
effective on March 3, 2011. These strengthened the representation of
dynamic economiesmany of which are emerging market countries
through ad hoc quota increases for 54 member countries. They also
enhanced the voice and participation of low-income countries through a
near tripling of basic votes.
Building on the 2008 reforms, the 14th General Review of Quotas will:

double quotas from approximately SDR 238.5 billion to

approximately SDR 477 billion (close to US$737 billion at current
exchange rates),
shift more than 6 percent of quota shares from over-represented to
under-represented member countries,
shift more than 6 percent of quota shares to dynamic emerging
market and developing countries (EMDCs),
significantly realign quota shares. China will become the 3rd largest
member country in the IMF, and there will be four EMDCs (Brazil,
China, India, and Russia) among the 10 largest shareholders in the
Fund, and

31

preserve the quota and voting share of the poorest member

countries. This group of countries is defined as those eligible for the
low-income Poverty Reduction and Growth Trust (PRGT) and whose
per capita income fell below US$1,135 in 2008 (the threshold set by
the International Development Association) or twice that amount for
small countries.

A comprehensive review of the current quota formula was completed in

January 2013, when the Executive Board submitted its report to the Board
of Governors. The outcome of this review will form a basis for the
Executive Board to agree on a new quota formula as part of the
15th Review. The Board of Governors have set a deadline of January 2015
for the completion of the 15th General Review of Quotas.

Effects of the quota system

The IMF's quota system was created to raise funds for loans.[72] Each IMF
member country is assigned a quota, or contribution, that reflects the
country's relative size in the global economy. Each member's quota also
determines its relative voting power. Thus, financial contributions from
member governments are linked to voting power in the organisation.[70]
This system follows the logic of a shareholder-controlled organisation:
wealthy countries have more say in the making and revision of rules.
[73] Since decision making at the IMF reflects each member's relative
economic position in the world, wealthier countries that provide more money
to the IMF have more influence than poorer members that contribute less;
nonetheless, the IMF focuses on redistribution.[70]

Special Drawing Rights

The Special Drawing Right (SDR) is an international reserve asset, created

by the IMF in 1969 tosupplement the existing official reserves of member
countries.
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 exchange for their SDRs in two ways:
first, through the arrangement of voluntary exchanges between members;
32

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.
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.
SDRs value
The value of the SDR is based on a basket of key international currencies
the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollarvalue of the SDR is posted daily on the IMFs website. The basket
composition is reviewed every five years by the Executive Board to ensure
that it reflects the relative importance of currencies in the
worlds trading and financial systems.
The SDR interest rate provides the basis for calculating the interest
charged to members on regular (nonconcessional) IMF loans, the interest
paid and charged to members on their SDR holdings, 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 of
the SDR basket currencies.

SDR allocations to IMF members

Under its Articles of Agreement, the IMF may allocate SDRs to members in
proportion to their IMF quotas, providing each member with a costless
asset. However, if a members SDR holdings rise above its allocation, it
earns interest on the excess; conversely, if it holds fewer SDRs than
allocated, it pays interest on the shortfall.
There are two kinds of allocations:

General allocations of SDRs. General allocations have to be based on a

long-term global need to supplement existing reserve assets. Decisions to
allocate SDRs have been made three times: in 1970-72, for SDR 9.3 billion;
in 197981, for SDR 12.1 billion; and in August 2009, for an amount of SDR
161.2 billion.
33

Special allocations of SDRs. A special one-time allocation of SDRs

through the Fourth Amendment of the Articles of Agreement was
implemented in September 2009. The purpose of this special allocation
was to enable all members of the IMF to participate in the SDR system on
an equitable basis and correct for the fact that countries that joined the
Fund after 1981more than one-fifth of the current IMF membershiphad
never received an SDR allocation.
With the general SDR allocation of August 2009 and the special allocation
of September 2009, the amount of SDRs increased from SDR 21.4 billion
to SDR 204.1 billion (currently equivalent to about $317 billion).

Developing countries
Quotas are normally reviewed every five years and can be increased when
deemed necessary by the Board of Governors. Currently, reforming the
representation of developing countries within the IMF has been suggested.
[70] These countries' economies represent a large portion of the global
economic system but this is not reflected in the IMF's decision making
process through the nature of the quota system. Joseph Stiglitz argues,
"There is a need to provide more effective voice and representation for
developing countries, which now represent a much larger portion of world
economic activity since 1944, when the IMF was created."[74] In 2008, a
number of quota reforms were passed including shifting 6% of quota shares
to dynamic emerging markets and developing countries.[75]

United States influence

A second criticism is that the United States' transition to neoliberalism and
global capitalism also led to a change in the identity and functions of
international institutions like the IMF. Because of the high involvement and
voting power of the United States, the global economic ideology could
effectively be transformed to match that of the United States. This is
consistent with the IMF's function change during the 1970s after the Nixon
Shock ended the Bretton Woods system. Allies of the United States are said
to receive bigger loans with fewer conditions.[20]
34

Overcoming borrower/creditor divide

The IMF's membership is divided along income lines: certain countries
provide the financial resources while others use these resources.
Both developed country "creditors" anddeveloping country "borrowers" are
members of the IMF. The developed countries provide the financial resources
but rarely enter into IMF loan agreements; they are the creditors. Conversely,
the developing countries use the lending services but contribute little to the
pool of money available to lend because their quotas are smaller; they are
the borrowers. Thus, tension is created around governance issues because
these two groups, creditors and borrowers, have fundamentally different
interests.[76]
The criticism is that the system of voting power distribution through a quota
system institutionalises borrower subordination and creditor dominance. The
resulting division of the IMF's membership into borrowers and non-borrowers
has increased the controversy around conditionality because the borrowers
are interested in increasing loan access while creditors want to maintain
reassurance that the loans will be repaid.[77]

Use
A recent source reveals that the average overall use of IMF credit per decade
increased, in real terms, by 21% between the 1970s and 1980s, and
increased again by just over 22% from the 1980s to the 19912005 period.
Another study has suggested that since 1950 the continent of Africa alone
has received $300 billion from the IMF, the World Bank, and affiliate
institutions.[78]
A study by Bumba Mukherjee found that developing democratic
countries benefit more from IMF programs than developing autocratic
countries because policy-making, and the process of deciding where loaned
money is used, is more transparent within a democracy.[78] One study done
by Randall Stone found that although earlier studies found little impact of
IMF programs on balance of payments, more recent studies using more
sophisticated methods and larger samples "usually found IMF programs
improved the balance of payments".[20]

35

Exceptional Access Framework Sovereign Debt

The Exceptional Access Framework was created in 2003 when John B.
Taylor was Under Secretary of the U.S. Treasury for International Affairs. The
new Framework became fully operational in February 2003 and it was
applied in the subsequent decisions on Argentina and Brazil.[79] Its purpose
was to place some sensible rules and limits on the way the IMF makes loans
to support governments with debt problemespecially in emerging markets
and thereby move away from the bailout mentality of the 1990s. Such a
reform was essential for ending the crisis atmosphere that then existed in
emerging markets. The reform was closely related to, and put in place nearly
simultaneously with, the actions of several emerging market countries to
place collective action clauses in their bond contracts.
In 2010, the framework was abandoned so the IMF could make loans to
Greece in an unsustainable and political situation.[80][81]
The topic of sovereign debt restructuring was taken up by IMF staff in April
2013 for the first time since 2005, in a report entitled "Sovereign Debt
Restructuring: Recent Developments and Implications for the Fund's Legal
and Policy Framework".[36] The paper, which was discussed by the board on
20 May,[37] summarised the recent experiences in Greece, St Kitts and
Nevis, Belize and Jamaica. An explanatory interview with Deputy
Director Hugh Bredenkamp was published a few days later,[38] as was a
deconstruction by Matina Stevis of the Wall Street Journal.[39]
The staff was directed to formulate an updated policy, which was
accomplished on 22 May 2014 with a report entitled "The Fund's Lending
Framework and Sovereign Debt: Preliminary Considerations", and taken up
by the Executive Board on 13 June.[82] The staff proposed that "in
circumstances where a (Sovereign) member has lost market access and debt
is considered sustainable...the IMF would be able to provide Exceptional
Access on the basis of a debt operation that involves an extension of
maturities", which was labelled a "reprofiling operation". These reprofiling
operations would "generally be less costly to the debtor and creditorsand
thus to the system overallrelative to either an upfront debt reduction
operation or a bail-out that is followed by debt reduction... (and) would be
envisaged only when both (a) a member has lost market access and (b) debt
is assessed to be sustainable, but not with high probability...Creditors will
36

only agree if they understand that such an amendment is necessary to avoid

a worse outcome: namely, a default and/or an operation involving debt
reduction...Collective action clauses, which now exist in mostbut not all
bonds, would be relied upon to address collective action problems."[82]

IMF and 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 United States, and rising "global
governments" such as World Trade Organization (WTO), IMF, and World Bank.
[83] Charles Derber argues in his book People Before Profit, "These
interacting 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".[83] Titus Alexander
argues that this system institutionalises global inequality between western
countries and the Majority World in a form of global apartheid, in which the
IMF is a key pillar.[84]
The establishment of globalised 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 multilateral trade institutions
such as the WTO signals a move 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 reconceptualising of state sovereignty.[85]
Following U.S. President Bill Clinton's administration's aggressive
financial deregulation campaign in the 1990s, globalisation leaders
overturned longstanding 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.
[83]

Criticisms
Overseas Development Institute (ODI) research undertaken in 1980 pointed
to five main criticisms of the IMF which support the analysis that it is a pillar
37

of what activist Titus Alexander calls global apartheid.[86] Firstly, developed

countries were seen to have a more dominant role and control over less
developed countries (LDCs) primarily due to the Western bias favoring
capitalism.
Secondly, the Fund worked on the incorrect assumption that all
payments disequilibria were caused domestically. The Group of 24 (G-24), on
behalf of LDC members, and theUnited Nations Conference on Trade and
Development (UNCTAD) complained that the IMF did not distinguish
sufficiently between disequilibria with predominantly external as opposed to
internal causes. This criticism was voiced in the aftermath of the 1973 oil
crisis. Then LDCs found themselves with payments deficits due to adverse
changes in theirterms of trade, with the Fund prescribing stabilisation
programmes similar to those suggested for deficits caused by government
over-spending. Faced with long-term, externally generated disequilibria, the
G-24 argued for more time for LDCs to adjust their economies.
The third criticism was that IMF policies were anti-developmental.
The deflationary effects of IMF programmes quickly led to losses of output
and employment in economies where incomes were low and unemployment
was high. Moreover, the burden of the deflation is disproportionately borne
by the poor.
Fourth, harsh policy conditions are self-defeating when a vicious circle
developed when members refused loans due to harsh conditionality,
exacerbating the economy and eventually taking loans as a drastic medicine.
Lastly is the point that the IMF's policies lack a clear economic rationale. Its
policy foundations were theoretical and unclear due to differing opinions and
departmental rivalries whilst dealing with countries with widely varying
economic circumstances.
ODI conclusions were that the IMF's very nature of promoting marketoriented approaches attracted unavoidable criticism. On the other hand, the
IMF could serve as a scapegoat while allowing governments to blame
international bankers. The ODI conceded that the IMF was insensitive to
political aspirations of LDCs, while its policy conditions were inflexible.[87]

38

Argentina, which had been considered by the IMF to be a model country in its
compliance to policy proposals by the Bretton Woods institutions,
experienced a catastrophic economic crisis in 2001,[88] which some believe
to have been caused by IMF-induced budget restrictionswhich undercut the
government's ability to sustain national infrastructure even in crucial areas
such as health, education, and securityand privatisation of strategically
vital national resources.[89] Others attribute the crisis to Argentina's
misdesigned fiscal federalism, which caused subnational spending to
increase rapidly.[90] The crisis added to widespread hatred of this institution
in Argentina and other South American countries, with many blaming the IMF
for the region's economic problems. The currentas of early 2006trend
toward moderate left-wing governments in the region and a growing concern
with the development of a regional economic policy largely independent of
big business pressures has been ascribed to this crisis.
In an interview, the former Romanian Prime Minister Clin PopescuTriceanu claimed that "Since 2005, IMF is constantly making mistakes when
it appreciates the country's economic performances".
[91] Former Tanzanian President Julius Nyerere, who claimed that debt-ridden
African states were ceding sovereignty to the IMF and the World Bank,
famously asked, "Who elected the IMF to be the ministry of finance for every
country in the world?"[92][93]

Conditionality
The IMF has been criticised for being "out of touch" with local economic
conditions, cultures, and environments in the countries they are requiring
policy reform.[8] The economic advice the IMF gives might not always take
into consideration the difference between what spending means on paper
and how it is felt by citizens.[94]
For example, some people believe that Jeffrey Sachs' work shows that the
IMF's "usual prescription is 'budgetary belt tightening to countries who are
much too poor to own belts'".[94] It has been said that the IMF's role as a
generalist institution specialising in macroeconomic issues needs
reform. Conditionality has also been criticised because a country can pledge
collateral of "acceptable assets" to obtain waiversif one assumes that all
countries are able to provide "acceptable collateral".[19]
39

One view is that conditionality undermines domestic political institutions.

[95] The recipient governments are sacrificing policy autonomy in exchange
for funds, which can lead to public resentment of the local leadership for
accepting and enforcing the IMF conditions. Political instability can result
from more leadership turnover as political leaders are replaced in electoral
backlashes.[8] IMF conditions are often criticised for reducing government
services, thus increasing unemployment.[10]
Another criticism is that IMF programs are only designed to address poor
governance, excessive government spending, excessive government
intervention in markets, and too much state ownership.[94] This assumes
that this narrow range of issues represents the only possible problems;
everything is standardised and differing contexts are ignored.[94]A country
may also be compelled to accept conditions it would not normally accept had
they not been in a financial crisis in need of assistance.[17]
On top of that, regardless of what methodologies and data sets used, it
comes to same conclusion of exacerbating income inequality. With Gini
coefficient, it became clear that countries with IMF programs face increased
income inequality.[96]
It is claimed that conditionalities retard social stability and hence inhibit the
stated goals of the IMF, while Structural Adjustment Programs lead to an
increase in poverty in recipient countries.[97] The IMF sometimes advocates
austerity programmes, cutting public spending and increasing taxes even
when the economy is weak, to bring budgets closer to a balance, thus
reducing budget deficits. Countries are often advised to lower their corporate
tax rate. In Globalization and Its Discontents, Joseph E. Stiglitz, former chief
economist and senior vice-president at the World Bank, criticizes these
policies.[98] He argues that by converting to a more monetarist approach,
the purpose of the fund is no longer valid, as it was designed to provide
funds for countries to carry out Keynesian reflations, and that the IMF "was
not participating in a conspiracy, but it was reflecting the interests and
ideology of the Western financial community".[99]
International politics play an important role in IMF decision making. The clout
of member states is roughly proportional to its contribution to IMF finances.
The United States has the greatest number of votes and therefore wields the
most influence. Domestic politics often come into play, with politicians in
40

developing countries using conditionality to gain leverage over the

opposition in order to influence policy.[100]

Reform
The IMF is only one of many international organisations and it is a generalist
institution for macroeconomic issues only; its core areas of concern
in developing countries are very narrow. One proposed reform is a movement
towards close partnership with other specialist agencies such as UNICEF,
the Food and Agriculture Organization (FAO), or the United Nations
Development Program (UNDP).[94]
Jeffrey Sachs argues in The End of Poverty that the IMF and the World Bank
have "the brightest economists and the lead in advising poor countries on
how to break out of poverty, but the problem is development economics".
[94] Development economics needs the reform, not the IMF. He also notes
that IMF loan conditions should be paired with other reformse.g., trade
reform in developed nations, debt cancellation, and increased financial
assistance for investments in basic infrastructure.[94] IMF loan conditions
cannot stand alone and produce change; they need to be partnered with
other reforms or other conditions as applicable.
Reforms to give more powers to emerging economies were agreed by
the G20 in 2010; however, as of April 2014, the U.S. Congress has not agreed
to these reforms.

Support of military dictatorships

The role of the Bretton Woods institutions has been controversial since the
late Cold War, due to claims that the IMF policy makers supported military
dictatorships friendly to American and European corporations and other anticommunist regimes. Critics also claim that the IMF is generally apathetic or
hostile to human rights, and labour rights.[citation needed] The controversy
has helped spark the Anti-globalization movement.
Arguments in favour of the IMF say that economic stability is a precursor to
democracy; however, critics highlight various examples in which
democratised countries fell after receiving IMF loans.[104]
41

Impact on access to food

A number of civil society organisations[105] have criticised the IMF's policies
for their impact on access to food, particularly in developing countries. In
October 2008, former U.S. president Bill Clinton delivered a speech to the
United Nations on World Food Day, criticizing the World Bank and IMF for
their policies on food and agriculture:
We need the World Bank, the IMF, all the big foundations, and all the
governments to admit that, for 30 years, we all blew it, including me when I
was president. We were wrong to believe that food was like some other
product in international trade, and we all have to go back to a more
responsible and sustainable form of agriculture.
Former U.S. president Bill Clinton, Speech at United Nations World Food
Day, October 16, 2008[106]

Impact on public health

A 2009 study concluded that the strict conditions 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%.[107]
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 IMFs monetarist approach towards prioritising price stability
(low inflation) and fiscal restraint (low budget deficits) was unnecessarily
restrictive and has prevented developing countries from scaling up long-term
investment in public health infrastructure. The book claimed the
consequences have been chronically underfunded public health systems,
leading to demoralising working conditions that have fuelled a "brain drain"
of medical personnel, all of which has undermined public health and the fight
against HIV/AIDS in developing countries.[108]

42

Impact on environment
IMF policies have been repeatedly criticised for making it difficult for
indebted countries to say no to environmentally harmful projects that
nevertheless generate revenues such as oil, coal, and forest-destroying
lumber and agriculture projects. Ecuador for example had to defy IMF advice
repeatedly 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 the 2010 report that proposed the IMF Green
Fund, a mechanism to issue special drawing rights directly to pay for climate
harm prevention and potentially other ecological protection as pursued
generally by other environmental finance.[109]
While the response to these moves was generally positive[110] possibly
because ecological protection and energy and infrastructure transformation
are more politically neutral than pressures to change social policy. Some
experts voiced concern that the IMF was not representative, and that the IMF
proposals to generate only US$200 billion a year by 2020 with the SDRs as
seed funds, did not go far enough to undo the general incentive to pursue
destructive projects inherent in the world commodity trading and banking
systemscriticisms often levelled at the World Trade Organization and large
global banking institutions.
In the context of the European debt crisis, some observers noted that Spain
and California, two troubled economies within Europe and the United States,
and also Germany, the primary and politically most fragile supporter of
a euro currency bailout would benefit from IMF recognition of their leadership
in green technology, and directly from Green Fundgenerated demand for
their exports, which could also improve their credit ratings.

Conclusion

The IMF's fundamental mission is to help ensure stability in the

international system. It does so in three ways: keeping track of the
global economy and the economies of member countries; lending to

43

countries with balance of payments difficulties; and giving practical

help to members.

The IMF oversees the international monetary system and monitors the
financial and economic policies of its members. It keeps track of
economic developments on a national, regional, and global basis,
consulting regularly with member countries and providing them with
macroeconomic and financial policy advice.
To assist mainly low- and middle-income countries in effectively
managing their economies, the IMF provides practical guidance
and training on how to upgrade institutions, and design appropriate
macroeconomic, financial, and structural policies.
The IMF provides loans to countries that have trouble meeting their
international payments and cannot otherwise find sufficient financing
on affordable terms. Thisfinancial assistance is designed to help
countries restore macroeconomic stability by rebuilding their
international reserves, stabilizing their currencies, and paying for
importsall necessary conditions for relaunching growth. The IMF also
provides concessional loans to low-income countries to help them
develop their economies and reduce poverty.

44

Bibliography
www.google.com
www.wiipedia.org
http://www.imf.org
en.wikipedia.org/wiki/International Monetary Fund

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