Professional Documents
Culture Documents
FUND
The scenario in 1930
The depression weakened the industrial
economy
Increasing restrictions on imports
Worse condition in world trade, output and
employment
Devaluation in currencies
Reduction in standard of living
To regulate orderly conduct of
international trade:
Objectives: ( in June 1944 met 44 allied powers)
Help remove the restriction on trade
Ensure free convertibility of currencies
Maintain stability of exchange rates
Gave birth to two institutions called Bretton woods
twins namely
IMF-International monetary fund
IBRD- International Bank for Reconstruction And
Development ( world bank)
Objectives
Consultation and collaboration on international
monetary problems
Maintenance of high level employment and real
income
Promote exchange stability and avoid competitive
exchange depreciation
Establish multilateral system of payments and
eliminate foreign exchange restrictions
Give confidence to members through fund supplies
shorten the disequilibria in balance of payments
Functions
Reviewing and monitoring global financial developments
Lending hard currencies and reform policies to promote
sustainable growth
Offering wide range of technical assistance and training for
government and central bank officials
Working with its member governments, international
organizations, regulatory bodies and private sector to
strengthen financial system
Make assessment of member countries to identify actual and
potential weakness
Improve regulatory standards
Preparation of reports
Publishing information
Organisational structure
Central office in Washington
Autonomous body affiliated to UNO
Highest authority- Board governors of each member
countries- also policy making bodies
Meets once a years
Day to day decision making executive board
International monetary and financial committee- 24
governors representing group of countries- meet twice a
year- discuss key policy issues of IMF
Joint committee of IMF & world bank called development
committee advises and reports to governors on
developmental issues concerning developing countries
Organisational structure
Central office in Washington
Autonomous body affiliated to UNO
Highest authority- Board governors of each member
countries- also policy making bodies
Meets once a years
Day to day decision making executive board
International monetary and financial committee- 24
governors representing group of countries- meet twice a
year- discuss key policy issues of IMF
Joint committee of IMF & world bank called development
committee advises and reports to governors on
developmental issues concerning developing countries
Organisational structure
Staff in executive board are recruited under the
leadership of managing director and deputy
managing director representing different regions of
the world
Of the 24 members, 8executive directors represent
individual countries like china, France, Germany,
Japan, Russia, Saudi Arabia, UK and USA and other
16 representing group of countries. They meet once
in three weeks. Take care of conduct of business,
changes in exchange rates,lending and appointment
of managing directors.
Executive directors meet on alternate days
Financial operations
Resources: quota of member countries and supplement
borrowings.
QUOTAS: subscription by member countries to capital fund
-fixed for each country based on economic size
-forms the basis for deciding SDRs, voting power,and share in
allocation of SDRs
-25% of countries quota should be paid in gold/US dollars
-75% in own currency
-reviewed at intervals of 5years
The more powerful the country the larger the quota
-member country can draw to meet BOP deficits
Borrowings
GENERAL AGREEMENT TO BORROW
(GAB) 1962- 4years
Under this agreement 10 indutrialised countries agreed to
lend to IMF (Belgium, Italy, Netherlands, France, West
Germen, Japan, Sweden, UK, USA)
At present the SDR 17 billion and 1.5 billion through
associated agreement with Saudi Arabia.
NEW AGREEMENT (NAB)-1998: 25 countries agreed to
lend. It cannot exceed 34 billion.
TRUST AGREEMENT: IMF provides financial assistance at
concessional rates under poverty Reduction and Growth
facility (PRGF)scheme and debt relief under Heavily
Indebted POOR countries (HIPC)
LENDING
Temporary Assistance to member countries to tide over the BOP
When need for foreign exchange, it render its own currency and
renders foreign exchange. On improvement of BOP it has to purchase
back its currency and pay foreign exchange
TRANCHE POLICIES: (means slice) 25% of countries quota as first
tranche. In the first tranche IMF may be liberal. But higher tranche
requires great security.
LOAN INSTRUMENTS: Diverse loan arrangements are tailored to
the specific needs of member countries
A.concessional loans: PRGF, HIPC
B. Non-concessional loans: stand-by arrangements SBA, Extend Fund
Facility EFF, Supplemental Reserve Facility SRF, Contingent Credit
Lines CCL,and Compensatory financing Facility CFF. It charges rate of
charge at 2.9%
Discourages large loans through surcharge
HEAVILY INDEBTED POOR COUNTRIES
Conditional ties
Interference with internal policies
Rich countrys club
Fixed exchange rate not achieved
Failure to take action-1971 dollar crisis
Insufficient resources
Secondary role
Exchange restrictions
Cause for currency crisis
INDIA AND IMF
Status : founder member, has fifth largest quota, having one
permanent Director on board. Lost this position in
1970.Now India occupies 13th place with quota subscription
of 4.16 billion
Exchange rate policy:
When India joined IMF its rupee value was declared
equivalent to 0.268601 grams of gold. In 1949, gold content
of rupee was reduced to 0.186621 grams.
In 1966 rupee value devalued to 0.133333. When USA
suspended conversion of Us dollar into gold in 1971 India
pegged its currency to US dollar
In 1993, the external rupee was made fully dependant on
market forces
INDIA AND IMF
Utilisation of facilities: India has been the major
beneficiary. In 1948, it purchased 100million to
meet BoP deficit.
Between 1957-1975 in 8 occasions borrowed an
aggregate sum of R1,764 million.
In 1981, it availed 5.6 billion under structural
adjustment
In 1991, the loan was 551.92 million under standby
arrangement for 3 months period. In the same
period, the second loan of 1,656million was also
availed.
INDIA AND IMF
Derived benefits:
By virtue of being a member in IMF India became
member of IBRD and received long term large scale
loans for development projects
India has been getting advice on economic policies
under surveillance .
India is getting training to its personnel on monetary
fiscal and foreign exchange policies through short
term courses
Questions