International Monetary Fund

Muhammad Sadiq
Date: March 01, 2019
 Introduction
• The International Monetary Fund (IMF) is an organization of 186
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.

• 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.
 History of IMF

• The IMF has played a part in shaping the global economy since the
end of World War II.
1. Cooperation and reconstruction (1944–71)
• During the Great Depression of the 1930s, countries attempted to
shore up their failing economies by sharply raising barriers to
foreign trade, devaluing their currencies to compete against each
other for export markets, and curtailing their citizens' freedom to
hold foreign exchange. These attempts proved to be self- defeating.
World trade declined sharply, and employment and living standards
plummeted in many countries.
 History of IMF cont…
2. The Bretton Woods agreement
• The IMF was conceived in July 1944, when representatives of 45 countries
meeting in the town of Bretton Woods, New Hampshire, U.S, agreed on a
framework for international economic cooperation, to be established after the
Second World War. They believed that such a framework was necessary to
avoid a repetition of the disastrous economic policies that had contributed to
the Great Depression.
• The IMF came into formal existence in December 1945, when its first 29
member countries signed its Articles of Agreement. It began operations on
March 1, 1947. Later that year, France became the first country to borrow from
the IMF.
• Par value system - The countries that joined the IMF between 1945 and 1971
agreed to keep their exchange rates (the value of their currencies in terms of
the U.S. dollar). This prevailed until 1971.
 History of IMF cont………

3. The end of the Bretton Woods System (1972–81)

• By the early 1960s, the U.S. dollar's fixed value against gold, under
the Bretton Woods system of fixed exchange rates, was seen as
overvalued.
• In August 1971, U.S. President Richard Nixon announced the
"temporary" suspension of the dollar's convertibility into gold.
• Since the collapse of the Bretton Woods system, IMF members have
been free to choose any form of exchange arrangement they wish :
allowing the currency to float freely, pegging it to another currency or
a basket of currencies, adopting the currency of another country,
participating in a currency bloc, or forming part of a monetary union.
 IMF: Objectives
• To promote international monetary cooperation
• To facilitate the expansion and balanced growth of International
Trade
• To promote exchange rate stability
• To make its resources available to its members who are
experiencing BOP problems
• To establish a multilateral system of payments
 IMF: Key Functions
The IMF's main goal is to ensure the stability of the international monetary and
financial system. It helps resolve crises, and works with its member countries to
promote growth and alleviate poverty.
1. Economic and Financial 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.
2. 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.
 IMF: Key Functions cont…
3. IMF Lending: In the event that member countries experience
difficulties financing their balance of payments, the IMF is also a fund
that can be tapped to facilitate recovery.

4. Research and Data : Supporting all three of these activities is the

IMF's economic and financial research
and statistics.
 IMF: Finance
• Quotas:
• The IMF's resources come mainly from the money that countries pay as their
capital subscription when they become members.
• Quotas broadly reflect the size of each member's economy: the larger a
country's economy in terms of output and the larger and more variable its
trade, the larger its quota tends to be. They also help determine how much
countries can borrow from the IMF and their share in allocations of special
drawing rights or SDRs (the reserve currency created by the IMF in 1969).
• Gold:
• The IMF holds a relatively large amount of gold among its assets, for reasons of
financial soundness, also to meet unforeseen contingencies.
• The IMF holds 103.4 million ounces (3,217 metric tons) of gold, worth about
$83 billion as of end-August 2009, making it the third-largest official holder of
gold in the world.
 IMF: Membership

• The IMF currently has a near-global membership of 186 countries. To

become a member, a country must apply and then be accepted by a
majority of the existing members.

• Upon joining, each member of the IMF is assigned a quota, based

broadly on its relative size in the world economy.
 When can a country borrow from the IMF?
A member country may request IMF financial assistance if it
has a balance of payments need when it cannot find
sufficient financing on affordable terms to meet its net
international payments. An IMF loan eases the adjustment
policies and reforms that a country must make to correct its
balance of payments problem and restore conditions for
strong economic growth.
 IMF: Conditionality

1. IMF lends to its member countries, ensuring that, members

are pursuing policies that will improve external payment
problems.

2. Commitment to implement corrective measures.

3. To repay in a timely manner.

 Success of IMF
1) International Monetary Cooperation
2) Reconstruction of European Countries
3) Multilateral System of Foreign Payments
4) Increase in International Liquidity
5) Increase in International Trade
6) Special Aid to Developing Countries
7) Providing Statistical Information
8) Helpful in Times of Difficulties
9) Easiness & Flexibility in Making International Payments
 Weakness of IMF

1) Lack of Stability in Exchange Rate

2) Lack of Stability in the Price of Gold
3) Inability to Remove Restrictions on Foreign Trade
4) Rich Nations Club
5) No help for development projects
6) No Solution of International Liquidity
7) Interference in Domestic Economies
8) Inability to tackle the Monetary Crisis of August 1971
9) Less Aid for Developing Countries
 The Future of IMF

• IMF was headed down hill after five years of inactivity,

accusations of issuing poor advice, questioning of its
relevance and usefulness, Facing a deficit of its own &
Inability to sell its gold reserves

• IMF is gaining relevance once again :

• being considered to take on a sovereign wealth fund role
to avoid a repeat of a global credit crisis
• Increased regulation & surveillance of the financial system