INTERNATIONAL INSTITUTIONS

INTERNATIONAL MONETARY FUND (IMF)

The period between the first and second World

Wars was marked by extreme dislocation of

international trade, trade strife, various kinds of

discrimination and trade restrictions erected behind high

protectionist walls and a total disruption of the worlds currency system with no generally accepted exchange rate regime. The total dislocation of the international monetary system was accompanied by the massive

destruction of life and property that followed the

outbreak of Second World War (WWII)

International Monetary Fund (IMF) is a forum of national

economic policies, international monetary and financial systems, Which involves active dialogue with each member Country.

When there is a country where has a serious finance problem, other countries loan the money for the poor country.IMF is a kind of association among the countries to prepare the situation when the nation bank of country is bankrupted.

IMF is an administrative unit that is international in nature and

whose objective is to regulate and administer the financial system of the world.

HISTORY OF IMF

The International Monetary Fund Was created in 1944, at the Bretton Woods conference to prevent the kinds of chain reaction in the

economic system that caused world currencies to collapse like in the

Great Depression of the 1930s.

Bretton wood agreement was contracted in 1944 and IMF was created

in 1946.

IMF started to make service with IBRD (International Bank of Reconstruction and Development) in 1947.

The IMF was created to support orderly international currency

exchanges and to help nations having balance of payment problems through short term loans of cash

IMF headquarters is in Washington D.C , U.S.A Five largest shareholders are United States, Japan, Germany, France,

United Kingdom.

China, Russia, and Saudi Arabia have their own seats on the Board. 16 other Executive Directors are elected for two year terms by groups of countries, known as Constituencies.

Total quotas of $312 billion; outstanding loans of $71 billion to 82 countries (According to the report of August 31, 2005).

The International Monetary Fund (IMF) is an organization of 186 countries.

GROWTH IN IMF MEMBERSHIP (1945-2003) In the beginning 29 member countries Today, 187 member countries.

Staff of about 2680 persons.

Two-thirds are economists in 139 countries. Headquarters in Washington, D.C.

PURPOSES OF IMF IMF promote international monetary cooperation. expansion and balanced growth of international trade.

IMF promote exchange rate stability. Help establish multilateral

system of payments and eliminate foreign exchange restrictions. IMF make resources of the Fund available to members. Foster economic growth and high levels of employment. IMF can make the price of foreign money to be safe.

IMF can solve the problem of countries that doesnt want to

allow the foreign money to make their currencys value higher.

ROLE OF IMF Focusing on its core macroeconomic and financial areas of

responsibility. Working in a complementary fashion with other institutions established. Collection and allocation of reserves. Rendering advice to

member countries on their international monetary affairs.

Promoting research in various areas of international economics and monetary economics. Providing a forum for discussion and consultation among member countries. Being in the center of competence.

FUNCTIONS OF IMF

Surveillance (like a doctor) Gathering data and assessing economic policies of countries.

Technical Assistance (like a teacher) Strengthening human skills and institutional capacity of countries.

Financial Assistance (like a banker) Lending to countries

to

support

reforms

MEMBERSHIP AND GOVERNANCE

187 Member States Board of Governors (1 from Each State)

Managing Director
Executive Board (24 Members) Weighted Voting System:

US Representative holds 17% of total Voting Power 27 Countries together hold 1.4% of total Voting Power Decisions are most often made by consensus, rather than fractious parliamentary fights.

Board of Governors: one governor from each member country.

Meets once a year.

Day to day affairs are guided by the Executive Board & 24 Executive Directors. Managing Director of IMF is Chairman of Executive Board.

India and the IMF

India and the IMF has a positive relationship. The IMF has provided financial assistance to India, which has helped in boosting the country's economy.

The IMF praised the country for it was able to avoid the Asian

Financial Crisis in 1999 and was also able to maintain the average
rate of growth of its economy.

The Managing Director of International Monetary Fund Rodrigo De Rato visited India in May 2005.

In 2005, the IMF said that the budget of India is very positive
for it points that the economy of the country will grow at the rate of 6.7%. International Monetary Fund said that the reasons behind the economy growth of India are that the RBI has been able to control inflation and has also handled its monetary policies very skillfully.

The IMF has suggested that India can become a financial super power by bringing in more reforms in its economic policies

that will increase its growth rate to 8%.

INTERNATIONAL MONETARY FUND VS THE WORLD BANK

WHAT IS THE REAL DIFFERENCE?

PURPOSES OF THE IMF AND THE WORLD BANK

The

International Monetary Fund (IMF) maintains international monetary cooperation among its members World Bank aids in the development and reconstruction of it members

The

IMF BRIEFING

Exchange

rate

stability,

balance

of

payments

disequilibrium, and growth of international trade

Currently 187 member countries By sharing economic policies the system of buying and selling currencies would be stable

WORLD BANK BRIEFING

Made up of 5 different organizations

International

Bank

for

Reconstruction

and

Development (IBRD)

International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA)

International Center for the Settlement of Investment

Disputes (ICSID)

HISTORY BEHIND THE IMF AND WORLD BANK

After the Great Depression in the 1930s there was a need for an

organization to create a system for exchange rate stability

Uncertainty of the value of paper money (no longer used the gold standard)

Countries began cheating other countries in trade

Countries economies affected by WWII

need for reconstruction in well-developed nations

need for development in the lesser developed nations

BRETTON WOODS CONFERENCE

1940s

proposals for monetary system by Harry Dexter White (U.S.) and John Keynes (UK)
establish the value of each currency eliminate restrictions and certain practices on trade assistance for post-war reconstruction

Bretton

Woods Conference, New Hampshire, July 1944 with delegates of 44 nations

final negotiations of the IMF and the World Bank took place

PURPOSES OF THE IMF

Articles of Agreement of the IMF i) promote international monetary cooperation ii) expansion and balanced growth of trade iii) promote exchange rate stability international

iv) help establish multilateral system of payments and eliminate foreign exchange restrictions

v) make resources of the Fund available to members

vi) Shorten the duration and lessen the degree

of disequilibrium

in international balances of payments

WHERE THE IMF GETS ITS MONEY

Most comes from the quota subscriptions

the money each member contributes when joining the IMF

General Arrangements to Borrow (1962)

line of credit set up with several governments and banks throughout

the world

SPECIAL DRAWING RIGHT (SDRS)

SDR is an invented currency

its value is based on the worth of the worlds five major currencies US Dollar, French Franc, Pound Sterling, Japanese Yen, Deutsche Mark

Countries add SDRs to their holdings of foreign currencies

keep available for need of payments that must be made in foreign

exchange

ORGANIZATION

Board of Governors

Each member country appoints one Governor and and Alternate Governor

Executive Board

24 Executive Directors which are representatives for the members

Managing Director

the chairman of the Executive Board

 Governors

spend most of their time dealing

with their own countries

report their countries plans to their representatives only meet with entire IMF board once a year

Executive Board oversees the economic policies of the

members

holds meetings three times a week

Managing

Director heads the IMF staff of about

2,600 people

traditionally held by a European

POWER AMONG THE MEMBERS

Size of the quotas determine voting power IMF decides on the quota for each member

richer countries have larger quota

US having largest economy provides 18% of the total quota

(about $35 billion)

US has largest voting power (18% or 26,5000)

MEMBERS WITH LARGEST QUOTAS

A BIT MORE ON QUOTAS

Quotas are reviewed every 5 years by the IMF

Quotas also determine how much each member can

borrow from the IMF when in need of aid

WHEN IS A COUNTRY IN NEED ?

A country that had not taken in enough foreign currency to pay the other countries for what they have bought

spends more money than it takes in

IMF will lend foreign exchange to that member

hoping to stabilize its currency which will strengthen its trade

HOW MUCH MONEY A MEMBER CAN BORROW FROM THE IMF

25% If

of the countrys quota may be used

this is not sufficient, then members can borrow up

to 3 times the amount of its quota

present plans for reform to Executive Directors

If

these plans are sufficient for the Executive

Directors, the IMF grants the member a loan

WORLD BANK
Made up of 5 different organizations

International

Bank

for

Reconstruction

and

Development (IBRD)

International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA)

International Center for the Settlement of Investment

Disputes (ICSID)

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Founded

in 1944 at the Bretton Woods Conference

to finance the reconstruction of countries affected by WWII

help with development of impoverished nations

World

Banks central institution

181

member countries

IBRD CONTINUED

Lends to countries with relatively high per capita incomes

Money is used for:

development projects (i.e. highways, schools) programs to help governments change the way they manage their economies

Provides technical assistance in projects

INTERNATIONAL DEVELOPMENT ASSOCIATION

Established in 1960

assist the poorest developing countries

lends to countries with annual per capita incomes of about $800 or less

Its loans are knows as credits

161 members

INTERNATIONAL FINANCE CORPORATION

Established in 1956 to reduce poverty and improve people's lives

in an environmentally and socially responsible manner (174

members)

finances private sector investments, mobilizes capital in international financial markets, and provides technical assistance and advice to governments and businesses

provides both loan and equity finance for business ventures in developing countries

MULTILATERAL INVESTMENT GUARANTEE AGENCY

Established helps

in 1988 countries attract foreign

developing

investment

provides investment marketing services and legal advisory services to its members

152

members

INTERNATIONAL CENTER FOR THE SETTLEMENT OF INVESTMENT DISPUTES

Established

in 1966 to promote increased flow of

international investment
Provides

facilities for the reconciliation of disputes

between governments and foreign investors

131

members

WHERE THE IBRD GETS ITS MONEY

through

the sale of its bonds in international capital markets

Members subscriptions

to its capital stock

only 10% of the subscriptions is used by the Bank

Callable Capital

portion of the subscriptions that the Bank borrows the Bank charges a rate of interest rate on its loans to pay this back

WHERE THE IDA GETS ITS MONEY

Mostly from governments voluntary contributions

Replenishments

additional contributions which are needed every few years

DIFFERENCES BETWEEN THE IBRD AND THE IDA

IBRD

charges an interest rate on loans

loans must be repaid within 15-20 years with a 5 year grace period

IDA

does not charge an interest rate, only a 0.75%

service charge

repayment period is 30-45 years with a 10 grace period

ASIAN CRISIS
Financial

crisis broke out in Asia in 1997

large declines in currencies, stock markets, and other asset prices

affected

emerging markets outside of Asia

IMF

arranged programs of economic stabilization and reform with Indonesia, Korea, and Thailand

IMFS ACTIONS
Temporary correct remove

tightening of monetary policy

the weaknesses in the financial system features of the economy that were

impediments to growth
assist

in reopening lines of external financing a sound fiscal policy

maintaining

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