CHAPTER 1 INTRODCTIONThe first half of the 20th century witnessed political and economic upheaval in the world. Two world wars, collapse of gold standard, the great depression and the economic and financial disturbances between the two wars. The world was eagerly looking forward to stability, and peace. At the end of the second world war, United Nations Organisation (UBO) came into existence. Representatives of 44 countries met at Bretton woods, New Hampshire U.S.A in 1944 to deliberate various economic and financial issues and to promote economic growth and financial stability. Lord Keynes was one of the prominent personalities who took active interest in the Bretton woods conference. As a result of this deliberation the International Monetary Fund (IMF) was established. TheInternational Monetary Fund(IMF) is aninternational organization headquartered inWashington, D.C., in theUnited 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.Formed in 1944 at theBretton Woods Conference, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing theinternational payment system. Countries contributefundsto a pool through a quota system from which countries with payment imbalances can borrow. As of 2010, the fund hadSDR476.8 billion, about US$755.7 billion at then-current exchange rates. Through this fund, and other activities such as statistics keeping and analysis, surveillance of its members' economies and the demand for self-correcting policies, the IMF works to improve the economies of its member countries. The organization's objectives stated in the Articles of Agreement are to promote international economic cooperation,international trade, employment, and exchange-rate stability, including by making financial resources available to member countries to meetbalance-of-paymentsneeds. Since the collapse of the Bretton Woods system in the mid-1970s the International Monetary Fund (IMF) and the World Bank, have helped the world avoid the horrors of a systemic collapse. However, when we look at the volatility in financial markets, the growing imbalances in the global economy, the increasing income inequality both within and between countries, the facts that nearly half the worlds population lives on less than $2 per day and about 22% live on less than $1 per day, and that hundreds of millions of people live without safe sources of running water, shelter, education or health care, it is clear that they are failing in their mandate to reduce poverty, promote and maintain high levels of employment and real income, a stable international monetary system, and shorten the duration and lessen the degree of payments disequilibria. Unfortunately, they are failing us at a time when we badly need them to be functioning effectively. The increasingly integrated global financial system, with its apparently endemic volatility and uncertainties and unbalanced allocation of resources desperately needs some form of effective global governance. In this paper I explore the reasons for the IMFs failure to adequately carry out its mandate I argue that, while the suitability of the IMFs policies and the appropriate scope of its activities are certainly open to debate, an important and often under-emphasized cause of its unsatisfactory performance is its failure to adapt its structure and operating practices to its changing functions. In fact, without correcting this latter set of problems it will never be able to effectively perform its responsibilities.

THE BRETTON WOODS MONETARY SYSTEM From 1946 to 1971, the main purpose of the IMF was regulatory, ensuring IMF members compliance with a par value exchange rate system. This was a two-tiered currency regime using gold and the U.S. dollar. Each IMF member government could choose to define the value of its currency in terms of gold or the U.S. dollar, which the U.S. government agreed to support at a fixed gold value of one ounce of gold being equal to $35. Unlike in the classic gold standard period (1880-1914), monetary policy was not strictly restricted by a countrys holdings of gold. Member countries were allowed to intervene in the currency market but were obligated to keep their exchange rates within a 1% band around their declared par value. When currencies (other than the U.S. dollar) came under pressure from short-term balance of payments imbalances that normally arose through international trade and finance exchanges, countries would receive short-term financial support from the IMF. In cases where the currency peg was considered fundamentally misaligned, a country could devalue (or revalue) its currency. By providing monetary independence limited by the peg, the Bretton Woods monetary system combined exchange rate stability, the key benefit of the 19th century gold standard, with some of the virtues of floating exchange rates, principally independence to pursue domestic economic policies geared toward full employment.From 1973 to the Present A major purpose of the IMF as originally conceived at Bretton Woodsto maintain fixed exchange rateswas, thus, at an end. Although the IMF had lost its motivating purpose, it adapted to the end of fixed exchange rates. In 1973, IMF members enacted a comprehensive rewrite of the IMF Articles.IMF members condoned the floating-rate exchange rate system that was already in place; officially ended the international monetary role of gold (although gold remains an international monetary asset); and, nominally, but unsuccessfully, made the SDR the worlds principal reserve asset. Henceforth, member countries were allowed to freely determine their currencys exchange rate, and use private capital flows to finance trade imbalances. The IMF was also given two new mandates, which became the foundation of its role in the post Bretton Woods international monetary system. The first was for the IMF to oversee the international monetary system to ensure its effective operation. The second was to oversee the compliance by member states with their new obligations to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. Consequently, the IMF transformed itself from being an international monetary institution focused almost exclusively on issues of foreign exchange convertibility and stability to being a much broader international financial institution, assuming a broader array of responsibilities and engaging on a wide range of issues including financial and capital markets, financial regulation and reform, and sovereign debt resolution. The IMF also increasingly relied on its lending powers, as floating exchange rates and the growth of international capital flows led to more frequent, and increasingly severe, financial crises. Over the past several decades, the IMF has been involved in the oil crisis of the 1970s; the Latin American debt crisis of the 1980s; the transition to market-oriented economies following the collapse of communism; currency crises in East Asia, South America, and Russia; and, mostrecently, the global response to the 2008-2009 global financial crisis and the 2010-2011 European sovereign debt crisis.The purpose of IMF was to manage the international payment system conceived in the Bretton Woods Conference to be based in fixed exchange rates. It is to be based on the gold standard. Under the gold standard, countries having deficits in their external accounts should bear the whole burden of adjustment. Deficit countries had to contract their economies to reduce their imports.

OBJECTIVE / AIMS OF IMF: The original aims of IMF are the following: To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

chapter 2HISTORY

SOURCE: http://en.wikipedia.org/wiki/International_Monetary_FundIMF "Headquarters 1" in Washington, D.C.The IMF was originally laid out as a part of theBretton Woods systemexchange agreement in 1944.During theGreat Depression, countries sharply raised barriers to trade in an attempt to improve their failing economies. This led to the devaluationof national currencies and a decline in world trade.

SOURCE: http://en.wikipedia.org/wiki/International_Monetary_FundThe tiny Gold Room within the Mount Washington Hotelwhere the Bretton Woods Conferenceattendees signed the agreements creating the IMF andWorld BankThis breakdown in international monetary co-operation created a need for oversight. The representatives of 45 governments met at theBretton Woods Conferencein the Mount Washington Hotel inBretton 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 economistJohn 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 theNew Dealin response to World War II. American delegateHarry Dexter Whiteforesaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time.Most of White's plan was incorporated into the final acts adopted at Bretton Woods.

SOURCE: http://en.wikipedia.org/wiki/International_Monetary_FundFirst page of the Articles of Agreement of the International Monetary Fund, 1 March 1946. Finnish Ministry of Foreign Affairs archives.The IMF formally came into existence on 27 December 1945, when the first 29 countriesratifiedits Articles of Agreement. By the end of 1946 the IMF had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.

SOURCE: http://en.wikipedia.org/wiki/International_Monetary_FundPlaque Commemorating the Formation of the IMF in July 1944 at the Bretton Woods Conference.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 asembedded liberalism.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 1991dissolution of the Soviet Unionbecause most countries in the Soviet sphere of influence did not join the IMF. 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 theNixon Shock. Since 2000In May 2010, the IMF participated, in 3:11 proportion, in thefirst Greek bailoutthat totaled 110 billion.This bailout was notable for several reasons: the funds were funneled directly to the (largely European) private bondholders, which endured nohaircuts, to the chagrin of the Swiss, Brazilian, Indian, Russian, and Argentinian Directors; the Greek authorities (at the time,George PapandreouandGiorgos 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. 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-calledTroika, 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, and which saw private bondholders take ahaircutof upwards of 50%. In the interval between May 2010 and February 2012 the private banks of Holland, France and Germany reduced exposure to Greek debt from 122 billion to 66 billion. As of January 2012, the largest borrowers from the IMF in order wereGreece,Portugal, Ireland,Romania, andUkraine. On 25 March 2013, a 10 billion internationalbailoutofCypruswas agreed by theTroika, at the cost to the Cypriots of its agreement: to close thecountry's second-largest bank; to impose a one-timebank deposit levyon Bank of Cyprus uninsured deposits.Noinsured depositof 100k or less were to be affected under the terms of a novelbail-in scheme. 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". The paper, which was discussed by the board on 20 May,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, as was a deconstruction byMatina Stevisof theWall Street Journal. In the October 2013Financial Monitorpublication, the IMF suggested that acapital levycapable of reducing Euro-area government debt ratios to "end-2007 levels" would require a very high tax rate of about 10%.TheFiscal Affairsdepartment of the IMF, headed byDr. 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 moreprogressive 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." 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 the2014 Ukrainian revolution. 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 chairmanTharman Shanmugaratnamsaid 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. Member countries

IMF member statesIMF member states not accepting the obligations of Article VIII, Sections 2, 3, and 4.SOURCE: http://en.wikipedia.org/wiki/International_Monetary_Fund

Not all member countries of the IMF are sovereign states, and therefore not all "member countries" of the IMF are members of theUnited Nations.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 asKosovo.The corporate members appoint ex-officiovoting members, who are listed below. All members of the IMF are alsoInternational Bank for Reconstruction and Development(IBRD) members and vice versa. Former members areCuba(which left in 1964)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 bythe People's Republic of China. However, "Taiwan Province of China" is still listed in the official IMF indices. Apart from Cuba, the other UN states that do not belong to the IMF areAndorra,Liechtenstein,Monaco,Nauru, andNorth Korea.The formerCzechoslovakiawas expelled in 1954 for "failing to provide required data" and was readmitted in 1990, after the Velvet Revolution.Polandwithdrew in 1950allegedly pressured by theSoviet Unionbut returned in 1986. QualificationsAny 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. 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. 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.

BenefitsMember 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 assistancein banking, fiscal affairs, and exchange matters, financial support in times of payment difficulties, and increased opportunities for trade and investment. LEADERSHIPBoard of governorsThe 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 Rightallocations, 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. The Board of Governors is advised by theInternational Monetary and Financial Committeeand theDevelopment Committee. The International Monetary and Financial Committee has 24 members and monitors developments in global liquidity and the transfer of resources to developing countries.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. Executive board24 Executive Directors make up Executive Board. The Executive Directors represent all 188 member countries in a geographically based roster. Countries with large economies have their own Executive Director, but most countries are grouped in constituencies representing four or more countries. Following the2008 Amendment on Voice and Participationwhich came into effect in March 2011, eight countries each appoint an Executive Director: theUnited States, Japan, Germany, France, the UK, China, the Russian Federation, and Saudi Arabia.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. This Board usually meets several times each week. The Board membership and constituency is scheduled for periodic review every eight years. Managing directorsThe 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. 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. In 2011 the world's largest developing countries, theBRIC 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 directorDominique Strauss-Kahnwas arrested in connectionwith charges of sexually assaultinga New York hotel room attendant and resigned on 18 May.On 28 June 2011Christine Lagardewas confirmed as managing director of the IMF for a five-year term starting on 5 July 2011.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. Voting powerVoting power in the IMF is based on a quota system. Each member has a number ofbasic votes(each member's number of basic votes equals 5.502% of thetotal votes), plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member country's quota. TheSpecial Drawing Rightis 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. Effects of the quota systemThe IMF's quota system was created to raise funds for loans. 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. This system follows the logic of a shareholder-controlled organisation: wealthy countries have more say in the making and revision of rules. 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. Developing countriesQuotas are normally reviewed every five years and can be increased when deemed necessary by the Board of Governors. Currently, reforming the representation ofdeveloping countrieswithin the IMF has been suggested. 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 Stiglitzargues, "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."In 2008, a number of quota reforms were passed including shifting 6% of quota shares to dynamic emerging markets and developing countries. United States influenceA second criticism is that the United States' transition toneoliberalismand 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 theNixon Shockended theBretton Woods system. Allies of the United States are said to receive bigger loans with fewer conditions. Overcoming borrower/creditor divideThe IMF's membership is divided along income lines: certain countries provide the financial resources while others use these resources. Bothdeveloped 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. 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. UsesA 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. A study by Bumba Mukherjee found that developingdemocratic countriesbenefit more from IMF programs than developingautocratic countriesbecause policy-making, and the process of deciding where loaned money is used, is more transparent within a democracy.One study done byRandall Stonefound 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". HOW THE IMF PROMOTES GLOBAL ECONOMIC STABILITYThe IMF advises member countries on economic and financial policies that promote stability, reduce vulnerability to crises, and encourage sustained growth and high living standards. It also reviews and publishes global economic trends and developments that affect the health of the international monetary and financial system and promotes dialogue among member countries on the regional and global consequences of their policies. In addition to these activities, which constitute surveillance, the IMF provides technical assistance to help strengthen members institutional capacity and makes resources available to them to facilitate adjustment in the event of a balance of payments crisis. WHY IS GLOBAL ECONOMIC STABILITY IMPORTANTPromoting economic stability is partly a matter of avoiding economic and financial crises, large swings in economic activity, high inflation, and excessive volatility in exchange rates and financial markets. Instability can increase uncertainty, discourage investment, impede economic growth, and hurt living standards. A dynamic market economy necessarily involves some degree of instability, as well as gradual structural change. The challenge for policymakers is to minimize instability in their own country and abroad without reducing the economys ability to improve living standards through rising productivity and employment. Economic and financial stability is both a national and a multilateral concern. As recent financial crises have shown, countries have become more interconnected. Problems in one sector can result in problems in other sectors and spillovers across borders. No country is an island when it comes to economic and financial stability. HOW DOES THE IMF HELPThe IMF helps countries to implement sound and appropriate policies through its key functions of surveillance, technical assistance, and lending.Surveillance: Every country that joins the IMF accepts the obligation to subject its economic and financial policies to the scrutiny of the international community. The IMF's mandate is to oversee the international monetary system and monitor the economic and financial policies of its 188 member countries. This process, known as surveillance, takes place at the global level and in individual countries and regions. The IMF considers whether domestic policies promote countries own stability by examining risks they might pose to domestic and balance of payments stability and advising on needed policy adjustments. It also proposes alternatives in cases where countries policies promote domestic stability but could affect global stability.Consulting with member statesThe IMF monitors members economies through regularusually annualconsultations with each member country. During these consultations, IMF staff discusses economic and financial developments and policies with national policymakers, and often with representatives of private sector, labor unions, academia, and civil society. The staff assesses risks and vulnerabilities, and considers the impact of fiscal, monetary, financial, and exchange rate policies on the members domestic and balance of payments stability and on global stability. The IMF offers advice on policies to promote each countrys macroeconomic, financial and balance of payments stability, drawing on experience from across its membership. The framework for these consultations is set forth in the IMF Articles of Agreement and, more recently, in the Integrated Surveillance Decision. These consultations are also informed by membership-wide initiatives, including: work to systematically assess countries' vulnerabilities to crises; the Financial Sector Assessment Program, which assesses countries financial sectors and helps formulate policy responses to risks and vulnerabilities; and the Standards and Codes Initiative in which the IMF, along with the World Bank and other bodies, assesses countries observance of internationally recognized standards and codes of good practice in a dozen of policy areas.

Overseeing the bigger world pictureThe IMF also closely monitors global and regional trends. The IMFs periodic reports, the World Economic Outlook, its regional overviews, the Fiscal Monitor, and the Global Financial Stability Report, analyze global and regional macroeconomic and financial developments. The IMFs broad membership makes it uniquely well suited to facilitate multilateral discussions on issues of common concern to groups of member countries, and advance a shared understanding on policies to promote stability. In this context, the Fund has been working with the G-20 to assess the consistency of those countries policy frameworks with balanced and sustained growth for the global economy. The Fund has reviewed its surveillance mandate in light of the global crisis. It has introduced a number of reforms to improve financial sector surveillance within member countries and across borders, to enhance understanding of interlink ages between macroeconomic and financial developments (e.g. through Spillover Report), and promote debate on these matters. Data: In response to the financial crisis, the IMF is working with members, the Financial Stability Board, and other organizations to fill data gaps important for global stability. Technical assistance: The IMF helps countries strengthen their capacity to design and implement sound economic policies. It provides advice and training on a range of issues within its mandate, including fiscal, monetary, and exchange rate policies; the regulation and supervision of financial systems; statistics systems; and legal frameworks. Lending: Even the best economic policies cannot completely eradicate instability or avert crises. If a member country does experience financing difficulties, the IMF can provide financial assistance to support policy programs that will correct underlying macroeconomic problems, limit disruption to the domestic and global economies, and help restore confidence, stability, and growth. IMF financing instruments can also support crisis prevention. FUNCTION OF IMFThe IMFs mandate of promoting international monetary stability translates into three main functions: (1) Surveillance of financial and monetary conditions in its member countries and in the world economy; (2) Financial assistance to help countries overcome major balance-of payments problems; and (3) Technical assistance and advisory services to member countries. Surveillance The IMF provides surveillance of the international monetary system in order to ensure its effective operation and to oversee the compliance of each member with its obligations to the Fund. In particular, the Fund shall exercise firm surveillance over the exchange rate policies of member countries and shall adopt specific principles for the guidance of all members with respect to those policies. The IMFs general surveillance recommendations are not binding or enforceable. The effectiveness of IMF surveillance is dependent on the peer pressure exercised by other IMF member countries, and increasingly the global financial sector, as most IMF analysis of global economic risks is made now public. The IMF engages in both bilateral and multilateral surveillance. IMF members agree, as a condition of membership, that they will collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, they agree to pursue economic and financial policies that will produce orderly economic growth with reasonable price stability, to avoid erratic disruptions in the international monetary system, not to manipulate their exchange rates in order to attain unfair competitive advantage or shift economic burdens to other countries, and to follow exchange rate policies compatible with these commitments.Countries are required to provide the IMF with information and to consult with the IMF upon its request. The IMF staff generally meets annually with each member country for Article IV consultations regarding the countrys current fiscal and monetary policies, the state of its economy, its exchange rate situation, and other relevant concerns. The IMFs reports on its Article IV consultations with each country are presented to the IMF Executive Board, along with the staffs observations and recommendations about possible improvements in the countrys economic policies and practices. In pursuit of its multilateral surveillance function, the IMF publishes numerous reports each year on economic conditions and trends in the world economy. These include three semiannual publications: (1) the World Economic Outlook, which provides analysis of the state of the global economy; (2) the Global Financial Stability Report, which assesses global financial markets; and (3) the Fiscal Monitor, which surveys and analyzes the state of public finances in member countries.Financial Assistance Notwithstanding its macroeconomic surveillance, the IMF is perceived as an institution that primarily provides temporary financing to troubled economies. The IMFs financial structure can best be characterized as that of a credit union. IMF member countries deposit hard currency and some of their own currency, from which they can draw the currencies of other countries if they face significant problems in managing their balance of payments. As noted above, supplemental resources are available from the NAB or GAB if quota resources are insufficient. The IMF is required by its Articles to ensure that countries' use of its resources will be temporary and that loans will be repaid. Failure of a borrowing country to repay the IMF reduces the availability of financing for all other IMF members. In order to ensure that it gets repaid, the IMF imposes conditionality on its loans. Conditionality is also intended to correct the borrower's current account deficit by bringing about macroeconomic stabilization and economic adjustment. In the past, there have been debates about whether the austerity conditions that are often the core of IMF conditionality are productive in increasing economic growth. In 2000, one heavily cited paper found that participating in IMF programs lowers growth rates during the program, as would be expected. In addition, however, the study found that once countries leave the program, they grow faster than if they had remained, but not faster than they would have without participating in the IMF program in the first place. After heavy criticism of the conditions attached to IMF loans to East Asia in the late 1990s, the IMF revamped its conditionality guidelines in 2002. Additional reforms, including new IMF lending instruments based on economic prequalification (ex-ante conditionality) rather than traditional structural adjustment (ex-post conditionality) also address these concerns. IMF Loan Programs The IMF has several loan programs. The Stand-By Arrangement (SBA), which provides the bulk of IMF assistance to middle-income countries, addresses short-term balance-of-payments problems and typically lasts one to two years. The Extended Fund Facility (EFF) addresses longer-term balance-of-payments problems requiring fundamental economic reforms and generally runs for three years or longer. In 2009, following the financial crisis, the IMF created the Flexible Credit Line (FCL). The FCL provides a credit line to countries that have strong economic fundamentals and policies, and that the credit line can be drawn on without new conditionalitys being imposed. Unlike the SBA and the EFF, the FCL relies on ex-ante conditionality. As of July 2011, Colombia, Mexico, and Poland have accessed the FCL. In 2010, the IMF introduced the Precautionary Credit Line, now known as the Precautionary and Liquidity Line (PLL), for countries whose financial situations would make them ineligible for the FCL. A country can request a PLL for six months with a limit of five times its quota. The only PLL program approved to date was for Macedonia in January 2011, although many expected some Eurozone countries to request access to credit. The IMF provides loans to its poorest member countries on concessional repayment terms. These aim to help countries overcome balance-of-payments problems, but their conditionality puts less emphasis on cutting spending and more on economic growth-enhancing reforms. There are three lending facilities for low-income countries: The Extended Credit Facility (ECF), which provides flexible medium-term support to low-income members that have protracted balance of payments problems. The Standby Credit Facility (SCF), which addresses short-term and precautionary balance of payments needs, similar to the Stand-By Arrangements in regular Fund lending. The Rapid Credit Facility (RCF), which provides rapid access at low levels with limited conditionality to meet urgent balance-of-payments needs. In 2010, the Fund created the Post-Catastrophe Debt Relief (PCDR) Trust Fund to provide debt relief to low-income countries hit by catastrophic natural disasters. To date, seven countries have received support from the PSI: Cape Verde, Mozambique, Nigeria, Senegal, Uganda, Tanzania, and Rwanda.Trends in IMF Lending Prior to the onset of the 2008 economic crisis, many analysts argued that the IMF was on the brink of irrelevance, as booming capital flows and commodity prices allowed the remaining IMF creditors to repay their loans. With developing countries no longer needing IMF lending, and the advanced economies largely ignoring the IMFs surveillance, the Funds future looked bleak. At the same time, IMF resources, especially when compared to global capital flows, had declined over the past few decades. Prior to the crisis, this raised little concern because demand for IMF resources was low. This view changed quickly in 2008, as the economic crisis worsened, and the IMFs loan portfolio expanded from below SDR 10 billion in 2007 to over to SDR 96.4 billion ($144.6 billion) in February 2013.The significant change in the composition of IMF lending since 1970. Advanced economies accounted for over 75% of the IMF credit in 1970, during the waning days of the fixed exchange rate regime. By 1990, their share of IMF credit had dropped to zero, before increasing in the late 1990s (loans to Korea and Russia), and then after the recent financial crisis. In 2010, due to several large European programs, IMF lending to advanced economies accounted for 17% of total lending. Loans to Latin America began rising in the 1970s, but did not increase sharply until the 1980s debt crises, peaking in 1990. Loans increased after 2000 because of three large programs (Argentina, Brazil, and Uruguay), but have since declined, and are now at historically low levels, along with Asian economies.Technical Assistance Access to technical assistance is one benefit of IMF membership, accounting for about 20% of the IMFs annual operating budget. The IMF provides technical assistance in its core areas of expertise: macroeconomic policy; tax and revenue policies; expenditure management; exchange rates; financial sector sustainability; and economic statistics. IMF technical assistance supports the development of the productive resources of member countries by helping them to effectively manage their economic policy and financial affairs. The IMF helps these countries to strengthen their capacity in both human and institutional resources, and to design appropriate macroeconomic, financial, and structural policies. About 90% of IMF technical assistance goes to low and lower-middle income countriesSurveillance of the global economyThe IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its member countries. This activity is known as surveillance and facilitates international cooperation.Since the demise of theBretton Woods systemof 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.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 theglobal economy.

IMFData Dissemination Systemsparticipants:IMF member using SDDSIMF member using GDDSIMF member, not using any of the DD Systemsnon-IMF entity using SDDSnon-IMF entity using GDDSno interaction with the IMFSOURCE: http://en.wikipedia.org/wiki/International_Monetary_FundIn 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 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 theSpecial Data Dissemination Standard(SDDS).The executive board approved the SDDS and GDDS in 1996 and 1997 respectively, and subsequent amendments were published in a revisedGuide to the General Data Dissemination System. The system is aimed primarily atstatisticiansand aims to improve many aspects of statistical systems in a country. It is also part of the World BankMillennium Development Goalsand 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 EU institutions: TheEuropean Central Bankfor theEuro zone SDDS Euro statfor the whole EU SDDS, thus providing data from Cyprus (not using any DD System on its own) and Malta (using only GDDS on its own)Conditionality of loansIMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources.The IMF does requirecollateralfrom 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.Conditionality is perhaps the most controversial aspect of IMF policies.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 ofJacques Polak, the theoretical underpinning of conditionality was the "monetary approach to the balance of payments".Structural adjustmentFurther information:Structural adjustmentSome of the conditions for structural adjustment can include: Cutting expenditures, also known asausterity. Focusing economic output on direct export andresource extraction, Devaluationof currencies, Trade liberalisation, or lifting import and export restrictions, Increasing the stability of investment (by supplementingforeign direct investmentwith the opening of domesticstock markets), Balancing budgetsand not overspending, Removingprice controlsand statesubsidies, Privatization, ordivestitureof all or part of state-owned enterprises, Enhancing the rights offoreign investorsvis-a-vis national laws, Improvinggovernanceand fighting corruption.These conditions have also been sometimes labelled as theWashington Consensus.BenefitsThese 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-of-payment problems in a way that would negatively impact theinternational economy.The incentive problem ofmoral hazardwheneconomic agentsmaximize their ownutilityto 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. 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.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. 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.

CHAPTER 3CHANGING ROLE OF THE IMFThe founders of the Bretton woods system had largely assumed that private capital flows would never again resume the prominent role they had in the nineteenth century. But a series of financial crises during the 1990s, triggered by sharp changes in the direction of flows, forced both the Fund and national policymakers to revisit these assumptions. The first capital account crisis erupted in Mexico in 1994. Crises followed in Asia in 1997-98; in Russia in 1998; and elsewhere. It became clear that these crises were fundamentally different from earlier ones. All were capital account crises, large in scale, and, like most financial crises, involved enormous upheaval for the countries involved. The sharp reversal of capital flows to Asia in the latter half of 1997 sparked the crises. WIDER SCOPE AFTER SECOND AMENDMENTThe Second Amendment widened the scope in the following areas :1. Expansion of scope of consultations: The Second Amendment in 1978 resulted in the IMF dramatically expanding the scope of its consultations. It required each member country to try to direct its economic and financial policies toward fostering orderly economic growth.2. Expansion of range of conditions: It also has resulted in an expansion in the range of conditions that the IMF attaches to the finance it provides to member states. In fact, in some cases in the late 1990s IMF financing arrangements contained over 100 conditions covering such issues as privatization, reform of tax administration, adoption of new laws such as bankruptcy codes, and budgetary allocations for health and education, in addition to the more traditional macroeconomic conditions.3. Different impacts: The Second Amendment had different impacts on different groups of IMF member states. The IMF lost its significance in the case of industrialized countries, that knew that they would not need to use or had no intention of using the IMFs services in the foreseeable future.NEW INITIATIVES BY THE IMF In the emerging context, the following initiatives were taken by the fund.1. The IMF and Financial Integration: The IMF in the 1997 meeting in Hong Kong took the initiative to pursue convertibility of capital account transactions and dismantling of capital controls. Integration of global financial markets should allow capital to be allocated to its most productive use. Developing countries will benefit from integration because they offer ample opportunities for investment. At the same time, since India and China were relatively immune from the Asian crisis many argued that the capital account should be kept closed.According to the Fund, the losses of financial globalization can be minimized, although they cannot be eliminated in three ways: a. By correctly sequencing the liberalization process.b. By having government to adopt only sound economic policies.c. By strengthening domestic financial systems.2. Structural Adjustments to Promote Financial Globalisation: Introduction of capital account convertibility requires some definite conditionalities. The domestic economies should be prepared to accept and promote the free movement of capital. The reforms for financial liberalization do not consist just in removing capital and exchange controls. According to the Fund, stability of capital flows requires enforcing tough standards of transparency and good governance. Further, to minimize the effects of flow reversals, markets should be more flexible and responsive to supply and demand. Removing excessive regulations should help capital flows to be allocated in the best way. 3. The New Conditionalities: Since 1997 the Fund insisted on the need to promote structural reforms in order to get Funds help. According to Michael Camdessus, Managing Director of the Fund to recover from todays balance of payments crisis an emerging economy has to go through a three-tier adjustment process. They are:a. The first tier is to restore stability: The consist in raising interest rates to convince international investors to keep their capital in the country and in cutting fiscal deficits. b. The second tier is to improve soundness: This is intended to restore lost confidence, especially in domestic financial and corporate systems, through fundamental institutional changes.c. The third tier is to boost efficiency: This means transforming government from an active player in the economy into a magistrate, a regulator and guarantor of an economic order that allows for the free interplay of private agents.

chapter 4 Exceptional Access Framework Sovereign DebtTheExceptional Access Frameworkwas created in 2003 whenJohn B. Taylorwas Under Secretary of theU.S. Treasuryfor International Affairs. The new Framework became fully operational in February 2003 and it was applied in the subsequent decisions on Argentina and Brazil.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 marketsand 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 placecollective action clausesin their bond contracts. In 2010, the framework was abandoned so the IMF could make loans to Greece in an unsustainable and political situation. 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". The paper, which was discussed by the board on 20 May,summarised the recent experiences in Greece, St Kitts and Nevis, Belize and Jamaica. An explanatory interview with Deputy DirectorHugh Bredenkampwas published a few days later,as was a deconstruction byMatina Stevisof theWall Street Journal. 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. 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 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 allbonds, would be relied upon to address collective action problems." IMF of globalization Globalizationencompasses three institutions: global financial markets andtransnational 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, andWorld Bank.Charles Derberargues in his bookPeople 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".Titus Alexander argues that this system institutionalises global inequality between western countries and the Majority World in a form ofglobal apartheid, in which the IMF is a key pillar. The establishment of globalised economic institutions has been both a symptom of and a stimulus for globalization. Globalization has thus been transformative in terms of a reconceptualising ofstate sovereignty. Following U.S. PresidentBill Clinton's administration's aggressive financialderegulationcampaign 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. CRITICISMSOverseas Development Institute(ODI) research undertaken in 1980 pointed to five main criticisms of the IMF which support the analysis that it is a pillar of what activist Titus Alexander callsglobal apartheid. Firstly, developed countries were seen to have a more dominant role and control overless developed countries(LDCs) primarily due to the Western bias favoring capitalism. Secondly, the Fund worked on the incorrect assumption that all paymentsdisequilibriawere 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 the1973 oil crisis. The third criticism was that IMF policies were anti-developmental. 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.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. Argentina, which had been considered by the IMF to be a model country in its compliance to policy proposals by theBretton Woodsinstitutions, experienced a catastrophic economic crisis in 2001,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.Others attribute the crisis to Argentina's misdesigned fiscal federalism, which caused subnational spending to increase rapidly. The crisis added to widespread hatred of this institution inArgentinaand 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 MinisterClin Popescu-Triceanuclaimed that "Since 2005, IMF is constantly making mistakes when it appreciates the country's economic performances". FormerTanzanianPresidentJulius Nye ere, 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?" ConditionalityThe IMF has been criticised for being "out of touch" with local economic conditions, cultures, and environments in the countries they are requiring policy reform.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. For example, some people believe thatJeffrey Sachs' work shows that the IMF's "usual prescription is 'budgetary belt tightening to countries who are much too poor to own belts'". One view is that conditionality undermines domestic political institutions.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. IMF conditions are often criticised for reducing government services, thus increasing unemployment. 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.This assumes that this narrow range of issues represents the only possible problems; everything is standardised and differing contexts are ignored.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. InGlobalization and Its Discontents,Joseph E. Stiglitz, former chief economist and senior vice-president at theWorld Bank, criticizes these policies.He argues that by converting to a moremonetaristapproach, the purpose of the fund is no longer valid, as it was designed to provide funds for countries to carry outKeynesianreflations, and that the IMF "was not participating in a conspiracy, but it was reflecting the interests and ideology of the Western financial community". 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 developing countries using conditionality to gain leverage over the opposition in order to influence policy. ReformThe IMF is only one of manyinternational organisationsand it is a generalist institution for macroeconomic issues only; its core areas of concern indeveloping countriesare very narrow. One proposed reform is a movement towards close partnership with other specialist agencies such asUNICEF, theFood and Agriculture Organization(FAO), orthe United Nations Development Program(UNDP). Jeffrey Sachsargues inThe End of Povertythat 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".Development economicsneeds the reform, not the IMF. He also notes that IMF loan conditions should be paired with other reformse.g., trade reform indeveloped nations,debt cancellation, and increased financial assistance for investments inbasic infrastructure.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 theG20in 2010; however, as of April 2014, theU.S. Congresshas not agreed to these reforms. Support of military dictatorshipsThe role of theBretton Woods institutionshas been controversial since the lateCold War, due to claims that the IMF policy makers supportedmilitary dictatorshipsfriendly to American and European corporations and otheranti-communistregimes. Critics also claim that the IMF is generally apathetic or hostile tohuman rights, andlabour rights. The controversy has helped spark theAnti-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. Impact on access to foodA number ofcivil societyorganizations have criticised the IMF's policies for their impact on access to food, particularly in developing countries. In October 2008, former U.S. presidentBill Clintondelivered a speech to the United Nations onWorld 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.Impact on public healthA 2009 study concluded that the strict conditions resulted in thousands of deaths in Eastern Europe bytuberculosisas public health carehad to be weakened. In the 21 countries to which the IMF had given loans,tuberculosisdeaths rose by 16.6%.In 2009, a book by Rick Rowden titledThe Deadly Ideas ofNeoliberalism: 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 againstHIV/AIDSin developing countries. Impact on environmentIMF 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. The IMF acknowledged this paradox in the 2010 report that proposed the IMF Green Fund, a mechanism to issuespecial drawing rightsdirectly to pay for climate harm prevention and potentially other ecological protection as pursued generally by otherenvironmental finance. Proposed alternativesIn March 2011 the Ministers of Economy and Finance of theAfrican Unionproposed to establish anAfrican Monetary Fund. At the6th BRICS summitin July 2014 theBRICSnations (Brazil,Russia,India,China, andSouth Africa) announced the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$100 billion, a framework to provide liquidity through currency swapsin response to actual or potential short-term balance-of-payments pressures. CHAPTER 5Conclusion The IMF is suffering from serious structural distortions that have slowly developed since the Second Amendment to the Articles of Agreement. These problems create a substantial barrier to the effective functioning by the IMF. They can only be corrected through a broad ranging reform program that will overhaul the structure and operating principles of the IMF. Without undertaking this reform program, it is unclear if the IMF will ever be able to effectively make any useful contributions to solving the complex problems of poverty, inequality and inadequate governance which plague developing countries today. Unfortunately the problems that exist in the IMF are only the most extreme version of a problem that exists in all international organizations. All those organizations that have great economic power in the developing world -- the World Bank, the regional development banks and the WTO -- share, although maybe in less extreme forms, the same problems. Those UN specialized agencies that lack adequate resources, influence and power-- such as UNESCO, FAO, UNICEF, WHO -- often suffer from the reverse problem. They lack influence and power because they are deemed to be too sensitive to developing countries. The result is that industrialized countries lose interest in them. If international organizations are to perform the global governance functions that were envisaged for them and if they are to play an effective role in dealing with the complex problems that exist in the developing countries and the extreme inequalities of power and wealth that exist between developing and developed countries, they will need to undergo their own reform programs, that will be complimentary to the one this paper proposes for the IMF.

BIBLIOGRAPHYINTERNET SITE:1.http://www.investopedia.com/terms/i/imf.asp - Viewed on 5/2/15 8.pm. 2.https://www.imf.org/external/np/exr/center/mm/eng/mm_intro.htm - Viewed on 5/2/15 - 8.30 pm.3.http://www.new-rules.org/storage/documents/global_governance/bradlow.pdf - Viewed on 5/2/15 - 9.30 pm.4.http://en.wikipedia.org/wiki/International_Monetary_Fund - Viewed on 6/2/15 - 11.am.5.http://www.ww.uni-magdeburg.de/fwwdeka/student/arbeiten/006.pdf - Viewed on 6/2/15 - 12.30 am.6.https://www.imf.org/external/np/exr/facts/globstab.htm - Viewed on 6/2/15 - 1.30 am.BOOKS:1. P.A. Johnson , A.D. Mascarenhas (2014) Economics of global trade and finance Published by MANAN PRAKASHAN Mumbai.2. BO-sodersten, Geoffrey Reed (2008) International economics Published by: MACMILLAN PRESS LTD. London.

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