INTERNATIONAL INSTITUTIONS

INTERNATIONAL MONETARY FUND (IMF)

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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 world’s 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)

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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.

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 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

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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 doesn’t want to

allow the foreign money to make their currency’s value higher.

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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.

ROLE OF IMF

FUNCTIONS OF IMF

supervision (like a doctor)

Gathering data and assessing economic policies

of countries.

o Technical Assistance (like a teacher)

Strengthening human skills and institutional

capacity of countries.

o 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.

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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.

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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

VSTHE 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

The World Bank aids in the development and reconstruction of it members

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 currencyeliminate restrictions and certain practices on trade assistance for post-war reconstruction

Bretton Woods Conference, New Hampshire, July 1944 with delegates of 44 nationsfinal 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 international

trade

iii) promote exchange rate stability

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 world’s 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% of the country’s quota may be used

If 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 Bank’s 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

It’s 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 in 1988

helps developing countries attract foreign

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” -A bond that can be redeemed by the issuer prior to its maturity.

Usually a premium is paid to the bond owner when the bond is called.

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 1997large 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

IMF’S ACTIONS

Temporary tightening of monetary policy

correct the weaknesses in the financial system

remove features of the economy that were

impediments to growth

assist in reopening lines of external financing

maintaining a sound fiscal policy

THANK YOU

ALL THE BEST FOR YOUR EXAMS