Originally Posted by abhishreshthaa
The IMF is an international organisation consisting of 183 member countries. It was created :
To promote international monetary corporation;
To facilitate expansion and balanced growth of international trade;
To promote exchange stability;
To assist in the establishment of multilateral system of payments;
To make its general resources temporarily available to its members experiencing balance of payment difficulties under adequate safeguard.
To shorten the duration and lessen the degree of disequilibrium in the intenational balance of payments of members.
According to the Articles of Agreement of IMF “Article I”, the main objectives of IMF are :
To promote international monetary corporation through a permanent institution which provides machinery for consultation and collaboration on International Monetary Problems.
To facilitate the expansion and balanced growth of international trade and contribute thereby to the promotion and maintenance of high levels of employment and real income to the development of the productive resources of all members as primary objectives of economic policy;
To promote exchange stability to maintain orderly exchange agreement among the members and to avoid competitive exchange depreciation.
To assist in the establishment of multilateral system of payments in respect of current transactions between members in the elimination of foreign exchange restrictions, which hamper the growth of world trade.
To give confidence to the members by making the general resources of the fund temporarily available to them under adequate safeguard, thus providing them with opportunities to correct mal-adjustments in their balance of payment without resorting to measures destructive of national and international prosperity.
In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payment of members.
The capital of IMF is contributed by totality of the subscription of member states known as “Quotas”. These Quotas are determined as per the economic importance of each country reflected / measured in terms of national income, exports etc.
Since 1970 a new instrument of reserve has been created viz. SDR (Special Drawing Rights). The value of SDRs represent a weighted average of five currencies i.e. US $ - 40%, German Deutsche Mark – 21%, U.K. pound – 11%, French Francs – 11% and Japanese Yen – 17%. The weights reflect the relative strength of these countries.
The Quotas of different countries are paid to the IMF in the ration of 25% as SDRs and 75% as in the national currency. The member countries can withdral equal amount of gold subscriptions (on 25% of the Quota) under the Gold Tranch System. Beyond 25% a country can draw upon its Credit Tranch.
Approval from the IMF is necessary for a country to draw on its Credit Tranch . Temporary increase of Credit Tranch to 400% of the Quota has been allowed against the statutory 200% of the Quota.
The approval becomes strict as the drawings on the credit rise. This tentional credit is used by the borrowing countries to finance their temporary disequilibrium in balance of payments.
Besides these Tranches, the IMF has three permanent credit facilities :
1. Compensatory Financing : Compensatory Financing facility established in 1963 was available when temporary export shortfall existed for reasons beyong members control.
2. Buffer Stock Financing Facility : This facility was established in 1969 which was available when an International Buffer Stock of funds excepted as suitable fund exists.
3. Extended Facility : It was established in 1974 and was available to overcome structural balance of payment maladjustments.
There are other temporary facilities created in response to specific needs such as oil price increase and special emergency funds credited under General Agreement to Borow (GAB).
The IMF has increasingly become the lender of last resort for countries, especially in Africa, with desperate difficulties of external insolvency, extreme poverty, and adjustment.
The IMF's role has as a consequence increasingly overlapped with the World Bank's International Development Association (IDA). It is to the credit of the IMF that it has managed to transform itself from an intimidating ogre to a welcome source of concessional assistance.
The Fund has a valuable role in financing developing countries, a role that has been strengthened by the Enhanced Structural Adjustment Facility (ESAF), which lends on highly concessional terms to low-income countries.
However it was not able to provide oversight of the international monetary system as a whole, but only to its most indigent members.
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