ROLE AND FUNCTION OF IMF

AN OVERVIEW OF WORLD BANK

Chapter 8
DR.REHANA PARVEEN
ASSISTANT PROFESSOR
COLLEGE OF LAW
 HISTORY
 The International Monetary Fund was conceived in July
1944 originally with 45 members and came into
existence in December 1945 when 29 countries signed
the agreement.

 IMF started to make service with IBRD in 1947.

 The IMF works to improve the economies of its member

countries.
 The conference culminated in the creation of the
famous
“twins”-IMF & World bank.
In the beginning ( 1945-2003 ) 29 member countries but In 2007, the number
of member countries of IMF was 185. NOW 189 CONTRIES .
Establishment of IMF
IMF was founded on 27th december,1945. During
the closing years of World War Second, different
countries realized that there must be a common
International Forum for achieving economy
cooperation, promoting International Trade and
providing help to needy nations during
emergency. So IMF was formed for this purpose.
World War Second has its adverse effect on
global economy. To remedy the situation, an
international monetary conference was
convened in 1944, at Bretton Woods in
America.

It was attended by the represenatives of 44

countries.

It was decided in this Conference to set up

IMF for the economic development of all
countries.
PROBLEMS

Three main problems are :

☻Economic order and piece.
☻Reconstruction of
economies
☻Stable world piece
 Objectives Of IMF

1) To Promote International Monetary Cooperation

2) To Establishment a System of Multilateral Payments

3) To Maintain Stability in the Rate of Exchange

4) To Provide Aid to Members during emergency

5) To reduce Disequilibrium in Balance of Payments

6) To promote balanced economic development

International Monetary Fund
 IMF is the intergovernmental organization that oversees
the global financial system by following the
macroeconomic policies of its member countries, in
particular those with an impact on exchange rate and
the balance of payments.

 It is an organization formed with a stated objective of

stabilizing international exchange rates and facilitating
development through the enforcement of liberalising
economic policies on other countries as a condition for
loans, restructuring or aid.
International Monetary Fund

 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.

 Its headquarters are in Washington,

United States.
Who runs the IMF?

MEMBER
COUNTRIES

BOARD OF EXECUTIVE
GOVERNORS BOARD

DEPUTY DEPUTY FIRST DPTY

MANAGING MANAGING MANAGING
DIRECTOR DIRECTOR DIRECTOR
FUNCTIONS OF IMF
1) The funds provide a mechanism for
improving short-term BOP Position

2) Fund provides a machinery for international

consultations

3) Technical Assistance

4) Imparts Training
5) Facilities during emergency

6) It serves as a short-term credit institutions

7) Determining Exchange Rate for every

Country
Purposes of the IMF

o Promote international monetary cooperation.

o Expansion and balanced growth of international

trade.

o Promote exchange rate stability.

o The elimination of restrictions on the international

flow of capital.

o Make resources of the Fund available to

members
 Purposes of the IMF

o Help establish multilateral system of payments and eliminate foreign

exchange
restrictions.

o Shorten the duration and lessen the degree of disequilibrium in

international balances of payment.

o Foster economic growth and high levels of employment.

o Temporary financial assistance to countries to help

the balance of payments adjustments.
Where the IMF gets its money

 Most comes from the quota subscriptions

 the money each member contributes when joining the IMF.
The Capital resources of the fund are subscribed by the
various member countries by way of their respective
quotas. Each Member country is required to subscribe its
quota partly in gold and partly in its own national
currency. Each Member country is required to subscribe its
quota partly in gold and partly in its own national
currency.

 General Arrangements to Borrow (1962)

 line of credit set up with several governments and banks
throughout the world
Special Drawing Right (SDRs)

 The Special Drawing Right (SDR) is an interest-bearing international

reserve asset created by the IMF in 1969 to supplement other
reserve assets of member countries.
 • The SDR is based on a basket of international currencies
comprising the U.S. dollar, Japanese yen, euro and pound sterling. It
is not a currency, nor a claim on the IMF, but is potentially a claim
on freely usable currencies of IMF members. The value of the SDR is
not directly determined by supply and demand in the market, but is
set daily by the IMF on the basis of market exchange rates between
the currencies included in the SDR basket.
Countries add SDRs to their holdings of foreign currencies
 keep available for need of payments that must be made in foreign
exchange
MEMBERSHIP
There are two types of members of the Fund
1) ORIGINAL MEMBERS- All those countries whose
representatives took part in Bretton Woods
Conference and who agreed to be the member of the
fund prior to 31st December,1945, are called
Ordinary Members
2) ORDINARY MEMBERS- All those countries
who became its member subsequently are called
Ordinary Members.

Any country can cease to be its member after

giving a notice in writing to that effect . Fund
can terminate the membership of such a
country which does not observe its rules.

In 1945, the number countries was in 44, in year

2007 the number of member countries was 185.
Members with largest quotas
ROLE OF IMF
 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.
 Focusing on its core macroeconomic and financial areas of
responsibility.

 Working in a complementary fashion with other institutions

established.
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
Collaborating with Other
Institutions
 The IMF collaborates with
 the World Bank,
 the regional development banks,
 the World Trade Organization,
 United Nations agencies, and
 other international bodies.

Each of these institutions has its own area of responsibility

and specialization and its particular contribution to make
to the world economy.
QUOTAS & VOTING
MANAGING DIRECTOR
SUCCESS OF IMF
1) International Monetary Cooperation

2) Reconstruction of European Countries

3) Multilateral System of Foreign Payments

4) Increase in International Liquidity

5) Increase in International Trade

6) Special Aid to Developing Countries

7) Providing Statistical Information

8) Helpful in Times of Difficulties

9) Easiness & Flexibility in Making

International Payments
FAILURES OF IMF
1) Lack of Stability in Exchange Rate

2) Lack of Stability in the Price of Gold

3) Inability to Remove Restrictions on Foreign

Trade

4) Rich Nations Club

5) No help for development projects

6) No Solution of International Liquidity

7) Interference in Domestic Economies

8) Inability to tackle the Monetary Crisis of

August 1971

9) Less Aid for Developing Countries

10) High Rate of Interest

conclusion
 The IMF works to foster global growth and economic
stability. It provides policy advice and financing to
members in economic difficulties and also works with
developing nations to help them achieve
macroeconomic stability and reduce poverty.
AN OVERVIEW OF WORLD BANK
 Introduction
The World Bank had much influence in shaping development
since the second half of the twentieth century. Immediately
after the (WWII), world leaders saw a need for international
cooperation in order to rebuild the devastated countries in
Europe. It consists of five closely associated institutions,
including the International Bank for Reconstruction and
Development (IBRD) and the International Development
Association (IDA).
The World Bank is one of the world’s largest sources of
development assistance. There are currently 188 member
countries. Voting power is linked to member’s shares, which in
turn are based on each country's relative economic strength.
  BUILDING OF WORLD BANK

WORLD BANK

The world bank is an

internationally supported
bank that provides financial
and technical assistance to
developing countries for
development programs (e.g.
bridges, roads, schools)with
the stated goal of reducing
poverty.
INTRODUCTION
 President :- Robert B. Zoellick
 Membership :- 185 countries
 Affiliates :- IFC, MIGA, ICSID
 Headquarters :- Washington, DC and more than 100
country Staff :- about 10000 all over the
world
 Established :- July 1,1944
ROBERT B.ZOOLICK
NEED OF WORLD
BANK BUILD CAPACITY

CREATE
INFRASTRUCTURE
NEED OF
WORLD BANK
DEVELOP
FINANCIAL
SYSTEM

COMBAT
CORRUPTION
HISTORY

The World Bank was created at Bretton Woods in

1944 to lend to European countries to help them
rebuild after World War II. It was the world's
first multilateral development bank, and was
funded through the sale of World Bonds. Its first
loans were to France and other European
countries, but soon lent money to Chile, Mexico
and India to build power plants and railways. By
1975, the Bank also lent money to countries to
help with family planning, pollution control and
environmentalism.
history

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

for an organization to create a system for exchange rate
stability because there was uncertainty of the value of
paper money and
countries began cheating other countries in trade
 Purposes of The World Bank
 Granting reconstruction loans to war devastated countries.
 Providing loans to governments for agriculture, irrigation,
power, transport, water supply, educations, health etc.
 Promoting foreign investment by guaranteeing loans
provided by other organizations.
 Encouraging industrial development of underdeveloped
countries by promoting eco­nomic reforms.
 Providing technical, economic and monetary advice to
member countries for specific projects.
 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
 This is an institution within the World Bank that aims to
reduce poverty in middle- income and creditworthy poorer
countries by promoting sustainable development through
loans, guarantees, risk management products, and
analytical and advisory services.
 IBRD raises most of its funds on the world's financial
markets. It has become one of the most established
borrowers since issuing its first bond in 1947 to finance the
reconstruction of Europe .
 Lends to countries with relatively high per capita incomes.
IBRD continued
 IBRD's earns an income every year from the return on its equity and from
the small margin it makes on lending.
 The IBRD gets it money through the sale of its bonds in international
capital markets and member’s subscriptions to its capital stock.
 International Development Association
• The IDA is the second World Bank institution and its main focus is helping the
poorest countries in the world by providing loans and grants to boost
economic growth, reduce inequality and improve living conditions.
• IDA funding immunized nearly half a billion children, provided access to
better water sources for 123 million people, and helped 65 million people
receive health services.
 International Development Association
• The IDA is the second World Bank institution and its main focus is helping the
poorest countries in the world by providing loans and grants to boost
economic growth, reduce inequality and improve living conditions.
• IDA funding immunized nearly half a billion children, provided access to
better water sources for 123 million people, and helped 65 million people
receive health services.
 IDA continued
 IDA lends money on concessional terms. This means that IDA charges little
or no interest and repayments are stretched over 25 to 40 years, including
a 5- to 10-year grace period.
 lends to countries with annual per capita incomes of about $800 or less.
 IDA mostly gets it money from government’s voluntary contributions.
International Finance Corporation

 Established in 1956 to reduce poverty and

improve people's lives in an environmentally
and socially responsible manner.
 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
The Multilateral Investment Guarantee
Agency (MIGA) was created in 1988 as a
member of the World Bank Group to
promote foreign direct investment into
developing countries to support
economic growth, reduce poverty, and
improve people’s lives. It fulfills this
mandate by offering political risk
insurance to investors and lenders.
International Center for the Settlement of Investment
Disputes

 The International Centre for Settlement of

Investment Disputes (ICSID) provides international
facilities for conciliation and arbitration 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.
FUND GENERATION

 IBRD lending to developing countries is financed by

selling AAA-rated bonds.
 IDA is the world’s largest source of interest free loans
and grant assistance to the poorest countries.
Who makes decisions at the
World Bank and IMF
  Decisions at the World Bank and IMF are made by a vote of the
Board of Executive Directors, which represents member
countries. Unlike the United Nations, where each member nation
has an equal vote, voting power at the World Bank and IMF is
determined by the level of a nation’s financial contribution.
 Therefore, the United States has roughly 17% of the vote, with
the seven largest industrialized countries (G-7) holding a total of
45%. Because of the scale of its contribution, the United States
has always had dominant voice and has at all times exercised an
effective veto. At the same time, developing countries have
relatively little power within the institution, which, through the
programs and policies it decides to finance, has tremendous
impact throughout local economies and societies. Furthermore,
the President of the World Bank is by tradition an American, and
the IMF President is a European.
Difference Between IMF & World Bank

The International Monetary Fund World Bank

Oversees the international monetary system Seeks to promote the economic development of
the world's poorer countries

Promotes exchange stability and orderly Assists developing countries through long-term
exchange relations among its member countries financing of development projects and programs

Assists all members--both industrial and Provides to the poorest developing countries
developing countries--that find themselves in whose per capita GNP is less than $865 a year
temporary balance of payments difficulties by special financial assistance through the
providing short- to medium-term credits international development association (IDA)

Draws its financial resources principally from the Acquires most of its financial resources by
quota subscriptions of its member countries borrowing on the international bond market

Has at its disposal fully paid-in quotas now Has an authorized capital of $184 billion, of which
totaling SDR 145 billion (about $215 billion) members pay in about 10 percent

Has a staff of 2,300 drawn from 182 member Has a staff of 7,000 drawn from 180 member
countries countries
20 questions on IMF

 http://www.thirdworldtraveler.com/IMF_WB/20Questio
nsIMF.html