The international organization, popularly known as the IMF is an organization with 185 member countries and was primarily formed to promote international monetary cooperation, exchange stability, make financial arrangements, foster economic growth and to provide temporary financial assistance to countries to help ease balance of payments adjustment. The main functions include surveillance, economic assistance and technological assistance to meet the changing needs of its member countries in the changing world economy.
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The Article I in the Articles of Agreements of the IMF elucidates its purposes as to promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems and 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. The Article also elaborates the purpose as to promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation and 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. The Fund is guided in all its policies and decisions by the purposes set forth in this Article I.
The Main Functions of IMF
The IMF has been authorized to oversee the international monetary system and monitor the economic -financial policies of its 185 member countries to promote global economic stability through multilateral cooperation by active surveillance. This includes expert assessment of economic and financial developments, advice on risks to stability and policy adjustments. This is especially true in present-day global scenario where financial setbacks and economic policies of a country profoundly affect other countries as well. In fact the surveillance of IMF has evolved to an extent where there are country-specific surveillance programs that list the priority objectives in a member country that covers both operational objectives such as IMF exchange rate analysis and economic objectives such as the reduction of current global imbalances.
The IMF provides loans to countries experiencing balance of payments problems enabling these countries to rebuild their international reserves stabilizing their currencies. A member country can take IMF financial assistance if it has a need for balance of payments. A need for balance of payments is a situation where a country is unable to find sufficient financing on affordable terms to meet its net international payments. The IMF helps also the adjustment policies and reforms to correct its balance of payments problem and restores strong economic growth. An IMF loan is provided by an “arrangement”, which dictates the policies and measures a country has to implement to resolve its balance of payments problem. The loan is released in phased instalments through the Fund’s Executive Board. Poor countries can borrow at reduced interest rates under Poverty Reduction and Growth Facility or the Exogenous Shocks Facility of the fund in contrast to the Stand-by arrangements known as SBA. The IMF also offers Emergency assistance fund during natural disasters and conflict recovery at reduced interest rates. Except for funds borrowed under Poverty Reduction and Growth Facility or the Exogenous Shocks Facility, all other fund assistance is subject to the IMF’s market-related interest rate, known as the “rate of charge,” sometime with a surcharge. The rate of change is revised weekly to take account of changes in short-term interest rates in major international money markets (Erwin et.al, 1990). Access limit is the term used to denote the amount that a country can borrow from the Fund. This varies depending on the type of loan and usually a multiple of the country’s quota from IMF. These loan facilities are sometimes referred to as instruments. Some of the instruments are Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility (ESF), Stand-By Arrangements (SBA), Extended Fund Facility (EFF), Supplemental Reserve Facility (SRF), Compensatory Financing Facility (CFF) and Emergency assistance.
Technological Assistance of IMF
IMF supports the development of the productive resources of member countries by providing technical assistance.This helps them to effectively manage their economic policy and financial affairs. Technical assistance is provided free of charge to any requesting member country, within IMF resource constraints. IMF technical assistance largely goes to low and lower-middle income countries, post-conflict countries and emerging economies. Technical assistance accelerates the progress of these countries towards a more robust and stable global economy (Axel and Jensen, 2007). Specialized technical assistance is also available from the IMF for effective policymaking, including in support of surveillance or lending operations. The core expertise areas that allow IMF technical assistance are macroeconomic policy, tax policy and revenue administration, expenditure management, monetary policy, the exchange rate system, financial sector sustainability, and macroeconomic and financial statistics.
More interesting is the fact that recently some countries have asked for help to address financial sector weaknesses identified within the framework of the joint IMF-World Bank Program. These countries have translated their economic policies to adopt and adhere to international standards and codes for financial, fiscal, and statistical management; implement recommendations from off-shore financial centres assessments and strengthen measures to combat money laundering and the financing of terrorism (Axel and Jensen,2007). Simultaneously, there is also a demand for technical assistance from low-income countries to build capacity to design and implement poverty-reducing and growth programs. Donors to the IMF’s technical assistance program include Australia, Austria, Brazil, Canada, China, Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, the Republic of Korea, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Russia, Singapore, Sweden, Switzerland, the United Kingdom, and the United States. They are referred to as bilateral donors. Multilateral donors include the African Development Bank, the Arab Monetary Fund, the Asian Development Bank, the European Commission, the Inter-American Development Bank, the United Nations, the United Nations Development Program (UNDP), and the World Bank.
In conclusion, The IMF is a non-profit global economic organization that aims to curtail global economic problems. In contrast to the World Bank, that aids specific projects, IMF aims and aids at a broader policy level as discussed.
- Axel Dreher and Nathan M. Jensen (2007). Independent Actor or Agent? An Empirical Analysis of the Impact of U.S. Interests on International Monetary Fund Conditions. Journal of Law and Economics, 50,105–124.
- Erwin Dichtl, Hans-Georg Koeglmayr, Stefan Mueller( 1990).International orientation as a precondition for export success. Journal of International Business Studies, 21