Monday, March 27, 2017

IMF (International Monetary Fund)

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IMF (International Monetary Fund)
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1.
The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., of "189 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 the Bretton Woods Conference, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2010, the fund had SDR476.8 billion, about US$755.7 billion at then exchange rates.

Through the fund, and other activities such as statistics-keeping and analysis, surveillance of its members' economies and the demand for particular 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 monetary cooperation, international trade, high employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty.

2.
The IMF, also known as the Fund, was conceived at a United Nations conference convened in Bretton Woods, New Hampshire, United States, in July 1944. The 44 governments represented at that conference sought to build a framework for economic cooperation that would avoid a repetition of the vicious circle of competitive devaluations that had contributed to the Great Depression of the 1930s.

The IMF’s responsibilities: The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.

Surveillance: To maintain stability and prevent crises in the international monetary system, the IMF reviews country policies and national, regional, and global economic and financial developments through a formal system known assurveillance. The IMF advises its 188 member countries, encouraging policies that foster economic stability, reduce vulnerability to economic and financial crises, and raise living standards. It provides regular assessment of global prospects in its World Economic Outlook, of financial markets in its Global Financial Stability Report, and of public finance developments in its Fiscal Monitor, and publishes a series of regional economic outlooks.

Financial assistance: IMF financing provides its members breathing room to correct balance of payments problems: national authorities design adjustment programs in close cooperation with the IMF that are supported by IMF financing; continued financial support is conditional on effective implementation of these programs. In response to the global economic crisis, the IMF strengthened its lending capacity and approved a major overhaul of its financial support mechanisms in April 2009, with further reforms adopted in 2010 and 2011. These reforms focused on enhancing crisis prevention, mitigating contagion during systemic crisis, and tailoring instruments based on members’ performances and circumstances. Following the effectiveness of the quota increases under the 14th General Review of Quotas, access limits under the IMF’s non-concessional lending facilities were reviewed and increased in early 2016.To increase financial support to the world’s poorer countries, concessional resources available to low-income countries through the Poverty Reduction and Growth Trust were substantially boosted in 2009, while average access limits under the IMF’s concessional loan facilities were doubled. In addition, access norms and limits were increased by 50 percent in 2015. These loans are interest-free through end-2016, while the interest rate on emergency financing is permanently set at zero. Finally, efforts are currently under way to secure additional loan resources of about $15 billion (SDR 11 billion) to support the IMF’s concessional lending activities.

Technical assistance: The IMF provides technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is offered in several areas, including tax policy and administration, expenditure management, monetary and exchange rate policies, banking and financial system supervision and regulation, legislative frameworks, and statistics.

SDRs: The IMF issues an international reserve asset known as Special Drawing Rights (SDRs) that can supplement the official reserves of member countries. Total allocations amount to about SDR 204 billion (some $283 billion). IMF members can voluntarily exchange SDRs for currencies among themselves.

Resources: The primary source of the IMF's financial resources is its members’ quotas, which broadly reflect members’ relative position in the world economy. With the recent effectiveness of the 14th General Review of Quotas, total quota resources amount to about SDR 467 billion (about $650 billion). In addition, the IMF can borrow temporarily to supplement its quota resources. The New Arrangements to Borrow (NAB), which can provide supplementary resources of up to SDR 182 billion (about $253 billion), is the main backstop to quotas. In mid-2012, member countries also pledged to increase the IMF’s resources through bilateral borrowing agreements; currently about SDR 280 billion (about $387 billion) are effective.

Governance and organization: The IMF is accountable to its member country governments. At the top of its organizational structure is the Board of Governors, which consists of one Governor and one Alternate Governor from each member country, generally from the central bank or the ministry of finance. The Board of Governors meets once a year at the IMF–World Bank Annual Meetings. Twenty-four of the Governors sit on the International Monetary and Financial Committee (IMFC) and normally meet twice a year.

The IMF's day-to-day work is overseen by its 24-member Executive Board, which represents the entire membership; this work is guided by the IMFC and supported by the IMF staff. The Managing Director is the head of the IMF staff and Chairman of the Executive Board and is assisted by four Deputy Managing Directors.

Fast Facts on the IMF
  • Membership: 189 countries
  • Headquarters: Washington, D.C.
  • Executive Board: 24 Directors representing countries or groups of countries
  • Staff: Approximately 2,663 from 148 countries
  • Total quotas: US$650 billion (as of 3/9/16)
  • Additional pledged or committed resources: US $642 billion
  • Committed amounts under current lending arrangements (as of 3/10/16): US$120 billion, of which US$108 billion have not been drawn (seetable).
  • Biggest borrowers (amount outstanding as of 2/29/16): Portugal, Greece, Ukraine, Ireland
  • Biggest precautionary loans (amount agreed as of 3/10/16): Mexico, Poland, Colombia, Morocco
  • Surveillance consultations: 130 consultations in 2013, 132 in 2014 and 124 in 2015
  • Technical assistance: 274 person years in FY2013, 285 in FY2014 and 288 in FY2015
  • Original aims:
    • promote international monetary cooperation;
    • facilitate the expansion and balanced growth of international trade;
    • promote exchange stability;
    • assist in the establishment of a multilateral system of payments; and
    • make resources available (with adequate safeguards) to members experiencing balance of payments difficulties.

3.
Why the IMF was created and how it works
The IMF, also known as the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944. The 44 countries at that conference sought to build a framework for economic cooperation to avoid a repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s.

The IMF's responsibilities: The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund's mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
  • Membership: 189 countries
  • Headquarters: Washington, D.C.
  • Executive Board: 24 Directors each representing a single country or a group of countries
  • Staff: Approximately 2,600 from 147 countries
  • Total quotas: US$327 billion (as of 3/13/15)
  • Additional pledged or committed resources: US$ 885 billion
  • Committed amounts under current lending arrangements (as of 3/13/15): US$163 billion, of which US$137 billion have not been drawn (see table).
  • Biggest borrowers (amounts outstanding as of 3/13/15): Portugal, Greece, Ireland, Ukraine
  • Biggest precautionary loans (amount agreed as of 3/13/15): Mexico, Poland, Colombia, Morocco
  • Surveillance consultations: 122 consultations in 2013 and 129 in 2014
  • Technical assistance: 274 person years in FY2013 and 285 in FY2014
  • Original aims:
    • promote international monetary cooperation;
    • facilitate the expansion and balanced growth of international trade;
    • promote exchange stability;
    • assist in the establishment of a multilateral system of payments; and
    • make resources available (with adequate safeguards) to members experiencing balance of payments difficulties

The IMF’s fundamental mission is to ensure the stability of the international monetary system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members.

The IMF oversees the international monetary system and monitors the economic and financial policies of its 189 member countries. As part of this process, which takes place both at the global level and in individual countries, the IMF highlights possible risks to stability and advises on needed policy adjustments.

A core responsibility of the IMF is to provide loans to member countries experiencing actual or potential balance of payments problems. This financial assistance enables countries to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while undertaking policies to correct underlying problems. Unlike development banks, the IMF does not lend for specific projects.

The IMF helps its member countries design economic policies and manage their financial affairs more effectively by strengthening their human and institutional capacity through technical assistance and training. The IMF aims to exploit synergies between technical assistance and training—which it calls capacity development—to maximize their effectiveness.

The IMF has a management team and 17 departments that carry out its country, policy, analytical, and technical work. One department is charged with managing the IMF’s resources. This section also explains where the IMF gets its resources and how they are used.

The IMF has a Managing Director, who is head of the staff and Chairperson of the Executive Board. The Managing Director is appointed by the Executive Board for a renewable term of five years and is assisted by a First Deputy Managing Director and three Deputy Managing Directors.

The IMF’s employees come from all over the world; they are responsible to the IMF and not to the authorities of the countries of which they are citizens. The IMF staff is organized mainly into area; functional; and information, liaison, and support responsibilities.

Most resources for IMF loans are provided by member countries, primarily through their payment of quotas.

Quota subscriptions are a central component of the IMF’s financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.

Gold remains an important asset in the reserve holdings of several countries, and the IMF is still one of the world’s largest official holders of gold.

While quota subscriptions of member countries are the IMF's main source of financing, the Fund can supplement its quota resources through borrowing if it believes that they might fall short of members' needs.

The IMF has evolved along with the global economy throughout its 70-year history, allowing the organization to retain a central role within the international financial architecture.

Unlike the General Assembly of the United Nations, where each country has one vote, decision making at the IMF was designed to reflect the relative positions of its member countries in the global economy. The IMF continues to undertake reforms to ensure that its governance structure adequately reflects fundamental changes taking place in the world economy.

Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership.

The Fund actively promotes good governance within its own organization.

The IMF has played a part in shaping the global economy since the end of World War II.

As the Second World War ends, the job of rebuilding national economies begins. The IMF is charged with overseeing the international monetary system to ensure exchange rate stability and encouraging members to eliminate exchange restrictions that hinder trade.

After the system of fixed exchange rates collapses in 1971, countries are free to choose their exchange arrangement. Oil shocks occur in 1973–74 and 1979, and the IMF steps in to help countries deal with the consequences.

The oil shocks lead to an international debt crisis, and the IMF assists in coordinating the global response.

The IMF plays a central role in helping the countries of the former Soviet bloc transition from central planning to market-driven economies.

The implications of the continued rise of capital flows for economic policy and the stability of the international financial system are still not entirely clear. The current credit crisis and the food and oil price shock are clear signs that new challenges for the IMF are waiting just around the corner.

4.
What the IMF Does
The work of the IMF is of three main types. Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention. The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction. Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics.

In recent years, as part of its efforts to strengthen the international financial system, and to enhance its effectiveness at preventing and resolving crises, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors.

The IMF also plays an important role in the fight against money-laundering and terrorism

5.
What is the purpose of the International Monetary Fund?
The stated goals of the International Monetary Fund include offering policy advice to member governments and central banks; providing research, analysis and forecasts on international and individual markets; offering loans to member nations; and other forms of assistance or training to help countries better manage their economies.

Origins of the International Monetary Fund
The IMF was founded in the aftermath of the Great Depression and World War II. Economic and political leaders gathered in Bretton Woods, New Hampshire to construct a new global economic cooperation to avoid the disasters of business cycles and war.

In its infancy, the IMF was only responsible for supervising pegged exchange rates, part of the Bretton Woods dollar-gold reserve currency scheme. The IMF grew in scope and influence in subsequent decades, particularly after the collapse of the Bretton Woods system in the 1970s.

The Modern International Monetary Fund
As of 2015, the IMF had 187 member nations. Each member nation publicly accepts and supports the goal of global economic stability and, in theory, a subjugation of some sovereign authority to support that goal.

Economic crises during the 1980s and 1990s – the Mexican peso crisis, a Russian default, Japanese stagnation, and currency problems in Brazil and Argentina – helped push the IMF to adopt a more active mandate.

Now the IMF provides loans to help member nations fix perceived balance of payments problems and fight off crises. The most notorious example was the bailout of the Greek government in 2011.

The most challenging dilemma for the modern IMF is the balancing act between providing aid and creating moral hazard. A country in a financial crisis might beg the IMF for a bailout, but it's unclear whether the country is in crisis because it made poor policy decisions knowing that IMF aid would serve as a backstop.

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