This document provides an overview of the International Monetary Fund (IMF), including its establishment, goals, organization, financing arrangements, programs, and role in solving international economic problems over the last two decades. Specifically, it discusses how the IMF was established post-World War II to promote international monetary cooperation and stable exchange rates. It outlines the IMF's governance structure and access to financing programs that countries can use to address balance of payments issues. The document also examines criticisms of IMF stabilization programs and the IMF's role in addressing debt crises in the 1980s as well as transitions to market economies in the 1990s. Finally, it proposes improvements to the IMF's early warning systems, surveillance, access to funds, and overall capacity.

1. Page 1

2. CONTENTS AND PURPOSE
1. Role and Place of the International Monetary Fund
2. Principle of Conditioning and Programs of Economic
Stabilization: Basic Characteristics and Most Frequent
Criticisms
3. Role of the IMF in Solving Some of the Important
Problems of the International Community in the Last Two
Decades
4. Introducing Improvements into the Work of the IMF
 purpose:
 present the IMF and basic logic of its activities
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3. 1. Role and Place of the International
Monetary Fund
Establishment, Goals and Membership
 basic goals of founding the IMF:
 establish an international monetary system that would promote
international trade, be based on stable exchange rates and ensure
the needed international liquidity
 explicitly expressed tendency of the USA for the new
institution to have a paternalistic role and/or the tendency
to introduce the principle of conditioning into its
administration
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4. Quotas
 quota should represent economic power of a country
 importance of quotas:
 determination of the voting power of a country and funds a country can
potentially borrow from the IMF
 calculation of the voting power:
 principle of the equality of countries
 principle of economic power
 occasional revisions of quotas:
 in principle every 5 years
 division of quotas among member countries  principle of
proportionality and principle of selectivity
 payment of quotas:
 25 per cent in SDR or any other convertible currency, remaining 75 per
cent in its national currency
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5. Organization
 Board of Governors:
 the most important body of the IMF, each member country has its
representative
 usually meets annually, competent for accepting the most
important decisions for the functioning of the institution
 Board of Directors:
 operatively manages the functioning of the IMF
 24 executive directors who meet at lest twice a week
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6. Organization
 International Monetary and Financial Committee:
 central bank governors/ministers of finance of the same 24
countries that have a representative in the Board of Executive
Directors
 meets twice annually, but has no formal power of accepting
decisions
 Director and his deputy:
 named by the Board of Directors for the period of 5 years
 Civil servants:
 formally accountable for their work to the Director of the IMF and
not their country of origin
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7. Sources of Financial Funds
 quotas are the main and until the middle of 1960s the only
source of funds of the funds of the IMF
 General Arrangement to Borrow (GAB) (1962):
 arrangements in the form of credit lines with the governments
and/or central banks of 11 industrialized countries
 New Arrangement to Borrow (NAB) (1998):
 made with 24 governments and/or central banks of the member
countries
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8. Financial Arrangements, Accessible to Member
Countries – April 1999
 Financial Arrangements from General Account Resources:
 gold or reserve tranche
 first credit tranche – equivalent to 25 per cent of a country’s quota
 higher credit tranches (three) – each of them is equivalent to 25 per
cent of a country’s quota:
 program of economic stabilization
 Extended Fund Facility (EFF)
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9. Financial Arrangements, Accessible to Member
Countries – April 1999
 Supplemental Reserve Facility/ Contingent Credit Lines
(SRF/CCL)
 Compensatory and Contingency Financing Facility (CCFF)
 Buffer Stock Financing Facility (BSFF)
 Financial Arrangements from Other Resources:
 Enhanced Structural Adjustment Facility (ESAF)
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10. Restrictions of Access to IMF Funds by Financial
Arrangements
 access criteria:
 size of the balance-of-payments deficit and therefore the need for
its financing
 program of the elimination of the balance-of-payments
disequilibrium
 a country’s ability to repurchase its currency from the IMF and/or
its ability to service the debt
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11. Size of Financing from the IMF
 transfers of financial assets between the IMF and member
countries and the size of the total outstanding credit
provided by the IMF in 1990 - 1999 (in millions of SRD)
A.
B.
C.
D.
Total disbursements
Repurchases and
repayments
Net funds infl ow from
the IMF (A – B)
Total outstandi ng
credit provi ded by the
IMF
1990
5,3
1991
6,8
1992
5,9
1993
5,9
1994
5,9
1995
11,2
1996
12,3
1997
5,6
1998
19,9
1999
22,4
6,4
5,6
4,8
4,1
4,5
4,2
7,1
7,2
4,4
11,1
- 1,1
1,2
1,1
1,8
1,4
7,0
5,2
-1,6
15,5
11,3
24,4
25,6
26,7
28,5
29,9
36,8
42,0
40,5
56,0
67,2
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12. Regular Activities of the IMF
 until the collapse of the Bretton Woods monetary system in
1971:
 “guardian” of the exchange rate stability:
 approving bigger changes in par values of given currencies and
securing funds for financing the balance-of-payments deficits
 now:
 surveillance of the exchange rate policies of member countries
 financial assistance to member countries
 technical assistance
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13. 2. Principle of Conditioning and Programs of
Economic Stabilization: Basic Characteristics
and Most Frequent Criticisms
 one of the disputed points at the Bretton Woods conference
 operatively implemented in the beginning of 1952
 stringency:
 stringent use of the concept of conditioning
 increasing the share of the IMF funds that member countries utilize
at the high rate of conditioning (assumes the existence of the
program of economic stabilization)
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14. Institutional Basis of the Programs of Economic
Stabilization
 most often a Stand-by arrangement, less often EFF and
ESAF
 Stand-by Arrangement:
 credit line
 letter of intent - program of economic stabilization
 high rate of conditioning of the utilized funds, depending on the
success of implementing the program of economic stabilization,
contained in the letter of intent
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15. Goals of the Programs of Economic Stabilization
 Article I of the Statute of the IMF :
 economic growth, reducing unemployment, price stability and
balance-of-payments equilibrium
 priority goal of the program of economic stabilization from the
point of view of the IMF is achieving a viable balance-of-payments
deficit, that can be financed with net capital inflow in the long run
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16. Components of the Program of Economic
Stabilization
 conditions for the program of economic stabilization:
 change in exchange rate, change in interest rates and price policy
measures
 monetary approach to balance-of-payments adjustments:
 reducing aggregate demand to the level of available aggregate
supply - demand-side policy measures
 increasing aggregate supply to the level of existing aggregate
demand – supply-side policy measures
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17. Components of the Program of Economic
Stabilization
 criteria for assessing success of implementing the program
of economic stabilization:
 credit ceiling
 devaluation/depreciation of the home currency
 financial liberalization, especially liberalization of interest rates
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18. Criticisms of the Programs of Economic
Stabilization
 mainly by developing countries and countries in transition
 principle of conditioning
 size of the funds of the IMF and the ratio between the
funds approved at low and at high rate of conditioning
 asymmetry of the balance-of-payments adjustment
 declaration of causes for the balance-of-payments deficit
 concept and short-term orientation of the programs of
economic stabilization
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19. Criticisms of the Programs of Economic
Stabilization
 effects of the programs of economic stabilization:
 comparison of the economic situation during the program implementation
and prior to it
 comparison of the results of the program with the goals
 comparison of the results of the program with a hypothetical situation in
the country in the absence of the program of economic stabilization
 results of empirical studies:
 improvement in a country’s balance-of payments in a prevailing number of
cases
 lower growth rates during the implementation of programs of economic
stabilization than prior to them
 lower reduction in the rate of inflation than anticipated in the program in most
countries
 income redistribution
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20. 3. Role of the IMF in Solving Some of the
Important Problems of the International
Community in the Last Two Decades
 IMF did not have an important influence on the formation
and implementation of the economic policy of
industrialized countries
 as a rule, the IMF took over a leading role in forming
solutions and answering to international community
challenges and problems that affected either developing
countries or countries in transition and the solution of
which required engagement of public as well as private
funds in industrialized countries
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21. IMF and the Developing Countries Debt Crisis in
the 1980s
 after the debt crisis outbreak in 1982, the IMF took over
the role of the architect for the solution of the crisis
 basic mechanism for the solution of the debt crisis:
 repeatedly restructuring liabilities of the debtor countries towards
foreign commercial banks and creditor countries
 important role also in both official programs for the
solution of the debt crisis:
 Baker Program (1985)
 Brady Program (1989)
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22. IMF and the Inclusion of the Countries in
Transition into the World Economy
 IMF, together with other international financial
institutions, especially the World Bank and EBRD, has a
crucial role in:
 designing the macroeconomic policies that would lead these
countries through the transition from centrally planned to market
economies
 securing financial funds, needed for financing their balance-ofpayments deficits:
 Systemic Transformation Facility (STF) (1993)
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23. The Role of the IMF in Solving Financial Crises of
Developing Countries/Countries in Transition in
the Second Half of the 1990s
 active participation of the IMF in solving financial crises:




Mexico (1994), Asia (1997), Russia (1998), Brazil (1999)
not only the “architect” of the solution, also the main financier
formation of SRF and CCL
moral hazard?
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24. 4. Introducing Improvements into the
Work of the IMF
Early Warning System
 unsuitability of the capital transfer data
 General Data Dissemination System:
 secure an integral and more timely insight into various kinds of statistical
data on a given country to all participants in international financial
community
Improved Surveillance of Economic Policies
 trend of deepened analysis of the functioning of the
financial system and various structural reforms
 more clear reports on the basis of Article IV consultations
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25. Increased Pace of Securing Funds
 better qualification for quick intervention
Increasing the Size of the Available Funds
 strengthening activities in all areas in which the size of the
available funds can be increased:
 agreement of the economically most important countries about a
big issue of SDR
 further increases in the funds of the IMF by regular revisions of the
member countries quotas
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