Critical Analysis on IMF

2. Post 1930 Era was impacted by The Great Depression & World War II.
• During the Great Depression the countries were trying to shore up their falling
economies by –
1. sharply raising barriers to foreign trade
2. devaluing their currencies to compete against each other for export
markets
3. curtailing their citizens' freedom to hold foreign exchange
• Countries affected by World War II desperately required
• Economic Reconstruction (for well developed nations)
• Economic Development (for less developed nations)
• World trade declined sharply (see chart below), and employment and living
standards plummeted in many countries.
• This breakdown in international monetary cooperation led the IMF's
founders to plan an institution charged with overseeing the international
monetary system—the system of exchange rates and international
payments that enables countries and their citizens to buy goods and
services from each other.

3. The Bretton Woods agreement
• The IMF was conceived in July 1944,
• Representatives of 45 countries met in the town of Bretton
Woods, New Hampshire, in the Northeastern United States, agreed on
a framework for international economic cooperation.
• The IMF came into formal existence in December 1945, when its first
29 member countries signed its Articles of Agreement
• It began operations on March 1, 1947. Later that year, France became
the first country to borrow from the IMF.
• Par value system (Bretton Woods system)
• Initially, member countries agreed to peg their currencies in US Dollar
terms and for US, the value of Dollar in terms of Gold-to correct
Fundamental Disequilibrium.

4. • Keeping track of the global economy and
SURVEILLANCE the economies of member countries
• Lending to countries with balance of
payments difficulties
LENDING • Financial assistance to countries to meet
International Payments
TECHNICAL • To assist mainly low- and middle-income
countries in effectively managing their
ASSISTANCE economies

5. Greatest Loan is on : Mexico and Greece
Highest Loan as % of GDP: Liberia (8.5%) and Iceland (7.4%)
Greatest amount to be Paid Back by: Iceland and Ireland

6. • Membership: 187 countries
• Headquarters: Washington, D.C.
• Executive Board: 24 Directors representing countries or groups of
countries
• Staff: Approximately 2,470 from 141 countries
• Total Quotas : US$ 383 billion
• Biggest Borrowers : Greece , Portugal ,Ireland (as of 18/08/2011)
• The members of the IMF are 186 members of the UN (all UN member
states but 7) and Republic of Kosovo.
• Apart from Cuba, the other six member states of the UN not
belonging to the IMF are: North
Korea, Andorra, Monaco, Liechtenstein, Nauru and South Sudan.

7. • All member states participate directly in the IMF.
• 24-member executive board-
 Five executive directors are appointed by the five members
with the largest quotas,
 Nineteen executive directors are elected by the remaining
members.
 all members appoint a Governor to the IMF's board of
governors.
• The powers of the other countries are represented on a
proportional scale to their population and economic rank in the
world.
• The Executive board are the general owners of the IMF and can
control major decisions.
• All members of the IMF are also International Bank for
Reconstruction and Development (IBRD) members and vice versa

8. •Where does IMF get the money from?
• Most resources for IMF loans are provided by member
countries, primarily through their payment of quotas.
• Since early 2009, the IMF has signed a number of new
bilateral, Multilateral loan and note purchase agreements to
bolster its capacity to support member countries during the global
economic crisis.
• Concessional lending and debt relief for low-income countries are
financed through separate contribution-based trust funds.

9. •The IMF’s gold holdings amount to about 90.5 million troy ounces
(2,814.1 metric tons), making the IMF the third largest official holder of gold in
the world.
•The limited sales program covering 403.3 metric tons of gold, to safeguard
from market disruption, and Gold sales were at market prices.
•Profits on the sale will fund an endowment as part of the IMF’s new income
model, agreed to put the institution’s finances on a sustainable footing.
• The IMF can use its quota-funded holdings of currencies of financially
strong economies to finance lending

10. •The Special Drawing Right (SDR) is an international reserve asset, created by
the IMF in 1969 to supplement the existing official reserves of member
countries.
•The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential
claim on the freely usable currencies of IMF members.
Holders of SDRs can obtain these currencies in exchange for their SDRs in two
ways:
1. Through the arrangement of voluntary exchanges between members
2. By the IMF designating members with strong external positions to
purchase SDRs from members with weak external positions.
• SDR also serves as the unit of account of the IMF and some other
international organizations.

11. IMF has been bailing out several countries from crisis situations over a period of
time. However there has been some criticism too regarding its policies. In this
section we see the bailouts and the associated criticism.
ASIAN CRISIS
•Financial crisis broke out in Asia in 1997
-large declines in currencies, stock markets, and other asset prices
•Affected emerging markets outside of Asia
•IMF arranged programs of economic stabilization and reform with
Indonesia, Korea, and Thailand
ACTIONS TAKEN BY IMF
• Temporary tightening of monetary policy
• Correct the weaknesses in the financial system
• Remove features of the economy that were impediments to growth
• Assist in reopening lines of external financing
• Maintaining a sound fiscal policy

12. Asian Financial Crisis IMF Sank Argentina Greek Crisis
• Thailand, Indonesia, South Korea • Fixed rate of 1 peso for 1 U.S.
dollar (overvalued) , Instructed • Conditions of Loans by IMF
by IMF.
• The IMF insisted on fiscal
restraint – lower spending, higher • Austerity Package imposed by
taxes and privatisation. • country's exports too expensive, IMF
and its imports artificially cheap.
• Reducing government borrowing
• Contractionary fiscal policy
caused the economic downturn • record $400 billion trade deficit.
• Higher taxes
to exacerbate and the economy
plunged into recession.
• lower spending
• Need for large reserves of dollars
• Bankruptcies increased
• To reduce deficit spending
• confidence evaporated causing a • IMF's role arranged massive
• Higher interest rates to stabilise
flight of investors amounts of loans $40 billion.
the currency.

13. “Bailout” Conditionalities on Pakistan
• IMF approved US$7.6 billion loan to Pakistan in 2008
• Conditionalities included-
 Eliminating all Government subsidies.
 Slashing government spending
 Raising Taxes
• Impact
• GDP Declined from 7.4 % to 4.2% in 2008-09.
Economists claim that conditionalities (economic performance
targets established as a precondition for IMF loans) retard social
stability and hence inhibit the stated goals of the IMF.

14. Problem Of Governance
 IMF is driven by collective will of G-7 countries
 It is dominated not merely by wealthy, industrialized nations,
but also by commercial and financial interest of these nations.
• Capital Market Liberalization
 IMF pressures countries that petition for IMF loans to open
their markets to outside capital investment.
 Investors invest huge sums in a country only to pull those
investments at a moment’s notice, causing acute economic
crisis.
 Destabilizes the economy.

15. • Certain policies of IMF are criticized ; however there are more examples of
cases of success than failure and clearly the existence of a global economic
body is desired.
• The focus should be to make crisis resolution more country specific and
keeping in mind the various economic circumstances especially for
developing countries.
• The surveillance of trade exchange rates and monitoring of related policies
is needed especially since Asian economies like that of China’s and India are
growing strong and thus IMF plays an important role keeping a track.
•With the kind of disasters and adversaries being faced by several countries, a
body to help such economies out is required and that is where IMF comes
into spot light.

16. • http://www.imf.org/external/about/ourwork.htm
• http://www.imf.org/external/np/exr/facts/sdr.htm
• http://en.wikipedia.org/wiki/International_Monetary_Fund
• http://ucatlas.ucsc.edu/sap/history.php
• http://www.buzzle.com/articles/history-of-imf-international-monetary-
fund.html
• http://www.imf.org/external/np/exr/chron/chron.asp