4. What is IMF(International
Monetary Fund)?
The IMF is an international organization of 185
member countries. It was established to promote
international monetary cooperation, exchange
stability, and orderly exchange arrangements; to
foster economic growth and high levels of
employment; and to provide temporary financial
assistance to countries to help ease balance of
payments adjustments.
5. Why was it created?
• The IMF was conceived in July 1944, when
representatives of 45 governments meeting in
the town of Bretton Woods, New Hampshire,
in the northeastern United States, agreed on a
framework for international economic
cooperation.
6. The Gold Standard:
Pegging currencies to gold and guaranteeing convertibility is known as the
gold standard.
By 1880, most of the world's major trading nations, including Great Britain,
Germany, Japan, and the United States, had adopted the gold standard.
For example, under the gold standard, $1=23.22grains of “fine” (pure) gold.
Thus, one could, in theory, demand that the U.S. government convert that one
dollar into 23.22 grains of gold. The amount of a currency needed to purchase
one ounce of gold was referred to as the gold par value. From the gold par
values of pounds and dollars, we can calculate what the exchange rate was for
converting pounds into dollars; it was £.60 = $1 (current exchange rate)
The great strength claimed for the gold standard was that it contained a
powerful mechanism for achieving balance-of-trade equilibrium by all countries.
9. IMF History
Established at a United Nations
conference in Bretton Woods,
New Hampshire, in July 1944.
Initially composed of 45
governments with the intention
of building an economic
cooperation that would help
avoid economic disasters such
as, the Great Depression of the
1930s. and long term direction
10. IMF Main Responsibilities
Promoting international monetary cooperation
Facilitating the expansion and balanced growth of
international trade
Promoting exchange stability
Assisting in the establishment of a multilateral
system of payments
Making its resources available (under adequate
safeguards) to members experiencing balance of
payments difficulties
11. How does the IMF achieve
its objectives?
Surveillance: monitoring of economic and financial
developments, and the provision of policy advice, aimed
especially at crisis-prevention.
Lending to countries with balance of payments difficulties
providing temporary financing
Support policies aimed at correcting the underlying
problems and reduce poverty.
Providing technical assistance and training in its areas of
expertise.
IMF work is supported by its economic research and statistics
13. Executive Management Selection
Managing Director position is traditionally
European while the Deputy is American.
The Developing Countries complain that they have
a stake in the IMF and their voting power is limited.
Voting power is proportional to a member’s
contribution ( quota) which was set 50 years ago.
14. IMF Finances
Quota System: Each member’s quota is based on
its relative size in the world economy. Upon joining
the IMF, a country normally pays up to one-quarter
of its quota in the form of widely accepted foreign
currencies (such as the U.S. dollar, the euro, the
yen, or the pound sterling) or Special Drawing
Rights (SDRs). The remaining three-quarters is
paid in the country's own currency.
15. IMF Finance cont’d
Gold holdings: Valued at current market prices, are worth
about $68 billion as of March end 2007, making the Fund
one of the largest official holders of gold in the world
Lending capacity: The IMF can only use its quota-funded
holdings of currencies of financially strong economies to
finance lending. The IMF's Executive Board selects these
currencies every three months.
16.
Special Drawing Rights (SDR)
potential claim on the freely usable currencies of
International Monetary Fund members.
SDRs are defined in terms of a basket of major
currencies used in international trade and finance.
They are used as international reserve assets.
They are proportional to a member’s quota.
IMF Finance cont’d
17. When can a country borrow from the
IMF?
A member country may request IMF financial
assistance if it has a balance of payments need
when it cannot find sufficient financing on
affordable terms to meet its net international
payments. An IMF loan eases the adjustment
policies and reforms that a country must make to
correct its balance of payments problem and
restore conditions for strong economic growth.
18. Current IMF facts and
Statistics
Current membership: 185 countries
Staff: approximately 2,716 from 165 countries
Total Quotas: $317 billion (as of 7/31/06)
Loans outstanding: $28 billion to 74 countries, of which
$6 billion to 56 on agreed terms (as of 7/31/06)
Technical Assistance provided: 429.2 person years during
FY2006
Surveillance consultations concluded: 128 countries during
FY2006, of which 122 voluntarily published information on
their consultation.
19. At a Glance :
Bangladesh's Relations with
the IMF
Current IMF membership: 188 countries
Bangladesh Joined on August 17, 1972; accepted the
obligations under Article VIII, Sections 2, 3, and 4 on April
11, 1994.
Quota: SDR 533.30 million
Outstanding loans: ECF Arrangements SDR 526 million
(as of June 2014).
The last Article IV Executive Board Consultation was
on November 27, 2013 (Country Report 13/357)
20. IMF’s Conditions for Loan
1991 loan for 2.5 billion SDRs
Sweeping set of reforms
Private sector freed from Govt Controls
Tighter Expenditure Policy
Price Reforms
Imports Liberalized
Market determined Exchange rate
21. The Future of IMF:
IMF was headed down hill after five years of inactivity,
accusations of issuing poor advice, questioning of its
relevance and usefulness, Facing a deficit of its own &
Inability to sell its gold reserves
IMF is gaining relevance once again :
being considered to take on a sovereign wealth fund
role to avoid a repeat of a global credit crisis
Increased regulation & surveillance of the financial
system
22. Summary
In an open economy, policymakers try to maintain
internal and external balance.
The gold standard system contains a powerful
automatic mechanism for assuring external
balance, the price-specie-flow mechanism.
Attempts to return to the prewar gold standard
after 1918 were unsuccessful.
As the world economy moved into general depression
after 1929, the restored gold standard fell apart and
international economic integration weakened.
23. Summary
The architects of the IMF hoped to design a fixed
exchange rate system that would encourage
growth in international trade.
To reach internal and external balance at the
same time, expenditure-switching as well as
expenditure-changing policies were needed.
The United States faced a unique external balance
problem, the confidence problem.
24. Conclusion and
Recommendations
One Size fits all Model does not work.
The interests of the G-7 Nations.
Forces tighter Monetary policy (Ex Korea Interest
rates > 25%).
Should give equal importance to Social and
Political issues.
