INTERNATIONAL FINANCIAL ORGANISATIONS

INTERNATIONAL MONETARY FUND
- IMF is an international monetary organisation.
- It was established on December 27, 1945 in Washington on the recommendations of Bretton Woods Conference.
- But it started its operation on March 1, 1947. At present 188 nations are members of the IMF.
- South Sudan became the newest member in April 2012. In place of Dominique Strauss-Kahn, Christine Lagarde has been made as new Managing Director of IMF on July 5, 2011.
- She is serving as 11th MD of lMF.
Objective of IMF
According to Article of Agreement of the IMF, its main objectives are as follows:
To promote international monetary co-operation
To ensure balanced international trade
To ensure exchange rate stability
To eliminate or to minimize exchange restrictions by promoting the system of multilateral payments
To grant economic assistance to member countries for eliminating the adverse imbalance in balance payments.
To minimize imbalance in quantum and duration of international trade
Constitution, Membership and Capital of IMF
- IMF is controlled and managed by a board of Governors.
- Each member country nominates a Governor. All the nominated Governors make a board of governors.
- Each country also nominates an alternate Governor who casts his vote in absence of the Governor.
- Each Governor is allotted a number of votes which is determined by the quota allotted to respective country in the capital of IMF.
- Each Governor has got the right of 250 votes on the basis of membership and one additional vote for each SDR 1,00,000 of quota.
- The additional of these two types of votes becomes the actual voting right of the member country.
- For example, India's voting right is 250 + 30555 = 30805 because India's quota is SDR 30555 lakh.
- It clearly indicates that the voting right depends on the quantum of quota of a particular country with IMF.
- This is the reason why the rich and industrialised countries got the higher voting rights due to their higher quotas with the IMF.
- The main source of IMF resources is the quota allotted to the member countries.
- Till 1971, all the amounts of quotas and the assistance provided were denominated in US dollar, but since December 1971, all the quotas and transactions are expressed in SDR (Special Drawing Right) which is also known as Paper Gold.
- In 1971, one SDR was assumed equivalent to 1 dollar but due to subsequent decline in dollar value SDR 1 became equivalent to $1.585 by the end of April 1995.
- Since January 1, 1981 the value of SDR is being determined by the basket of currency of 5 largest exporting member countries: US dollar, Deutsche Mark, Yen, Franc, and Pound Sterling.
- In 1991, the weight to these 5 currencies in SDR price determination was as follows:
American Dollar
40%
German Franc
21%
Japanese Yen
17%
British Pound
11%
French Franc
11%
- The currency value of SDR is determined by the IMF each day by summarising the value in US dollars, based on the market exchange rates of a basket of fine currencies.
- The IMF's financial year is from 1 May to 30 April. IMF lends to various member countries in the form of various facilities (Extended Fund Facility, Standby Facility, Contingent Credit Lines, Compensatory Facility etc.) designed to serve specific purpose, but essentially aimed at balance of payments stabilization or meeting the emergent foreign exchange needs.
- The poor countries are also helped by funding from Poverty Reduction and Growth Facility.
- As on June 2004, the IMF was lending to 13 members in the form of standby facility, to two members under Extended Arrangements and 38 poor countries under poverty Reduction and Growth Facility.
- The quota allotted by the IMF to each member has to be deposited partly in their own currency and remainder in form of foreign exchange.