1. a presentation by: SUNIL KUMAR AGRAWAL Head, Faculty of
Management Studies RP Inderaprastha Institute of Technology
Bastara, Distt. Karnal. [email_address] IMF & ITS IMPACT ON
INDIA
2.
International Monetary Fund
The International Monetary Fund was formally created in July
1944 during the United Nations Monetary and Financial Conference.
The representatives of 44 governments met in the Mount Washington
Hotel in the area of Bretton Woods, New Hampshire, United States of
America, with the delegates to the conference agreeing on a
framework for international economic cooperation.
IMF MEMBER STATES
3. CREATION
The IMF was formally organised on December 27, 1945. The
International Monetary Fund was created with a goal to stabilize
exchange rates and assist the reconstruction of the world's
international payment system . Countries contributed to a pool
which could be borrowed from, on a temporary basis, by countries
with payment imbalances.
The IMF describes itself as "an organization of 186 countries
(Kosovo being the 186th, as of June 29, 2009).
With the exception of Taiwan (expelled in 1980), North Korea,
Cuba (left in 1964), Andorra, Monaco, Liechtenstein, Tuvalu and
Nauru, all UN member states participate directly in the IMF.
Most are represented by other member states on a 24-member
Executive Board but all member countries belong to the IMF's Board
of Governors.
4. OBJECTIVES
According to Articles of Association of the IMF, its main
objectives are:
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 of payments.
To minimize imbalances in quantum and duration of international
trade.
5. IMF vs. WORLD BANK
World Bank provides long-term loans for promoting balanced
economic development, while IMF provides short-term loans to member
countries for eliminating BOP disequilibrium.
Both these institutions are complementary to each other. Few
economists have even suggested that the two organizations should be
merged.
6. MEMBERSHIP & VOTING RIGHT
IMF is controlled and managed by a Board of Governors.
Each member country nominates a Governor. All the nominated
Governors make the Board of Governors.
Each country also nominates an alternate Governor, who casts
his vote in the absence of the Governor.
Each Governor is allotted a number of votes which is determined
by the quota allotted to the respective country in the capital of
IMF.
Each Governor has got the right of 250 votes on the basis of
the membership. And one additional vote for each SDR 1,00,000 of
quota. The addition of theser two types of votes becomes the actual
voting right of the member country.
Indias current voting right is 250 + 41582 = 41832,
representing 1.89% of votes. Finance Minister Pranab Mukherjee is
the Governor and D. Subbarao is the alternate Governor.
7. CAPITAL RESOURCES
The main source of IMF resources is the quotas allotted to
member countries.
Till 1971, all the amounts of quotas and the assistance
provided were denominated in USD, but since December 1971 all the
the quotas and transactions of IMF are expressed in SDRs (Special
Drawing Rights), also known as the Paper Gold.
In 1971, The value of the SDR was initially defined as
equivalent to 0.888671 grams of fine gold which, at the time, was
also equivalent to one U.S. dollar but due to the subsequent
decline in dollar value, 1 SDR became equivalent to USD 1.585 by
the end of April 1995.
Since November 2005, the value fo SDR is being determined by
the basket of 4 major currencies. These are USD, Euro, Yen, and
Pound Sterling.
8.
The currency value of SDR is determined each day by summarizing
the values in US dollars, based on the market exchange rates of a
basket of currencies.
The IMF finacial year is from 1 May to 30th 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 IMF's influence in the global economy has steadily
increased as it accumulated more members. The number of IMF member
countries has more than quadrupled from the 44 states involved in
its establishment, reflecting in particular the attainment of
political independence by many developing countries and more
recently the collapse of the Soviet bloc. The expansion of the
IMF's membership, together with the changes in the world economy,
have required the IMF to adapt in a variety of ways to continue
serving its purposes effectively.
9.
In 2008, faced with a shortfall in revenue, the International
Monetary Fund's executive board agreed to sell part of the IMF's
gold reserves. On April 27, 2008, IMF Managing Director Dominique
Strauss-Kahn welcomed the board's decision April 7, 2008 to propose
a new framework for the fund, designed to close a projected $400
million budget deficit over the next few years. The budget proposal
includes sharp spending cuts of $100 million until 2011 that will
include up to 380 staff dismissals.
At the 2009 G-20 London summit, it was decided that the IMF
would require additional financial resources to meet prospective
needs of its member countries during the ongoing global crisis. As
part of that decision, the G-20 leaders pledged to increase the
IMF's supplemental cash tenfold to $500 billion, and to allocate to
member countries another $250 billion via Special Drawing
Rights.
10. IMF & POOR COUNTRIES
IMF helps the poor countries 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 2 members under
Extended Arrangements and 38 poor countries under Poverty Reduction
and Growth Facility. The total credit outstanding was 45.686
billion, o.877 billion and 5.515 billion SDRs respectively.
The quota allotted by the IMF to each member country has to be
deposited partly in the members own currency and the remainder in
the form of foreign exchange.
11. IMF & INDIA
Indias current quota in the IMF is SDR 4158.2 millonin the
total quota of SDR 213 billion, giving it a shareholding of 1.95
per cent. Indias relative position based on quota is 13 th .
However, based on voting share, India (together with its
constituent countries, viz., Bangladesh, Bhutan and Sri Lanka) is
ranked 21 st in the list of 24 constitutencies.
The IMF members can either retain SDRs, use them in payments
etc. or sell them to other member countries.
IMF has played an important role in Indian economy. IMF has
provided economic assistance from time to time to India and has
also provided appropriate consultancy in determination of various
policies in the country.
Till 1970, India was among the first five nations having the
highest quota with IMF and due to this status India was allotted a
permanent place in Executive Board of Directors.
In July 2004, India and IMF joint training programme at the
National Institute of Bank Management, Pune was established.