TOPIC INFO (UGC NET)
TOPIC INFO – UGC NET (Economics)
SUB-TOPIC INFO – International Economics (UNIT 5)
CONTENT TYPE – Detailed Notes
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1. International Monetary Fund (IMF)
1.1. Background
1.2. Objectives
1.3. Structure and Management
1.4. Functions
1.5. History of IMF
1.6. Financial Resources and Policies
1.7. Financial Assistance
1.8. Reserve Tranche Drawing
1.9. Credit Tranche Facilities
1.10. Emergency Assistance
1.11. Systemic Transformation Facility (STF)
1.12. Conditionality
1.13. Special Drawing Rights (SDRs)
1.14. Other Activities
2. World Bank
2.1. A Brief History
2.2. Membership
2.3. Functions
2.4. Significance
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DETAILED NOTES UGC NET (ECONOMICS)
IMF & World Bank
UGC NET ECONOMICS
International Economics (UNIT 5)
LANGUAGE
Table of Contents
International Monetary Fund (IMF)
Background
- The genesis of the International Monetary Fund (IMF) lies in the experience of countries during the Great Depression.
- In the 1930s, many countries attempted to maintain domestic income in the face of shrinking markets through competitive devaluation of their currencies and by resorting to exchange and trade restrictions.
- Such measures could achieve their objectives only by aggravating the difficulties of trading partners, who, in self-defence, were led to adopt similar policies.
- There was a growing recognition of the largely self-defeating nature of these ‘beggar-my-neighbour policies’ at the country level.
- These policies contributed to lower trade and employment and a less efficient allocation of resources at the global level.
- This resulted in a widening acceptance of the need for an agreed code of conduct in international trade and financial matters.
- It was against this background that at the United Nations Monetary and Financial Conference, attended by representatives of 45 countries, held at Bretton Woods, New Hampshire, in July 1944, the decision to set up the International Monetary Fund was taken.
- The IMF came into existence on December 27, 1945, when 29 countries signed the Articles of Agreement.
- The inaugural meeting of the Board of Governors was held in Savannah, Georgia, on March 8, 1946.
- The first meeting of the Executive Board was held at the Fund’s headquarters in Washington, DC, on May 6, 1946.
- The Fund commenced financial operations on March 1, 1947.
Objectives
- The first Article of the Fund’s Charter laid down six objectives for the organization.
- To promote international cooperation by providing the machinery for consultation and collaboration by members on international monetary issues.
- To facilitate the balanced growth of international trade and, through this, contribute to high levels of employment, real income, and the development of productive capacity.
- To promote exchange stability and orderly exchange arrangements and facilitate the avoidance of competitive currency depreciation.
- To foster a multilateral system of payments and transfers for current transactions and seek the elimination of exchange restrictions which hamper the growth of world trade.
- To make financial resources available to members, on a temporary basis and with adequate safeguards, to permit them to correct balance of payments imbalances without resorting to measures destructive of national or international prosperity.
- To seek reduction of both the duration and magnitude of payments imbalances.
Structure and Management
- The Fund is an intergovernmental organization based on a treaty, namely its Articles of Agreement, drafted by representatives of 45 nations at a Conference held at Bretton Woods, New Hampshire, USA, on July 1–22, 1944.
- The Articles of Agreement were amended in 1969 and 1978.
- Membership in the Fund is a prerequisite for membership in the World Bank (International Bank for Reconstruction and Development).
- A close working relationship exists between the Fund and the World Bank, as well as with the World Trade Organization (WTO) and the Bank for International Settlements (BIS).
- The Fund is a specialized agency of the United Nations System, and 184 countries are members of the IMF.
- The work of the Fund is carried out by a Board of Governors, an Executive Board, a Managing Director, and a staff including three Deputy Managing Directors, 22 Directors, a Secretary, a Treasurer, a Special Advisor to the Managing Director, and two Consultants, one Economic and another Legal.
- Each member country is represented by a Governor and an Alternate Governor on the Board of Governors.
- The Board of Governors is the Fund’s senior decision-making body and meets annually.
- A member country’s voting power is related to its subscription to the Fund’s financial resources, which broadly reflects its relative size in the world economy.
- The largest member, the United States, has 17.78 per cent of the total voting power.
- The smallest country, the Marshall Islands, has 275 out of 1.49 million votes, or 0.001 per cent of the total voting strength.
- The daily business of the Fund is conducted at its headquarters in Washington, D.C.
- It is carried out by an Executive Board consisting of 24 Directors, chaired by the Managing Director.
- The Executive Board acts on members’ requests for financial assistance, takes decisions on general policies, and makes recommendations to the Board of Governors on matters requiring a Governors’ vote.
- Such matters include the admission of new members and increases in the Fund’s resources.
- Each of the five members with the largest quotas and highest voting power—the United States, the United Kingdom, the Federal Republic of Germany, France, and Japan—appoints an Executive Director.
- The Interim Committee, a 22-member ministerial-level group parallel in structure to the Executive Board, usually meets twice a year.
- It reviews world economic conditions, the international monetary system, the operation of the adjustment process, and the role of the Fund.
- A Development Committee, also known as the Joint Ministerial Committee of the Board of Governors of the World Bank and the Fund on the Transfer of Real Resources to Developing Countries, is concerned with development policy issues and financing requirements.