ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to my project guide Mrs. Rajam Rajagopalan for her exemplary guidance, monitoring and constant encouragement throughout the course of this project. The blessing, help and guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark. I also take this opportunity to express a deep sense of gratitude to the principal Dr. Minu Thomas for her cordial support and guidance, which helped me in completing this task through various stages. I am obliged to my course coordinator Mrs.Shailashri Uchil, for the valuable information provided by her in respective fields. I am grateful for their cooperation during the period of my assignment. Lastly, I thank almighty, my parents, brother, sisters and friends for their constant encouragement without which this assignment would not be possible.

(Name of the student) (Mudaliyar Vineeth Rajkumar)

INDEX Sr.no 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Topic IMF- An Overview Functions of the IMF Membership Collaboration History Activities of the IMF Management Governance Current Challenges Criticism Conclusion Bibliography Page no. 3 6 14 16 18 24 30 31 34 38 40 41

INTERNATIONAL MONETARY FUND (IMF) - AN OVERVIEW

An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating the expansion and balanced growth of international trade 3. Assisting in the establishment of a multilateral system of payments for current transactions. The IMF plays three major roles in the global monetary system. The Fund surveys and monitors economic and financial developments, lends funds to countries with balance-ofpayment difficulties, and provides technical assistance and training for countries requesting it. The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Mission With its near-global membership of 188 countries, the IMF is uniquely placed to help member governments take advantage of the opportunitiesand manage the challenges posed by globalization and economic development more generally. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on know-how to governments on how to tackle economic difficulties. The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. Marked by massive movements of capital and abrupt shifts in comparative advantage, globalization affects countries' policy choices in many areas, including labour, trade, and tax policies. Helping a country benefit from globalization while avoiding potential downsides is an important task for the IMF. The global economic crisis has highlighted just how interconnected countries have become in todays world economy.

Key IMF activities The IMF supports its membership by providing

policy advice to governments and central banks based on analysis of economic trends and cross-country experiences;

research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets;

loans to help countries overcome economic difficulties; concessional loans to help fight poverty in developing countries; and Technical assistance and training to help countries improve the management of their economies.

Original aims The IMF was founded more than 60 years ago toward the end of World War II. The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed. Since then the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty, especially in Asia. In many ways the IMF's main purposeto provide the global public good of financial stabilityis the same today as it was when the organization was established. More specifically, the IMF continues to

provide a forum for cooperation on international monetary problems facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction;

promote exchange rate stability and an open system of international payments; and lend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.

An adapting IMF The IMF has evolved along with the global economy throughout its 65-year history, allowing the organization to retain its central role within the international financial architecture As the world economy struggles to restore growth and jobs after the worst crisis since the Great Depression, the IMF has emerged as a very different institution. During the crisis, it mobilized on many fronts to support its member countries. It increased its lending, used its cross-country experience to advise on policy solutions, supported global policy coordination, and reformed the way it makes decisions. The result is an institution that is more in tune with the needs of its 188 member countries.

Stepping up crisis lending. The IMF responded quickly to the global economic crisis, with lending commitments reaching a record level of more than US$250 billion in 2010. This figure includes a sharp increase in concessional lending (thats to say, subsidized lending at rates below those being charged by the market) to the worlds poorest nations.

Greater lending flexibility. The IMF has overhauled its lending framework to make it better suited to countries individual needs. It is also working with other regional institutions to create a broader financial safety net, which could help prevent new crises.

Providing analysis and advice. The IMFs monitoring, forecasts, and policy advice, informed by a global perspective and by experience from previous crises, have been in high demand and have been used by the G-20.

Drawing lessons from the crisis. The IMF is contributing to the ongoing effort to draw lessons from the crisis for policy, regulation, and reform of the global financial architecture.

Historic reform of governance. The IMFs member countries also agreed to a significant increase in the voice of dynamic emerging and developing economies in the decision making of the institution, while preserving the voice of the low-income members.

FUNCTIONS OF THE IMF

The IMFs main goal is to ensure the stability of the international monetary and financial system. It helps resolve crises, and works with its member countries to promote growth and alleviate poverty. It has three main tools at its disposal to carry out its mandate: surveillance, technical assistance and training, and lending. These functions are underpinned by the IMFs research and statistics. Economic & Financial Surveillance The IMF promotes economic stability and global growth by encouraging countries to adopt sound economic and financial policies. To do this, it regularly monitors global, regional, and national economic developments. It also seeks to assess the impact of the policies of individual countries on other economies. This process of monitoring and discussing countries economic and financial policies is known as bilateral surveillance. On a regular basisusually once each yearthe IMF conducts in depth appraisals of each member countrys economic situation. It discusses with the countrys authorities the policies that are most conducive to a stable and prosperous economy, drawing on experience across its membership. Member countries may agree to publish the IMFs assessment of their economies, with the vast majority of countries opting to do so. The IMF also carries out extensive analysis of global and regional economic trends, known as multilateral surveillance. Its key outputs are three semi-annual publications, the World Economic Outlook, the Global Financial Stability Report, and the Fiscal Monitor. The IMF also publishes a series of regional economic outlooks. The IMF recently agreed on a series of actions to enhance multilateral, financial, and bilateral surveillance, including better integrating the three; improve our understanding of spillovers and the assessment of emerging and potential risks; and strengthen IMF policy advice. For more information on how the IMF monitors economies, go to Surveillance in the Our Work Section.

Technical assistance and training IMF offers technical assistance and training to help member countries strengthen their capacity to design and implement effective policies. Technical assistance is offered in several areas, including fiscal policy, monetary and exchange rate policies, banking and financial system supervision and regulation, and statistics. The IMF shares its expertise with member countries by providing technical assistance and training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax policy and administration, and official statistics. The objective is to help improve the design and implementation of members' economic policies, including by strengthening skills in institutions such as finance ministries, central banks, and statistical agencies. The IMF has also given advice to countries that have had to reestablish government institutions following severe civil unrest or war. In 2008, the IMF embarked on an ambitious reform effort to enhance the impact of its technical assistance. The reforms emphasize better prioritization, enhanced performance measurement, more transparent costing and stronger partnerships with donors. Beneficiaries of technical assistance Technical assistance is one of the IMF's core activities. It is concentrated in critical areas of macroeconomic policy where the Fund has the greatest comparative advantage. Thanks to its near-universal membership, the IMF's technical assistance program is informed by experience and knowledge gained across diverse regions and countries at different levels of development. About 80 percent of the IMF's technical assistance goes to low- and lower-middle-income countries, in particular in sub-Saharan Africa and Asia. Post-conflict countries are major beneficiaries. The IMF is also providing technical assistance aimed at strengthening the architecture of the international financial system, building capacity to design and implement poverty-reducing and growth programs, and helping heavily indebted poor countries (HIPC) in debt reduction and management. Types of technical assistance The IMF's technical assistance takes different forms, according to needs, ranging from longterm hands-on capacity building to short-notice policy support in a financial crisis. Technical
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assistance is delivered in a variety of ways. IMF staff may visit member countries to advise government and central bank officials on specific issues, or the IMF may provide resident specialists on a short- or a long-term basis. Technical assistance is integrated with country reform agendas as well as the IMF's surveillance and lending operations. The IMF is providing an increasing part of its technical assistance through regional centers located in Gabon, Mali, Mauritius, and Tanzania for Africa; in Barbados and Guatemala for Central America and the Caribbean; in Lebanon for the Middle East; and in Fiji for the Pacific Islands. The IMF also offers training courses for government and central bank officials of member countries at its headquarters in Washington, D.C., and at regional training centers in Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates. The IMF provides technical assistance and training mainly in four areas:

monetary and financial policies (monetary policy instruments, banking system supervision and restructuring, foreign management and operations, clearing settlement systems for payments, and structural development of central banks);

fiscal policy and management (tax and customs policies and administration, budget formulation, expenditure management, design of social safety nets, and management of domestic and foreign debt);

compilation, management, dissemination, and improvement of statistical data; and economic and financial legislation.

Lending IMF financing provides member countries the breathing room they need to correct balance of payments problems. A policy program supported by financing is designed by the national authorities in close cooperation with the IMF. Continued financial support is conditional on the effective implementation of this program. In the most recent reforms, IMF lending instruments were improved further to provide flexible crisis prevention tools to a broad range of members with sound fundamentals, policies, and institutional policy frameworks.

A country in severe financial trouble, unable to pay its international bills, poses potential problems for the stability of the international financial system, which the IMF was created to protect. Any member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it has a balance of payments needthat is, if it cannot find sufficient financing on affordable terms in the capital markets to make its international payments and maintain a safe level of reserves. IMF loans are meant to help member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth. This crisis resolution role is at the core of IMF lending. At the same time, the global financial crisis has highlighted the need for effective global financial safety nets to help countries cope with adverse shocks. A key objective of recent lending reforms has therefore been to complement the traditional crisis resolution role of the IMF with more effective tools for crisis prevention. The IMF is not a development bank and, unlike the World Bank and other development agencies, it does not finance projects. The changing nature of lending About four out of five member countries have used IMF credit at least once. But the amount of loans outstanding and the number of borrowers have fluctuated significantly over time. In the first two decades of the IMF's existence, more than half of its lending went to industrial countries. But since the late 1970s, these countries have been able to meet their financing needs in the capital markets. The oil shock of the 1970s and the debt crisis of the 1980s led many lower- and lowermiddle-income countries to borrow from the IMF. In the 1990s, the transition process in central and eastern Europe and the crises in emerging market economies led to a further increase in the demand for IMF resources. In 2004, benign economic conditions worldwide meant that many countries began to repay their loans to the IMF. As a consequence, the demand for the Funds resources dropped off sharply. But in 2008, the IMF began making loans to countries hit by the global financial crisis The IMF currently has programs with more than 50 countries around the world and has committed
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more than $325 billion in resources to its member countries since the start of the global financial crisis. While the financial crisis has sparked renewed demand for IMF financing, the decline in lending that preceded the financial crisis also reflected a need to adapt the IMF's lending instruments to the changing needs of member countries. In response, the IMF conducted a wide-ranging review of its lending facilities and terms on which it provides loans. In March 2009, the Fund announced a major overhaul of its lending framework, including modernizing conditionality, introducing a new flexible credit line, enhancing the flexibility of the Funds regular stand-by lending arrangement, doubling access limits on loans, adapting its cost structures for high-access and precautionary lending, and streamlining instruments that were seldom used. It has also speeded up lending procedures and redesigned its Exogenous Shocks Facility to make it easier to access for low-income countries. More reforms have since been undertaken, most recently in November 2011. Lending to preserve financial stability Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is "...to give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity." In practice, the purpose of the IMF's lending has changed dramatically since the organization was created. Over time, the IMF's financial assistance has evolved from helping countries deal with short-term trade fluctuations to supporting adjustment and addressing a wide range of balance of payments problems resulting from terms of trade shocks, natural disasters, postconflict situations, broad economic transition, poverty reduction and economic development, sovereign debt restructuring, and confidence-driven banking and currency crises. Today, IMF lending serves three main purposes. First, it can smooth adjustment to various shocks, helping a member country avoid disruptive economic adjustment or sovereign default, something that would be extremely costly, both for the country itself and possibly for other countries through economic and financial ripple effects (known as contagion).
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Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders. This is because the program can serve as a signal that the country has adopted sound policies, reinforcing policy credibility and increasing investors' confidence. Third, IMF lending can help prevent crisis. The experience is clear: capital account crises typically inflict substantial costs on countries themselves and on other countries through contagion. The best way to deal with capital account problems is to nip them in the bud before they develop into a full-blown crisis. Conditions for lending When a member country approaches the IMF for financing, it may be in or near a state of economic crisis, with its currency under attack in foreign exchange markets and its international reserves depleted, economic activity stagnant or falling, and a large number of firms and households going bankrupt. In difficult economic times, the IMF helps countries to protect the most vulnerable in a crisis. The IMF aims to ensure that conditions linked to IMF loan disbursements are focused and adequately tailored to the varying strengths of members' policies and fundamentals. To this end, the IMF discusses with the country the economic policies that may be expected to address the problems most effectively. The IMF and the government agree on a program of policies aimed at achieving specific, quantified goals in support of the overall objectives of the authorities' economic program. For example, the country may commit to fiscal or foreign exchange reserve targets. The IMF discusses with the country the economic policies that may be expected to address the problems most effectively. The IMF and the government agree on a program of policies aimed at achieving specific, quantified goals in support of the overall objectives of the authorities' economic program. For example, the country may commit to fiscal or foreign exchange reserve targets. Loans are typically disbursed in a number of installments over the life of the program, with each installment conditional on targets being met. Programs typically last up to 3 years, depending on the nature of the country's problems, but can be followed by another program if needed. The government outlines the details of its economic program in a "letter of intent" to the Managing Director of the IMF. Such letters may be revised if circumstances change.

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For countries in crisis, IMF loans usually provide only a small portion of the resources needed to finance their balance of payments. But IMF loans also signal that a country's economic policies are on the right track, which reassures investors and the official community, helping countries find additional financing from other sources. Lending to low-income countries To help low-income countries weather the severe impact of the global financial crisis, the IMF has revamped its concessional lending facilities to make them more flexible and meet increasing demand for financial assistance from countries in need. These changes became effective in January 2010. Once additional loan and subsidy resources are mobilized, these changes will boost available resources for low-income countries to $17 billion through 2014. To ensure resources are available for lending to low-income countries beyond 2014, the IMF approved an additional $2.7 billion in remaining windfall profits from gold sales as part of a strategy to make lending to low-income countries sustainable. Three types of loans were created under the new Poverty Reduction and Growth Trust (PRGT) as part of this broader reform: the Extended Credit Facility, the Rapid Credit Facility and the Standby Credit Facility. The Extended Credit Facility (ECF) provides financial assistance to countries with protracted balance of payments problems. The ECF succeeds the Poverty Reduction and Growth Facility (PRGF) as the Funds main tool for providing medium-term support LICs, with higher levels of access, more concessional financing terms, more flexible program design features, as well as streamlined and more focused conditionality. The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to low-income countries (LICs) facing an urgent balance of payments need. The RCF streamlines the Funds emergency assistance, provides significantly higher levels of concessions, can be used flexibly in a wide range of circumstances, and places greater emphasis on the countrys poverty reduction and growth objectives. The Standby Credit Facility (SCF) provides financial assistance to low-income countries (LICs) with short-term balance of payments needs. It provides support under a wide range of circumstances, allows for high access, carries a low interest rate, can be used on a precautionary basis, and places emphasis on countries poverty reduction and growth objectives.
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Several low-income countries have made significant progress in recent years toward economic stability and no longer require IMF financial assistance. But many of these countries still seek the IMF's advice, and the monitoring and endorsement of their economic policies that comes with it. To help these countries, the IMF has created a program for policy support and signaling, called the Policy Support Instrument. In low-income countries, the IMF has doubled loan access limits and is boosting its lending to the worlds poorer countries, with loans at a concessional interest rate. Research and data Supporting all three of these activities is the IMFs economic and financial research and statistics. In recent years, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors. These are part of the IMFs continuing efforts to strengthen national and global financial systems and improve its ability to prevent and resolve crises.

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MEMBERSHIP
The IMF currently has a near-global membership of 188 countries. To become a member, a country must apply and then be accepted by a majority of the existing members. In April 2012, Republic of South Sudan joined the IMF, becoming the institution's 188th member. Upon joining, each member country of the IMF is assigned a quota, based broadly on its relative size in the world economy. The IMF's membership agreed in November 2010 on a major overhaul of its quota system to reflect the changing global economic realities, especially the increased weight of major emerging markets in the global economy. Quotas A member country's quota defines its financial and organizational relationship with the IMF, including: Subscriptions A member country's quota subscription determines the maximum amount of financial resources the country is obliged to provide to the IMF. A country must pay its subscription in full upon joining the IMF: up to 25 percent must be paid in the IMF's own currency, called Special Drawing Rights (SDRs) or widely accepted currencies (such as the dollar, the euro, the yen, or pound sterling), while the rest is paid in the member's own currency. Voting power The quota largely determines a member's voting power in IMF decisions. Each IMF member's votes are comprised of basic votes plus one additional vote for each SDR 100,000 of quota. The number of basic votes attributed to each member is calculated as 5.502 percent of total votes. Accordingly, the United States has 421,965 votes (16.76 percent of the total), and Tuvalu has 759 votes (0.03 percent of the total).

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Access to financing The amount of financing a member country can obtain from the IMF is based on its quota. For instance, under Stand-By and Extended Arrangements, which are types of loans, a member country can borrow up to 200 percent of its quota annually and 600 percent cumulatively. SDR allocations SDRs are used as an international reserve asset. A member's share of general SDR allocations is established in proportion to its quota. The most recent general allocation of SDRs took place in 2009.

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COLLABORATION
The IMF collaborates with the World Bank, regional development banks, the World Trade Organization (WTO), UN agencies, and other international bodies. While all of these organizations are involved in global economic issues, each has its own unique areas of responsibility and specialization. The IMF also works closely with the Group of Twenty (G20) industrialized and emerging market economies and interacts with think tanks, civil society, and the media on a daily basis. Working with the World Bank The IMF and the World Bank are different, but complement each other's work. While the IMF's focus is chiefly on macroeconomic and financial sector issues, the World Bank is concerned mainly with longer-term development and poverty reduction. Its loans finance infrastructure projects, the reform of particular sectors of the economy, and broader structural reforms. IMF loans assist countries in continuing to pay for imports, stabilizing their currencies, and restoring conditions for strong economic growth. Countries must join the IMF to be eligible for World Bank membership. Given the World Bank's focus on antipoverty issues, the IMF collaborates closely with the Bank in the area of poverty reduction. Other areas of collaboration include assessments of member countries' financial sectors, development of standards and codes, and improvement of the quality, availability, and coverage of data on external debt. Cooperating on financial stability, banking supervision, and trade The IMF is a member of the Switzerland-based Financial Stability Board, which brings together government officials responsible for financial stability in the major international financial centres, international regulatory and supervisory bodies, committees of central bank experts, and international financial institutions. It also works with standard-setting bodies such as the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors. The IMF has observer status at formal meetings of the World Trade Organization (WTO). The IMF's determination of a country's balance of payments situation plays a considerable part in the WTO's assessment of trade restrictions applied in the event of balances of payments difficulties. The IMF is also involved in the WTO-led Integrated Framework for
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Trade-Related Technical Assistance to Least Developed Countries, and IMF staff contributes to the work of the WTO Working Group on Trade, Debt, and Finance. Collaborating with the UN The IMF has a Special Representative to the United Nations, located at the UN Headquarters in New York. Collaboration between the IMF and the UN covers several areas of mutual interest, including cooperation on tax issues and statistical services of the two organizations, as well as reciprocal attendance and participation at regular meetings and specific conferences and events. In recent years, the IMF has worked with the International Labour Office on issues related to employment, as well as social protection floors; the UN Children's Fund on fiscal issues and social policy; the UN Environment Program on the green economy; and the World Food Program on social safety nets and early assessments of vulnerability. Working closely with the G-20 Increasingly, the IMF has been working with the Group of Twenty (G-20) industrialized and emerging market economies. During the global financial crisis, collective action by the G-20 was critical for avoiding even greater economic difficulties, and in subsequent meetings the G-20 leaders have continued to reaffirm their commitment to reinvigorate economic growth. The IMF provides analysis on global economic conditions and on how G-20 members' policies fit togetherand whether, collectively, they can achieve the Group's goals. Working on employment issues The IMF's mandate includes contributing to the promotion and maintenance of high levels of employment and real incomes through the expansion and balanced growth of international trade. Given the importance of employment for sustainable and inclusive growth, IMFsupported programs often contain recommendations pertaining to the labour market. That said, labour market policies are not a core area of IMF expertise. For this reason, the Fund works with other international, regional, and local organizations in this important area. We have an active partnership with the International Labour Organization (ILO), with whom we have been pooling expertise to better understand the impact of macroeconomic policies on job creation. The IMF also liaises regularly with the International Trade Union Confederation, and its affiliates. Finally, IMF missions to member countries meet regularly with trade union representatives to gain a better understanding of and exchange views on national labour market dynamics.
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HISTORY
The IMF has played a part in shaping the global economy since the end of World War II. Cooperation and reconstruction (194471) During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts proved to be self-defeating. 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 systemthe system of exchange rates and international payments that enables countries and their citizens to buy goods and services from each other. The new global entity would ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade.

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The Bretton Woods agreement The IMF was conceived in July 1944, when representatives of 45 countries meeting in the town of Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for international economic cooperation, to be established after the Second World War. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression. 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. The IMF's membership began to expand in the late 1950s and during the 1960s as many African countries became independent and applied for membership. But the Cold War limited the Fund's membership, with most countries in the Soviet sphere of influence not joining. Par value system The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (the value of their currencies in terms of the U.S. dollar and, in the case of the United States, the value of the dollar in terms of gold) pegged at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement. This par value systemalso known as the Bretton Woods systemprevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold. The end of the Bretton Woods System (197281) By the early 1960s, the U.S. dollar's fixed value against gold, under the Bretton Woods system of fixed exchange rates, was seen as overvalued. A sizable increase in domestic spending on President Lyndon Johnson's Great Society programs and a rise in military spending caused by the Vietnam War gradually worsened the overvaluation of the dollar. The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis marked the breakdown of the system. An attempt to revive the fixed

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exchange rates failed, and by March 1973 the major currencies began to float against each other. Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union. Oil shocks Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to an end. In fact, the transition to floating exchange rates was relatively smooth, and it was certainly timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external shocks ever since. The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its lending instruments. To help oil importers deal with anticipated current account deficits and inflation in the face of higher oil prices, it set up the first of two oil facilities. Helping poor countries From the mid-1970s, the IMF sought to respond to the balance of payments difficulties confronting many of the worlds poorest countries by providing concessional financing through what was known as the Trust Fund. In March 1986, the IMF created a new concessional loan program called the Structural Adjustment Facility. The SAF was succeeded by the Enhanced Structural Adjustment Facility in December 1987. Debt and painful reforms (198289) The oil shocks of the 1970s, which forced many oil-importing countries to borrow from commercial banks, and the interest rate increases in industrial countries trying to control inflation led to an international debt crisis. During the 1970s, Western commercial banks lent billions of "recycled" petrodollars, getting deposits from oil exporters and lending those resources to oil-importing and developing countries, usually at variable, or floating, interest rates. So when interest rates began to soar
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in 1979, the floating rates on developing countries' loans also shot up. Higher interest payments are estimated to have cost the non-oil-producing developing countries at least $22 billion during 197881. At the same time, the price of commodities from developing countries slumped because of the recession brought about by monetary policies. Many times, the response by developing countries to those shocks included expansionary fiscal policies and overvalued exchange rates, sustained by further massive borrowings. When a crisis broke out in Mexico in 1982, the IMF coordinated the global response, even engaging the commercial banks. It realized that nobody would benefit if country after country failed to repay its debts. The IMF's initiatives calmed the initial panic and defused its explosive potential. But a long road of painful reform in the debtor countries, and additional cooperative global measures, would be necessary to eliminate the problem. Societal Change for Eastern Europe and Asian Upheaval (1990-2004) The fall of the Berlin wall in 1989 and the dissolution of the Soviet Union in 1991 enabled the IMF to become a (nearly) universal institution. In three years, membership increased from 152 countries to 172, the most rapid increase since the influx of African members in the 1960s. In order to fulfill its new responsibilities, the IMF's staff expanded by nearly 30 percent in six years. The Executive Board increased from 22 seats to 24 to accommodate Directors from Russia and Switzerland, and some existing Directors saw their constituencies expand by several countries. The IMF played a central role in helping the countries of the former Soviet bloc transition from central planning to market-driven economies. This kind of economic transformation had never before been attempted, and sometimes the process was less than smooth. For most of the 1990s, these countries worked closely with the IMF, benefiting from its policy advice, technical assistance, and financial support. By the end of the decade, most economies in transition had successfully graduated to market economy status after several years of intense reforms, with many joining the European Union in 2004.

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Asian Financial Crisis In 1997, a wave of financial crises swept over East Asia, from Thailand to Indonesia to Korea and beyond. Almost every affected country asked the IMF for both financial assistance and for help in reforming economic policies. Conflicts arose on how best to cope with the crisis, and the IMF came under criticism that was more intense and widespread than at any other time in its history. From this experience, the IMF drew several lessons that would alter its responses to future events. First, it realized that it would have to pay much more attention to weaknesses in countries banking sectors and to the effects of those weaknesses on macroeconomic stability. In 1999, the IMFtogether with the World Banklaunched the Financial Sector Assessment Program and began conducting national assessments on a voluntary basis. Second, the Fund realized that the institutional prerequisites for successful liberalization of international capital flows were more daunting than it had previously thought. Along with the economics profession generally, the IMF dampened its enthusiasm for capital account liberalization. Third, the severity of the contraction in economic activity that accompanied the Asian crisis necessitated a re-evaluation of how fiscal policy should be adjusted when a crisis was precipitated by a sudden stop in financial inflows. Debt relief for poor countries During the 1990s, the IMF worked closely with the World Bank to alleviate the debt burdens of poor countries. The Initiative for Heavily Indebted Poor Countries was launched in 1996, with the aim of ensuring that no poor country faces a debt burden it cannot manage. In 2005, to help accelerate progress toward the United Nations Millennium Development Goals (MDGs), the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI). Globalization and the Crisis (2005 - present) The IMF has been on the front lines of lending to countries to help boost the global economy as it suffers from a deep crisis not seen since the Great Depression. For most of the first decade of the 21st century, international capital flows fueled a global expansion that enabled many countries to repay money they had borrowed from the IMF and other official creditors and to accumulate foreign exchange reserves.
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The global economic crisis that began with the collapse of mortgage lending in the United States in 2007, and spread around the world in 2008 was preceded by large imbalances in global capital flows. Global capital flows fluctuated between 2 and 6 percent of world GDP during 1980-95, but since then they have risen to 15 percent of GDP. In 2006, they totaled $7.2 trillion more than a tripling since 1995. The most rapid increase has been experienced by advanced economies, but emerging markets and developing countries have also become more financially integrated. The founders of the Bretton Woods system had taken it for granted that private capital flows would never again resume the prominent role they had in the nineteenth and early twentieth centurys, and the IMF had traditionally lent to members facing current account difficulties. The latest global crisis uncovered fragility in the advanced financial markets that soon led to the worst global downturn since the Great Depression. Suddenly, the IMF was inundated with requests for stand-by arrangements and other forms of financial and policy support. The international community recognized that the IMFs financial resources were as important as ever and were likely to be stretched thin before the crisis was over. With broad support from creditor countries, the Funds lending capacity was tripled to around $750 billion. To use those funds effectively, the IMF overhauled its lending policies, including by creating a flexible credit line for countries with strong economic fundamentals and a track record of successful policy implementation. Other reforms, including ones tailored to help low-income countries, enabled the IMF to disburse very large sums quickly, based on the needs of borrowing countries and not tightly constrained by quotas, as in the past. For more on the ideas that have shaped the IMF from its inception until the late 1990s, take a look at James Boughton's "The IMF and the Force of History: Ten Events and Ten Ideas that Have Shaped the Institution."

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ACTIVITIES OF THE IMF

The IMF's fundamental mission is to help ensure stability in the international system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members. When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy. The IMF's regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. This process is known as surveillance. Country surveillance Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries, with discussions in between as needed. The consultations are known as "Article IV consultations" because they are required by Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team of economists visits a country to assess economic and financial developments and discuss the country's economic and financial policies with government and central bank officials. IMF staff missions also often meet with parliamentarians and representatives of business, labor unions, and civil society. The team reports its findings to IMF management and then presents them for discussion to the Executive Board, which represents all of the IMF's member countries. A summary of the Board's views is subsequently transmitted to the country's government. In this way, the views of the global community and the lessons of international experience are brought to bear on national policies. Summaries of most discussions are released in Public Information Notices and are posted on the IMF's web site, as are most of the country reports prepared by the staff. Regional surveillance Regional surveillance involves examination by the IMF of policies pursued under currency unionsincluding the euro area, the West African Economic and Monetary Union, the
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Central African Economic and Monetary Community, and the Eastern Caribbean Currency Union. Regional economic outlook reports are also prepared to discuss economic developments and key policy issues in Asia Pacific, Europe, Middle East and Central Asia, Sub-Saharan Africa, and the Western Hemisphere. Global surveillance Global surveillance entails reviews by the IMF's Executive Board of global economic trends and developments. The main reviews are based on the World Economic Outlook reports, the Global Financial Stability Report, which covers developments, prospects, and policy issues in international financial markets, and the Fiscal Monitor, which analyzes the latest developments in public finance. All three reports are published twice a year, with updates being provided on a quarterly basis. In addition, the Executive Board holds more frequent informal discussions on world economic and market developments. Surveillance covers a range of economic policies, with the emphasis varying in accordance with a country's individual circumstances:

Exchange rate, monetary, and fiscal policies. The IMF provides advice on issues such as the choice of exchange rate policies and ensuring consistency between the regime and fiscal and monetary policies.

Financial sector issues are receiving elevated coverage in surveillance reports, building on the achievements under the Financial Sector Assessment Program (FSAP), which enables the IMF and the World Bank to gauge the strengths and weaknesses of countries' financial sectors.

Assessment of risks and vulnerabilities stemming from large and sometimes volatile capital flows has become more central to IMF surveillance in recent years.

Institutional and structural issues have also gained importance in the wake of financial crises and in the context of some countries' transition from planned to market economies. The IMF and the World Bank play a central role in developing, implementing, and assessing internationally recognized standards and codes in areas crucial to the efficient functioning of a modern economy such as central bank independence, financial sector regulation, and policy transparency and accountability.

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Debt relief In addition to concessional loans, some low-income countries are also eligible for debts to be written off under two key initiatives. The Heavily Indebted Poor Countries (HIPC) Initiative, introduced in 1996 and enhanced in 1999, whereby creditors provide debt relief, in a coordinated manner, with a view to restoring debt sustainability; and The Multilateral Debt Relief Initiative (MDRI), under which the IMF, the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF) canceled 100 percent of their debt claims on certain countries to help them advance toward the Millennium Development Goals. Organization & Finances The IMF has a management team and 17 departments that carry out its country, policy, analytical, and technical work. One department is charged with managing the IMF's resources. This section also explains where the IMF gets its resources and how they are used. Special Drawing Rights 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: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations.

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SDRs value The value of the SDR is based on a basket of key international currenciesthe euro, Japanese yen, pound sterling and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMFs website. The basket composition is reviewed every five years by the Executive Board to ensure that it reflects the relative importance of currencies in the worlds trading and financial systems. The SDR interest rate provides the basis for calculating the interest charged to members on regular (non concessional) IMF loans, the interest paid and charged to members on their SDR holdings, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies. SDR allocations to IMF members Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas, providing each member with a costless asset. However, if a members SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall. There are two kinds of allocations: General allocations of SDRs. General Allocations have to be based on a long-term global need to supplement existing reserve assets. Decisions to allocate SDRs have been made three times: in 1970-72, for SDR 9.3 billion; in 197981, for SDR 12.1 billion; and in August 2009, for an amount of SDR 161.2 billion. Special allocations of SDRs. A special one-time allocation of SDRs through the Fourth Amendment of the Articles of Agreement was implemented in September 2009. The purpose of this special allocation was to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981more than one-fifth of the current IMF membershiphad never received an SDR allocation. With the general SDR allocation of August 2009 and the special allocation of Setember 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (currently equivalent to about $317 billion).
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Gold The IMF holds a relatively large amount of gold among its assets, not only for reasons of financial soundness, but also to meet unforeseen contingencies. The IMF holds about 90.5 million ounces, or 2,814.1 metric tons, of gold at designated depositories. The IMF's total gold holdings are valued on its balance sheet at about $4.9 billion (SDR 3.2 billion) on the basis of historical cost. The IMF's holdings amount to about $160 billion (as determined by end-February 2012 market prices). Gold and the international monetary system Gold played a central role in the international monetary system after World War II. The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates pegged in terms of the dollar and, in the case of the United States, the value of the dollar in terms of gold. This "par value system" ceased to work after 1971 Until the late 1970s, 25 percent of member countries' initial quota subscriptions and subsequent quota increases had to be paid for with gold. Payment of charges and repayments to the IMF by its members constituted other sources of gold. Use of Gold in the IMF The IMF's Articles of Agreement strictly limit the use of the gold following the Second Amendment in 1978. But in some circumstances, the IMF may sell gold or accept gold as payment from member countries. In September 2009, the IMF's Executive Board approved the total sale of 403.3 metric tons of gold as a key step in implementing the new income model to help put the IMF's finances on a sound long-term footing. The IMF sold this gold in two phasesthe first phase was set aside exclusively for off-market sales to official holders. A total of 212 metric tons was sold during this first phase, comprising sales to the Reserve Bank of India, the Bank of Mauritius, and the Central Bank of Sri Lanka. An additional amount was later sold to the Bangladesh Bank. In February 2010, the on-market phase of its gold sales program began. So as to avoid disruption to the gold market, these sales were phased over time. In December 2010, the IMF concluded the gold sales program with total

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sales of 403.3 metric tons of gold. Total proceeds amounted to about $15 billion (SDR 9.5 billion). Proceeds equivalent to the book value of the gold sold, about $4.2 billion (SDR 2.7 billion), were retained in the IMF's General Resources Account. Profits from the gold sales were invested in an income-generating fund to supplement IMF income. In February 2012, the Executive Board approved the distribution to all IMF member countries of about $1.1 billion (SDR 700 million) in reserves attributed to a portion of the windfall profits from recent IMF gold sales, with the expectation that member countries would return equivalent amounts to support concessional lending to low-income countries. The distribution will be effected only when members provide satisfactory assurances that they would make new Poverty Reduction and Growth Trust subsidy contributions equivalent to at least 90 percent of the amount distributedi.e. about $1 billion (SDR 630 million). The selling of gold by the IMF is rare as it requires an Executive Board decision with an 85 percent majority of the total voting power. Prior to the recent sale of gold, the last time gold was sold by the institution was through off-market transactions completed in April 2001, with 12.9 million ounces traded. This transaction was approved by the membership as a means to finance the IMF's participation in the Heavily Indebted Poor Countries Initiative and the continuation of the Poverty Reduction and Growth Facility. Borrowing Arrangements If the IMF believes that its resources might fall short of members' needsfor example, in the event of a major financial crisisit can supplement its own resources by borrowing. It has had a range of bilateral borrowing arrangements in the 1970s and 1980s. Currently it has two standing multilateral borrowing arrangements and one bilateral borrowing agreement. In April 2009, the Group of Twenty industrialized and emerging market economies agreed to triple the Funds lending capacity to $750 billion, enabling it to inject extra liquidity into the world economy during this time of crisis. The additional support will come from several sources, including contributions from member countries that have pledged to help boost the Funds lending capacity.

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MANAGEMENT
The IMF is led by a Managing Director, who is head of the staff and Chairman of the Executive Board. The Managing Director is assisted by a First Deputy Managing Director and three other Deputy Managing Directors. The Management team oversees the work of the staff and maintains high-level contacts with member governments, the media, nongovernmental organizations, think tanks, and other institutions. Managing Director: Duties and selection According to the IMF's Articles of Agreement, the Managing Director "shall be chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund. Subject to the general control of the Executive Board, he shall be responsible for the organization, appointment, and dismissal of the staff of the Fund." The IMF's Executive Board is responsible for selecting the Managing Director. Any Executive Director may submit a nomination for the position, consistent with past practice. When more than one candidate is nominated, as has been the case in recent years, the Executive Board aims to reach a decision by consensus.

Managing Director, Christine Lagarde, a French national, joined the IMF as Managing Director in July 2011. Before coming to the IMF, she was France's Minister for Economy,

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GOVERNANCE
The IMF is accountable to the governments of its member countries. Governance Structure The IMF's mandate and governance have evolved along with changes in the global economy, allowing the organization to retain a central role within the international financial architecture. The diagram below provides a stylized view of the IMF's current governance structure.

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Accountability The IMF is accountable to its 188 member governments, and is also scrutinized by multiple stakeholders, from political leaders and officials to, the media, civil society, academia, and its own internal watchdog. The IMF, in turn, encourages its own members to be as open as possible about their economic policies to encourage their accountability and transparency. Engagement with intergovernmental groups Official groups, such as the Group of Twenty (G-20) industrialized and emerging market countries (G-20) and the Group of Eight (G-8) are also actively engaged in the work of the IMF. The G-20 consists of the 20 leading and emerging economies of the world, and includes all G-8 countries plus Argentina, Australia, Brazil, China, India, Indonesia, Korea, Mexico, Saudi Arabia, South Africa, and Turkey, as well as the European Union. The G-20 discusses and coordinates international financial stability and is a key player in shaping the work of the IMF. Its meetings usually take place twice a year at the level of heads of state and government, with several other ministerial-level meetings, including finance ministers and central bank governors, held a few times a year. The G-8 finance ministers and central bank governors meet at least twice annually to monitor developments in the world economy and assess economic policies. The Managing Director of the IMF is usually invited to participate in those discussions. The G-8 functions as a forum for discussion of economic and financial issues among the major industrial countries Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States. Civil society, think tanks, and the media The IMF's work is scrutinized by the media, the academic community, and civil society organizations (CSOs). IMF management and senior staff communicate with the media on a daily basis. Additionally, a biweekly press briefing is held at the IMF Headquarters, during which a spokesperson takes live questions from journalists. Journalists who cannot be present are invited to submit their questions via the online media briefing center.
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IMF staff at all levels frequently meets with members of the academic community to exchange ideas and receive new input. The IMF also has an active outreach program involving CSOs. Internal watchdog The IMF's work is reviewed on a regular basis by an internal watchdog, the Independent Evaluation Office, established in 2001. The IEO is fully independent from IMF management and operates at arm's length from the Executive Board, although the Board appoints its director. The IEO's mission is to enhance the learning culture within the IMF, strengthen its external credibility, promote greater understanding of the work of the Fund, and support institutional governance and oversight. The IEO establishes its own work program, selecting topics for review based on suggestions from stakeholders inside and outside the IMF. Its recommendations strongly influence the Fund's work. Transparency The IMF also encourages its member countries to be as open as possible about their economic policies. Greater openness encourages public discussion of economic policy, enhances the accountability of policymakers, and facilitates the functioning of financial markets. To that effect, the IMF's Executive Board has adopted a transparency policy to encourage publication of member countries' policies and data. This policy designates the publication status of most categories of Board documents as "voluntary but presumed." This means that publication requires the member's explicit consent but is expected to take place within 30 days following the Board discussion. In taking these steps to enhance transparency, the Executive Board has had to consider how to balance the IMF's responsibility to oversee the international monetary system with its role as a confidential advisor to its members. The IMF regularly reviews its transparency policy

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TACKLING CURRENT CHALLENGES

The global economic crisis created the worst recession since the Great Depression of the 1930s. The crisis began in the mortgage markets in the United States in 2007 and swiftly escalated into a crisis that affected activity and institutions worldwide. The IMF mobilized on many fronts to support its member countries, increasing its lending, using its cross-country experience to advise on policy solutions, and introducing reforms to modernize its operations and become more responsive to member countries needs. As the apex of the crisis shifted to Europe, the Fund has become actively engaged in the region and is also working with the G20 to support a multilateral approach. Here are some of the issues that top the agenda: Stepping up crisis lending As part of its efforts to support countries during the global economic crisis, the IMF has beefed up its lending capacity. It has approved a major overhaul of how it lends money by offering higher amounts and tailoring loan terms to countries varying strengths and circumstances. More recently, further reforms strengthen the IMFs capacity to respond to and prevent crises. In particular:

Doubling of lending access limits for low-income member countries and streamlining procedures to reduce perceived stigma attached to borrowing from the Fund

Introducing and refining a Flexible Credit Line (FCL) for countries with robust policy frameworks and a strong track record in economic performance; a Precautionary and Liquidity Line (PLL) for countries that have sound economic policies and fundamentals, but are still facing vulnerabilities; and a Rapid Financing Instrument (RFI) for countries facing an urgent financing need but that do not need a full-fledged economic program

Modernizing conditionality to ensure that conditions linked to IMF loan disbursements are focused and adequately tailored to the varying strengths of members policies

Focusing more on social spending and more concessional terms for low-income countries

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The IMF has committed more than $300 billion to crisis-hit countriesincluding Greece, Ireland, Portugal, Romania, and Ukraineand has extended credit to Mexico, Poland, and Colombia under a new flexible credit line. The IMF is also stepping up its lending to lowincome countries to help prevent the crisis undermining recent economic gains and keep poverty reduction efforts on track. A partner in Europe The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. We work both independently and, in European Union countries, in cooperation with European institutions, such as the European Commission and the European Central Bank as part of the so-called troika. The IMF's work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the sovereign debt crisis in the euro area. The IMF has recommended that Europe focus on structural reforms to boost economic growth, such as product and services market reforms, as well as labor market and pension changes. The IMF has also urged eurozone members to make a more determined, collective response to the crisis by taking concrete steps toward a complete monetary union, including a unified banking system and more fiscal integration. Read our Factsheet on Europe and visit our webpage that pulls together IMF information about Europe. See also article on fixing the flaws in EMU. Supporting low-income countries The IMF has upgraded its support for low-income countries, reflecting the changing nature of economic conditions in these countries and their increased vulnerabilities due to the effects of the global economic crisis. It has overhauled its lending instruments, especially to address more directly countries' needs for short-term and emergency support. The IMF support package includes:

Mobilizing additional resources, including from sales of an agreed amount of IMF gold, to boost the IMFs concessional lending capacity to up to $17 billion through 2014, including up to $8 billion in the first two years. This exceeds the call by the Group of Twenty for $6 billion in new lending over two to three years.

Providing interest relief, with zero payments on outstanding IMF concessional loans through end-2012 to help low-income countries cope with the crisis.
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Committing resources to secure the long-term sustainability of IMF lending to lowincome countries beyond 2014.

Reinforcing multilateralism The 2008 global financial crisis highlighted the tremendous benefits from international cooperation. Without the cooperation spearheaded by the Group of Twenty industrialized and emerging market economies (G-20) the crisis could have been much worse. At their 2009 Pittsburgh Summit G-20 countries pledged to adopt policies that would ensure a lasting recovery and a brighter economic future, launching the "Framework for Strong, Sustainable, and Balanced Growth." The backbone of this framework is a multilateral process, where G-20 countries together set out objectives and the policies needed to get there. And, most importantly, they undertake to check on their progress toward meeting those shared objectivesdone through the G-20 Mutual Assessment Process or MAP. At the request of the G-20, the IMF provides the technical analysis needed to evaluate how members policies fit togetherand whether, collectively, they can achieve the G-20s goals. The IMFs Executive Board has also been considering a range of options to enhance multilateral, bilateral, and financial surveillance, and to better integrate the three. It has launched spillover reports for the five most systemic economiesChina, the euro area, Japan, United Kingdom, and the United Statesto assess the impact of policies by one country or area on the rest of the world. The IMF recently strengthened the ways in which it keeps an eye on country economies with its global analysis, and as Managing Director Christine Lagarde has stressed, the IMF must continue to pay more attention to understanding interconnectedness and incorporating this understanding into risk and policy analysis. Strengthening the international monetary system The current International Monetary Systemthe set of internationally agreed rules, conventions, and supporting institutions that facilitate international trade and cross-border investment, and the flow of capital among countrieshas certainly delivered a lot. But it has a number of well-known weaknesses, including the lack of an automatic and orderly mechanism for resolving the buildup of real and financial imbalances; volatile capital flows

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and exchange rates that can have deleterious economic effects; and related to the above, the rapid, unabated accumulation of international reserves, concentrated on a narrow supply. Addressing these problems is crucial to achieving the global public good of economic and financial stability, by ensuring an orderly rebalancing of demand growth, which is essential for a sustained and strong global recovery, and reducing systemic risk. The IMFs rec ent review of its mandate and resultant reformsto surveillance and its lending toolkitgo some way towards addressing these concerns but further reforms are being pursued. Implementing organizational changes The IMF must represent the interests of all of its 188 member countries, from its smallest shareholder Tuvalu, to its largest, the United States. Unlike the General Assembly of the United Nations or the World Trade Organization, where each country has one vote, decision making at the IMF was designed to reflect the position of each member country in the global economy. Each IMF member country is assigned a quota that determines its financial commitment to the IMF, as well as its voting power. In recent years, emerging market countries such as China, India, Brazil, and Russia have experienced strong growth and now play a larger role in the world economy. In December 2010, the IMF agreed on reform of its framework for making decisions to reflect the increasing importance of emerging market and developing economies. When fully implemented, the reforms will produce a shift of more than 6 percent of quota shares to dynamic emerging market and developing countries. The reform contains measures to protect the voice of the poorest countries in the IMF. Without these measures, this group of countries would have seen its voting shares decline. The reform will enter into force once three fifths of the IMFs membershipwhich currently amounts to 113 countries representing 85 percent of total voting power have accepted the proposed amendment.

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CRITICISM OF THE IMF

To understand the IMFs role in the global economy and associated problems, it is useful to draw an analogy. Imagine that you live beyond your means and are unable to pay your credit card bill. You raise a loan from a bank, which gives you money, provided you promise to pay back according to the repayment schedule. The IMF operates in a similar fashion. If governments and countries live beyond their means on borrowed money, it is only a matter of time before their creditors lose confidence, withdraw their capital and trigger a financial crisis. At this point, a government borrows money from the IMF. The Fund lends money on the condition that the government pledges to undertake economic reform. If you do not abide by the repayment schedule, the bank will take legal action and confiscate your car to obtain the money. However, if the government of a country in crisis does not meet its commitments, to whom does the IMF turn? There are no known cases of the Fund having confiscated cars in Russia or Brazil. In case of doubt, however, the countries do not have to wait for too long before being granted fresh loans. The IMFs largely politically determined weakness to enforce conditions not only harms its reputation but also misleads borrowers into believing that the conditions it imposes are not to be taken too seriously. Consequently, the Fund loses the only concrete tool at its disposal that gives it the lever- age to attain its goals. While it is both understandable and desirable that the IMFs loans should be the prime target of public attention and criticism, its functions are not confined to lending. The following purposes are set out in the IMF charter: promote international monetary cooperation, facilitate the expansion and balanced growth of international trade, promote exchange stability, assist in the establishment of a multilateral system of payments and give confidence to members by making the Funds resources available to them from time to time so that maladjustments in their balance of payments can be corrected without any extensive damage. In more concrete terms and, in the words of Stanley Fischer, the IMFs former First Deputy Managing Director, the Fund fulfils four functions in the broader sense: it undertakes surveillance of the global economy and the economies of its members, it provides technical assistance to its members, it serves as a permanent institution which provides the machinery for consultation and collaboration on international monetary problems and it lends to its member countries.

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The IMF has attracted opposition from all political quarters from left-wing antiglobalisationists at one end of the spectrum to liberal economists at the other. The criticism focuses on the IMFs tasks and the manner in which these tasks are executed by the bureaucracy. In many cases, the arguments are confused and often difficult to delink. For the purposes of this discussion, however, it is helpful to distinguish between three forms of criticism political critics of the Fund are bothered by the fact that non-elected IMF technocrats interfere in the politics of (not exclusively) democratically elected governments; economic critics finds fault with the economic policy pursued by the Fund in its role of advisor and lender; political-economic critics focus on how the Fund creates the problems it really should be solving.

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CONCLUSION
IMF Abolish or Reform? Over the past decades, the IMF has developed into an important global economic player constantly expanding its purview. After the spectacular financial crises in the second half of the 1990s, during which the Fund played, to put it mildly, an unfortunate role, criticism of the IMF has become more vocal. Well-known economists plead for the Fund to be shut down altogether. What speaks in favour of this argument is that the IMF has lost sight of its original mission since the beginning of the 1970s and the trend towards flexible exchange rates makes balance of payments crises per definition less likely. Another reason to do away with the IMF would be that the problem of moral hazard would disappear from the world once and for all and there would be greater pressure on governments in developing countries or emerging markets to pursue independent, stability-oriented economic policies. Without IMF-generated distortions, the corrective and preventive mechanisms of the financial markets would work better and crises would be averted. Having to sacrifice lavish IMF loans could, in individual cases and for short periods, mean hardship, but in the medium term, it would have a more long-lasting effect on raising the standard of living in these countries than having them lurch from one crisis to the next. It seems utopian to believe that the IMF could be done away with in the foreseeable future. However, many of the negative effects of the IMFs work could be avoided if the institution and its tasks were to undergo fundamental reform. It is therefore expedient to first be clear about the purpose that the Fund could serve to- day.

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BIBLIOGRAPHY
Books: The IMF and Economic Development by James Raymond Vreeland Unholy Trinity: IMF, World Bank and the WTO Websites http://www.imf.org/external/index.htm http://en.wikipedia.org/wiki/International_Monetary_Fund http://www.investopedia.com/terms/i/imf.asp http://www.scribd.com/doc/34036391/International-Monetary-Fund-IMF

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