When can a country borrow from the IMF?

A member country may request IMF financial assistance if it has a balance of payments need that is, if it cannot find sufficient financing on affordable terms to meet its net international payments while maintaining adequate reserve buffers going forward. An IMF loan provides a cushion that eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.

The changing nature of IMF lending

The volume of loans provided by the IMF has fluctuated significantly over time. The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending. In the 1990s, the transition process in Central and Eastern Europe and the crises in emerging market economies led to further surges of demand for IMF resources. Deep crises in Latin America kept demand for IMF resources high in the early 2000s, but these loans were largely repaid as conditions improved. IMF lending rose again starting in late 2008, as a period of abundant capital flows and low pricing of risk gave way to global deleveraging in the wake of the financial crisis in advanced economies.

The process of IMF lending

Upon request by a member country, an IMF loan is usually provided under an arrangement, which may, when appropriate, stipulate specific policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic program underlying an arrangement is formulated by the country in consultation with the IMF and is presented to the Funds Executive Board in a Letter of Intent. Once an arrangement is approved by the Board, the loan is usually released in phased installments as the program is implemented.

IMF Facilities
Over the years, the IMF has developed various loan instruments, or facilities, that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow on concessional terms through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF) (see IMF Support for Low-Income Countries). Nonconcessional loans are provided mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), and the Extended Fund Facility (which is useful primarily for longer-term needs). The IMF also provides emergency assistance to support recovery from natural disasters and conflicts. All non-concessional facilities are subject to the IMFs marketrelated interest rate, known as the rate of charge, and large loans (above certain limits) carry a surcharge. The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in major international money markets. The amount that a country can borrow from the Fund, known as its access limit, varies depending on the type of loan, but is typically a multiple of the countrys IMF quota. This limit may be exceeded in exceptional circumstances. The Flexible Credit Line has no pre-set cap on access.

The new concessional facilities for LICs were established in January 2010 under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Funds financial support more flexible and better tailored to the diverse needs of LICs. Access limits and norms have been approximately doubled compared to pre-crisis levels. Financing terms have been made more concessional, and the interest rate is reviewed every two years. All facilities support country-owned programs aimed at achieving a sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.

The Extended Credit Facility (ECF)succeeds the Poverty Reduction and Growth Facility (PRGF) as the Funds main tool for providing medium-term support to LICs with protracted balance of payments problems. Financing under the ECF currently carries a zero interest rate, with a grace period of 5 years, and a final maturity of 10 years. The Standby Credit Facility (SCF) provides financial assistance to LICs with shortterm balance of payments needs. The SCF replaces the High-Access Component of the Exogenous Shocks Facility (ESF), and can be used in a wide range of circumstances, including on a precautionary basis. Financing under the SCF currently carries a zero interest rate, with a grace period of 4 years, and a final maturity of 8 years. The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to LICs facing an urgent balance of payments need. The RCF streamlines the Funds emergency assistance for LICs, and can be used flexibly in a wide range of circumstances. Financing under the RCF currently carries a zero interest rate, has a grace period of 5 years, and a final maturity of 10 years.

Stand-By Arrangements (SBA). The bulk of Fund assistance to middle-income countries is provided through SBAs. The SBA is designed to help countries address short-term balance of payments problems. Program targets are designed to address these problems and Fund disbursements are made conditional on achieving these targets (conditionality). The length of a SBA is typically 1224 months, and repayment is due within 3-5 years of disbursement. SBAs may be provided on a precautionary basiswhere countries choose not to draw upon approved amounts but retain the option to do so if conditions deteriorateboth within the normal access limits and in cases of exceptional access. The SBA provides for flexibility with respect to phasing, with front-loaded access where appropriate. Flexible Credit Line (FCL). The FCL is for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes. FCL arrangements are approved for countries meeting pre-set qualification criteria. The length of the FCL is one or two year (with an interim review of continued qualification after one year) and the repayment period the same as for the SBA. Access is determined on a case-bycase basis, is not subject to the normal access limits, and is available in a single up-front disbursement rather than phased. Disbursements under the FCL are not conditioned on implementation of specific policy understandings as is the case under the SBA. There is flexibility to either draw on the credit line at the time it is approved or treat it as precautionary. Precautionary Credit Line (PCL). The PCL is for countries with sound fundamentals and policies, and a track record of implementing such policies. While they may face moderate vulnerabilities that may not meet the FCL qualification standards, they do not require the same

large-scale policy adjustments normally associated with traditional SBAs. The PCL combines qualification (similar to the FCL) with focused ex-post conditions that aim at addressing the identified vulnerabilities in the context of semi-annual monitoring. It can have the length of between one and two years. Access can be front-loaded, with up to 500 percent of quota made available on approval and up to a total of 1000 percent of quota after 12 months subject to satisfactory progress in reducing vulnerabilities. While there may be no actual balance of payments need should at the time of approval, the PCL can be drawn upon should such a need arise unexpectedly. Extended Fund Facility (EFF). This facility was established in 1974 to help countries address longer-term balance of payments problems requiring fundamental economic reforms. Arrangements under the EFF are thus longer than SBAsusually 3 years. Repayment is due within 410 years from the date of disbursement. Emergency assistance. The IMF provides emergency assistance to countries that have experienced a natural disaster or are emerging from conflict. Emergency loans are subject to the basic rate of charge, although interest subsidies are available for some countries, subject to availability. Loans must be repaid within 35 years.

International Bank for Reconstruction and Development (IBRD) established in 1945 for providing debt financing on the basis of sovereign guarantees. International Financial Corporation (IFC) established in 1956 for providing various forms of financing without sovereign guarantees primarily to the private sector. International Development Association (IDA) established in 1960 for providing concessional financing (interest free loans, grants etc.) usually with sovereign guarantees. International Centre for Settlement of Investment Disputes (ICSID) established in 1966 which works with various governments of various countries to reduce investment risks. Multilateral Investment Guarantee Agency (MIGA) established in 1988 for providing insurance against certain types of risks including political risks primarily to the private
`````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````` ````````````` International finance is the examination of institutions, practices, and analysis of cash flows that move from one country to another. There are several prominent distinctions between international finance and its purely domestic counterpart, but the most important one is exchange rate risk. Exchange rate risk refers to the uncertainty injected into any international financial decision that results from changes in the price of one country's currency per unit of another country's currency. Examples of other distinctions include the environment for direct foreign investment, new risks resulting from changes in the political environment, and differential taxation of assets and income.

The level of international trade is a relevant indicator of economic growth worldwide. Foreign exchange markets facilitate this trade by providing a resource where currencies from all nations can be bought and sold. While there is a heavy volume of foreign exchange between some countries, such as the United States and Canada, other

countries with little international trade may have only intermittent need for such transactions. Current exchange rates of one country's currency versus another are determined by supply and demand for these currencies. As an example of an exchange rate, consider a recent rate at which U.S. dollars (US$) could be exchanged for Canadian dollars (C$): US$0.65 per C$1. This implies that a Canadian dollar can be purchased for US$0.65 and conversely, a U.S. dollar can be purchased for C$1.54 (or 1/0.65). These current rates are also called spot rates. In addition to international trade, there is a second motivation for international financial activity. Many firms make long-term investments in productive assets in foreign countries. When a firm decides to build a factory in a foreign country, it has likely considered a variety of issues. For example: Where should the funds needed to build the factory be raised? What kinds of tax agreements exist between the home and foreign countries that may influence the after-tax profitability of the new venture? Are there any government-imposed restrictions on moving profits back to the home country? Do the forecasted cash flows of the new venture enhance the parent firm's exposure to exchange rate fluctuations or does it lessen this exposure? Are the economic and political systems in the foreign country stable? The short-term motive for foreign exchange (trade) and the long-term motive (capital formation) are related. For example, for most of the 1980s Japan maintained a sizable balance of trade surplus with the United States. This is because Japan exports more to the United States than they import from the United States, resulting in a flow of funds from the United States to Japan. This was also a period, however, when Japan provided considerable capital investments in automobile plants and other U.S. securities. These investment funds from Japan far outweighed the flow of investment funds moving from the United States to Japan. While some motivation for Japan's large investment in U.S. assets is strategic, the overall result is an inflow of investment funds from Japan that offsets the outflow created by the trade imbalance. By the late 1990s the Japanese economy was in a deep recession. This made the trade imbalance even more extreme as demand for U.S. exports declined precipitously. The lack of appealing domestic investment alternatives in Japan, however, encouraged

Japanese investors to pursue international options. Again, the flow of investment funds tends to offset the trade imbalance. While the two motives for foreign exchange do not always offset, they typically do for major trading partners over longer periods.

THE NATURE OF EXCHANGE RATES AND EXCHANGE RATE RISK

Consider two developed countries, A and B. If A and B are trading partners and make investments in each other's country, then there must also be a well-developed market for exchange of the two currencies. From A's perspective, demand for B's currency will depend on the cost of B's products when compared with domestic substitutes. It will also depend on investment opportunities in B compared with those available domestically in A. Likewise, the supply of B's currency depends on the same issues when examined from B's perspective. Ignoring everything else, A will demand more of B' s currency if it can buy it more cheaply. For example, if the exchange rate moves from 2 B per 1 A to 3 B per I A, imports from B become cheaper since it costs A's residents fewer units of their own currency to buy them. Conversely, if the exchange rate moves to 1.5 B per 1 A, the cost of imports has risen and demand for B's currency will fall. The supply of B's currency will change for the same reasons, but the change will be in the opposite direction. If B's citizens can trade the same number of their own currency units for fewer units of A's currency, they will offer less currency for exchange. At some exchange rate, the supply of B's currency will exactly satisfy the demand and an equilibrium, or market-clearing rate, will be established. This market-clearing exchange rate does not stay in one place. This is because of a variety of events including: (1) changes in the relative inflation rates of the two countries, (2) changes in the relative rates of return on investments in the two countries, and (3) government intervention. Examples of government intervention include quotas on imports or restrictions on foreign exchange. As a brief example of how the marketclearing exchange rate can move, suppose that the current equilibrium exchange rate is 2 B per I A. Next, consider new information that indicates investors can achieve a higher

rate of return on investments in B while returns on investments available domestically in A remain the same. As investors in A realize this, they have greater interest in making investments in B. This increases the demand for B's currency and means that investors in A are now willing to pay more for a unit of B's currency. B's investors, however, now see that investment prospects in A have deteriorated in relative terms. They are less interested in making these investments and will supply fewer units of B's currency in exchange for A's currency. The dual influences of A's investors becoming more eager to buy B's currency and the increased reluctance of B's investors to offer their currency indicates that the market clearing exchange rate must be different than the prior rate of 2 B per I A. In this example, to reach equilibrium, the rate should move to a point where I unit of A's currency can be exchanged for less than 2 units of B's currency. This movement can be interpreted as a weakening of A's currency and a strengthening of B's currency. Specific movements in the market-clearing exchange rate can be modeled by a several economic equalities called parity conditions. Three specific parity conditions are commonly used to model exchange rate equilibrium. Purchasing power parity indicates that currencies experiencing high inflation are likely to weaken while those experiencing low inflation are likely to strengthen. The international Fisher effect indicates that currencies with high interest rates will tend to strengthen while currencies with low levels of interest will weaken. A third parity condition, interest rate parity, indicates that exchange rates must move to a level where investors in either country cannot make a riskless profit by borrowing or lending a foreign currency.

EXAMPLES OF EXCHANGE RATE RISK

Since forecasts of future inflation rates, interest rates, and government actions are uncertain, exchange rates are also uncertain. This means that an investment that will pay its return in units of a foreign currency has an uncertain return in the home currency. For example, suppose an investor in A bought a security B for 100 B. This oneyear investment has a guaranteed return of 10 B, or 10 percent. If the exchange rate remains at a constant 2 B per I A over the life of the investment, the investor must initially commit 50 A to exchange for 100 B to make the investment. After one year, the

110 B returned (including the 10 B in interest) is exchanged for 55 A. The profit of 5 A on an investment of 50 A represents a 10 percent return to the investor from A. If, however, the exchange rate moved to 1.8 B per 1 A during the year, the investor would now receive the same 110B from the investment, but when converted to the home currency, 61.1 A is received. This represents a profit of 11.1 A on an investment of 50 A, or 22.2 percent. Note that the return is amplified because B's currency strengthened during the holding period. Likewise, if the exchange rate moved to 2.2 B per 1 A, the return of 110 B translates to 50 A and a rate of return of 0 percent. As another example, suppose an importer in country A purchases a quantity of goods from an exporter in country B and agrees to pay 1,000 B in 90 days. The importer is now obligated to make a foreign exchange transaction and must purchase the units of B's currency at the exchange rate that prevails in 90 days. Since that rate is likely to be different from the current rate, the importer is exposed to exchange rate risk. One common method for reducing this exposure is to enter into a forward contract to buy B's currency. A forward contract is an agreement to trade currencies at a specified date in the future at an exchange rate determined today. By purchasing the needed currency through a forward contract, the importer can eliminate concern with exchange-rate volatility by locking in a specific rate today.

TYPES OF EXPOSURE TO EXCHANGE RATE RISK

Exposure to exchange rate fluctuations can be placed into three categories: translation, transaction, and economic. Translation exposure refers to the changes in accounting profits that result from reporting requirements. Transaction exposure is created when the firm enters into agreements that will require specific foreign exchange transactions during the current period. The example of the importer in the previous paragraph would be classified as transaction exposure. Economic exposure is the need for foreign exchange transactions and exposure to exchange rate fluctuations that results from future business activities.

If a firm can measure its transaction exposure, it has the option to reduce or eliminate this risk by netting payments and receivables among foreign subsidiaries and other trading partners. Any exposures that cannot be eliminated by netting can be hedged by taking various positions in foreign currency forward or futures contracts. Suppose the importer used in a previous example had agreed to make payments in several different foreign currencies during the upcoming 90-day period. An initial measure of transaction exposure could be obtained by computing the value of each of the obligations using the spot exchange rate for each currency. The sum of these values, measured in the home currency, would provide a gross measure of transaction exposure. This measure, however, may overstate the true level of exposure if the importer also has receivables in these same currencies. Since foreign currency receivables offset payment obligations in the same currency, the more relevant measure of exposure is the net of payables less receivables. Once a firm has properly measured its transaction exposure to exchange rate fluctuations, it can opt to reduce the risk by engaging in a practice called hedging. Hedging is a technique of eliminating or limiting losses due to unfavorable movements in exchange rates. For example, a U.S. importer with a large payment denominated in Canadian dollars due in 90 days may enter into a forward contract to purchase that currency when needed. A forward contract is an agreement to exchange currencies at a specific date in the future for a specific exchange rate determined at the time the agreement is made. Although the spot rate 90 days later may be materially different from the forward rate specified in the contract, both parties now know exactly what the other currency units will cost. In this way exchange rate risk can be effectively neutralized. Other financial instruments such as futures contracts and options can also be used to reduce transaction exposure. Foreign currency futures contracts are similar to forward contracts but are more standardized and, as a result, can be purchased or sold very quickly. This means that futures contracts can be used when transaction exposure is likely to change. For example, if a firm agrees to purchase two million Canadian dollars using a futures contract and subsequently finds out that they will only need one million, they can quickly sell some of the contracts and reduce their protective hedge to the proper level. Forward contracts do not offer that flexibility. Foreign currency options can also be used to build a cap on the potential cost of an upcoming

foreign currency purchase or a floor under the value of revenue from an upcoming foreign payment. Economic exposure to exchange rate fluctuations is often more difficult to manage. The Japanese automobile manufacturer Toyota provides a prominent example of this exposure and its management. This company developed a very sizable market in the United States by initially producing an inexpensive, fuel-efficient vehicle. As time passed, Toyota developed a broader line of products to expand its share of the U.S. automobile market. Beginning in the early 1980s, however, the yen began to appreciate relative to the dollar. Even with constant dollar sales in the U.S. market, Toyota's revenues began to drop significantly when converted back to yen. Since the majority of their production costs were already yen denominated, this hurt their profitability. Toyota was reluctant to raise the dollar price of their products because they feared that they would lose market share. The firm had significant economic exposure because a large proportion of its revenues were denominated in dollars while most of its costs were denominated in yen. Toyota responded to this problem by building manufacturing facilities in the United States. This generated dollar-denominated production costs that could be used to offset dollar revenues. The result was a reduced need for foreign exchange and more stable corporate earnings in Toyota's home country of Japan. Note that economic exposure results from having revenue and cost streams that have different sensitivities to exchange rate changes. This is very different from measuring the need for foreign exchange transactions during an upcoming period and hedging the cost. Economic exposure to exchange rate fluctuations cannot be hedged with simple financial instruments. It must be managed more dynamically and requires actions such as relocating production facilities, borrowing in foreign countries, and developing product markets in a more diverse set of countries.

COUNTRY RISK
Layered on top of the other sources of risk that make international business decisions unique from a financial perspective are the concerns with country risk. Country risk can be divided into two parts, economic risk and political risk. Economic risk refers to the stability of a country's economy. It embodies concerns such as dependence on individual

industries or markets, the ability to sustain a vibrant level of activity and to grow, and the supply of natural resources and other important inputs. Political risk is more concerned with the stability of the government that manages the economy. It encompasses concerns such as the ability to move capital in and out of the country, the likelihood of a smooth transfer of power after elections, and the government's overall attitude toward foreign firms. Obviously, these two branches of country risk overlap significantly. There are a variety of services that provide in-depth assessments of country risk for virtually every country; multinational firms make considerable use of these services to form their own decisions regarding international projects. In summary, the basic objective of international finance is no different than that of its purely domestic counterpart. The firm should attempt to identify profitable business opportunities that will provide benefit to the owners of the corporation. When these opportunities traverse an international border, a variety of new complexities arise in the financial analysis. Many of the new concerns with this analysis stem from the risk that is introduced by the need for foreign ex-change transactions in an environment of fluctuating exchange rates. Once these risks are identified, steps can be taken to address them. Short-term, specific sources of exchange rate risk can often be hedged using standard financial contracts. Longer term exposure to exchange rate risk requires more strategic management. Additional risks arise due to the potential for major shifts in foreign economic or political climates. It is the recognition, assessment, and management of risks such as these that provides the unique character of financial decision making in an international context.

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Financial Management Differences

Among the few differences between financial management of a multinational company (MNC) and domestic company (DC) is that the MNC has got operations around the world. This means they have to deal with an international group of customers, shareholders and suppliers. What this means is that they are exposed to exchange rate changes, issues about raising capital internationally, and also different accounting standards of reporting. In my opinion, the most important difference between an MNC and DC is the exchange rate. The MNC have to take consideration into exchange rate fluctuations, as it affects their sales and investment decisions (

exchange rate changes will change their revenue from customers and also make investment decisions difficult, as they have to constantly convert back to their home country and see if the return is higher or if the investment is worth it ). It also affects the way they report their financial statements, which is balance sheet or profit and loss. The MNC faces more difficulty in reporting this, as they have various standards to follow. ( for example, how should they report the profit or loss for the year, in a foreign currency or home currency. Either way, it tells us different things about the MNC, as they can be making money in the home currency, but losing money in the foreign currency ). Generally speaking, the financial management for an MNC has to deal with the larger external influence affecting the company, and a large part of books for Multinational Financial Management or International Financial Management, deal with exchange rates. Hope this helps. ````````````````````````````````````````````````````````````````````````````````````````````````````````````````````` The World Bank provides over $24 billion in assistance to developing and transition countries every year. The Bank's projects and policies affect the lives and livelihoods of billions of people worldwide - sometimes for the better, but very often in controversial and problematic ways. The World Bank was originally established to support reconstruction in Europe after World War II, but has since reframed its mission and expanded its operations both geographically and substantively. Today, the Bank's mission is to reduce poverty. It has over 184 member countries and provides over $24 billion annually for activities ranging from agriculture to trade policy, from health and education to energy and mining. The World Bank provides funding for bricks-and-mortar projects, as well to promote economic and policy prescriptions it believes will promote economic growth. For example, part of the over $300 million the Bank is currently providing the West African country of Niger funds health programs addressing HIV/AIDS and irrigation. However, the Bank also promotes more controversial projects in the country, like privatization of state enterprises. The World Bank is not a bank in the common sense of the word. A single person cannot open an account or ask for a loan. Rather, the Bank provides loans, grants and technical assistance to countries and the private sector to reduce poverty in developing and transition countries. The World Bank Group is actually comprised of five separate arms. Two of those arms - the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) work primarily with governments and together are commonly known as "the World Bank". Two other branches - the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) - directly support private businesses investing in developing countries. The fifth arm is the International Center for Settlement of Investment Disputes (ICSID), which arbitrates disagreements between foreign investors and governments. This webpage outlines key features of the two arms that are now collectively referred to as the World Bank: IBRD and IDA. Find out more about MIGA and the IFC (BIC website). ``````````````````````````````````````````````````````````````````

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Encyclopedia of the Nations

Encyclopedia of the Nations United Nations Related Agencies The World Bank Group

The World Bank Group - International bank for reconstruction and development (ibrd)

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As early as February 1943, United States Undersecretary of State Sumner B. Welles urged preparatory consultation aimed at the establishment of agencies to finance reconstruction and development of the world economy after WWII. The US and the UK took leading roles in the negotiations that were to result in the formation of the IBRD and the IMF. The IBRD is the main lending organization of the World Bank Group and, like its sister institution, the International Monetary Fund (IMF), was born of the Allies' realization during World War II that tremendous difficulties in reconstruction and development would face them in the postwar transition period, necessitating international economic and financial cooperation on a vast scale. The IBRD, frequently called the "World Bank," was conceived in July 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, US.

Purposes
Although one of the Bank's early functions was to assist in bringing about a smooth transition from wartime to peaceful economies, economic development soon became the Bank's main object. Today, the goal of the World Bank is to promote economic development that benefits poor people in developing countries. Loans are provided to developing countries to help reduce poverty and to finance investments that contribute to economic growth. Investments include roads, power plants, schools, and irrigation networks, as well as activities like agricultural extension services, training for teachers, and nutrition-improvement programs for children and pregnant women. Some World Bank loans finance changes in the structure of countries' economies to make them more

stable, efficient, and market oriented. The World Bank also provides technical assistance to help governments make specific sectors of their economies more efficient and more relevant to national development goals.

Membership
The Bank's founders envisioned a global institution, the membership of which would eventually comprise all nations. Membership in the IBRD rose gradually from 41 governments in 1946 to 184 as of July 2002. A government may withdraw from membership at any time by giving notice of withdrawal. Membership also ceases for a member suspended by a majority of the governors for failure to fulfill an obligation, if that member has not been restored to good standing by a similar majority within a year after the suspension. Only a few countries have withdrawn their membership from the Bank, and all but Cuba (withdrew in 1960) have rejoined. Although the Soviet Union took part in the 1944 Bretton Woods Conference, and signed the final act establishing the IMF and the IBRD, it never ratified the Articles of Agreement or paid in the 20% of its subscribed capital that was due within 60 days after the Bank began operations. Had it joined, the Soviet Union would have been the Bank's third largest shareholder, after the United States and the United Kingdom. Over the next four decades, as the Bank grew in size and scope, it couldn't fulfill its founders' intentions of being a truly global institution due to the absence of the Soviet Union. Then, at the beginning of the 1990s, as political and economic change swept through the 15 republics of the USSR, the Soviet government indicated its interest in participating in the international financial system and sought membership in the IMF and World Bank. On 15 July 1991, Soviet President Mikhail Gorbachev formally applied for membership for the USSR in the IBRD and its three affiliates (IFC, IDA and MIGA). However, by December 1991, the USSR had ceased to exist. During 1992, the Russian Federation and 15 former Soviet republics (including the Baltic states) applied for membership and were accepted. Eleven of them also applied to IDA, 14 to IFC and 15 to MIGA. To accommodate these countries, the total authorized capital of the bank was increased.

A "graduating" country is one where lending is being phased out. As of 2002 there were 27 countries that had "graduated" from the IBRD. These include (with the fiscal year of their final loan): France (1947), Luxembourg (1948), Netherlands (1957), Belgium (1958), Australia (1962), Austria (1962), Denmark (1964), Malta (1964), Norway (1964), Italy (1965), Japan (1967), New Zealand (1972), Iraq (1973), Iceland (1974), Finland (1975), Israel (1975), Singapore (1975), Ireland (1976), Spain (1977), Greece (1979), Oman (1987), Bahamas (1989), Portugal (1989), Cyprus (1992), Barbados (1993), the Republic of Korea (1995), and China (1999).

Structure
Board of Governors

All powers of the Bank are vested in its Board of Governors, composed of one governor and one alternate from each member state. Ministers of Finance, central bank presidents, or persons of comparable status usually represent member states on the Bank's Board of Governors. The board meets annually. The Bank is organized somewhat like a corporation. According to an agreed-upon formula, member countries subscribe to shares of the Bank's capital stock. Each governor is entitled to cast 250 votes plus 1 vote for each share of capital stock subscribed by his country.
Executive Directors

The Bank's Board of Governors has delegated most of its authority to 24 executive directors. According to the Articles of Agreement, each of the five largest shareholders the United States, Japan, Germany, France and the United Kingdomappoints one executive director. The other countries are grouped in 19 constituencies, each represented by an executive director who is elected by a group of countries. The number of countries each of these 19 directors represents varies widely. For example, the executive directors for China, the Russian Federation, and Saudi Arabia represent one country each, while one director speaks for 24 Francophone African countries and another director represents 22 mainly English-speaking African countries.

President and Staff

The president of the Bank, elected by the executive directors, is also their chairman, although he is not entitled to a vote, except in case of an equal division. Subject to their general direction, the president is responsible for the conduct of the ordinary business of the Bank. Action on Bank loans is initiated by the president and the staff of the Bank. The amount, terms, and conditions of a loan are recommended by the president to the executive directors, and the loan is made if his recommendation is approved by them. According to an informal agreement, the president of the Bank is a US national, and the managing director of the IMF is a European. The president's initial term is for five years; a second term can be five years or less. Past presidents of the Bank include Robert S. McNamara (196881), A. W. Clausen (198186), Barber B. Conable (198691), and Lewis T. Preston (199195). James D. Wolfensohn became president on 1 June 1995. On September 27, 1999, Mr. Wolfensohn was unanimously reappointed by the Bank's Board of Executive Directors to a second five-year term as president beginning June 1, 2000. He is the third president in World Bank history to serve a second term. He heads a staff of more than 8,000 persons from over 130 countries. The IBRD's headquarters are at 1818 H Street, N.W., Washington, DC 20433.

Budget
A total administrative budget of US $1,924 million was approved for fiscal year 2002.

Activities
A. FINANCIAL RESOURCES

Authorized capital. At its establishment, the IBRD had an authorized capital of US$ 10 billion. Countries subscribing shares were required to pay in only one-fifth of their subscription on joining, the remainder being available on call but only to meet the IBRD's liabilities if it got into difficulties. Moreover, not even the one-fifth had to be paid in hard cash at that time. The sole cash requirement was the payment in gold or US dollars of 2% of each country's subscription. A further 18% of the subscription was

payable in the currency of the member country concerned, and although this sum was technically paid in, in the form of notes bearing no interest, it could not be used without the member's permission. In 1959, each member was given an opportunity to double its subscription without any payment. Thus, for countries joining the IBRD after the 1959 capital increase and for those subscribing to additional capital stock, the statutory provisions affecting the 2% and 18% portions have been applied to only one-half of their total subscriptions, so that 1% of each subscription that is freely usable in the IBRD's operations has been payable in gold or US dollars, and 9% that is usable only with the consent of the member is in the member's currency. The remaining 90% is not paid in but is subject to call by the IBRD. Financial Resources for Lending Purposes. The subscriptions of the IBRD's members constitute the basic element in the financial resources of the IBRD. Subscribed capital for fiscal year 2002 was about US $121.6 billion. The Bank also draws money from borrowings in the market and from earnings. In 2002, the Bank's outstanding borrowings were US $110.3 billion, raised in the capital markets of the world. The IBRD is able to raise large sums at interest rates little or no higher than are paid by governments because of confidence in the Bank engendered by its record of stablility since 1947 and the investors' knowledge that if the IBRD should ever be in difficulty, it can call in unpaid portions of member countries' subscriptions. In connection with its borrowing operations, the Bank also undertakes a substantial volume of currency and interest rate swap transactions. These swaps have enabled the IBRD to lower its fundraising costs and to expand its direct borrowing transactions to markets and currencies in which it otherwise would not have borrowed.
B. LENDING OPERATIONS

The IBRD lends to member governments, or, with government guarantee, to political subdivisions, or to public or private enterprises. The IBRD's first loan, US$ 250 million for postwar reconstruction, was made in the latter part of 1947. Altogether, it lent US$ 497 million for postwar reconstruction, all to European countries. The IBRD's first development loans were made in the first half of

1948. As of 30 June 2002, the cumulative total of loans made by the Bank was over US$ 371 billion. Loan Terms and Interest Rates. The IBRD normally makes long-term loans, with repayment commencing after a certain period. The length of the loan is generally related to the estimated useful life of the equipment or plant being financed. Since July 1982, IBRD loans have been made at variable rates. The lending rate on all loans made under the variable-rate system is adjusted semiannually, on 1 January and 1 July, by adding a spread of0.5% to the IBRD's weighted average cost during the prior six months of a "pool" of borrowings drawn down after 30 June 1982. Since July 1989, only borrowings allocated to lending have been included in the cost of borrowings with respect to new loans and existing variable rate loans that are amended to apply the new cost basis. For interest periods beginning from 1 July 2002 through 31 December 2002, the variable lending rate was 5.27%. Before July 1982, loans were made at fixed rates, and, accordingly, the semiannual interest-rate adjustments do not apply to payments made on these older loans.
C. PURPOSES OF THE LOANS

The main purpose of the Bank's operations is to lend to developing member countries for productive projects in such sectors as agriculture, energy, industry, and transportation and to help improve basic services considered essential for development. The main criterion for assistance is that it should be provided where it can be most effective in the context of the country's specific lending programs developed by the Bank in consultation with its borrowers. In the late 1980s, the World Bank came under criticism that its policies, intended to encourage developing countries to restructure their economies in order to render them more efficient, were actually imposing too heavy a burden on the world's poorest peoples. This, and charges by environmentalists that World Bank lending had underwritten projects that were severely detrimental to the environment of developing countries, led to a re-thinking of the Bank's policies in the 1990s.

Implementing the Bank's Poverty Reduction Strategy. The fundamental objective of the World Bank is sustainable poverty reduction. Underpinning this objective is a two-part strategy for reducing poverty that was proposed in the World Development Report 1990. The first element is to promote broad-based economic growth that makes efficient use of the poor's most abundant asset, labor. The second element involves ensuring widespread access to basic social services to improve the well being of the poor and to enable them to participate fully in the growth of the economy. Progress in implementing the poverty-reduction strategy is clearly visible in Bank-wide statistics on new lending. At the September 1999 annual meetings of the World Bank Group and IMF, ministers agreed to link debt relief to the establishment of a poverty reduction strategy for all countries receiving World Bank/IMF concessional assistance. Sector and Structural Adjustment Lending. Bank lending for sector adjustment and structural adjustment increasingly supports the establishment of social safety nets and the protection of public spending for basic social services. In its assistance to countries that are preparing adjustment programs, the Bank works with them to (a) design the phasing of programs to accommodate the needs of the poor, (b) give priority to relative price changes in favor of the poor early in the reform process, (c) secure adequate resources for the provision of basic social services aimed at the poor, and (d) design social safety nets into economic-reform programs. These efforts better position of the poor to be major beneficiaries of the economic growth and associated employment opportunities that are facilitated by the implementation of adjustment programs. Human Resource Development. Bank lending for human resource development has largely been committed for education, and its focus has been towards development of basic education. Lending for education increased from an average US$ 700 million during the 1980s to an average US$ 1,907 million during the first four years of the 1990s. In 1999 the amount climbed to US $2,014 million.

Bank lending for population, health, and nutrition has expanded even more rapidly. Average yearly lending to this sector during the 1980s was US$ 207 million, while lending during fiscal 1999 was US$ 1,726 million. The Environment. The Bank has continued to support environmental protection efforts with loans totaling US$ 978 million in fiscal 1999, compared to US$ 404 million in fiscal 1990. But the full story cannot be told by stand-alone environmental projects. As of the late 1990s, half of all World Bank projects now have an environmental component of some kind. In fiscal 1993 the World Bank undertook structural changes to respond to growing borrower demand for Bank assistance in environmental issues, and to the need for internal strengthening of monitoring and implementation. A Vice Presidency for Environmentally and Socially Sustainable Development was established. Three departments were placed under this vice presidencythe Environment Department, the Agriculture and Natural Resources Department, and the Transport and Urban Development Department. The Global Environment Facility is a cooperative venture between the World Bank, the United Nations Development Programme, the United Nations Environment Programme, and national governments. The Facility provides grants to help developing countries deal with environmental problems that transcend boundaries, such as airborne pollution produced by smokestacks or hazardous waste dumped into rivers. The GEF gives priority to four objectives: limiting emissions of greenhouse gases; preserveing biodiversity; protecting international waters; and protecting the ozone layer. Private Sector Development. The promotion of private sector growth in developing member countries has always been central to the Bank's overall mission of fostering sustainable growth and reducing poverty. In December 1999, the Bank Group announced a restructuring to better align and expand its work related to the private sector. The reforms took effect 1 January 2000. The reorganization tightened the link between the Bank's public sector work and its private sector transactions in the

developing world, which are made through the IFC. The World Bank helps governments to formulate policy frameworks that encourage a positive environment for business to function as the primary engine of growth while the IFC, the private sector arm of the Bank Group, provides advice and makes loans and equity investments in companies in developing countries. According to an IFC official the changes were in response to "one of the biggest challenges facing [the Bank's] client countries: How to create a favorable business environment and help finance small and medium enterprises." In addition to creating a new combined unit to coordinate Bank Group activities, help capitalize local financial institutions, and teach them the business of financing small and medium enterprises, the restructuring also involved the creation of joint World Bank-IFC departments, or product groups, for industries where there is a strong interface between public policy and private sector transactions. Three new industry groups, telecommunications/informatics, oil/gas/petrochemicals, and mining, include both policy and transaction capacity. Beyond the new industry groups, the principal advisory services focused on the private sector in both the World Bank and IFC are coordinated under single management.
D. OTHER ACTIVITIES

Technical Assistance. The Bank provides its members with a wide variety of technical assistance, much of it financed under its lending program. The volume of technical assistance in which the Bank is involved as lender, provider, or administrator rose sharply during the 1990s. In addition to loans and guarantees to developing countries, the World Bank carries out its mission by providing advice and assistance with telecommunications sector reform and national information infrastructure strategies. Special programs in this category include InfoDev and TechNet. The Information for Development Program (InfoDev) began in September 1995 with the objective of addressing the obstacles facing developing countries in an increasingly informationdriven world economy. It is a global grant program managed by the World Bank to promote innovative projects on the use of information and communication technologies (ICTs) for economic and social development, with a special emphasis on the needs of the poor in developing countries. In recognition of the critical role that science and technology play in promoting economic growth and social progress, in July 1999

TechNet was created as a cross-cutting thematic group to promote knowledge and education in the areas of science and technology and informatics. TechNet acts as a clearing-house and network for professionals inside and outside the Bank. Interagency Cooperation. The Bank's overarching purpose is helping to reduce global poverty. To this end, the institution encourages the involvement of other development agencies in preparing poverty assessments and works closely with other UN agencies in preparing proposals to improve the quality of poverty-related data. At the country level, the Bank is broadening its efforts to coordinate work with UNDP, UNICEF, and the International Fund for Agricultural Development in specific countries on preparing or following up poverty assessments and planned human development assessments. Coordination between the Bank and the UN system on poverty at the project level is extensive, particularly in the design of social funds and social action programs. Together with other UN agencies, the World Bank has taken the lead in mobilizing groups of donors, both multilateral and bilateral, to tackle specific areas of concernfor example, the Consultative Group on International Agricultural Research (CGIAR), which is cosponsored by the FAO, UNDP, and the World Bank. The Bank is an active partner in interagency activities which include the follow-up to the World Conference on Education for All and the World Summit for Children; the Safe Motherhood InterAgency Group; the Onchocerciasis (riverblindness) Control Programme; the Global Programme for AIDS; and the Task Force for Child Survival. The Bank also has links with the United Nations at the political and policy making level in the work of the General Assembly and its related committees, and the Economic and Social Council. The Economic Development Institute was the Bank's department responsible for such dissemination. Through seminars, workshops and courses, EDI enabled policy-makers to assess and use the lessons of development to benefit their own policies. On 10 March 1999, the World Bank unveiled the successor to the EDI, the World Bank Institute (WBI). The new learning entity also absorbed the World Bank's Learning and Leadership Center. The WBI drives the Bank's learning agenda, working in three main areas: training, policy services, and knowledge networks. WBI is located at World Bank headquarters in Washington, DC. Many of its activities are held in member countries in

cooperation with regional and national development agencies and education and training institutions. The Institute's distance education unit conducts interactive courses via satellite links worldwide. While most of WBI's work is conducted in English, it also operates in Arabic, Chinese, French, Portuguese, Russian and Spanish. Economic Research and Studies. The Bank's economic and social research program, inaugurated in 1972, is undertaken by the Bank's own research staff and is funded out of its administrative budget. The research program is shaped by the Bank's own needs, as a lending institution and as a source of policy advice to member governments, and by the needs of member countries. Its main purposes are to gain new insights into the development process and the policies affecting it; to introduce new techniques or methodologies into country, sectoral, and project analyses; to provide the analytical bases for major Bank documents, such as the World Development Report; and to help strengthen indigenous research capacity in developing countries. International Monetary Fund (IMF)

Established on Dec 27, 1945 in Washington D.C. on the recommendations of Bretton Woods Conference. But it started its operations on Mar 1, 1947.

At present 185 nations are members of the IMF. Dominique Strauss Kahn is the present MD of IMF. Objectives of IMF

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 imbalances in balance

of payments.

Main function is to stabilize exchange. Offers facilities to the member nations for the expansion of international trade, the control of international exchange and to avoid competitive exchange depreciation.

The capital resources of the IMF comprise Special Drawing Rights (SDRs) and currencies that members pay under quotas calculated for them when they join the IMF.

Every IMF member is required to subscribe to the IMF an amount equal to its quota. The quota of a member is largely determined by its economic conditions relative to other members. An amount, not exceeding 25 per cent of the quota, is to be paid in reserve assets, the balance in member's own currency.

The quota determines both the amount of foreign exchange a member may borrow from the Fund and its voting power on IMF policy matters. The members with the largest quotas are USA, Japan and Germany in first, second and third spots. India is placed at the thirteenth spot (1.961 per cent share in total quota).

The IMF makes its resources available to its members to meet their short-term or medium-term payment difficulties, subject to established limits and conditions with respect to the amount of its drawing rights.

Member-countries are given borrowing or drawing rights with the fund which they can use, together with their own nationally held international reserves, to finance the balance of payments deficits.

World Bank Group India

The World Bank Group constitutes the following institutions: 1. International Bank for Reconstruction and Development (IBRD) 2. International Development Association (IDA) 3. International Finance Commission (IFC) 4. Multilateral Investment Guarantee Agency (MIGA) 5. International Centre for Settlement of Investment Disputes (ICSID)

The IDA and the IBRD constitute the World Bank. Robert Zoellick is its present head. 1. International Bank For Re-Construction and Development (IBRD)

1. IBRD was established in Dec 1945 with the IMF on the basis of the recommendations of the Bretton Woods Conference. That is why IMF and IBRD are called Bretton Wood Twins. Its head-quarter is at Washington D.C.

2. At present, 186 nations are members of the IBRD.

3. Objective is of assisting of member nations in the economic re-construction and development of their territories.

4. The bank makes its loans on terms that are reasonable but at the same time sufficient to earn a profit in the form of interest and commission fees. The loans are long-term, generally repaid in the currencies loaned over 20 years, with a five-year grace period.

5. May also guarantee loans by private investors.

6. The loans may be made to member countries, to their political sub-divisions or to private business enterprises in their territories. If the borrower is not a government guarantee of the member-government concerned is required.

Difference Between IBRD and IMF

The banks lends while funds sells i.e., it makes available the necessary currency of a

particular country in case of a shortage.

The bank assists by advancing long-term credits for development and re-construction, whereas IMF facilitates the balanced growth of international trade by short-term credit.

2. International Development Association (IDA) India

IDA is an associate institution of IBRD and is known as the Soft Loan Window of World Bank.

It was established on Sept 24, 1960.

It provides loans to its member countries and no interest is charged on these long-term loans (but there is a 0.75 per cent annual service charge on disbursed credits). Most IDA commitments are made to countries with annual per capita incomes less than $785. Credits are extended for terms of 40 years for least developed countries and 35 years for other countries.

As an affiliate of IBRD, its directors, officers and staff are those of the IBRD.

3. International Finance Corporation (IFC)

Established in 1955, the IFC became a UN specialized agency in 1957.

It provides loans to private industries of developing nations without any government guarantee and also promotes the additional capital investment in these countries.