1.

1 ABOUT THE INTERNATIONAL MONETARY FUND

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.
Created in 1945, the IMF is governed by and accountable to the 188 countries that
make up its near-global membership.

1.2 IMF AT A GLANCE

The IMF, also known as the Fund, was conceived at a UN conference in Bretton
Woods, New Hampshire, United States, in July 1944. The 44 countries at that
conference sought to build a framework for economic cooperation to avoid a
repetition of the competitive devaluations that had contributed to the Great
Depression of the 1930s.
The IMF's responsibilities: The IMF's primary purpose is to ensure the stability of the
international monetary systemthe system of exchange rates and international
payments that enables countries (and their citizens) to transact with each other. The
Fund's mandate was updated in 2012 to include all macroeconomic and financial
sector issues that bear on global stability.
The IMF's influence in the global economy steadily increased as it accumulated more
members. The number of IMF member countries has more than quadrupled from the
44 states involved in its establishment, reflecting in particular the attainment of
political independence by many developing countries and more recently the collapse
of the Soviet bloc.

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The expansion of the IMFs membership, together with the changes in the world
economy, has required the IMF to adapt in a variety of ways to continue serving its
purposes effectively.

In 2008, faced with a shortfall in revenue, the International Monetary Fund's

executive board agreed to sell part of the IMF's gold reserves. On April 27, 2008, IMF
Managing Director Dominique Strauss-Kahn welcomed the board's decision April 7,
2008 to propose a new framework for the fund, designed to close a projected $400
million budget deficit over the next few years. The budget proposal includes sharp
spending cuts of $100 million until 2011 that will include up to 380 staff dismissals.

At the 2009 G-20 London summit, it was decided that the IMF would require
additional financial resources to meet prospective needs of its member countries
during the ongoing global crisis. As part of that decision, the G-20 leaders pledged to
increase the IMF's supplemental cash tenfold to $500 billion, and to allocate to
member countries another $250 billion via Special Drawing Rights.

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2.1 FAST FACTS ABOUT INTERNATIONAL MONETARY FUND

Membership: 188 countries

Headquarters: Washington, D.C.

Executive Board: 24 Directors each representing a single country or a group

of countries

Staff: Approximately 2,600 from 147 countries

Total quotas: US$327 billion (as of 3/13/15)

Additional pledged or committed resources: US$ 885 billion

Committed amounts under current lending arrangements (as of

3/13/15): US$163 billion, of which US$137 billion have not been drawn (see table).

Biggest borrowers (amounts outstanding as of 3/13/15):Portugal, Greece,

Ireland, Ukraine

Biggest precautionary loans (amount agreed as of 3/13/15):Mexico,

Poland, Colombia, Morocco

Surveillance consultations: 122 consultations in 2013 and 129 in 2014

Technical assistance: 274 person years in FY2013 and 285 in FY2014

Original aims:

promote international monetary cooperation;

facilitate the expansion and balanced growth of international trade;

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promote exchange stability;

assist in the establishment of a multilateral system of payments; and

make resources available (with adequate safeguards) to members

experiencing balance of payments difficulties.

2.2 HISTORY
The IMF has played a part in shaping the global economy since the end of World War
II.
COOPERATION AND RECONSTRUCTION (194471)
As the Second World War ends, the job of rebuilding national economies begins. The
IMF is charged with overseeing the international monetary system to ensure exchange
rate stability and encouraging members to eliminate exchange restrictions that hinder
trade.
THE END OF THE BRETTON WOODS SYSTEM (197281)
After the system of fixed exchange rates collapses in 1971, countries are free to
choose their exchange arrangement. Oil shocks occur in 197374 and 1979, and the
IMF steps in to help countries deal with the consequences.

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DEBT AND PAINFUL REFORMS (198289)

The oil shocks lead to an international debt crisis, and the IMF assists in coordinating
the global response.
SOCIETAL CHANGE FOR EASTERN EUROPE AND ASIAN UPHEAVAL
(19902004)
The IMF plays a central role in helping the countries of the former Soviet bloc
transition from central planning to market-driven economies.
GLOBALIZATION AND THE CRISIS (2005 - PRESENT)
The implications of the continued rise of capital flows for economic policy and the
stability of the international financial system are still not entirely clear. The current
credit crisis and the food and oil price shock are clear signs that new challenges for
the IMF are waiting

just

around

the

corner.

2.3 OBJECTIVES OF IMF :

To avoid the competitive devaluation and exchange control.
To establish and maintain currency convertibility.
To develop multilateral trade and payments.
To promote international monetary co-operation through a permanent institute.
To facilitate the expansion of balanced growth of international trade.
To provide exchange stability.
To maintain orderly exchange arrangements among members and to avoid
competitive exchange depreciation.
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 To assist in the establishment of a multilateral system of payments in respect

of current transactions.
To lend confidence to members by making the funds resources available to
them under adequate safeguards.
To shorten the duration and lessen the degree of disequilibrium in the
international balance of payments of members.

2.4 FUNCTIONS
Guardian of good conduct in the area of Balance of payments
Reducing tariffs and other trade restrictions.
Provides technical advice.
Provides short term financial assistance to its member countries.
Provides machinery for orderly adjustment of exchange rates.
Reservoir of currencies.
Lending institution of foreign currencies.
Machinery for altering the par values of the currency of a member country.
International consultancy.
Conducts research studies and publishes report.

2.5

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ROLE OF IMF :

The work of the IMF is of three main types. Surveillance involves the monitoring of
economic and financial developments, and the provision of policy advice, aimed
especially at crisis-prevention. The IMF also lends to countries with balance of
payments difficulties, to provide temporary financing and to support policies aimed at
correcting the underlying problems; loans to low-income countries are also aimed
especially at poverty reduction. Third, the IMF provides countries with technical
assistance and training in its areas of expertise. Supporting all three of these activities
is IMF work in economic research and statistics.
1. IMF SURVEILLANCE

The IMF is mandated to oversee the international monetary system and monitor the
economic and financial policies of its 185 member countries. This activity is known
as surveillance. During this process, which takes place both at the global level and in
individual countries, the IMF highlights possible risks to domestic and external
stability and advises on needed policy adjustments. In this way, it helps the
international monetary system serve its essential purpose of facilitating the exchange
of goods, services, and capital among countries, thereby sustaining sound economic
growth

A : WHY IS IMF SURVEILLANCE IMPORTANT?

In today's globalize economy, where the policies of one country typically affect many
other countries, international cooperation is essential. The IMF, with its nearlyuniversal membership of 185 countries, facilitates this cooperation. There are two
main aspects to the IMFs work: multilateral surveillance or oversight of the world
economy; and bilateral surveillance, which comprises appraisal of and advice on the
policies of each member country.
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B:

COUNTRY SURVEILLANCE

IMF economists monitor members economies on a continuous basis, and regularly

usually once a yearvisit member countries to exchange views with the government
and central bank. The focus is on whether there are risks to domestic and external
stability that argue for adjustments in economic or financial policies. During their
mission, IMF staff also often meets with other stakeholders, such as parliamentarians
and representatives of business, labor unions, and civil society to help evaluate the
countrys economic policies and direction. Upon its return to headquarters, the
mission submits a report to the IMFs Executive Board for discussion. The Boards
views are subsequently transmitted to the countrys authorities.

In recent years, surveillance has become increasingly transparent. Almost all member
countries now agree to publication of a Public Information Notice, which summarizes
the views of IMF staff and the Executive Board. In nine out of ten cases, the staff
report and other accompanying analysis is also published on the IMFs website.

C : MULTILATERAL SURVEILLANCE

The IMF continuously reviews global and regional economic trends. Its key
instruments of global and regional surveillance are two semi-annual publications, the
World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR).
The WEO provides detailed analysis of the state of the world economy, addressing
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issues of pressing interest, such as the current global financial turmoil and economic
downturn. The GFSR provides an up-to-date assessment of global financial markets
and prospects and highlights imbalances and vulnerabilities that could pose risks to
financial market stability. The IMF also publishes Regional Economic Outlook
reports, providing more detailed analysis for five major regions.
Sometimes the IMF will draw attention to specific inter-linkages in the global
economy, with the option of conducting multilateral consultations to foster debate and
develop policy actions as a means to address problems of systemic or regional
importance as was done in 2006-07 on global economic imbalances.

THE EVOLUTION OF IMF SURVEILLANCE AND ITS ROLE

TODAY
Surveillance in its present form was established by Article IV of the IMFs Articles of
Agreement, as revised in the late 1970s following the collapse of the Bretton Woods
system of fixed exchange rates. Under Article IV, member countries undertake to
collaborate with the IMF and with one another to promote the stability of the global
system of exchange rates. In particular, they commit to running their domestic and
external economic policies in keeping with a mutually agreed code of conduct. For its
part, the IMF is charged with (i) overseeing the international monetary system to
ensure its effective operation, and (ii) monitoring each member's compliance with its
policy obligations. To ensure that surveillance remains effective, the IMF is constantly
reviewing its policy framework.
E:

STRENGTHENING

THE

POLICY

FRAMEWORK

FOR

SURVEILLANCE

In June 2007, the policy framework of surveillance received its first major update
since the 1970s, with the adoption of the Decision on Bilateral Surveillance over
Members Policies. The Decision clarifies:

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 That country surveillance should be focused on assessing whether countries policies

promote external stability. That means that surveillance should mainly focus on
monetary, fiscal, financial, and exchange rate, policies and assess risks and
vulnerabilities;

What is and what is not acceptable to the international community in terms of how
countries conduct their exchange rate policies; and

That surveillance should be collaborative, candid, and evenhanded, taking into

account countries specific circumstances.

In order to strengthen implementation, a set of guidelines were published in August

2008. In these guidelines, the Managing Director proposes the use of ad hoc
consultations on exchange rates to supplement the usual consultation procedures.

F. STRENGTHENING THE PRACTICE OF SURVEILLANCE

Surveillance needs to evolve with the global economy. For example, the current
financial crisis has shown the need for deeper analysis of the linkages between the
real economy and the financial sector. Building on the Financial Sector Assessment
Program (FSAP), financial sector issues are receiving greater coverage under
surveillance and analytical tools for integrating financial sector and capital markets
analysis into macroeconomic assessments are being developed. In their advice to
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individual countries, IMF staff seeks to leverage cross-country experiences and policy
lessons, drawing on the organizations unique vantage point as a global financial
institution. Spillovers of members policies on other members economies also receive
particular attention in staff analysis, and the IMF has been sharpening its exchange
rate assessments

2. IMF LENDING:
A core responsibility of the IMF is to provide loans to member countries experiencing
balance of payments problems. This financial assistance enables countries to rebuild
their international reserves; stabilize their currencies; continue paying for imports; and
restore conditions for strong economic growth while undertaking policies to correct
the underlying problems. Unlike development banks, the IMF does not lend for
specific projects.

a. WHEN CAN A COUNTRY BORROW FROM THE IMF

A member country may request IMF financial assistance if it has a balance of
payments needthat is, if it cannot find sufficient financing on affordable terms to
meet its net international payments. 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.

b. 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

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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.
c. THE PROCESS OF IMF LENDING
Upon request by a member country, an IMF loan is usually provided under an
arrangement, which stipulates the 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.
d. 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 at a concessional interest rate through the Poverty Reduction
and Growth Facility (PRGF) and the Exogenous Shocks Facility (ESF). Nonconcessional loans are provided mainly through Stand-By Arrangements (SBA), the
Flexible Credit Line (FCL) for members with very strong policies and policy
framworks, and the Extended Fund Facility (which is useful primarily for low-income
members).
The IMF also provides emergency assistance to support recovery from natural
disasters and conflicts, in some cases at concessional interest rates.
Except for the PRGF and the ESF, all facilities are subject to the IMFs market-related
interest rate, known as the rate of charge, and large loans 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 Fundits access limitvaries depending on the
type of loan, but is typically a multiple of the countrys IMF quota. This limit may be

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exceeded in exceptional circumstances. The Flexible Credit Line has no pre-set cap on
access.

Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility
(ESF). PRGF-supported programs for low-income countries are underpinned by
comprehensive country-owned strategies, delineated in their Poverty Reduction
Strategy Papers (PRSPs). The ESF, which was modified in September 2008 to make it
more flexible and increase access levels, aims to meet the needs of low-income
member countries for rapid shock assistance with streamlined conditionality.
The interest rate levied on PRGF and ESF loans is only 0.5 percent, and loans are to
be repaid over a period of 510 years.

Stand-By Arrangements (SBA). The bulk of Fund assistance is provided through

SBAs. The SBA is designed to help countries address short-term balance of payments
problems. 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 basis
where 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
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length of the FCL is 6 months or 1 year (with a mid-term review). Access is

determined on a case-by-case 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 draw on the credit line at the time it is
approved, or it may be treated as precautionary.
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 normally expected
within 47 years. Surcharges apply to high levels of access.

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 PRGF-eligible countries,
subject to availability. Loans must be repaid within 35 years.
3 : TECHNICAL ASSISTANCE:

IMF technical assistance supports the development of the productive resources of

member countries by helping them to effectively manage their economic policy and
financial affairs. The IMF helps these countries to strengthen their capacity in both
human and institutional resources, and to design appropriate macroeconomic,
financial, and structural policies.

A : WHO BENEFITS FROM IMF TECHNICAL ASSISTANCE?

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Technical assistance is one of the benefits of IMF membership. About 90 percent of

IMF technical assistance goes to low and lower-middle income countries. Postconflict countries are also major beneficiaries. Apart from the immediate benefit to
recipient countries, by helping individual countries reduce weaknesses and
vulnerabilities, technical assistance also contributes to a more robust and stable global
economy. Further, technical assistance provided to emerging and industrialized
economies in select cutting-edge areas helps provide traction to IMF policy advice,
and keeps the institution up-to-date on innovations and risks to the international
economy.
B

INTEGRATION

OF

TECHNICAL

ASSISTANCE

WITH

IMF

SURVEILLANCE AND LENDING

Technical assistance contributes to the effectiveness of the IMF's surveillance and
lending programs, and is an important complement to these other core IMF functions.
Specialized technical assistance from the IMF helps build capacity in countries for
effective policymaking, including in support of surveillance or lending operations.
Conversely, surveillance and lending work results in policy and other experiences that
further inform and strengthen the IMF's technical assistance program according to
international best practices. In view of these linkages, achieving greater integration
between technical assistance, surveillance, and lending operations is a key priority for
the IMF.
C

IN WHAT AREAS DOES THE IMF PROVIDE TECHNICAL

ASSISTANCE?

The IMF provides technical assistance in its areas of core expertise: macroeconomic
policy, tax policy and revenue administration, expenditure management, monetary
policy, the exchange rate system, financial sector sustainability, and macroeconomic
and financial statistics. In particular, efforts in recent years to strengthen the
international financial system have triggered additional demands for IMF technical
assistance. For example, countries have asked for help to address financial sector
weaknesses identified within the framework of the joint IMF-World Bank Financial
Sector Assessment Program; adopt and adhere to international standards and codes for
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financial, fiscal, and statistical management; implement recommendations from offshore financial centers assessments; and strengthen measures to combat money
laundering and the financing of terrorism.
At the same time, there is a continuing demand for technical assistance to help lowincome countries build capacity to design and implement poverty-reducing and
growth programs, and to help heavily indebted poor countries undertake debt
sustainability analyses and manage debt-reduction programs. The IMF also
contributes actively to the Integrated Framework for trade-related technical assistance,
which aims to assist low-income countries expand their participation in the global
economy.
D HOW IS TECHNICAL ASSISTANCE PROVIDED?
The recipient country is fully involved in the entire process of technical assistance,
from identification of need, to implementation, monitoring, and evaluation.
The IMF delivers technical assistance in various ways. Depending on the nature of the
assignment, support is often provided through staff missions of limited duration sent
from headquarters, or the placement of experts and/or resident advisors for periods
ranging from a few weeks to a few years. Assistance might also be provided in the
form of technical and diagnostic studies, training courses, seminars, workshops, and
"on-line" advice and support.
The IMF has increasingly adopted a regional approach to the delivery of technical
assistance and training. It operates six regional technical assistance centersin the
Pacific; the Caribbean; East, West and Central Africa; and in the Middle East. In May
2009, the IMF opened a new center in Central America, and it is planning to open
three additional regional centersin Central Asia, and two further centers in Africa.
In addition to training offered at the IMF Institute in Washington D.C., the IMF also
offers courses, workshops, and seminars for country officials through a network of
seven regional training institutes and programs.

A : HOW IS TECHNICAL ASSISTANCE PAID FOR?

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Technical assistance accounts for about one-fifth of the IMF's operating budget. It is
financed by both internal and external resources, the latter comprising funds from
bilateral and multilateral donors. Such cooperation and resource sharing with external
donors has a few benefits: it leverages the internal resources available for technical
assistance; helps avoid duplication of advice by different donors, and strengthens
collaboration with donors and other technical assistance providers.

Bilateral donors to the IMF's technical assistance program include Australia, Austria,
Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, India, Ireland,
Italy, Japan, the Republic of Korea, Luxembourg, the Netherlands, New Zealand,
Norway, Portugal, Russia, Singapore, Sweden, Switzerland, the United Kingdom, and
the United States. Multilateral donors include the African Development Bank, the
Arab Monetary Fund, the Asian Development Bank, the European Commission, the
Inter-American Development Bank, the United Nations, the United Nations
Development Program (UNDP), and the World Bank. In FY 2008, external financing
accounted for approximately a fifth of the IMF's total technical assistance budget.

3.1 PROMOTION OF GLOBAL ECONOMIC STABILITY BY IMF

The IMF advises member countries on economic and financial policies that promote
stability, reduce vulnerability to crises, and encourage sustained growth and high
living standards. It also reviews and publishes global economic trends and
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developments that affect the health of the international monetary and financial
system and promotes dialogue among member countries on the regional and global
consequences of their policies. In addition to these activities, which constitute
surveillance, the IMF provides technical assistance to help strengthen members
institutional capacity and makes resources available to them to facilitate adjustment
in the event of a balance of payments crisis.

3.2 IMPORTANCE OF GLOBAL ECONOMIC STABILITY

Promoting economic stability is partly a matter of avoiding economic and
financial crises, large swings in economic activity, high inflation, and excessive
volatility in exchange rates and financial markets. Instability can increase
uncertainty, discourage investment, impede economic growth, and hurt living
standards. A dynamic market economy necessarily involves some degree of
instability, as well as gradual structural change. The challenge for policymakers is
to minimize instability in their own country and abroad without reducing the
economys ability to improve living standards through rising productivity and
employment.
Economic and financial stability is both a national and a multilateral concern. As
recent financial crises have shown, countries have become more interconnected.
Problems in one sector can result in problems in other sectors and spillovers across
borders. No country is an island when it comes to economic and financial
stability.

3.3 HOW DOES THE IMF HELP?

The IMF helps countries to implement sound and appropriate policies through its
key functions of surveillance, technical assistance, and lending.

SURVEILLANCE:
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Every country that joins the IMF accepts the obligation to subject its economic
and financial policies to the scrutiny of the international community. The IMF's
mandate is to oversee the international monetary system and monitor the economic
and financial policies of its 188 member countries. This process, known as
surveillance, takes place at the global level and in individual countries and regions.
The IMF considers whether domestic policies promote countries own stability by
examining risks they might pose to domestic and balance of payments stability and
advising on needed policy adjustments. It also proposes alternatives in cases where
countries policies promote domestic stability but could affect global stability.

\CONSULTING WITH MEMBER STATES

The IMF monitors members economies through regularusually annual
consultations with each member country. During these consultations, IMF staff
discusses economic and financial developments and policies with national
policymakers, and often with representatives of private sector, labor unions,
academia, and civil society. The staff assesses risks and vulnerabilities, and
considers the impact of fiscal, monetary, financial, and exchange rate policies on
the members domestic and balance of payments stability and on global stability.
The IMF offers advice on policies to promote each countrys macroeconomic,
financial, and balance of payments stability, drawing on experience from across its
membership.

The framework for these consultations is set forth in the IMF Articles of
Agreement and, more recently, in the Integrated Surveillance Decision. These
consultations are also informed by membership-wide initiatives, including

work to systematically assess countries' vulnerabilities to crises;

the Financial Sector Assessment Program, which assesses countries

financial sectors and helps formulate policy responses to risks and
vulnerabilities; and

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the Standards and Codes Initiative in which the IMF, along with the
World Bank and other bodies, assesses countries observance of
internationally recognized standards and codes of good practice in a dozen
policy areas.

OVERSEEING THE BIGGER WORLD PICTURE

The IMF also closely monitors global and regional trends.
The IMFs periodic reports, the World Economic Outlook, its regional
overviews, the Fiscal Monitor, and the Global Financial Stability Report,
analyze global and regional macroeconomic and financial developments. The
IMFs broad membership makes it uniquely well suited to facilitate multilateral
discussions on issues of common concern to groups of member countries, and
advance a shared understanding on policies to promote stability. In this context,
the Fund has been working with the G-20 group of advanced and emerging
economies to assess the consistency of those countries policy frameworks with
balanced and sustained growth for the global economy.
The Fund has reviewed its surveillance mandate in light of the global crisis. It has
introduced a number of reforms to improve financial sector surveillance within
member countries and across borders, to enhance understanding of interlinkages
between macroeconomic and financial developments (e.g. through a Spillover
Report), and promote debate on these matters.

DATA:
In response to the financial crisis, the IMF is working with members, the Financial
Stability Board, and other organizations to fill data gaps important for global
stability.
TECHNICAL ASSISTANCE:

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The IMF helps countries strengthen their capacity to design and implement sound
economic policies. It provides advice and training on a range of issues within its
mandate, including fiscal, monetary, and exchange rate policies; the regulation and
supervision of financial systems; statistics systems; and legal frameworks.
LENDING:
Even the best economic policies cannot completely eradicate instability or avert
crises. If a member country does experience financing difficulties, the IMF can
provide financial assistance to support policy programs that will correct
underlying macroeconomic problems, limit disruption to the domestic and global
economies, and help restore confidence, stability and growth. IMF financing
instruments can also support crisis prevention.

3.4 THE IMF AND THE WORLD BANK

The International Monetary Fund and the World Bank were both created at an
international conference convened in Bretton Woods, New Hampshire, United
States in July 1944. The goal of the conference was to establish a framework
for economic cooperation and development that would lead to a more stable
and prosperous global economy. While this goal remains central to both
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institutions, their work is constantly evolving in response to new economic

developments and challenges.

The IMFs mandate. The IMF promotes international monetary cooperation

and provides policy advice and technical assistance to help countries build and
maintain strong economies. The IMF also makes loans and helps countries
design policy programs to solve balance of payments problems when sufficient
financing on affordable terms cannot be obtained to meet net international
payments. IMF loans are short and medium term and funded mainly by the
pool of quota contributions that its members provide. IMF staff are primarily
economists with wide experience in macroeconomic and financial policies.

The World Banks mandate. The World Bank promotes long-term economic
development and poverty reduction by providing technical and financial
support to help countries reform particular sectors or implement specific
projectssuch as, building schools and health centers, providing water and
electricity, fighting disease, and protecting the environment. World Bank
assistance is generally long term and is funded both by member country
contributions and through bond issuance. World Bank staff are often specialists
in particular issues, sectors, or techniques.

FRAMEWORK CO OPERATION
The IMF and World Bank collaborate regularly and at many levels to assist
member countries and work together on several initiatives. In 1989, the terms
for their cooperation were set out in a concordat to ensure effective
collaboration in areas of shared responsibility.

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HIGH-LEVEL COORDINATION.
During the Annual Meetings of the Boards of Governors of the IMF and the
World Bank, Governors consult and present their countries views on current
issues in international economics and finance. The Boards of Governors decide
how to address international economic and financial issues and set priorities
for the organizations.

A group of IMF and World Bank Governors also meet as part of

the Development Committee, whose meetings coincide with the Spring and
Annual Meetings of the IMF and the World Bank. This committee was
established in 1974 to advise the two institutions on critical development issues
and on the financial resources required to promote economic development in
low-income countries.

MANAGEMENT CONSULTATION.
The Managing Director of the IMF and the President of the World Bank meet
regularly to consult on major issues. They also issue joint statements and
occasionally write joint articles, and have visited several regions and countries
together.

STAFF COLLABORATION.
IMF and Bank staffs collaborate closely on country assistance and policy
issues that are relevant for both institutions. The two institutions often conduct
country missions in parallel and staff participate in each others missions. IMF
assessments of a countrys general economic situation and policies provide
input to the Banks assessments of potential development projects or reforms.
Similarly, Bank advice on structural and sectoral reforms is taken into account

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by the IMF in its policy advice. The staffs of the two institutions also cooperate
on the conditionality involved in their respective lending programs.
The 2007 external review of Bank-Fund collaboration led to a Joint
Management Action Plan on World Bank-IMF Collaboration (JMAP) to further
enhance the way the two institutions work together. Under the plan, Fund and
Bank country teams discuss their country-level work programs, which identify
macro-critical sectoral issues, the division of labor, and the work needed in the
coming

year. A review

of

Bank-Fund

Collaboration underscored

the

importance of these joint country team consultations in enhancing

collaboration.

REDUCING DEBT BURDENS.

The IMF and World Bank also work together to reduce the external debt
burdens of the most heavily indebted poor countries under the Heavily
Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief
Initiative (MDRI). The objective is to help low-income countries achieve their
development goals without creating future debt problems. IMF and Bank staff
jointly prepare

country debt sustainability analyses

under

the Debt

Sustainability Framework (DSF) developed by the two institutions.

REDUCING POVERTY.
In 1999, the IMF and the World Bank launched the Poverty Reduction Strategy
Paper (PRSP) approach as a key component in the process leading to debt
relief under the HIPC Initiative and an important anchor inconcessional
lending by the Fund and the Bank. While PRSPs continue to underpin the

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HIPC Initiative, the World Bank adopted in July 2014 a new approach to
country engagement that no longer requires PRSPs while focusing on the
elimination of extreme poverty and promotion of shared prosperity.

MONITORING PROGRESS ON THE MDGS.

Since 2004, the Fund and the Bank have worked together on the Global
Monitoring Report (GMR), which assesses progress towards the 2015
UN Millennium Development Goals (MDGs). New Sustainable Development
Goals (SDGs) will replace the MDGs in 2015 as the basis for the post-2015
development agenda. The Fund and the Bank will support the implementation
of the new SDGs and contribute to monitoring progress toward their
achievement.

ASSESSING FINANCIAL STABILITY.

The IMF and the World Bank are also working together to make financial
sectors in member countries resilient and well regulated. The Financial Sector
Assessment Program (FSAP) was introduced in 1999 to identify the strengths
and vulnerabilities of a country's financial system and recommend appropriate
policy responses.

3.5 DECISION MAKING OF IMF

The IMF has evolved along with the global economy throughout its 70-year history,
allowing the organization to retain a central role within the international financial
architecture. Unlike the General Assembly of the United Nations, where each country
has one vote, decision making at the IMF was designed to reflect the relative positions
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of its member countries in the global economy. The IMF continues to undertake
reforms to ensure that its governance structure adequately reflects fundamental
changes taking place in the world economy. Current reforms are intended to reflect
the larger role that emerging market and developing economies now play in the global
economy.
The diagram below provides a stylized view of the IMF's current governance
structure.

Board of Governors
The Board of Governors is the highest decision-making body of the IMF. It
consists of one governor and one alternate governor for each member country. The
governor is appointed by the member country and is usually the minister of
finance or the head of the central bank.

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While the Board of Governors has delegated most of its powers to the IMFs
Executive Board, it retains the right to approve quota increases, special drawing
right (SDR) allocations, the admittance of new members, compulsory withdrawal
of members, and amendments to the Articles of Agreement and By-Laws.
The Board of Governors also elects or appoints Executive Directors and is the
ultimate arbiter on issues related to the interpretation of the IMFs Articles of
Agreement. Voting by the Board of Governors may take place either by holding a
meeting or remotely (through the use of courier services, electronic mail,
facsimile, or the IMFs secure online voting system). Decisions are made by a
majority of votes cast, unless otherwise specified in the Articles of Agreement.
The Boards of Governors of the IMF and the World Bank Group normally meet
once a year, during the IMFWorld Bank Annual Meetings, to discuss the work of
their respective institutions. The Annual Meetings, which take place in September
or October, have customarily been held in Washington for two consecutive years
and in an alternate member country in the third year.
Ministerial Committees
The Board of Governors is advised by two ministerial committees,
the International

Monetary

and

Financial

Committee (IMFC)

and

the Development Committee.

The IMFC has 24 members, drawn from the pool of 188 governors, and represents
all member countries. Its structure mirrors that of the Executive Board and its
24 constituencies. The IMFC meets twice a year, during the IMF-World Bank
Spring and Annual Meetings, to discuss the management of the international
monetary and financial system, proposals by the Executive Board to amend the
Articles of Agreement, or any other matters of common concern affecting the
global economy. The Committee issues a communiqu summarizing its views
following each meeting, providing guidance for the IMFs work program. The
IMFC operates by consensus and does not conduct formal votes.
The Development Committee is a joint committee, tasked with advising the
Boards of Governors of the IMF and the World Bank on issues related to
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economic development in emerging market and developing countries. The

committee has 25 members (usually ministers of finance or development). It
represents the full membership of the IMF and the World Bank and mainly serves
as a forum for building intergovernmental consensus on critical development
issues.
The Executive Board
The IMFs 24-member Executive Board conducts the daily business of the IMF
and exercises the powers delegated to it by the Board of Governors. Five
Executive Directors are appointed by the member countries holding the five
largest quotas (currently the United States, Japan, Germany, France, and the
United Kingdom), and 19 are elected by the remaining member countries. Under
reforms currently being finalized, all 24 Directors will be elected by the member
countries.
The Board discusses all aspects of the Funds work, from the IMF staff's annual
health checks of member countries' economies to policy issues relevant to the
global economy. The Board normally makes decisions based on consensus, but
sometimes formal votes are taken. The votes of each member equal the sum of its
basic votes (equally distributed among all members) and quota-based votes.
Therefore, a members quota determines its voting power. Following most formal
meetings, the Board summarizes its views in a document known as a Summing
Up. Informal meetings may also be held to discuss complex policy issues at a
preliminary stage.

IMF Management
The IMFs Managing Director is both chairman of the IMFs Executive Board and
Head of IMF staff. The Managing Director is appointed by the Executive Board
for a renewable term of five years and is assisted by a First Deputy Managing
Director and three Deputy Managing Directors. The IMFs Governors and
Executive Directors may nominate nationals of any of the Funds member
countries. Although the Executive Board may select a Managing Director by a
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majority of votes cast, the Board has in the past made such appointments by
[Link] the 2011 selection, the Executive Board adopted a procedure that
allowed the selection of the next Managing Director to take place in an open,
merit-based, and transparent manner.
Governance reform
The Funds governance structure must keep pace with the rapidly evolving world
economy to ensure it remains an effective and representative institution of all of its
188 member countries. To secure this objective, in December 2010 the Board of
Governors of the IMF approved a package of far-reaching reforms of the Fund's
quotas and governance. These reforms, which have yet to become effective (see
further below), represent a major realignment in the ranking of quota shares that
better reflects global economic realities, and a strengthening in the Funds
legitimacy and effectiveness. The elements of the reform include:

A quota increase and shift in shares. The 14th General Review of Quotas
results in an unprecedented doubling of quotas and a major realignment of
quota and voting shares to emerging and developing countries (with a more
than 6 percent quota shift to dynamic emerging market and developing
countries and under-represented countries).

Protecting the voting power of the poorest. The quota shares and voting
power of the poorest members will be preserved.

Quota formula and next review. A comprehensive review of the current

quota formula and bringing forward the completion of the 15th General
Review of Quotas to January 2014.1

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The IMF remains fully committed to pursuing the implementation of the

governance reforms that have been agreed to make the Fund an even more
effective and representative institution.
Good governance
The Fund actively promotes good governance within its own organization. It
has adopted a number of integrity institutions, including a Code of Conduct for
Staffbolstered by financial certification and disclosure requirements, and
sanctionsa similar Code of Conduct for Members of the Executive Board,
and an Integrity Hotline offering protection to whistleblowers. The
IMF Ethics Office advises the institution and its staff on ethics issues, inquires
into alleged violations of rules and regulations, and oversees the ethics and
integrity training program for all staff members.

3.6 SPECIAL DRAWING RIGHTS (SDRS)

The SDR is an international reserve asset, created by the IMF in 1969 to supplement
its member countries official reserves. Its value is based on a basket of four key
international currencies, and SDRs can be exchanged for freely usable currencies. As

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of March 17, 2015, 204 billion SDRs were created and allocated to members
(equivalent to about $280 billion).
THE ROLE OF THE SDR
The SDR was created by the IMF in 1969 to support the Bretton Woods fixed
exchange rate system. A country participating in this system needed official
reservesgovernment or central bank holdings of gold and widely accepted
foreign currenciesthat could be used to purchase the domestic currency in
foreign exchange markets, as required to maintain its exchange rate. But the
international supply of two key reserve assetsgold and the U.S. dollarproved
inadequate for supporting the expansion of world trade and financial development
that was taking place. Therefore, the international community decided to create a
new international reserve asset under the auspices of the IMF.
Only a few years after the creation of SDRs, the Bretton Woods system collapsed
and the major currencies shifted to a floating exchange rate regime. In addition,
the growth in international capital markets facilitated borrowing by creditworthy
governments. Both of these developments lessened the need for SDRs.
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.

BASKET OF CURRENCIES DETERMINES THE VALUE OF THE SDR

The value of the SDR was initially defined as equivalent to 0.888671 grams of
fine goldwhich, at the time, was also equivalent to one U.S. dollar. After the
collapse of the Bretton Woods system in 1973, the SDR was redefined as a basket
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of currencies. Today the SDR basket consists of the euro, Japanese yen, pound
sterling, and U.S. dollar. The value of the SDR in terms of the U.S. dollar is
determined daily and posted on the IMFs website. It is calculated as the sum of
specific amounts of the four basket currencies valued in U.S. dollars, on the basis
of exchange rates quoted at noon each day in the London market.
THE SDR INTEREST RATE
The SDR interest rate provides the basis for calculating the interest charged to
borrowing members, and the interest paid to members for the use of their
resources for regular (non-concessional) IMF loans. It is also the interest paid to
members on their SDR holdings and charged on their SDR allocation. The SDR
interest rate isdetermined weekly and is based on a weighted average of
representative interest rates on short-term debt instruments in the money markets
of the SDR basket currencies.
BUYING AND SELLING SDRS
IMF members often need to buy SDRs to discharge obligations to the IMF, or they
may wish to sell SDRs in order to adjust the composition of their reserves. The
IMF may act as an intermediary between members and prescribed holders to
ensure that SDRs can be exchanged for freely usable currencies. For more than
two decades, the SDR market has functioned through voluntary trading
arrangements. Under these arrangements a number of members and one prescribed
holder have volunteered to buy or sell SDRs within limits defined by their
respective arrangements. Following the 2009 SDR allocations, the number and
size of the voluntary arrangements has been expanded to ensure continued
liquidity of the voluntary SDR market.
CONCLUSION
The IMF is the worlds central organization for international monetary cooperation.
With 185 member countries, it is an organization in which almost all of the countries
in the world work together to promote the common good. The IMFs primary purpose
is to safeguard the stability of the international monetary systemthe system of
exchange rates and international payments that enables countries (and their citizens)
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to buy goods and services from each other. This is essential for achieving sustainable
economic growth and raising living standards.
All of the IMFs member countries are represented on its executive Board, which
discusses the national, regional, and global consequences of each members economic
main activities of the IMF include
providing advice to members on adopting policies that can help them prevent or
resolve a financial crisis, achieve macroeconomic stability, accelerate economic
growth, and alleviate poverty;
making financing temporarily available to member countries to help them address
balance of payments problemsthat is, when they find themselves short of foreign
exchange because their payments to other countries exceed their foreign exchange
earnings; and
offering technical assistance and training to countries at their request, to help them
build the expertise and institutions they need to implement sound economic policies.
The IMF is headquartered in Washington, D.C., and, reflecting its global reach and
close ties with its members, also has offices around the world.

BIBLIOGRAPHY
[Link]

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