Introduction

The United Nations monetary and financial conference of 44 nations was held at Bretton Woods, New Hampshire in the U.S.A. in July 1944. According to the conference, three main economic problems dominated the post was period. Firstly, in order to ensure world economic order and peace, it was necessary to restore stability in the monetary systems of those countries which had been forced by the exigencies to abandon all conventional rules of monetary discipline observed under the gold standard. Secondly, it was necessary to find effective means to reconstruct the warravaged economies of the European countries. Thirdly, stable peace was needed in the world which could be achieved by diverting a part of the world resources to the development of the economies of underdeveloped countries.

The conference gave birth to IMF and IBRD, known as the “Bretton Woods Twins”. The IMF was established in order to abolish effectively all exchange and trade restrictions and to promote multilateral trading system. IMF intends to promote international monetary cooperation, exchange stability and orderly exchange arrangements, faster economic growth and high levels of employment and to provide temporary financial assistance to countries to help case balance of payments adjustment.

The IMF come into being on December 29, 1945 when 29 countries signed the Fund’s Articles of Agreement- IMF’s Charter Headquarters of IMF are at Washington D.C.

Membership and structure

All those countries which agree to subscribe to fund’s articles of agreement are eligible for fund’s membership. At present, IMF has 184 member countries

Each member’s quota in the Fund determines its subscriptions to the fund, its drawing rights, voting power and share of any allocation of special drawing rights (SDR’s)

The highest authority of the fund is the Board of Governors, in which each of the member countries is represented by a Governor and an alternate Governor. The Governor normally meet once a year but may meet or vote by mail at other times. The Board of Governors has delegated many of its powers to the Board of executive directors. The Executive Board deals regularly with a wide variety of administrative and policy matters and elects the managing director who is the chairperson of the Executive Board and Chief of the operating staff of the fund.

Functions

The primary functions of IMF are:-

• To promote International Monetary Cooperation through a permanent institution which provides the machinery for consultation and collaboration on International monetary problems

• To facilitate the expansion and balanced growth of International trade and to contribute to the promotion of high levels of employment and real income

• To promote exchange stability and to maintain orderly exchange arrangements among members

• To give confidence to members by making general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in their balance of payments.

Use of Fund Resources and special Drawing Rights (SDR’s)

Fund members may draw on Fund’s financial resources to meet their balance of payments needs. In addition, the members have access to three permanent facilities for specific purposes-

• The facility for compensatory financing of export fluctuations (available to members facing BOP difficulties due to temporary export shortfall for reasons beyond control).

• The buffer stock financing facility (available for building International buffer stock in order to prevent fluctuations in members export earnings).

• The structural Adjustment facility (SAF) (to provide financial support to low income countries on concessional terms).

Special Drawing Right (SDR) is an International Reserve Asset created by the IMF in 1969 and allocated to its members to supplements existing reserve asset. The SDR is IMF’s unit of account. The value of the SDR is determined daily on the basis of five currencies- US dollar, German deutsche mark, French france, Japanese Yen and British Pound sterling. The SDR valuation basket is revised every five years.

Under the new agreement of IMF, the SDR is the unit of account for all purposes of the Fund and members of Fund have pegged their currencies to the SDR, When a member pegs its currency to the SDR, the value of its currency is fixed in terms of the SDR.

Technical Assistance, Liquidity & Other Activities

The technical assistance provided by the fund which constitutes an integral part of its activities is in the nature of regular annual consultations with members.

The IMF provides technical assistance and training to its members in the following areas-

• designing and implementing fiscal an monetary policies

• institution building

• collecting and refining statistical data

• drafting and reviewing financial legislation

The IMF and the world Bank launched a joint initiative in providing external debt relief for the heavily indebted poor countries (HIPC’s)

IMF and India

India is a founder member of the IMF and has played an important role in the formulation of Fund policies. IMF has been very sympathetic to India and to its problems also. India was the first country to draw Japanese yens from the IMS.

To meet its BOB deficit, India purchased from the IMF Fund $100 million during 1948 and 1949. In 1974, India was granted a stand by credit of $200 million by the Fund to tide over her foreign exchange crisis. Under Oil facility, India purchased a total of SDR 401. 34 million from the fund in 1974-75 and 1975-76.

India has made substantial drawals from the IMF from 1990-91 onwards under different financing facilities.

Conclusion

The IMF was established for promoting International Economic stability by promoting the balanced growth of free International Trade and the multi-convertibility of national currencies. The Fund is a pool of central bank reserves and national currencies which are made available to the fund members. The IMF over the years has been performing its operations of surveillance, financial assistance and technical assistance apart from assisting low income and heavily indebted countries to build their economies and gain entry into the global economy.

Reference

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