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Damodaram Sanjivayya

National Law
University

Economics Project
On
IMF International Monetary Fund

Mugdha Tomar
Sec B
201263
IIIrd Semester

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Certificate
This is to certify that Miss Mugdha Tomar with Reg.No 201263 of IIIrd semester prepared
the project on IMF International Monetary Fund.In partial fulfilment of her semester
course in the subject Economics I.During the academic year 2013-2014 under my
supervision and guidance.

Signature of the Faculty

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Acknowledgement
I would like to thank Prof Ramchandradu our Economics I teacher for giving me such a
wonderful opportunity for doing a project on IMF - International Monetary Fund.The topic
helped me immensely in enhancing my knowledge about IMF as an organisation.

Thank You

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Table of Contents
Introduction. 5
Background. 5 6
The Bretton Woods Monetary System. 6 8
From 1973 to Present 8 9
Governance of IMF 9
Functions 10 13
Member Countries 14 15
Voting Powers. 16
U.S. Engagement With IMF 19 -22
At a Glance India and IMF.. 23
IMF and Globalisation. 24
Criticisms of IMF.. 25 28
Conclusion. 29
Bibliography... 30

Introduction

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The International Monetary Fund (IMF) (French : Fonds montaire international) is

an international organization that was initiated in 1944 at the Bretton Woods Conference and
formally created in 1945 by 29 member countries. The IMF's stated goal was to assist in the
reconstruction of the world's international payment system post World War II. Countries
contribute money to a pool through a quota system from which countries with payment
imbalances can borrow funds temporarily. Through this activity and others such as
surveillance of its members' economies and the demand for self-correcting policies, the IMF
works to improve the economies of its member countries.
The IMF describes itself as 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. The
organization's

stated

objectives

are

to

promote

international

economic

cooperation, international trade, employment, and exchange rate stability, including by

making financial resources available to member countries to meet balance of payments needs.
Its headquarters are in Washington, D.C., United States.

Background
Prior to World War II, there was no negotiated international regime governing international
monetary and trade relations. It was the shared view among the allied powers that many
characteristics of the international financial system during the period between the first and
second world wars, including competitive devaluations, unstable exchange rates, and
protectionist trade policies, worsened the 1930s depression and accelerated the onset of the
war. To address these concerns, representatives of the 44 allied nations gathered in Bretton
Woods, NH, in July 1944 for the United Nations Monetary and Financial Conference. Their
goal was ambitious and largely successfulto create a cooperative and institutional
framework for the global economy that would facilitate international trade and balanced
global economic stability and growth.

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At the Bretton Woods conference, Articles of Agreement for the IMF and the International
Bank for Reconstruction and Development (IBRD), later known as the World Bank, were
drafted and adopted. They entered into force, formally creating the institutions, on December
27, 1945, following the adoption of implementing or authorizing legislation within member
countries1.The Articles of Agreement of both institutions constitute an international treaty,
imposing obligations on member states, which have changed over time.
In the eyes of its founders, the IMFs purpose and contribution to postwar macroeconomic
stability were threefold: (1) facilitate trade by restricting certain foreign exchange controls;
(2) create monetary stability by managing a fixed (but flexible) exchange rate system; and (3)
provide short-term financing to member countries to correct temporary balance-of-payments
problems.
The U.S. Senate agreed to the ratification (by the President) of the Fund and Bank
Agreements in July 1945. U.S. participation in both organizations is authorized by the United
States Bretton Woods Agreement Act, as amended (Bretton Woods Act). Unique among the
founding members, the United States, in the Bretton Woods Act, requires specific
congressional authorization to change the U.S. quota or shares in the Fund or for the United
States to vote to amend the Articles of Agreement of the IMF or the World Bank. The U.S.
Congress, thus, has veto power over major decisions at both institutions.

The Bretton Woods Monetary System

From 1946 to 1971, the main purpose of the IMF was regulatory, ensuring IMF
memberscompliance with a par value exchange rate system. This was a two-tiered currency
regime using gold and the U.S. dollar. Each IMF member government could choose to define
the value of its currency in terms of gold or the U.S. dollar, which the U.S. government
agreed to support at a fixed gold value of one ounce of gold being equal to $35. Unlike in the
classic gold standard period (1880-1914), monetary policy was not strictly restricted by a
countrys holdings of gold. Member countries were allowed to intervene in the currency

11 The third pillar of the postwar economic agenda, negotiation on multilateral rules to liberalize and govern
international trade, was not completed until the 1947 General Agreement on Tariffs and Trade (GATT). In 1995,
the GATT was succeeded by the World Trade Organization (WTO).

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market but were obligated to keep their exchange rates within a 1% band around their
declared par value.
When currencies (other than the U.S. dollar) came under pressure from short-term balance
of payments imbalances that normally arose through international trade and finance
exchanges, countries would receive short-term financial support from the IMF. In cases
where the currency peg was considered fundamentally misaligned, a country could devalue
(or revalue) its currency. By providing monetary independence limited by the peg, the
Bretton Woods monetary system combined exchange rate stability, the key benefit of the 19th
century gold standard, with some of the virtues of floating exchange rates, principally
independence to pursue domestic economic policies geared toward full employment.
The first major challenge to the postwar international monetary system came in the early
1960s. The postwar expansion in international trade and economic growth required an
increase in international liquidity, that is, an increase in central bank holdings of the two
major internationalreserve assets, gold and the U.S. dollar. With the economic recovery of
Europe well advanced, the slow growth in gold supplies was hampering the growth of
international reserve assets. As early as 1960, global foreign dollar holdings exceeded the
value of U.S. gold holdings (at $35 an ounce). The system could continue to function as long
as countries were willing to settle their balance of payments in U.S. dollars instead of gold.

The international communitys response was to create a new international reserve currency,
the Special Drawing Right (SDR). The SDR also serves as the IMFs unit of account. Initially
defined as equivalent to 0.888671 grams of fine gold, the value of the SDR was switched to a
basket of international currencies following the collapse of the Bretton Woods system of
fixed parity exchange rates in 1973. The current basket includes the euro, the Japanese yen,
the British pound sterling, and the U.S. dollar.
By 1970, a large and prolonged U.S. balance-of-payments deficit was mirrored by its
counterpart, large balance-of-payments surpluses in the other major industrial countries. As a
result, much of the 1960s was characterized by substantial currency instability, as liberalized
capital flows brought about repeated currency crises in the supposedly fixed exchange rate
Bretton Woods system. Amid declining confidence in the U.S. dollar, foreign central banks
increasingly became reluctant holders of U.S. dollars and began exchanging their dollar

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reserves for U.S. gold holdings. After several years of instability, the Bretton Woods system
of fixed exchange rates finally collapsed in March 1973 when the United States severed the
link between the dollar and gold, allowing the value of its currency to be determined by
market forces.

From 1973 to Present

A major purpose of the IMF as originally conceived at Bretton Woodsto maintain fixed
exchange rateswas, thus, at an end. Although the IMF had lost its motivating purpose, it
adapted to the end of fixed exchange rates. In 1973, IMF members enacted a comprehensive
rewrite of the IMF Articles. IMF members condoned the floating-rate exchange rate system
that was already in place; officially ended the international monetary role of gold (although
gold remains an international monetary asset); and, nominally, but unsuccessfully, made the
SDR the worlds principal reserve asset. Henceforth, member countries were allowed to
freely determine their currencys exchange rate, and use private capital flows to finance trade
imbalances.
The IMF was also given two new mandates, which became the foundation of its role in the
post-Bretton Woods international monetary system. The first was for the IMF to oversee the
international monetary system to ensure its effective operation. The second was to oversee
the compliance by member states with their new obligations to collaborate with the Fund
and other members to assure orderly exchange arrangements and to promote a stable system
of exchange rates. Consequently, the IMF transformed itself from being an international
monetary institution focused almost exclusively on issues of foreign exchange convertibility
and stability to being a much broader international financial institution, assuming a broader
array of responsibilities and engaging on a wide range of issues including financial and
capital markets, financial regulation and reform, and sovereign debt resolution.
The IMF also increasingly relied on its lending powers, as floating exchange rates and the
growthof international capital flows led to more frequent, and increasingly severe, financial
crises. Over the past several decades, the IMF has been involved in the oil crisis of the 1970s;
the Latin American debt crisis of the 1980s; the transition to market-oriented economies
following the collapse of communism; currency crises in East Asia, South America, and

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Russia; and, most recently, the global response to the 2008-2009 global financial crisis and
the 2010-2011 European sovereign debt crisis.2

Governance of IMF(Graph)

2International Monetary Fund: Background and Issues for Congress, Congressional Research Service, Martin
A. Weiss, March 21,2013,Pg No 1-4

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Functions
In practice, the IMFs mandate of promoting international monetary stability translates into
three main functions: (1) surveillance of financial and monetary conditions in its member
countries and in the world economy; (2) financial assistance to help countries overcome
major balance-of-payments problems; and (3) technical assistance and advisory services to
member countries

Surveillance
The IMF provides surveillance of the international monetary system in order to ensure its
effective operation and to oversee the compliance of each member with its obligations to
the Fund. In particular, the Fund shall exercise firm surveillance over the exchange rate
policies of member countries and shall adopt specific principles for the guidance of all
members with respect to those policies.The IMFs general surveillance recommendations are
not binding or enforceable. The effectiveness of IMF surveillance is dependent on the peer
pressure exercised by other IMF member countries, and increasingly the global financial
sector, as most IMF analysis of global economic risks is made now public.
The IMF engages in both bilateral and multilateral surveillance. IMF members agree, as a
condition of membership, that they will collaborate with the Fund and other members to
assure orderly exchange arrangements and to promote a stable system of exchange rates. In
particular, they agree to pursue economic and financial policies that will produce orderly
economic growth with reasonable price stability, to avoid erratic disruptions in the
international monetary system, not to manipulate their exchange rates in order to attain unfair
competitive advantage or shift economic burdens to other countries, and to follow exchange
rate policies compatible with these commitments.
Countries are required to provide the IMF with information and to consult with the IMF upon
its request. The IMF staff generally meets annually with each member country for Article IV

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consultations regarding the countrys current fiscal and monetary policies, the state of its
economy, its exchange rate situation, and other relevant concerns. The IMFs reports on its
Article IV consultations with each country are presented to the IMF Executive Board, along
with the staffs observations and recommendations about possible improvements in the
countrys economic policies and practices.
In pursuit of its multilateral surveillance function, the IMF publishes numerous reports each
year on economic conditions and trends in the world economy. These include three
semiannual publications: (1) the World Economic Outlook, which provides analysis of the
state of the global economy; (2) the Global Financial Stability Report, which assesses global
financial markets; and (3) the Fiscal Monitor, which surveys and analyzes the state of public
finances in member countries.3

Financial Assistance
Notwithstanding its macroeconomic surveillance, the IMF is perceived as an institution that
primarily provides temporary financing to troubled economies. The IMFs financial structure
can best be characterized as that of a credit union. IMF member countries deposit hard
currency and some of their own currency, from which they can draw the currencies of other
countries if they face significant problems in managing their balance of payments. As noted
above, supplemental resources are available from the NAB or GAB if quota resources are
insufficient.

The IMF is required by its Articles to ensure that countries' use of its resources will be
temporary and that loans will be repaid. Failure of a borrowing country to repay the IMF
reduces the availability of financing for all other IMF members. In order to ensure that it gets
repaid, the IMF imposes conditionality on its loans. Conditionality is also intended to correct
the borrower's current account deficit by bringing about macroeconomic stabilization and
economic adjustment

3 International Monetary Fund: Background and Issues for Congress, Congressional Research Service, Martin
A. Weiss, March 21,2013,Pg No 9,10

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In the past, there have been debates about whether the austerity conditions that are often the
core of IMF conditionality are productive in increasing economic growth. In 2000, one
heavily cited paper found that participating in IMF programs lowers growth rates during the
program, as would be expected. In addition, however, the study found that once countries
leave the program, they grow faster than if they had remained, but not faster than they would
have without participating in the IMF program in the first place.4
After heavy criticism of the conditions attached to IMF loans to East Asia in the late 1990s,
them IMF revamped its conditionality guidelines in 2002. Additional reforms, including new
IMf lending instruments based on economic prequalification (ex-ante conditionality) rather
than traditional structural adjustment (ex-post conditionality) also address these concerns.56

Condionality of Loans

IMF conditionality is a set of policies or conditions that the IMF requires in exchange for
financial resources.The IMF does not require collateral from countries for loans but rather
requires the government seeking assistance to correct its macroeconomic imbalances in the
form of policy reform. If the conditions are not met, the funds are withheld. Conditionality is
perhaps the most controversial aspect of IMF policies.The concept of conditionality was
introduced in an Executive Board decision in 1952 and later incorporated in the Articles of
Agreement.
Conditionality is associated with economic theory as well as an enforcement mechanism for
repayment. Stemming primarily from the work of Jacques Polak in the Fund's research
4 Adam Przeworski and James Vreeland, The effect of IMF programs on economic growth, Journal of
Development Economics, vol. 62 (2000).

5 Olivier Jeanne, Dealing with Volatile Capital Flows, Peterson Institute for International Economics, Working
Paper PB10-180, Washington, DC, July 2010
6 International Monetary Fund: Background and Issues for Congress, Congressional Research Service, Martin
A. Weiss, March 21,2013,Pg No 10,11

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department, the theoretical underpinning of conditionality was the monetary approach to the
balance of payments."7

Outstanding IMF Credit, 1970 2010 (percentage of total outstanding credit graph)|

Technical Assistance
Access to technical assistance is one benefit of IMF membership, accounting for about 20%
of the IMFs annual operating budget. The IMF provides technical assistance in its core areas
of expertise: macroeconomic policy; tax and revenue policies; expenditure management;
exchange rates; financial sector sustainability; and economic statistics. 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. About 90% of
IMF technical assistance goes to low and lower-middle income countries.89

7 http://en.wikipedia.org/wiki/International_Monetary_Fund

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Member Countries
The 188 members of the IMF include 187 members of the UN and the Republic of Kosovo
All members of the IMF are also International Bank for Reconstruction and
Development(IBRD) members and vice versa.
Former members are Cuba (which left in 1964) and the Republic of China, which was ejected
from the UN in 1980 after losing the support of then U.S. President Jimmy Carter and was
replaced by the People's Republic of China.However, "Taiwan Province of China" is still
listed in the official IMF indices.
Apart

from

Cuba,

the

other

UN

states

that

do

not

belong

to

the

IMF

are Andorra, Liechtenstein, Monaco, Nauru and North Korea.

The former Czechoslovakia was expelled in 1954 for "failing to provide required data" and
was readmitted in 1990, after the Velvet Revolution. Poland withdrew in 1950allegedly
pressured by the Soviet Unionbut returned in 1986.

Qualifications
Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar
period, rules for IMF membership were left relatively loose. Members needed to make
periodic membership payments towards their quota, to refrain from currency restrictions
unless granted IMF permission, to abide by the Code of Conduct in the IMF Articles of

8International Monetary Fund, Fact Sheet: IMF Lending, March 30, 2011
9 International Monetary Fund: Background and Issues for Congress, Congressional Research Service,
Martin A. Weiss, March 21,2013,Pg No 13

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Agreement, and to provide national economic information. However, stricter rules were
imposed on governments that applied to the IMF for funding.
The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates
secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the
balance of payments, and only with the IMF's agreement.
Some members have a very difficult relationship with the IMF and even when they are still
members they do not allow themselves to be monitored. Argentina for example refuses to
participate in an Article IV Consultation with the IMF.

Benefits
Member countries of the IMF have access to information on the economic policies of all
member countries, the opportunity to influence other members economic policies, technical
assistance in banking, fiscal affairs, and exchange matters, financial support in times of
payment difficulties, and increased opportunities for trade and investment.10

10 http://en.wikipedia.org/wiki/International_Monetary_Fund

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Voting Power
Voting power in the IMF is based on a quota system. Each member has a number of basic
votes" (each member's number of basic votes equals 5.502% of the total votes), [52] plus one
additional vote for each Special Drawing Right (SDR) of 100,000 of a member country's
quota.The Special Drawing Right is the unit of account of the IMF and represents a claim to
currency. It is based on a basket of key international currencies. The basic votes generate a
slight bias in favor of small countries, but the additional votes determined by SDR outweigh
this bias.

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Concentration of IMF Voting Shares (Graph)

Effects of the Quota System

The IMF's quota system was created to raise funds for loans.Each IMF member country is
assigned a quota, or contribution, that reflects the country's relative size in the global
economy. Each member's quota also determines its relative voting power. Thus, financial
contributions from member governments are linked to voting power in the organization.

This system follows the logic of a shareholder-controlled organization: wealthy

countries have more say in the making and revision of rules. [56] Since decision
making at the IMF reflects each member's relative economic position in the world,
wealthier countries that provide more money to the fund have more influence in
the IMF than poorer members that contribute less; nonetheless, the IMF focuses on
redistribution.

Developing Countries

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Quotas are normally reviewed every five years and can be increased when deemed necessary
by the Board of Governors. Currently, reforming the representation of developing
countries within the IMF has been suggested.These countries economies represent a large
portion of the global economic system but this is not reflected in the IMF's decision making
process through the nature of the quota system. Joseph Stiglitz argues "There is a need to
provide more effective voice and representation for developing countries, which now
represent a much larger portion of world economic activity since 1944, when the IMF was
created. In 2008, a number of quota reforms were passed including shifting 6% of quota
shares to dynamic emerging markets and developing countries.

Influence of United States

A second criticism is that the United States transition to neoliberalism and global capitalism
also led to a change in the identity and functions of international institutions like the IMF.
Because of the high involvement and voting power of the United States, the global economic
ideology could effectively be transformed to match the US's. This is consistent with the IMF's
function change during the 1970s after the Nixon Shock ended the Bretton Woods system.
Another criticism is that allies of the United States are able to receive bigger loans with fewer
conditions.

Overcoming Borrower/Creditor Divide

The IMF's membership is divided along income lines: certain countries provide the financial
resources

while

others

use

these

resources.

Both developed

country "creditors"

and developing country "borrowers" are members of the IMF. The developed countries
provide the financial resources but rarely enter into IMF loan agreements; they are the
creditors. Conversely, the developing countries use the lending services but contribute little to
the pool of money available to lend because their quotas are smaller; they are the borrowers.
Thus, tension is created around governance issues because these two groups, creditors and
borrowers, have fundamentally different interests in terms of the conditions of these loans.
The criticism is that the system of voting power distribution through a quota system
institutionalizes borrower subordination and creditor dominance. The resulting division of the
Fund's membership into borrowers and non-borrowers has increased the controversy around

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conditionality because the borrowing members are interested in making loan access easier
while the creditor members want to maintain reassurance that the loans will be repaid.11

U.S. Engagement with the IMF

U.S. Policy-Making Process
As the largest single shareholder of IMF quota (approximately $67.35 billion), and
contributor to the NAB ($100 billion), the United States has a leading role in shaping the
IMFs lending, surveillance, and advisory operations. While the statutory framework for U.S.
participation in the IMF provides the President the authority to appoint the U.S. Governor,
Alternate Governor, Executive Director, and Alternate Executive Director, the Department of
the Treasury has been delegated responsibility to direct U.S. representatives at the IMF and to
take a range of actions with respect to the IMF, including making contributions to capital
increases and implementing congressional mandates. Congress is responsible for authorizing

11 http://en.wikipedia.org/wiki/International_Monetary_Fund

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and appropriating all U.S. financial commitments to the IMF. The Senate has advise and
consent authority over all persons nominated to represent the United States at the IMF.
U.S. participation in the IMF is authorized by the Bretton Woods Agreements Act of 1945.24
U.S. representatives at the Board of Governors and the Board of Executive Directors are
appointed by the President, by and with the advice and consent of the Senate, to terms of five
years and two years, respectively. They have the right to remain in office until a successor has
been appointed.25 The Secretary of the Treasury, as a matter of practice, is nominated to
serve as the U.S. Governor at the IMF. The Chairman of the Federal Reserve customarily is
nominated to serve as the U.S. Alternate Governor. As discussed above, the Board of
Governors has delegated substantial authority to the IMFs Executive Board, which carries
out the IMFs day-to-day operations. The U.S. Executive Director and Alternate U.S.
Executive Director serve as representatives of the United States to the IMF and present the
U.S. governments positions. Executive Directors at the IMF, including those of those of the
United States, are employees of the IMF.12
When the United States joined the IMF, Congress made an interagency group of executive
branch agencies, the National Advisory Council on International Monetary and Financial
Problems(NAC), responsible for instructing the U.S. IMF representative, under the general
direction of the President. Unless the President overrode their recommendations, policy was
determined by a majority vote of agencies involved. The initial interagency procedure did not
work well, and in1965, Congress approved a reorganization act that abolished the NAC as a
statutory committee and transferred all of its responsibilities and authority to the President,
including the responsibility for instructing U.S. representatives at the IMF. In 1966, President
Lyndon Johnson delegated the responsibility to direct U.S. representatives at the IMF to the
Treasury Department, where it continues to reside today.13 The President reconstituted the
NAC by executive order, but it became solely a forum where other agencies could advise the
Treasury Department about policy concerns regarding U.S. participation in the international
financial institutions.14

12 Federal law limits the salaries that IMF may pay the U.S. representatives, capping them at the rate of level
IV of the Executive Schedule for the U.S. Executive Director and level V for the Alternate U.S. Executive
Director.

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Unlike in a U.S. government department or agency, changes in the IMFs operations cannot
be brought about simply by changing U.S. law. As a result, congressional proposals for

policy changes in

the IMF are formulated as directives to the Secretary of the Treasury to instruct the
representative of the U.S. government in the IMF, the U.S. Executive Director, to promote the
desired change. These have often been formulated as an instruction to use the voice and
vote of the United States to achieve the desired goal. Consequently, the term voice and
vote has become something of a generic or descriptive term for those amendments to U.S.
law that seek to bring about specific changes within the IMF. Over the years, voice and
vote amendments have increased. In the context of the current debate over IMF funding for
advanced European economies, questions have arisen over the extent to which congressional
policy, as embodied in the voice and vote amendments, has been carried out.
Voice and vote amendments can be organized in three broad categories: policy, directed
vote,and reporting. Policy mandates seek to foster or advocate certain policies at the IMF
by directing the Treasury Department to instruct the U.S. Executive Director to use his or her
voice and/or vote on behalf of the United States at the IMF Executive Board. For
example, the U.S. Executive Director is directed to (1) encourage the IMF to adopt
internationally recognized worker rights for borrowing countries; (2) encourage and promote
the integration of women into the national economies of IMF member countries and into
professional positions within the IMF organization; and (3) urge the IMF to encourage
member countries to pursue macroeconomic stability while promoting environmental
protection.

13 Executive Order 11269 of February 14, 1966, as amended, specifically delegates to the Secretary of the
Treasury the Presidents authority to instruct representatives of the United States to the international financial
organizations and to provide the U.S. governments consent with respect to IMF decisions. In addition, 22
U.S.C. 6593 specifically provides the Department of the Treasury with the primary responsibility to continue to
coordinate activities relating to United States participation in international financial institutions and relating to
organization of multilateral efforts aimed at currency stabilization, currency convertibility, debt reduction, and
comprehensive economic reform programs.
14 Since 1999, Congress has required that Treasury, as Chairman of the NAC, annually report to Congress on
several topics related to U.S. participation in the international financial institutions, including an assessment of
the effectiveness of the major policies and operations of the international financial institutions; the major issues
affecting United States participation; progress made and steps taken to achieve U.S. policy goals (including
major policy goalsembodied in current law).

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The second category, directed voting mandates, require that the U.S. Executive Director
oppose an IMF loan when a country meets or does not meet certain criteria. In practice, U.S.
opposition can take the form of abstaining from voting on, or voting against, the IMF loan
under consideration. Examples include when a country has been determined by the President
to violate religious freedom, provide support for acts of international terrorism, or engage in
the proliferation of nuclear weapons.
Reporting requirements, the third category, require Treasury to report to Congress on various
issues related to U.S. participation in the IMF. Congress enacted legislation in 2010, for
example, that requires the Treasury Department to report regularly to Congress about
economic conditions in heavily indebted advanced economies receiving IMF assistance. 15
These reports are to discuss the debt status of the borrower country, economic conditions
affecting its vulnerability and its ability to repay, and its debt management status.

Authorizing & Appropriating U.S. Contributions to the IMF

As discussed above, quota increases are paid to the IMF by transferring 25% of the increase
in hard currency and the remainder in national currency, typically through a letter of credit.
Both hard currency payments and payments to the IMF under the quota letter of credit result
in a budget expenditure only if cash is actually transferred to the IMF. When a transfer is
made, however, the United States gets an equal and offsetting receiptan interest-bearing,
liquid international monetary asset, specifically the increase in the U.S. reserve position in the
Fund. Under current budgetary conventions, these offsetting transactions are treated as an
exchange of assets. As a consequence, they do not result in net budget outlays, and they do
not affect the net budgetary position (deficit or surplus) of the federal government. Looked at
another way, any debt (liability) incurred through the sale of securities to make this
expenditure is balanced by an assetthe U.S. reserve position in the Fund.
Nonetheless, Members of Congress have often provided authorization and appropriations to
increase the U.S. quota, reflecting congressional concern about increasing U.S. foreign
liabilities, and their impact on the federal budget.

15For more information, see CRS Report R41239, Frequently Asked Questions about IMF Involvement in the
Eurozone Debt Crisis, coordinated by Rebecca M. Nelson, p. 22.

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Budgetary treatment for the NAB is identical to that of IMF quota increases: an exchange of
assets, having no net effect on the U.S. fiscal position. A drawing by the IMF under the NAB
would not constitute a contribution to the IMFs capital and would not, therefore, increase the
U.S. reserve position in the IMF. Rather, it would constitute an interest-bearing loan to the
IMF.16

At a Glance India & IMF

India joined the IMF on December 27, 1945, as one of the IMF's original members. India
accepted the obligations of Article VIII Article VIII of the IMF Articles of Agreement on
current account convertibility on August 20, 1994. India subscribes to the IMF's Special Data
Dissemination Standard. Countries belonging to this group make a commitment to observe
the standard and to provide information about their data and data dissemination practices.
16 International Monetary Fund: Background and Issues for Congress,Congressional Research Service,Martin
A. Weiss,March 21,2013,Pg No 14-16

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Financial Assistance
While India has not been a frequent user of IMF resources, IMF credit has been instrumental
in helping India respond to emerging balance of payments problems on two occasions. In
1981-82, India borrowed SDR 3.9 billion under an Extended Fund Facility, the largest
arrangement in IMF history at the time. In 1991-93, India borrowed a total of SDR 2.2 billion
under two stand by arrangements, and in 1991 it borrowed SDR 1.4 billion under the
Compensatory Financing Facility.

Technical Assistance
In recent years, the Fund has provided India with technical assistance in a number of areas,
including the development of the government securities market, foreign exchange market
reform, public expenditure management, tax and customs administration, and strengthening
statistical systems in connection with the Special Data Dissemination Standards. Since 1981
the IMF Institute has provided training to Indian officials in national accounts, tax
administration, balance of payments compilation, monetary policy, and other areas.17

IMF & Globalisation

Globalization encompasses three institutions: global financial markets and transnational
companies, national governments linked to each other in economic and military alliances led
by the US, and rising "global governments" such as World Trade Organization (WTO), IMF,
and World Bank.Charles Derbe argues in his book People Before Profit, "These interacting
institutions create a new global power system where sovereignty is globalized, taking power
and constitutional authority away from nations and giving it to global markets and
17 http://www.imf.org/external/country/ind/rr/glance.htm

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international bodies.Titus Alexander argues that this system institutionalises global

inequality between western countries and the Majority World in a form of global apartheid, in
which the IMF is a key pillar.
The establishment of globalized economic institutions has been both a symptom of and a
stimulus for globalization. The development of the World Bank, the IMF. regional
development

banks

such

as

the European

Bank

for

Reconstruction

and

Development (EBRD), and, more recently, multilateral trade institutions such as the WTO
indicates the trend away from the dominance of the state as the exclusive unit of analysis in
international affairs. Globalization has thus been transformative in terms of a
reconceptualizing of state sovereignty.
Following

U.S.

President Bill

Clinton's

administration's

aggressive

financial deregulation campaign in the 1990s, globalization leaders overturned long-standing

restrictions by governments that limited foreign ownership of their banks, deregulated
currency exchange, and eliminated restrictions on how quickly money could be withdrawn by
foreign investors.18

Criticisms of IMF
Overseas Development Institute (ODI) research undertaken in 1980 pointed to five main
criticisms of the IMF which support the analysis that it is a pillar of what activist Titus
Alexander calls global apartheid.Firstly, developed countries were seen to have a more
dominant role and control over less developed countries (LDCs) primarily due to the Western
bias towards a capitalist form of the world economy with professional staff being Western
trained and believing in the efficacy of market-oriented policies.
18 http://en.wikipedia.org/wiki/International_Monetary_Fund

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Secondly, the Fund worked on the incorrect assumption that all payments disequilibria were
caused domestically. The Group of 24 (G-24), on behalf of LDC members, and the United
Nations Conference on Trade and Development (UNCTAD) complained that the Fund did not
distinguish sufficiently between disequilibria with predominantly external as opposed to
internal causes. This criticism was voiced in the aftermath of the 1973 oil crisis. Then LDCs
found themselves with payments deficits due to adverse changes in their terms of trade, with
the Fund prescribing stabilisation programmes similar to those suggested for deficits caused
by government over-spending. Faced with long-term, externally generated disequilibria, the
Group of 24 argued that LDCs should be allowed more time to adjust their economies and
that the policies needed to achieve such adjustment are different from demand-management
programmes devised primarily with internally generated disequilibria in mind.
The third criticism was that the effects of Fund policies were anti-developmental. The
deflationary effects of IMF programmes quickly led to losses of output and employment in
economies where incomes were low and unemployment was high. Moreover, it was
sometimes claimed that the burden of the deflationary effects was borne disproportionately
by the poor.
Fourthly is the accusation that harsh policy conditions were self-defeating where a vicious
circle developed when members refused loans due to harsh conditionality, making their
economy worse and eventually taking loans as a drastic medicine.
Lastly is the point that the Fund's policies lack a clear economic rationale. Its policy
foundations were theoretical and unclear due to differing opinions and departmental rivalries
whilst dealing with countries with widely varying economic circumstances.
ODI conclusions were that the Fund's very nature of promoting market-oriented economic
approach attracted unavoidable criticism, as LDC governments were likely to object when in
a tight corner. Yet, on the other hand, the Fund could provide a 'scapegoat service' where
governments could take loans as a last resort, whilst blaming international bankers for any
economic downfall. The ODI conceded that the fund was to some extent insensitive to
political aspirations of LDCs, while its policy conditions were inflexible.
Argentina, which had been considered by the IMF to be a model country in its compliance to
policy proposals by the Bretton Woods institutions, experienced a catastrophic economic

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crisis in 2001,which some believe to have been caused by IMF-induced budget restrictions
which undercut the government's ability to sustain national infrastructure even in crucial
areas such as health, education, and securityand privatization of strategically vital national
resources.Others attribute the crisis to Argentina's misdesigned fiscal federalism, which
caused subnational spending to increase rapidly.The crisis added to widespread hatred of this
institution in Argentina and other South American countries, with many blaming the IMF for
the region's economic problems. The currentas of early 2006trend toward moderate leftwing governments in the region and a growing concern with the development of a regional
economic policy largely independent of big business pressures has been ascribed to this
crisis.
In an interview, the former Romanian Prime Minister Clin Popescu-Triceanu claimed that
"Since 2005, IMF is constantly making mistakes when it appreciates the country's economic
performances."

Support of Military Dictatorships

The role of the Bretton Woods institution has been controversial since the late Cold
War period,

due

dictatorships friendly

to

claims
to

that

the

IMF

policy

American

and

European

makers

corporations

supported military
and

other anti-

communist regimes. Critics also claim that the IMF is generally apathetic or hostile to their
views of human rights, and labor rights. The controversy has helped spark the Antiglobalization movement.
Arguments in favor of the IMF say that economic stability is a precursor to democracy;
however, critics highlight various examples in which democratized countries fell after
receiving IMF loans.

Impact on Access to Food

A number of civil society organizations have criticized the IMF's policies for their impact on
people's access to food, particularly in developing countries. In October 2008, former U.S.

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president Bill Clinton presented a speech to the United Nations World Food Day, which
criticized the World Bank and IMF for their policies on food and agriculture:
We need the World Bank, the IMF, all the big foundations, and all the governments to admit
that, for 30 years, we all blew it, including me when I was president. We were wrong to
believe that food was like some other product in international trade, and we all have to go
back to a more responsible and sustainable form of agriculture.
Former U.S. president Bill Clinton, Speech at United Nations World Food Day, October
16, 2008.

Impact on Public Health

In 2009 a study by analysts from Cambridge and Yale universities published on the openaccess Public Library of Science concluded that strict conditions on the international loans by
the IMF resulted in thousands of deaths in Eastern Europe by tuberculosis as public health
care had to be weakened. In the 21 countries to which the IMF had given loans, tuberculosis
deaths rose by 16.6%
In 2009, a book by Rick Rowden titled The Deadly Ideas of Neoliberalism: How the IMF has
Undermined Public Health and the Fight Against AIDS, claimed that the IMFs monetarist
approach towards prioritizing price stability (low inflation) and fiscal restraint (low budget
deficits) was unnecessarily restrictive and has prevented developing countries from being
able to scale up long-term public investment as a percent of GDP in the underlying public
health infrastructure. The book claimed the consequences have been chronically underfunded
public health systems, leading to dilapidated health infrastructure, inadequate numbers of
health personnel, and demoralizing working conditions that have fueled the push factors
driving the brain drain of nurses migrating from poor countries to rich ones, all of which has
undermined public health systems and the fight against HIV/AIDS in developing countries.

Impact on environment
IMF policies have been repeatedly criticized for making it difficult for indebted countries to
avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal, and forestdestroying lumber and agriculture projects. Ecuador for example had to defy IMF advice
repeatedly in order to pursue the protection of its rain forests, though paradoxically this need

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was cited in IMF argument to support that country. The IMF acknowledged this paradox in a
March 2010 staff position report which proposed the IMF Green Fund, a mechanism to
issue special drawing rights directly to pay for climate harm prevention and potentially other
ecological protection as pursued generally by other environmental finance.
While the response to these moves was generally positive possibly because ecological
protection and energy and infrastructure transformation are more politically neutral than
pressures to change social policy. Some experts voiced concern that the IMF was not
representative, and that the IMF proposals to generate only US$200 billion a year by 2020
with the SDRs as seed funds, did not go far enough to undo the general incentive to pursue
destructive projects inherent in the world commodity trading and banking systems
criticisms often leveled at the World Trade Organization and large global banking institutions.
In the context of the May 2010 European banking crisis, some observers also noted that Spain
and California, two troubled economies within Europe and the United States respectively, and
also Germany, the primary and politically most fragile supporter of a euro currency bailout
would benefit from IMF recognition of their leadership in green technology, and directly
from Green Fundgenerated demand for their exports, which might also improve their credit
standing with international bankers.19

Conclusion
The IMF(International Monetary Fund) as a global institution has come a long way since its
inception. It has both pros and cons to it. It apart from World Bank is the only institution
which is involved in the economic surveillance of the global economy. It has evolved a lot as
an institution .The membership, voting rights etc have been extended to countries of diverse
political and social structure. This shows the inclusive and accommodative nature of IMF but
it also has its demerits like over involvement of IMF with US and other such issues.It needs
to resolve these and other such issues and continue to be a relief provider for the needy

19 http://en.wikipedia.org/wiki/International_Monetary_Fund

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countries as it has been and also it should try to make global policies which if doesnt benefit
all atleast doesnt harm many others.

Bibliography
-

International Monetary Fund: Background and Issues for

Congress,Congressional Research Service,Martin A. Weiss,March 21,2013.

K.C Gopalakrishnan, Legal Economics, National Law School of India

University, Eastern Book Company, 1998 ,New Delhi

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Surabhi Arora, Economics for Law Students, Central Law Publications,IInd

edition (2012) ,Allahabad

- http://en.wikipedia.org/wiki/International_Monetary_Fund
- http://www.imf.org/external/country/ind/rr/glance.htm

Charts and Graphs

-

International Monetary Fund