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International monetary fund Essay

The International Monetary Fund (IMF), founded at the Bretton Woods Conference in 1944, is the official organization for securing international monetary cooperation. “It was established to help to promote the health of the world economy. Headquartered in Washington, D. C. , it is governed by its almost global membership of 184 countries. ” It was set up to promote exchange stability, international monetary cooperation, and systematic exchange arrangements; to encourage economic increase and high levels of employment; and to provide provisional financial help to countries to alleviate balance of payments regulation.

It has done useful work in various fields, such as research and the publication of statistics and the tendering of monetary advice to less-developed coteries. It has also conducted valuable consultations with the more developed countries. Of particular interest is the Fund’s system of Drawing Rights, which permits countries in temporary deficit to draw supplies of foreign currency according to predetermined quotas.

These extra supplies of currency give a country more time in which to adjust its balance of payments and so avoid taking unsound or unneighbourly measures like import restrictions for lack of enough reserves to tide it over a difficulty. The mechanism is as follows: members of the Fund

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are required to make initial deposits according to their quotas, which are based on the country’s national income, monetary reserves, trade balance, and other economic factors. Quotas are payable partially in Special Drawing Rights and partially in a country’s own currency.

A country’s quota closely approximates its voting power, the amount of foreign exchange it may purchase (Drawing Rights), and its allotment of Special Drawing Rights. The Fund makes its stock of member’s currencies available to member countries that wish to draw upon their quotas. When creditor countries are presented with their own currencies previously deposited by them with the Fund, they are obliged to take them in final discharge of debts owed by other member countries.

Since they previously deposited these currencies themselves they are in effect getting nothing from the debtor countries in respect of the debts owed to them, and their willingness to accept payment in this way is their contribution to the overall liquidity of the world system. Later the creditor countries may themselves become debtors and partake of the benefits. The debtors have to reply the Fund usually in three to five years.

A country with more serious financial problems may draw as much as 140 percent of its quota during a three-year period, and repayment must be made between four to ten years afterward. The IMF’s statutory goals comprise promoting the proportional expanse of world trade, the fixity of exchange rates, the avoidance of competitive currency depreciation, and the correction of a country’s balance of paying problems. The purposes of the IMF are set forth in the Articles of Agreement of the International Monetary Fund, adopted in July 1944 and amended in 1969, 1978, and 1992. They are ambitious:

• 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 thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy. • “To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depredation” .

• To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade. • To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

• In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members. To realize these goals, the IMF: ? advises economic and financial developments in member countries and gives policy advice. For instance: In its yearly review of the Japanese economy for 2003, the IMF Executive Board prompted Japan to adopt a vast approach to resuscitate the corporative and financial branches of its economy, fasten deflation, and address fiscal disproportions.

The IMF praised Mexico in 2003 for sound economic management, but said structural reform of the tax system, the labor market, energy sector, and judicial system was required to help the country compete in the world economy. ? lends to member countries with payments problems to provide temporary financing. For instance: In October 2000, the IMF lent an extra $52 million for Kenya to help it to withstand the drought. During the 1997-98 financial crisis in Asian, the IMF helped Korea to uphold its reserves.

It pawned $21 billion to help Korea to improve its economy and its financial and corporate sectors. In four years, Korea had re-established fully to compensate the loans and rebuild its stores. ? supplies the governments and chief banks of its member countries with industrial assistance. For instance: During breakdown of the Soviet Union, the IMF helped Russia, the Baltic States, and other previous Soviet countries to establish exchequer for their central banks.

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