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IMF1

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MISSION STATEMENT

We strive to be a distinctive specialistbanking group driven by commitmentto our core philosophies and values

Managing Director Christina Legarde

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IMF -

The International Monetary Fund (IMF)is an organization of 187 countries,working to foster global monetarycooperation, secure financial stability,facilitate international trade, promotehigh employment and sustainable

economic growth, and reduce povertyaround the world.

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Strategic focus

Deliver sustainable growth by: Remaining focused Delivering a distinctive offering to clients

Delivering on financial targets

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IMF FUNCTIONS

The work of the IMF is of three maintypes. Surveillance involves themonitoring of economic and financialdevelopments, and the provision ofpolicy advice, aimed especially atcrisis-prevention.

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The IMF also lends to countries withbalance of payments difficulties, toprovide temporary financing and tosupport policies aimed at correctingthe underlying problems; loans to low-income countries are also aimed

especially at poverty reduction.

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Third, the IMF provides countries withtechnical assistance and training in itsareas of expertise. Supporting all threeof these activities is IMF work ineconomic research and statistics .

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In recent years, as part of its efforts to

strengthen the international financialsystem, and to enhance itseffectiveness at preventing and

resolving crises, the IMF has appliedboth its surveillance and technicalassistance work to the development ofstandards and codes of good practicein its areas of responsibility, and to thestrengthening of financial sectors .

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THE O PERATION OF THE IMF

IMF is an international financial organizationcomprised of 187 member countriesPurposes, as stipulated in its Articles of

Agreement, are toPromote international monetary cooperationFacilitate the expansion of international tradePromote exchange stability and a multilateral systemof paymentsMake temporary financial resources available tomembers under adequate safeguards Reduce the duration and degree of internationalpayments imbalances

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THE O PERATION OF THE IMFMost important feature of IMF is its quota system

Determine both the amount members can borrow from theIMF and their relative voting power

Higher a members quota, the more it can borrow and the greaterits voting power

Members quotas are their subscriptions to the IMF Based on their relative sizes in the world economyPays one fourth of its quota in widely-accepted reservecurrencies (US dollar, British pound, euro, or yen) or inSpecial Drawing Rights

Pays remaining three-quarters of quota in its own nationalcurrency

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THE O PERATION OF THE IMFThe IMF engages in four areas of activity

Economic surveillance or monitoringDispensing of policy adviceLending

Perhaps most importantTechnical assistance

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TRANCHE

If an IMF member faces balance of paymentsdifficulties

Can automatically borrow one fourth of its quota in theform of a reserve trancheWhen the IMF lends to a member country, what actuallyhappens is domestic country purchases internationalreserves from the IMF using its own domestic currencyreserves

Member country is then obliged to repay IMF by repurchasing itsown domestic currency reserves with international reserve assetsIMF lending is known as a purchase -repurchase arrangement

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TRANCHE Credit tranches

Originally, each were equal to of the members quotas In the late 1970s, credit tranches were increased to 37.5% ofquotaFirst credit tranche is more or less automaticSecond through fourth credit tranches require that the member

adopt policies (conditionality) that will solve balance of payments problem at handEffectively limits a member countrys credit to 150 percentof its quota

As IMF evolved, it created a number of special credit

facilities that extend potential credit beyond 150% levelDrawings on IMF by its members have to be repaidFive-year limit was established

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IMF L ENDING

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AN ASSESSMENT

Reform of existing IMF framework could involveReconstituting it more along the lines of a worldcentral bank

Reaffirming role of the SDR as a reserve asset

Giving IMF independent responsibility forregulating world liquidity through expandedquotas and SDR management

Redesigning adjustment mechanisms to spread

responsibility over deficit and surplus countriesChanges are radical and would require a completeredrafting of the IMFs Articles of Agreement

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