International organisation ( International Monetary Fund)

International Monetary Fund (IMF) 

Introduction

The International Monetary Fund (IMF) is one of the key global financial institutions established to promote international monetary cooperation and financial stability. It plays a vital role in ensuring global economic stability, promoting balanced growth of international trade, and providing financial assistance to member countries facing balance of payments crises.

Establishment and Background

• Origin: The IMF was conceived at the Bretton Woods Conference held in July 1944, along with the World Bank.
• Established: Formally came into existence on 27 December 1945, and began operations on 1 March 1947.
• Headquarters: Washington D.C., USA.
• Membership: 190 countries (as of 2025).
• India is a founding member of the IMF.

Objectives of IMF

1. Promote International Monetary Cooperation: To create a framework for consultation and collaboration on international monetary problems.
2. Exchange Rate Stability: To maintain stability in exchange rates and prevent competitive devaluations.
3. Balanced Growth of Trade: To promote international trade and contribute to high employment and real income levels.
4. Multilateral Payment System: To establish a system of payments for current transactions among member countries.
5. Provide Financial Assistance: To assist members facing balance of payments difficulties through temporary financial support.

Functions of IMF

1. Surveillance:
• The IMF monitors global economic trends and the economic performance of member countries.
• Provides policy advice to maintain macroeconomic stability.
3. Financial Assistance:
• Provides loans to member countries facing balance of payments crises.
• Lending programs include Stand-By Arrangements (SBA), Extended Fund Facility (EFF), Rapid Financing Instrument (RFI), etc.
5. Technical Assistance and Capacity Development:
• Offers training, policy advice, and technical assistance in fiscal policy, monetary management, exchange rate regulation, and financial statistics.
7. Special Drawing Rights (SDRs):
• Introduced in 1969 as an international reserve asset.
• Allocated among member countries in proportion to their IMF quotas.
• Value of SDR is based on a basket of major currencies — USD, Euro, Chinese Yuan, Japanese Yen, and British Pound.

IMF Quota System

• Every member contributes a quota subscription which determines:
1. Voting power
2. Access to financing
3. Allocation of SDRs
• Quotas are reviewed every five years.
• The United States holds the largest quota and voting share (~17%), giving it effective veto power.
• India’s quota: About 2.75% of total (as per 2023 data).

Governance Structure

1. Board of Governors:
• Highest decision-making body, comprising finance ministers or central bank governors of all member nations.
3. Executive Board:
• 24 Executive Directors oversee daily operations.
5. Managing Director:
• Head of the IMF, traditionally from Europe.
• Current (as of 2025): Kristalina Georgieva.

IMF and India

• India joined the IMF in 1945 as a founding member.
• Received IMF assistance during economic crises such as:
• 1991 Balance of Payments crisis, when India availed ~$2.2 billion.
• IMF has supported India in fiscal reforms, exchange rate management, and macroeconomic stability.
• India has also contributed to IMF’s Financial Stability Mechanism and participates actively in policy formulation.

Criticisms of IMF

1. Western Dominance: Developed countries, particularly the US, have greater influence due to higher quotas.
2. Austerity Measures: IMF loan conditions often require fiscal austerity, affecting social welfare in developing countries.
3. Uniform Policy Prescription: Follows a one-size-fits-all approach ignoring local contexts.
4. Lack of Representation: Emerging economies like India and Brazil demand greater voting rights.

Recent Initiatives

• IMF’s Resilience and Sustainability Trust (RST): To support countries addressing climate change and pandemic risks.
• Digital Currency Research: IMF is studying the impact of Central Bank Digital Currencies (CBDCs).
• Global Financial Stability Report: Published biannually to assess risks in the global financial system.

Conclusion

The IMF remains a cornerstone of the global financial architecture, ensuring stability and cooperation among nations. However, to remain credible, it must undertake governance reforms that reflect the growing influence of emerging economies. For countries like India, a reformed IMF can provide a balanced platform for financial support and equitable global economic growth.

In summary, the IMF plays a dual role—financial guardian and policy advisor—in the world economy. Strengthening its inclusiveness, transparency, and adaptability is essential for addressing 21st-century economic challenges.