The IMF also called the Fund is an International monetary institution/ supranational financial institution established by 45 nations under the Bretton Woods Agreement of 1944. Such an institution was necessary to avoid repetition of the disastrous economic policies that had contributed to Great depression of 1930’s. The principal aim was to avoid the economic mistakes of the 1920s and 1930s. It started functioning from March 1, 1947. In June, 1996, the Fund had 181 members. The IMF was established to promote economic and financial co-operation among its members in order to facilitate the expansion and balanced growth of world trade. It performs the activities like monitoring national, global and regional economic developments and advising member countries on their economic policies (surveillance); lending member hard currencies to support policy programmes designed to correct BOP problems; offering technical assistance in its areas of expertise as well as training for government and central bank officials.
The fundamental purposes & objectives of the Fund had been laid down in Article 1 of the original Articles of Agreement and they have been upheld in the two amendments that were made in 1969 & 1978 to its basic charter. They are as under:
- To promote international monetary co-operation through a permanent institution which provides the machinery for consumption & collaboration in international monetary problems.
- To facilitate the expansion and balanced growth of international trade.
- To promote exchange stability, to maintain orderly exchange arrangements among members, and to provide competitive exchange depreciation.
- To assist in the establishment of a multilateral system of payments in respect of current transactions between member and in the elimination of foreign exchange restrictions which hamper the growth in the world trade.
- To lend confidence to members by making the Fund’s resource available to them under adequate safeguards.
- In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
To fulfill the above objectives, The IMF performs the following functions:
- The IMF operates in such a way as to fulfill its objectives as laid down in the Bretton Woods Articles of Agreements. It’s the Fund’s duty to see that these provisions are observed by member countries.
- The Fund gives short term loans to its members so that they may correct their temporary balance of payments disequilibrium.
- The Fund is regarded “as the guardian of good conduct” in the sphere of balance of payments. It aims at reducing tariffs and other trade restrictions by the member countries.
- The Fund also renders technical advice to its members on monetary and fiscal policies.
- It conducts research studies and publishes them in IMF staff papers, Finance and Development, etc.
- It provides technical experts to member countries having BOP difficulties and other problems.
Organisation and Structure
The Second Amendment of the Articles of Agreement made important changes in the organization and structure of the Fund. As such, the structure of the fund consists of a Board of governors, an Executive Board, a Managing Director, a council and a staff with its headquarters in Washington, U.S.A. There are ad hoc and standing committees appointed by the Board of Governors and the Executive Board. There is also an Interim Committee appointed by the Board of Governors. The Board of Governors and the Executive Board are decision making organs of the Fund. The Board of Governors is at the top in the structure of the Fund. It is composed of one Governor and one alternate Governor appointed by each member. The alternate Governor can participate in the meeting of the Board but has the power to vote only in the absence of the Governor.
- The Board of Governor which has now 24 members meets annually in which details of the Fund activities for the previous year are presented. The annual meeting also takes few decisions with regards to the policies of Fund.
- The Executive Board has 21 members at present. Five Executive Directors are appointed by the five members (USA, UK, W. Germany, France and Japan) having the largest quotas)
- There is a Managing Director of the Fund who is elected by the Executive Directors.
- The Executive Board is the most powerful organ of the Fund and exercise vast powers conferred on it by the Articles of Agreement and delegated to by the Board of Governors. So its power relates to all Fund activities, including its regulatory, supervisory and financial activities.
- The Interim Committee (now IMFC) was established in October 1974 to advice the Board of Governors on supervising the management and adaptation of the international monetary in order to avoid disturbances that might threaten it. It currently has 22 members.
- The Development Committee was also established in October 1974 and consists of 22 members. It advices and reports to the Board of Governors on all aspects of the transfer of real resources to developing countries and makes suggestions for their implementation.