Question

Elucidate the functions of the IMF

Answer 1

Solution :

Functions of the International Monetary Fund: (IMF)

Surveillance

Through this system, the IMF reviews the policies, economic and financial development of member countries to maintain stability in the international monetary system. The IMF advises its 189 member countries about promoting economic stability, reducing sensitivity to the financial and financial crisis, and encouraging policies that elevate the standard of living. It provides a regular assessment of global possibilities in its World Economic Outlook.

Special Drawing Rights – SDR

This facility was started in 1969 to improve the status of international liquidity in the world. The IMF issues international reserve asset. This is known as Special Drawing Rights (SDR, also known as Paper Gold), and it supplements the official stores of member countries. The total allocation for the IMF is about 204 billion SDRs (the US $ 286 billion). IMF members can voluntarily exchange SDRs for currency among themselves. The value of the SDR is fixed by 5 currencies i-e the US dollar, the euro, the pound sterling, and the Japanese yen and China’s Yuan. International Monetary Fund

Financial Assistance:

It balances the payments problems to its members: Funds to correct national authorization design adjustment programs in close cooperation with IMF supported by IMF financing, Continuing conditional financial support on effective implementation of these programs

Technical Support:

Provides technical support and training to member countries to help the member countries in enhancing their capability in implementing design and effective policies. Tax policy and administration, expenditure management, monetary and exchange rate policies, banking and financial system supervision and regulation, legislative framework and technical support including statistics are given in many areas.

The Precautionary and Liquidity Line (PLL):

PLL provides funds to meet the actual or potential balance of payments to countries with good policies and its intent is to help in the form of insurance and to overcome the crisis. International Monetary Fund

The Trade Integration Mechanism

This mechanism provides the IMF with its facility to provide loans to developing countries which are facing the problem of counterbalance due to multilateral trade and liberalization, because of such multilateral trade liberalization. They lose preferential reach and their earnings from exports decrease or because of their reduced agricultural subsidies.

Lending to low-income countries

Under the new Poverty Reduction and Growth Trust (poverty eradication and development trust-PRGT), three types of loans have been made as part of the following comprehensive reforms: Extended credit facility, Extensive credit facility, Quick credit facility, and standby credit facility.

These are below:

1. Debt relief: In addition to concessional loans, some countries with low incomes are eligible for a loan under the following two main initiatives.

2. The Heavily Indebted Poor Countries: It started in 1996 and was expanded in 1999, under this initiative credit is provided in debt consolidated with the approach of restoring credit stability. International Monetary Fund

3. The Multilateral Debt Relief Initiative: Under this, IMF, the International Development Association of World Bank (IDA) and the African Development Fund (AFDF) forgive the entire debt given to some countries to help move forward in achieving Millennium Development Goals.