Question

The International Monetary Fund (IMF) is an organization in which there are 189 countries involve in working with foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. IMF was created in 1945 which responsible to the 189 countries that make up to near-global membership. Discuss the main purpose of the IMF and how the IMF monitor all the countries

Answer 1

Intergovernmental organizations (IGOs) have always played a very important role in the global economy. These groups are generally created through the enactment of a treaty and are composed of a group of member states. The goals of individual IGOs depend on their function and membership. Some of the most common and widely known IGOs include the United Nations, the World Bank, and the International Monetary Fund (IMF). This article looks closely at the IMF and its three main functions.

International Monetary Fund (IMF)

The International Monetary Fund (IMF) is an international organization that aims to accomplish a number of different goals. These include reducing global poverty, encouraging international trade, and promoting financial stability and economic growth.

The organization was created in 1945 and is based in Washington, DC. There are a total of 189 member countries, each of which is represented on the group's board. This representation is based on how important its financial position is in the world, so stronger, more powerful countries have a greater voice in the organization than nations which are much weaker.

The IMF functions in three main areas:

• Overseeing the economies of member countries
• Lending to countries with balance of payments issues
• Helping member countries modernize their economies

Monitoring Member Country Economies

The International Monetary Fund's primary job is to promote stability in the global monetary system. So, its first function is to monitor the economies of its 189 member countries. This activity, known as economic surveillance, happens at both the national and global levels. Through economic surveillance, the IMF monitors developments that affect member economies as well as the global economy as a whole.

Member nations must agree to pursue economic policies that coincide with the IMF's objectives. By monitoring the macroeconomic and financial policies of its member countries, the IMF sees stability risks and advises on possible adjustments.

Lending

The IMF lends money to nurture the economies of member countries with balance of payments problems instead of lending to fund individual projects. This assistance can replenish international reserves, stabilize currencies, and strengthen conditions for economic growth. The IMF expects the countries to pay back the loans, and the countries must embark on structural adjustment policies monitored by the IMF.

Lending through the IMF takes two forms. The first is at nonconcessional interest rates, while the other comes with concessional terms. The latter is advanced to countries with low income, and bears very low or no interest rates at all.

Technical Assistance

The third main function of the IMF is through what it calls capacity development by providing assistance, policy advice, and training through its various programs. The group provides member nations with technical assistance in the following areas:

• Fiscal policy
• Monetary and exchange rate policies
• Banking and financial system supervision and regulation
• Statistics

The organization aims to strengthen human and institutional capacity. This is very important for countries with previous policy failures, weak institutions, or scarce resources. Through capacity development, member nations can help strengthen and improve growth in their economies and create jobs.

Important Roles of International Monetary Fund

International Monetary Fund (IMF) played a significant role in stabilizing the exchange rates thereby facilitating international payment adjustments. Economists across the world have commended its role in enforcing monetary discipline among its members.

IMF brings Stability in Exchange rate:

The IMF has laid down a clear guidance of exchange rate policies. Its policies prevent the member countries from making competitive devaluation to boost up exports. As a result of all these, the system of exchange under the IMF is stable.

IMF role in development of international trade:

The IMF has been instrumental to the growth of international trade. It acts as the reservoir of the currencies of all the member countries. A borrowing country can borrow the currency of another country out of this reservoir. It extends loans in foreign exchange to the member countries for financing the current transactions. It also provides technical advice on monetary and fiscal matters. It conducts research studies and publishes them. This multilateral assistance helps members in solving their problems in trade, thereby promoting international trade.

IMF is strict on multiple exchange rates:

The IMF does not permit the member countries to adopt multiple exchange rates leading to restrictive practices. The system of exchange rate combines the element of stability with flexibility. It maintains stability in exchange rates.

IMF’s Elaborate lending operations:

The main operation of the fund is lending to member countries. It has introduced a variety of loan facilities to its members. Initially, the lending operations were confined only for solving the problems of deficit payments. But now they have been remarkably extended. Member countries can have regular facilities, concessional facilities and special facilities. Credit Tranches and extended fund facility are some of the regular facilities. Structural adjustment facility and enhanced structural adjustment facility are some concessional schemes offered to the member countries. The special facilities offered by the IMF fund include compensatory and contingency financing facility, systematic transformation facility and contingency credit line.

IMF role in Currency convertibility:

With the charges introduced after 1973 in the international monetary system, a member can peg its currency to

• either a single major currency or
• a basket of currencies or
• allow it to float independently.

A currency is said to be floating when its is left free to find its own parity in the international market. The IMF is the catalyst in the convertibility of currencies. It endeavors to achieve full global convertibility of currencies in the next decade. All developing countries will achieve full convertibility.

IMF role in Consultation and guidance:

The IMF provides the necessary machinery for consultation and collaboration on international monetary problems. Monetary, fiscal and financial problems and also matters relating to exchange and trade affecting international payments are clearly studied. It deputes experts to member countries to deal with the balance of payments problems. It also conducts short term training courses on fiscal, monetary and balance of payments for personnel from member nations.

IMF is a Boon to developing countries:

The IMF is a boon to developing countries. Less developed countries get enormous assistance from IMF like

• Financial assistance to get rid of balance of payment deficits
• concessional financial assistance for promotion of exports
• suggestions for overcoming constraints in the development process
• Assistance in the formulation of development oriented monetary, fiscal, exchange and trade policies
• extension of central banking advisory services to less developed countries towards the improvement of functioning of their central banks
• institutional training for the personnel in member countries; and
• Special Drawing Rights (SDRs) to resolve the problem of international liquidity.