International Monetary Fund (IMF) - Organizational Structure, Objectives | UPSC Notes | Testbook.com

Why is it Important to Understand the IMF?

Organisations like the International Monetary Fund frequently appear in the news. Moreover, the GS 2 syllabus of the IAS Mains includes a topic on international organisations. Therefore, it is crucial for aspirants to have a deep understanding of such institutions for their preparation.

As of February 2021, the IMF has made headlines for the following reasons:

1. It has projected India's growth rate for 2021 to be at 11.5 percent, making India the fastest-growing economy this fiscal year.
2. The IMF’s report World Economic Outlook is crucial for GS 3 (Economy) preparation. It is published twice a year.
3. It also releases a bi-annual Global Financial Stability Report .
4. IMF and COVID-19 Hub
   • Emergency Financing – The IMF has responded by doubling the countries’ access to its Rapid Credit Facility (RCF) and Rapid Transfer Financing (RFI).
   • Grants for Debt Relief – With this initiative, the IMF has assisted 29 of its poorest and most vulnerable countries through its Catastrophe Containment and Relief Trust (CCRT).
   • Calls for Bilateral Debt Relief – The IMF has urged bilateral creditors to suspend debt service payments from low-income countries, using its Debt Service Suspension Initiative (DSSI).
   • Enhancing Liquidity – For global financial safety, the International Monetary Organization approved the establishment of Short-term Liquidity Line (SLL).
   • Adjusting existing lending arrangements – The IMF is also focusing on adjusting its lending arrangements to meet new needs arising amid the pandemic.
   • Policy Advice – The organisation is catering to the need for policy advice to the countries to boost the economy during the pandemic.
   • Capacity Development – The organisation has reached out to 160 countries to address urgent issues such as cash management, financial supervision, cybersecurity and economic governance.

Supplement your reading with the related articles linked below:

International Monetary Fund (IMF)

The creation of the IMF was initiated in 1944 at the Bretton Woods Conference. The IMF began its operations on 27th December 1945 and is currently an international organisation that includes 189 member countries. Based in Washington, D.C., the IMF aims to foster global monetary cooperation, secure financial stability, facilitate and promote international trade, employment, and economic growth worldwide. The IMF is a specialised agency of the United Nations .

The Establishment of the IMF

The disintegration of international monetary cooperation during the Great Depression led to the creation of the IMF, which aimed to enhance economic growth and reduce global poverty. The International Monetary Fund (IMF) was initially established at the Bretton Woods Conference in 1944, where 45 government representatives gathered to discuss a framework for postwar international economic cooperation.

The IMF became operational on 27th December 1945 with 29 member countries that agreed to abide by this treaty. It began its financial operations on 1st March 1947. Currently, the IMF consists of 189 member countries.

The IMF is considered a key organisation in the international economic system, focusing on rebuilding international capital while maximising national economic sovereignty and human welfare.

The Organizational Structure of the International Monetary Fund (IMF)

The United Nations is the parent organisation that oversees the proper functioning and administration of the IMF. The IMF is led by a Managing Director who is elected by the Executive Board for a five-year term of office. The International Monetary Fund (IMF) consists of the Board of Governors, Ministerial Committees, and the Executive Board.

For more information about the organisational structure of the IMF, refer to the table below:

Objectives of the IMF

The IMF was developed to promote international monetary cooperation, enable international trade, achieve financial stability, stimulate high employment, reduce poverty in the world, and sustain economic growth. Initially, there were 29 countries with a goal of redoing the global payment system. Today, the organisation has 189 members. The main objectives of the International Monetary Fund (IMF) are mentioned below:

1. To improve and promote global monetary cooperation of the world.
2. To secure financial stability by eliminating or minimising the exchange rate stability.
3. To facilitate a balanced international trade.
4. To promote high employment through economic assistance and sustainable economic growth.
5. To reduce poverty around the world.

What are the functions of the IMF?

The IMF primarily focuses on supervising the international monetary system and providing credits to member countries. The functions of the International Monetary Fund can be categorised into three types:

1. Regulatory functions: As a regulatory body, the IMF administers a code of conduct for exchange rate policies and restrictions on payments for current account transactions according to the rules of the Articles of Agreement.
2. Financial functions: The IMF provides financial support and resources to member countries to meet short-term and medium-term Balance of Payments (BOP) disequilibrium.
3. Consultative functions: The IMF serves as a centre for international cooperation for member countries. It also acts as a source of counsel and technical assistance.

India's Relationship with the IMF

India is a founding member of the IMF. The Union Finance Minister of India is the Ex Officio Governor on the IMF's Board of Governors. Each member country also has an alternate governor. The alternate governor for India is the Governor of the RBI. There is also an Executive Director for India who represents the country at the IMF.

• India's quota in the IMF is SDR 13,114.4 million, which gives India a shareholding of 2.76%. Read about the Special Drawing Rights – Created in 1969 by International Monetary Fund (IMF) at the linked article.
• This makes India the eighth largest quota holding country at the organisation.
• In 2000, India completed the repayment of all the loans it had taken from the IMF.
• Now, India is a contributor to the IMF.

The emerging economies have gained more influence in the governance architecture of the International Monetary Fund (IMF).

• The reforms were agreed upon by the then 188 members of the IMF in 2010, in the aftermath of the global financial meltdown.
• More than six percent of the quota shares will shift to emerging and developing countries from the U.S. and European countries.

Which countries gained?

• India's voting rights increased to 2.63 percent from the current 2.3 percent, and China's to 6.08 percent from 3.8. Russia and Brazil are the other two countries that gain from the reforms.

Why delay the reforms?

• Among the reasons for the delay has been the time it took the U.S Congress to approve the changes.
• Even though the country holds veto power, Republicans have expressed concerns over "declining U.S power."

Advantages

• For the first time, the Executive Board will consist entirely of elected executive directors, ending the category of appointed executive directors. Currently, the members with the five largest quotas appoint an executive director, a position that will cease to exist.
• The significant resource enhancement will fortify the IMF’s ability to respond to crises more effectively.
• These reforms will reinforce the credibility, effectiveness, and legitimacy of the IMF.

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