IMF, Full form, Objectives, Structure, Members, Functions, UPSC Notes!

The International Monetary Fund (IMF) was created at the Bretton Woods Conference in 1944 and began its work on December 27, 1945. Today, it has 190 member countries and is headquartered in Washington, D.C.. The IMF helps countries maintain financial stability, encourages global monetary cooperation, and supports economic growth. It also provides assistance to nations facing financial crises, making it one of the most important global financial institutions.

This topic of the International Monetary Fund is important from the perspective of the UPSC IAS Examination. It falls under General Studies Paper- 2 (Mains) particularly in the International Relations section of the UPSC Exam. 

In this article, we shall discuss the ‘International Monetary Fund’ and learn about the IMF’s background, structure, objectives, functions, significance, special drawing rights (SDRs) & More!

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An Overview of International Monetary Fund (IMF)

The International Monetary Fund (IMF) is a worldwide financial institution intended to promote global monetary cooperation, secure financial stability, enable international commerce, promote high employment and sustainable economic growth, and alleviate global poverty.

• The IMF is a specialized organization of the United Nations. Initially, 44 founding member countries aimed to establish a framework for international economic cooperation. Today, its membership includes 190 countries, with staff from 150 different countries.
• The IMF’s resources are primarily derived from the funds paid by nations as capital subscriptions (quotas) when they join the organization.
• A quota is given to each IMF member country, often based on its relative standing in the global economy.
• The IMF has three key missions, which are as follows:
  • To increase international monetary cooperation.
  • To promote commercial expansion and economic progress.
  • To discourage policies that might be detrimental to prosperity.
• To execute the above three missions, IMF member countries cooperate closely with each other and with other international entities.
• The IMF offers financial support, including emergency loans, to its members that are experiencing or may soon face balance-of-payments challenges.
• The goal is to assist them in rebuilding their international reserves, stabilizing their currencies, continuing to pay for imports, and restoring conditions for good economic development while addressing underlying issues.
• Thus, The IMF is seen as a significant player in the global economic system that prioritizes human welfare, national economic sovereignty, and rebuilding global capital.

Here are some key facts and figures about the International Monetary Fund (IMF) for the UPSC Exam:

Read the article on the IMF's World Economic Outlook Report 2025!

How did the IMF Evolve?

The IMF was founded in July 1944 during the United Nations Bretton Woods Conference. The 44 nations present aimed to create a framework for international economic cooperation and prevent repeating the competitive currency devaluations that contributed to the 1930s Great Depression.

The IMF went into operation on December 27, 1945, with 29 member countries agreeing to be bound by this treaty. It launched its financial activities on 1st March 1947. The IMF now has 190 member countries.

The IMF is committed to developing global monetary cooperation, ensuring financial stability, and enabling and promoting global commerce, employment, and economic growth. Other significant objectives of the IMF include:

• To keep track of the global monetary system and economic trends.
• To Identify risks and recommend measures for growth and financial stability.
• To keep the exchange rate stable.
• To encourage international monetary cooperation.
• To promote commerce and economic progress among its member nations.
• To provide economic support to member nations in order to eliminate the adverse balance of payment.
• To reduce imbalances in the quantity and time of trade and commerce.

Read the article on the List of Reports Published by International Organizations!

What is the Organizational Structure of the IMF?

The International Monetary Fund’s (IMF) purpose and governance have changed to reflect shifts in the world economy, enabling the institution to maintain a key position within the global financial system. The diagram below depicts the present governance structure of the IMF.

Read the article on the Difference Between IMF and World Bank!

To ensure the stability of the international monetary and financial system, the IMF performs three primary functions:

• Monitoring: The IMF closely monitors each member country’s economic and financial developments and undertakes a policy conversation with a member country on a routine basis
  • To examine its economic conditions with a view to giving policy recommendations.
  • The IMF also evaluates global and regional developments and outlooks based on data from individual consultations.
  • On a semi-annual basis, the IMF publishes such assessments on multilateral surveillance in the World Economic Outlook and the Global Financial Stability Report.
• Financial assistance: Through various loan instruments or “facilities,” the IMF lends to its member nations experiencing balance-of-payments challenges in order to aid the adjustment process and restore member countries’ economic development and stability.
  • An IMF loan is often issued under an “arrangement,” which requires a borrowing nation to implement the specific policies and procedures stated in a “Letter of Intent” to remedy its balance of payments crisis.
  • The majority of IMF loans are primarily supported by quota payments made by its member countries.
• Technical assistance: It provides technical assistance to member nations in four areas to help them develop their capacity to formulate and implement successful policies, Including
  • Fiscal and monetary policies.
  • System of fiscal policy and management.
  • Statistics about the economy.
  • Economic and financial legislation.

• Other major functions of the International Monetary Fund (IMF) include:

• To provide a framework for worldwide economic cooperation.
• Exchange Stability.
• To supervise the international fixed exchange rate agreements.
• Maintaining currency demand and supply in balance.
• Provide capital investments for economic growth and infrastructural initiatives.
• The IMF provides emergency assistance to members with urgent balance-of-payments needs through the Rapid Financing Instrument (RFI).

Read the article on the National Investment and Infrastructure Fund (NIIF)!

International Monetary Fund Quota System

The IMF's quota system is a central pillar of its financial and governance structure. A member country's quota reflects its relative position in the world economy and has three key functions:

• Financial Commitment: It determines the maximum amount of financial resources a member is obligated to provide to the IMF.
• Voting Power: It is the primary determinant of a member's voting power in IMF decisions.
• Access to Financing: It influences the amount of financing a member can obtain from the IMF.

How are IMF Quotas Determined?

The IMF uses a quota formula to assess a member's relative position in the global economy. The current formula, which was agreed upon in 2008, is a weighted average of four key variables:

• Gross Domestic Product (GDP): With a 50% weight, this is the most important variable. It is a blend of a country's GDP at market exchange rates (60%) and at purchasing power parity (PPP) exchange rates (40%).
• Openness: With a 30% weight, this variable measures a country's integration into the global economy, based on the sum of current payments and receipts from international transactions.
• Economic Variability: With a 15% weight, this reflects the volatility of a country's current receipts and capital flows, which can indicate a potential need for IMF resources.
• International Reserves: With a 5% weight, this variable measures a country's financial strength and ability to contribute to the IMF's resources.

The formula also includes a "compression factor" that reduces the dispersion in calculated quota shares, aiming to give smaller countries a slightly larger voice. Quotas are denominated in Special Drawing Rights (SDRs), the IMF's unit of account. The IMF's Board of Governors conducts a general quota review at least every five years to assess the adequacy of quotas and their distribution among members. The most recent review, completed in December 2023, approved a 50% increase in quotas.

Read the article on the Read the article on the Consolidated Sinking Fund!

Special Drawing Rights (SDRs) are an international reserve asset created by the IMF in 1969 to supplement the official reserves of its member countries. SDRs serve as a supplementary international reserve asset to help countries meet balance of payments needs and strengthen global liquidity. 

Initially, SDRs were defined as equivalent to 0.888671 grams of fine gold, which was also pegged to 1 US dollar at that time. Following the collapse of the Bretton Woods system in the early 1970s, the SDR was redefined as a currency basket instead of a fixed gold amount or single currency.

Total SDR Allocation

As of August 2025, a total of SDR 660.7 billion (approximately US$943 billion) has been allocated to IMF member countries. The largest allocation took place recently on August 2, 2021, when about SDR 456 billion were distributed. This special allocation was aimed at addressing the long-term global demand for reserves and assisting countries to cope with the economic impact of the COVID-19 pandemic.

What Determines the Value of SDRs?

The value of an SDR is determined by a basket of five major currencies, reflecting their importance in the world’s trading and financial systems. These currencies are:

1. US Dollar (USD)
2. Euro (EUR)
3. Chinese Renminbi (CNY)
4. Japanese Yen (JPY)
5. British Pound Sterling (GBP)

Criteria for Inclusion in the SDR Basket

To be included in the SDR basket, a currency must meet the following conditions:

• Export Criterion: The currency issuer must be an IMF member or part of a monetary union that includes IMF members, and rank among the top five exporters globally.
• Freely Usable Criterion: The currency must be widely used for international payments and actively traded in the world's major foreign exchange markets.

SDR Currency Weights (2022–2027)

Significance of SDRs

• SDRs help stabilize the global economy by providing liquidity that countries can use during crises to meet their balance of payment needs.
• They act as an international reserve currency, supplementing national reserves and supporting countries in managing external shocks.
• SDR allocations improve global financial stability, particularly important in challenging times like the COVID-19 recovery phase.

Read the article on the Agriculture Infrastructure Fund (AIF)!

India & IMF

India, a founding member of the IMF, has maintained a long-standing relationship with the institution. Since 1993, India has not availed itself of IMF financial assistance, reflecting the country's growing economic resilience and sustained growth trajectory.

Representation and Governance

In India's governance of IMF affairs, the Union Finance Minister serves as the ex-officio Governor on the IMF’s Board of Governors. Complementing this role, the Governor of the Reserve Bank of India (RBI) acts as the IMF’s Alternate Governor. This dual representation ensures that India’s economic interests are well articulated in the IMF's decision-making processes.

In a significant appointment, Dr. Krishnamurthy Subramanian, former Chief Economic Adviser to the Government of India, was designated as the Executive Director representing India at the IMF in November 2022. This position allows India to play an influential role in guiding the IMF's policies and programs.

India’s Quota and Voting Power

India's current IMF quota stands at approximately SDR 5,821.5 million, positioning it as the 13th largest quota-holder, accounting for roughly 2.44% of total IMF quotas. This quota determines India's financial contribution, access to funding, and voting power. Collectively, India and its constituency partners—Bangladesh, Bhutan, and Sri Lanka—hold the 17th rank among 24 members on the IMF Executive Board, reflecting their combined vote share and influence within the institution.

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What is the Significance of IMF?

The IMF holds the following importance:

• Global Economic Surveillance: The IMF acts as a global economic watchdog. For instance, in its recent April 2025 World Economic Outlook (WEO), it projected that global growth would be 3.0% in 2025 and 3.1% in 2026. It also provides in-depth analysis on individual countries, such as its recent Article IV consultation with India, where it noted that the country's economy is expected to grow by 6.2% in 2025 and 6.3% in 2026.
• Financial Assistance: The IMF provides loans to member countries facing balance of payments problems. The Fund has a lending capacity of around $1 trillion to assist nations in financial distress. These loans are designed to provide a "breathing room" for countries to implement necessary policy adjustments to restore stability.
• Capacity Development: It helps governments build stronger institutions. This involves providing technical assistance and training in areas like fiscal policy, taxation, and financial system supervision to help countries implement sustainable economic policies.

Criticisms Faced by the IMF 

The IMF has been criticized for the following reasons:

• Loan Conditionality and Austerity: The IMF has long been criticized for the conditions attached to its loans. These policies often include requirements for higher taxes and reduced government spending, which critics argue can disproportionately impact the poor and impede a country's economic recovery.
• Governance Imbalance: A major point of contention is the IMF's governance structure, which is weighted in favor of advanced economies. Voting power is determined by a country's quota, which is based on its relative size in the global economy. This grants a disproportionate voice to wealthy nations, leading to accusations that the institution is more responsive to the interests of its most powerful members.
• Policy Shortcomings: The Fund has been criticized for its "one-size-fits-all" approach to economic problems, which may not be suitable for the unique circumstances of every country. Recent reports from the IMF itself acknowledge the risks of rising trade tensions and tariffs, which could negatively affect global growth, highlighting a need for more nuanced policy frameworks to address complex global issues.

What are some of the Recent Reforms Undertaken by the IMF?

The IMF has recently made important changes to how it operates:

• Lending to Poor Countries: The IMF has a new way of lending money to poorer countries. This new system still gives interest-free loans to the very poorest countries, but it charges a small amount of interest to countries that are slightly better off.
• New "Resilience" Fund: A new fund called the Resilience and Sustainability Trust (RST) was created. This fund provides long-term, affordable loans to countries that are trying to prepare for future problems, such as climate change.
• Larger Loans: The IMF has temporarily increased the amount of money countries can borrow to help them deal with urgent financial problems.
• Checking on Countries' Economies: The IMF has updated how it checks on the economies of countries around the world. The goal is to better find and fix problems early.
• Good Government: The IMF is now more focused on helping countries improve their governments and fight corruption.
• Member Quotas: The IMF's members agreed to a 50% increase in their financial contributions (called quotas). This gives the IMF more money to use for lending and also affects the voting power of each member country.

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