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International Monetary Fund (IMF)

What is IMF?

The IMF is an international organization of 184 member countries. It was established to promote international monetary corporation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustments.

Since the IMF was established its purpose have remained unchanged but its operations � which involve surveillance, financial assistance and technical assistance � have developed to meet the changing needs of its member countries in an evolving world economy.

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What are the objectives of the IMF?

The following are the objectives of the IMF.
  • To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
  • To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
  • To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
  • To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions, which hamper the growth of world trade.
  • To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
  • In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.

The fund is guided in all its policies and decisions by the purposes set forth above.

Surveillance in IMF: A core responsibility of the IMF is to promote a dialogue among its member countries on the national and international consequences of their economic and financial policies. This process of monitoring and consultation, normally referred to as �surveillance�, has evolved rapidly as the world economy has changed. IMF surveillance has also become increasingly open and transparent in recent years.

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Why is Surveillance Important?

In today�s globalised economy, where the economic and financial policies of one country may affect many other countries, international cooperation to monitor economic development on a global scale is essential. With its nearly universal membership of 184 countries, the IMF provides the mechanism for its cooperation.

The importance of effective surveillance has been underscored by recent financial crisis. In response, the IMF has undertaken many initiatives to strengthen its capacity to detect vulnerabilities and risks at an early stage, to help member countries strengthen their policy frameworks and institutions, and to improve transparency and accountability.

Evolution of IMF Surveillance: The IMF has a mandate under Article IV of is Articles to exercise surveillance over the exchange rate policies of its members in order to ensure effective cooperation of the international monetary system. In 1977, an Executive Board decision recognized that the IMF�s appraisal of exchange rate policy requires a comprehensive analysis of the general economic situation and policy strategy of each member country. The decision also emphasized that the ultimate objective of surveillance is to help member countries achieve financial stability and sustainable economic growth.

The objectives of surveillance remain the same today as in 1977. However, the framework for surveillance has evolved significantly in order to promote the benefits and respond to the challenges of an increasingly open world economy, including the dramatic expansion of international capital flows. Surveillance today covers a wide range of economic policies, with the emphasis given to each varying in accordance with a country�s individual circumstances.

Exchange rate, monetary and fiscal policy surveillance: The IMF provides advice on issues ranging from the choice of exchange rate regime, to ensuring consistency between the exchange rate regime and the stance of fiscal and monetary policies.

Structural Policies: Structural policies such as those governing a country�s internal trade, labour markets, and power sectors � became more important to IMF surveillance in the 1980s as economic growth slowed in many industrial countries in the wake of a major oil price shock. Debt crisis in the developing world and the break up of the Soviet Union further underlined the need for structural change in many countries. Today, structural issues are included in the IMF�s policy dialogue with its member countries whenever they have an important impact on macroeconomic performance.

Financial Sector Surveillance: They have received increasing emphasis in IMF surveillance following a series of banking crises in both industrial and developing countries in the 1990s. In 1999, the IMF and the World Bank created a joint Financial Sector Assessment Program (FSAP) to assess the strengths and weaknesses of countries� financial sectors. In those countries that have participated, FSAP findings provide important inputs into IMF surveillance.

IMF Lending: A core responsibility of the IMF is to provide loans to countries experiencing balance �of-payment problems. This financial assistance enables countries to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth. Unlike development banks, the IMF does not lend for specific projects.

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When can a country borrow from the IMF?

A member country may request IMF financial assistance if it has a balance of payments need � that is, if it cannot find sufficient financing on affordable terms to meet its net international payments. An IMF loan eases the adjustment policies and reforms that a country must make to correct its balance of payment problem and restore conditions for strong economic growth.

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What is the nature of IMF Lending?

The volume of loans provided by the IMF has fluctuated significantly over time. The oil shock of the 1970s and the debt crisis of the 1980s were both followed by sharp increases in IMF lending. In the 1990s, the transition process in Central and Eastern Europe and the crisis in emerging market economies let to further surges in the demand for IMF resources.

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What is the process of IMF Lending?

An IMF loan is usually provided under an �arrangement�, which stipulates the specific policies and measures a country has agreed to implement in order to resolve its balance of payments problem. The economic program underlying an arrangement is formulated by the country in consultation with the IMF, and is presented to the Fund�s Executive Board in a �Letter of Intent�. Once an arrangement is approved by the Board, the loan is released in phased installments as the program is carried out.

IMF Facilities: Over the years, the IMF has developed a number of loan instruments, or �facilities; that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow at a concessional interest rate through the Poverty Reduction and Growth Facility (PRGF). Non-concessional loans are provided through four main facilities. Stand-By Arrangements (SBA), the Extended Fund Facility (EFF), the Supplemental Reserve Facility (SRF), and the Compensatory Financing Facility (CFF). The IMF also provides emergency assistance to support recovery from natural disasters and conflicts, in some cases at concessional interest rates.

Except for the PRGF, all facilities are subject to the IMF�s market-related interest rate, known as the �rate of charge�, and some carry an interest rate premium or �surcharge�. The rate of charge is based on the SDR interest rate, which is revised weekly to take account of changes in short-term interest rates in the major international money markets. The rate of charge was 3.39 percent as of February 28, 2005. Large loans carry a surcharge and must be repaid early if a country�s external position permits.

The amount that a country can borrow from the Fund � its �access limit� � varies depending on the type of loan, but is typically a multiple of the country�s IMF quota.

Technical Assistance by IMF: The objective of IMF technical assistance , as described in its Articles of Agreement, �is to contribute to the development of the productive resources of member countries by enhancing the effectiveness of economic policy and financial management.� In practice, the IMF fulfills this objective by helping countries build up their human and institutional capacity to design and implement effective macroeconomic and structural policies, put in place reforms that strengthen their financial sectors, and reduce vulnerability to crises.

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Who benefits from IMF technical assistance?

Technical assistance is one of the benefits of IMF membership. It is normally provided free of charge to any requesting member country, within IMF resource constraints. About three-quarters of IMF technical assistance goes to low and lower-middle income countries, particularly in sub-Saharan Africa and Asia. Post-conflict countries are also major beneficiaries, with Timor-Leste, the Democratic Republic of Congo, and Afghanistan among the top ten recipients in recent years. Wide ranges of other countries seek technical assistance to strengthen their capacities. In helping individual countries reduce weaknesses and vulnerabilities, technical assistance also contributes to a more robust and stable global economy.

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In what areas does the IMF provide technical assistance?

The IMF provides technical assistance in its areas of expertise, namely: macroeconomic policy, tax policy and revenue administration, expenditure management, monetary policy, the exchange rate system, financial sector sustainability, and macroeconomic and financial statistics. Since demand for technical assistance far exceeds supply, the IMF gives priority to providing assistance where it complements and enhances the IMF�s other key forms of assistance, surveillance and lending.

The IMF�s efforts to strengthen the international financial system have precipitated demands for technical assistance. For example, countries have asked for help to address financial sector weaknesses identified within the framework of the joint IMF-World Bank Financial Sector Assessment Program; adopt and adhere to international standards and codes for financial, fiscal, and statistical management; implement recommendations from off-shore financial centers assessments; and strengthen measures to combat money laundering and the financing of terrorism.

At the same time, there is a continuing demand for technical assistance to help low-income countries build capacity to design and implement poverty-reducing and growth programs, and to help heavily indebted poor countries undertake debt sustainability analyses and manage debt reduction programs. The IMF also contributes actively to the Integrated Framework for trade-related technical assistance, which aims to assist the low-income countries expand their participation in the global economy.

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How is technical assistance provided?

The IMF attaches great importance to country ownership. The recipient country is fully involved in the entire process of technical assistance, from identification of need, to implementation, monitoring, and evaluation.

The IMF delivers technical assistance in various ways. Support is often provided through short staff missions of limited duration sent from headquarters, the placement of experts and/or resident advisors for periods ranging from a few weeks to a few years (if the intention is to field a long-term advisor, countries may be asked to make a financial or in-kind contribution). Assistance might also be provided in the form of technical and diagnostic reports, training courses, seminars, workshops, and �on-line� advice and support.

The IMF has increasingly adopted a regional approach to the delivery of technical assistance and training. It operates five regional technical assistance centers, in the Pacific, the Caribbean, East and West Africa, and in the Middle East. In addition to training offered at the IMF Institute in Washington D.C., the IMF also offers courses, workshops, and seminars for country officials through a network of sex regional training institutes and programs.

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How is technical assistance paid for?

IMF technical assistance is financed from both internal and external sources. The IMF finances directly technical assistance delivery, supervision, administrative, and other overhead costs; and this accounts for about one-fifth of its total net administrative budget. The IMF also administers funding provided by bilateral and multilateral donors. Such cooperation and resource sharing has two benefits: it leverages the resources available for technical assistance, and it helps avoid duplication of advice.

Bilateral donors include Australia, Austria, Brazil, Canada, China, Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Russia, Singapore, Sweden, Switzerland, United Kingdom, United States.

Multilateral donors include the African Development Bank, the Arab Monetary Fund, the Asian Development Bank, the European Commission, the Inter-American Development Bank, the United Nations, the United Nations Development Program (UNDP), and the World Bank. In FY 2004, external financing accounted for more than a quarter of the IMF�s total technical assistance and training activities, with Japan being the most generous donor.

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How is technical assistance paid for?

IMF is located in Washington, D.C., United States. The following is its address:

International Monetary Fund,
700 19th Street, N.W.,
Washington, D.C. 20431.
Tel: (202) 623-7000
Fax: (202) 623-4661

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International Organisations
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