PROJECT ON The IMF: A Birds Eye View of its Role and OperationsMaster of CommerceSemester -I(2014 2015)

Submitted In Partial Fulfillment of the requirementsFor the award of degree of M.ComByKothapalli Balakrishna V.Seat No. _79_Tolani College of CommerceSher E Punjab society,Andheri (East),Mumbai 400 093.

PROJECT ON The IMF: A Birds Eye View of its Role and OperationsMaster of CommerceSemester -I(2014 2015)

Submitted In Partial Fulfillment of the requirementsFor the award of degree of M.ComByKothapalli Balakrishna V.

Seat No. _79_Tolani College of CommerceSher E Punjab society,Andheri (East), Mumbai 400 093.

CERTIFICATE

This is to certify that Kothapalli Balakrishna V. of M.Com. Semester I (2014 2015) has successfully completed the project on The IMF: A Birds Eye View of its Role and Operations under the guidance of Prof. Vasudev Iyer.

Project Guide: - _____________

Course Co-Ordinator: - _____________

External Examiner: - _____________

Principal: - _____________

DECLARATION

I, Kothapalli Balakrishna V. the student of M.Com. Semester I (2014 2015) hereby declare that I have completed the project on The IMF: A Birds Eye View of its Role and Operations in the course International Economics.

The information submitted is true and original to the best of my knowledge. References have been cited wherever necessary.

Date: - _________Place: - Mumbai

Signature of Student(Kothapalli Balakrishna V.)

ACKNOWLEDGEMENT

Preparing the project on The IMF: A Birds Eye View of its Role and Operations has given me extensive practical knowledge related to the course.

I would like to first thank our Principal Dr. A. A. Rashid, for his valuable support in preparing this project.

I express my deep sense of Gratitude to the Course Co-ordinator, Ms.Sadhana Venkatesh for the valuable guidance and support during my project work.

I am thankful to my guide Prof. Vasudev Iyer for providing me the guidance throughout the course of this project. I am also thankful to him/her for patiently and critically evaluating the content of this project.

I would like to take this opportunity to express my gratitude to all the staff of the Library and the Computer Lab for their support.

INDEX

Topics Covered

S. no.

1.

Introduction 1. Meaning of IMF2. History of IMF3. About & Overview of IMF

2.Objectives of Study

3.Research Methodology

4.Evolution of IMF

5.Functions of IMF

6.IMF Lending

7.Governance Structure of IMF

8.Changing Role of IMF

9.Conclusion

10.Bibilography

Meaning of IMF:

The International Monetary Fund (IMF) is the central institution embodying the international monetary system and promotes balanced expansion of world trade, reduced trade restrictions, stable exchange rates, minimal trade imbalances, avoidance of currency devaluations, and the correction of balance-of-payment problems. The IMF's goal is to prevent and remedy international financial crises by encouraging countries to maintain sound economic policies. Because of its size, the IMF is also a forum for discussion of global economic policies. The IMF, also known as the Fund, was conceived at a United Nations conference convened in Bretton Woods, New Hampshire, United States, in July 1944. The 44 governments represented at that conference sought to build a framework for economic cooperation that would avoid a repetition of the vicious circle of competitive devaluations that had contributed to the Great Depression of the 1930s.

History of IMF

The International Monetary Fund (IMF) is an international organization headquartered in Washington, D.C., in the United States, of 188 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. Formed in 1944 at the Bretton Woods Conference, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. Countries contribute funds to a pool through a quota system from which countries with payment imbalances can borrow. As of 2010, the fund had SDR476.8 billion, about US$755.7 billion at then current exchange rates.

On 28 June 2011, Christine Lagarde was named managing director of the IMF, replacing Dominique StraussKahn.On 28 June 2011, Christine Lagarde was named managing director of the IMF, replacing Dominique StraussKahn.IMF "Headquarters 1" inWashington, D.C.

Through this fund, and other activities such as statistics keeping and analysis, surveillance of its members' economies and the demand for self correcting policies, the IMF works to improve the economies of its member countries. The organization's objectives stated in the Articles of Agreement are: to promote international economic cooperation, international trade, employment, and exchange rate stability, including by making financial resources available to member countries to meet balance of payments needs.The IMF was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During the Great Depression, countries sharply raised barriers to trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade.

This breakdown in international monetary cooperation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in Bretton Woods, New Hampshire, in the United States, to discuss a framework for postwar international economic cooperation and how to rebuild Europe.

There were two views on the role the IMF should assume as a global economic institution. British economist John Maynard Keynes imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped governments and to act as the U.S. government had during the New Deal in response to World War II. American delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time. Most of White's plan was incorporated into the final acts adopted at Bretton Woods.

The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the IMF had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it.

The IMF was one of the key organisations of the international economic system its design allowed the system to balance the rebuilding of international capitalism with the maximisation of national economic sovereignty and human welfare, also known as embedded liberalism. The IMF's influence in the global economy steadily increased as it accumulated more members. The increase reflected in particular the attainment of political independence by many African countries and more recently the 1991 dissolution of the Soviet Union because most countries in the Soviet sphere of influence did not join the IMF. The Bretton Woods system prevailed until 1971, when the U.S. government suspended the convertibility of the US$ (and dollar reserves held by other governments) into gold. This is known as the Nixon Shock.Objectives of the Study

1. Study of International Monetay Fund (IMF) .2. Study of Bretton wood system.3. Study the Fuctions of IMF.4. Discuss about how the IMF Lending the Loans.5. Discuss the how the IMF manages Fund with World Bank.6. Discuss about Measures Taken By the IMF to reduce the Crisis.

RESEARCH METHOLOGY

It refers to the method adopted to collect the relevant data and other information, which forms the basis of the thesis writing. So for the effective writing of the these report, the data must be quality oriented. Secondary Data- Secondary data represents information that already exists somewhere, having been collected for another purpose.The secondary data sources that came to be utilized by me in these were as follows-I Internal Sources- Library Books - Corporate magazines (Business baron, Times, Business Today) etc II. External Sources- - Internet services

About the IMF

The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.Overview The IMF works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.Work of IMF With its near global membership of 188 countries, the IMF is uniquely placed to help member governments take advantage of the opportunities and manage the challenges posed by Globalization and economic development more generally. The IMF tracks global economic trends and performance, alerts its member countries when it sees problems on the horizon, provides a forum for policy dialogue, and passes on knowhow to governments on how to tackle economic difficulties. The IMF provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.

Marked by massive movements of capital and abrupt shifts in comparative advantage, globalization affects countries' policy choices in many areas, including labor, trade, and tax policies. Helping a country benefit from globalization while avoiding potential downsides is an important task for the IMF. The global economic crisis has highlighted just how inter-connected countries have become in todays world economy.

Key IMF activities The IMF supports its membership by providing policy advice to governments and central banks based on analysis of economic trends and cross country experiences. Research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets. Loans to help countries overcome economic difficulties. Concessional loans to help fight poverty in developing countries, and Technical assistance and training to help countries improve the management of their economies.

Original AimsThe IMF was founded more than 60 years ago toward the end of World War II (see History). The founders aimed to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s and the global conflict that followed. Since then the world has changed dramatically, bringing extensive prosperity and lifting millions out of poverty, especially in Asia. In many ways the IMF's main purpose to provide the global public good of financial stability is the same today as it was when the organization was established. More specifically, the IMF continues to; Provide a forum for cooperation on international monetary problems, Facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction, Promote exchange rate stability and an open system of international payments and Lend countries foreign exchange when needed, on a temporary basis and under adequate Safeguards, to help them address balance of payments problems.An adapting IMF The IMF has evolved along with the global economy throughout its 65year history, allowing the organization to retain its central role within the international financial architecture As the world economy struggles to restore growth and jobs after the worst crisis since the Great Depression, the IMF has emerged as a very different institution. During the crisis, it mobilized on many fronts to support its member countries. It increased its lending, used its cross country experience to advise on policy solutions, supported global policy coordination, and reformed the way it makes decisions. The result is an institution that is more in tune with the needs of its 188 member countries. Stepping up crisis lending: The IMF responded quickly to the global economic crisis, with lending commitments reaching a record level of more than US$250 billion in 2010. This figure includes a sharp increase in concessional lending (thats to say, subsidized lending at rates below those being charged by the market) to the worlds poorest nations. Greater lending flexibility: The IMF has overhauled its lending framework to make it better suited to countries individual needs. It is also working with other regional institutions to create a broader financial safety net, which could help prevent new crises.

Providing analysis and advice: The IMFs monitoring, forecasts, and policy advice, informed by a global perspective and by experience from previous crises, have been in high demand and have been used by the G20.

Drawing lessons from the crisis: The IMF is contributing to the ongoing effort to draw lessons from the crisis for policy, regulation, and reform of the global financial architecture.

Historic reform of governance: The IMFs member countries also agreed to a significant increase in the voice of dynamic emerging and developing economies in the decision making of the institution, while preserving the voice of the low-income members.

Evolution of IMF

Cooperation and reconstruction (1944 - 71) :During the Great Depression of the 1930s, countries attempted to shore up their failing economies by sharply raising barriers to foreign trade, devaluing their currencies to compete against each other for export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts proved to be self defeating. World trade declined sharply (see chart below), and employment and living standards plummeted in many countries.

This breakdown in international monetary cooperation led the IMF's founders to plan an institution charged with overseeing the international monetary system-the system of exchange rates and international payments that enables countries and their citizens to buy goods and services from each other. The new global entity would ensure exchange rate stability and encourage its member countries to eliminate exchange restrictions that hindered trade.

The Bretton Woods agreement The IMF was conceived in July 1944, when representatives of 45 countries meeting in the town of Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for international economic cooperation, to be established after the Second World War. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression. The IMF came into formal existence in December 1945, when its first 29 member countries signed its Articles of Agreement. It began operations on March 1, 1947. Later that year, France became the first country to borrow from the IMF. The IMF's membership began to expand in the late 1950s and during the 1960s as many African countries became independent and applied for membership. But the Cold War limited the Fund's membership, with most countries in the Soviet sphere of influence not joining.Par value systemThe countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates (the value of their currencies in terms of the U.S. dollar and, in the case of the United States, the value of the dollar in terms of gold) pegged at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with the IMF's agreement. This par value system also known as the Bretton Woods systemprevailed until 1971, when the U.S. government suspended the convertibility of the dollar (and dollar reserves held by other governments) into gold.

The end of the Bretton Woods System (1972 - 81) : By the early 1960s, the U.S. dollar's fixed value against gold, under the Bretton Woods system of fixed exchange rates, was seen as overvalued. A sizable increase in domestic spending on President Lyndon Johnson's Great Society programs and a rise in military spending caused by the Vietnam War gradually worsened the overvaluation of the dollar.

End of Bretton Woods system The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon announced the "temporary" suspension of the dollar's convertibility into gold. While the dollar had struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by March 1973 the major currencies began to float against each other. Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union.

Oil shocks Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to an end. In fact, the transition to floating exchange rates was relatively smooth, and it was certainly timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external shocks ever since. The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its lending instruments. To help oil importers deal with anticipated current account deficits and inflation in the face of higher oil prices, it set up the first of two oil facilities.Helping poor countries From the mid1970s, the IMF sought to respond to the balance of payments difficulties confronting many of the world's poorest countries by providing concessional financing through what was known as the Trust Fund. In March 1986, the IMF created a new concessional loan program called the Structural Adjustment Facility. The SAF was succeeded by the Enhanced Structural Adjustment Facility in December 1987.

Debt and painful reforms (1982 - 89) :The oil shocks of the 1970s, which forced many oil importing countries to borrow from commercial banks, and the interest rate increases in industrial countries trying to control inflation led to an international debt crisis.

During the 1970s, Western commercial banks lent billions of "recycled" petrodollars, getting deposits from oil exporters and lending those resources to oil importing and developing countries, usually at variable, or floating, interest rates. So when interest rates began to soar in 1979, the floating rates on developing countries' loans also shot up. Higher interest payments are estimated to have cost the non oil producing developing countries at least $22 billion during 197881. At the same time, the price of commodities from developing countries slumped because of the recession brought about by monetary policies. Many times, the response by developing countries to those shocks included expansionary fiscal policies and overvalued exchange rates, sustained by further massive borrowings. When a crisis broke out in Mexico in 1982, the IMF coordinated the global response, even engaging the commercial banks. It realized that nobody would benefit if country after country failed to repay its debts.

The IMF's initiatives calmed the initial panic and defused its explosive potential. But a long road of painful reform in the debtor countries, and additional cooperative global measures, would be necessary to eliminate the problem.

Societal Change for Eastern Europe (1990 - 2004) :The fall of the Berlin wall in 1989 and the dissolution of the Soviet Union in 1991 enabled the IMF to become a (nearly) universal institution. In three years, membership increased from 152 countries to 172, the most rapid increase since the influx of African members in the 1960s. In order to fulfill its new responsibilities, the IMF's staff expanded by nearly 30 percent in six years. The Executive Board increased from 22 seats to 24 to accommodate Directors from Russia and Switzerland, and some existing Directors saw their constituencies expand by several countries.The IMF played a central role in helping the countries of the former Soviet bloc transition from central planning to market driven economies. This kind of economic transformation had never before been attempted, and sometimes the process was less than smooth. For most of the 1990s, these countries worked closely with the IMF, benefiting from its policy advice, technical assistance, and financial support.By the end of the decade, most economies in transition had successfully graduated to market economy status after several years of intense reforms, with many joining the European Union in 2004.

Asian Financial CrisisIn 1997, a wave of financial crises swept over East Asia, from Thailand to Indonesia to Korea and beyond. Almost every affected country asked the IMF for both financial assistance and for help in reforming economic policies. Conflicts arose on how best to cope with the crisis, and the IMF came under criticism that was more intense and widespread than at any other time in its history.From this experience, the IMF drew several lessons that would alter its responses to future events. First, it realized that it would have to pay much more attention to weaknesses in countries banking sectors and to the effects of those weaknesses on macroeconomic stability. In 1999, the IMF together with the World Bank-launched the Financial Sector Assessment Program and began conducting national assessments on a voluntary basis. Second, the Fund realized that the institutional prerequisites for successful liberalization of international capital flows were more daunting than it had previously thought. Along with the economics profession generally, the IMF dampened its enthusiasm for capital account liberalization. Third, the severity of the contraction in economic activity that accompanied the Asian crisis necessitated a reevaluation of how fiscal policy should be adjusted when a crisis was precipitated by a sudden stop in financial inflows.

Debt relief for poor countriesDuring the 1990s, the IMF worked closely with the World Bank to alleviate the debt burdens of poor countries. The Initiative for Heavily Indebted Poor Countries was launched in 1996, with the aim of ensuring that no poor country faces a debt burden it cannot manage. In 2005, to help accelerate progress toward the United Nations Millennium Development Goals (MDGs), the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI).

Globalization and the Crisis (2005 present) :The IMF has been on the front lines of lending to countries to help boost the global economy as it suffers from a deep crisis not seen since the Great Depression.For most of the first decade of the 21st century, international capital flows fueled a global expansion that enabled many countries to repay money they had borrowed from the IMF and other official creditors and to accumulate foreign exchange reserves.The global economic crisis that began with the collapse of mortgage lending in the United States in 2007, and spread around the world in 2008 was preceded by large imbalances in global capital flows.Global capital flows fluctuated between 2 and 6 percent of world GDP during 198095, but since then they have risen to 15 percent of GDP. In 2006, they totaled $7.2 trillion- more than a tripling since 1995. The most rapid increase has been experienced by advanced economies, but emerging markets and developing countries have also become more financially integrated.

The founders of the Bretton Woods system had taken it for granted that private capital flows would never again resume the prominent role they had in the nineteenth and early twentieth centuries, and the IMF had traditionally lent to members facing current account difficulties.

The latest global crisis uncovered a fragility in the advanced financial markets that soon led to the worst global downturn since the Great Depression. Suddenly, the IMF was inundated with requests for standby arrangements and other forms of financial and policy support.

The international community recognized that the IMFs financial resources were as important as ever and were likely to be stretched thin before the crisis was over. With broad support from creditor countries, the Funds lending capacity was tripled to around $750 billion. To use those funds effectively, the IMF overhauled its lending policies, including by creating a flexible credit line for countries with strong economic fundamentals and a track record of successful policy implementation. Other reforms, including ones tailored to help low income countries, enabled the IMF to disburse very large sums quickly, based on the needs of borrowing countries and not tightly constrained by quotas, as in the past.

For more on the ideas that have shaped the IMF from its inception until the late 1990s, take a look at James Boughton's "The IMF and the Force of History: Ten Events and Ten Ideas that Have Shaped the Institution."

IMF Oraganisation Chart

Board of GovernorsJoint IMF World Bank Development Committee - 1International Monetary and Financial Committee

Independent Evaluation office

Executive Board

Managing Director Deputy Managing Directors

Office of Technical Assistance managementOffice of Internal Audit and inspectionOffice of Budget and PlanningInvestment Office Staff Retirement Plan

Information & LiaisonSupport ServicesFunctional and Special Services DepartmentsArea Departments

African Department

Legal Dept.External Relations Dept.Human Resource Dept.Finance Dept.

Monetary and Financial System Dept.Fiscal Affairs Dept,.Asian and Pacific Department

Regional Office for the Asia and Pacific - 2Secretarys Dept.IMF InstituteEuropean Department

Policy Dept. & Review Dept.Joint Africa InstituteOffices of Europe

Fund Office united Nations - 2Technology & General Services Dept.Research Dept.Joint Venture Institute

Middle East and Central Area Dept.Singapore Training Institute

Western Hemisphere Dept.Statistics DeptInternational Capital Markets Dept.

FUNCTIONS OF THE IMFThe IMF performs the following functions :1. The IMF operates in such a way as to fulfill its objectives as laid down in the Bretton Woods Articles of Agreements. It is the Funds duty to see that these provisions are observed by member countries. Some of the provisions of the original Articles such as relating to exchange rates have become obsolete due to international monetary events. Accordingly the Fund has amended its Articles of Agreement to make appropriate adjustments.

2. The fund gives short-term loans to its members so that they may correct their temporary balance of payments disequilibrium.

3. The Fund is regarded as the guardian of good conduct in the sphere of balance of payments. It aim at reducing tariffs and other trade restriction by the member countries. Articles VII of the Charter provides that no member shall, without the approval of the fund, impose restrictions on the making of payment or engage in discriminatory currency arrangements or multiple currency practices. It is the functions of the Fund to have a surveillance of the policies being adopted by the member countries.

4. The fund also renders technical advice to its members on monetary and fiscal policies.

5. It conduct research studies and publishes them in IMF staff papers, Finance and development, etc.

6. It provides technical experts to member countries having BOP difficulties and other problems. 7. It also conduct short training courses on fiscal, monetary and balance of payments for personnel for member nations through its Central Banking Service development, the Fiscal Affairs Department, the Bureau of Statistics and the IMF Institute.Thus the Fund Performs financial, supervisory and controlling functions. IMF Lending

Any country borrow from the IMF :A member country may request IMF financial assistance if it has a balance of payments need (actual or potential)that is, if it cannot find sufficient financing on affordable terms to meet its net international payments (e.g., imports, external debt redemptions) while maintaining adequate reserve buffers going forward. An IMF loan provides a cushion that eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.

The changing 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 crises in emerging market economies led to further surges of demand for IMF resources. Deep crises in Latin America and Turkey kept demand for IMF resources high in the early 2000s. IMF lending rose again in late 2008 in the wake of the global financial crisis.

The process of IMF lending :Upon request by a member country, IMF resources are usually made available under a lending arrangement, which may, depending on the lending instrument used, stipulate specific economic policies and measures a country has agreed to implement to resolve its balance of payments problem. The economic policy program underlying an arrangement is formulated by the country in consultation with the IMF and is in most cases presented to the Funds Executive Board in a Letter of Intent. Once an arrangement is approved by the Board, IMF resources are usually released in phased installments as the program is implemented. Some arrangements provide strong-performing countries with a one-time up-front access to IMF resources and thus not subject to policy understandings.

IMF lending instruments :Over the years, the IMF has developed various loan instruments that are tailored to address the specific circumstances of its diverse membership. Low-income countries may borrow on concessional terms through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF) (see IMF Support for Low-Income Countries). Concessional loans carry zero interest rates until the end of 2014.

Non-concessional lending :Non-concessional loans are provided mainly through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (which is useful primarily for medium- and longer-term needs). The IMF also can provide emergency assistance via the Rapid Financing Instrument (RFI) to all its members facing urgent balance of payments needs. All non-concessional facilities are subject to the IMFs market-related interest rate, known as the rate of charge, and large loans (above certain limits) carry a 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 major international money markets. The maximum amount that a country can borrow from the IMF, known as its access limit, varies depending on the type of loan, but is typically a multiple of the countrys IMF quota. This limit may be exceeded in exceptional circumstances. The Stand-By Arrangement, the Flexible Credit Line and the Extended Fund Facility have no preset cap on access.

Stand-By Arrangements (SBA): Historically, the bulk of non-concessional IMF assistance has been provided through SBAs. The SBA is designed to help countries address short-term balance of payments problems. Program targets are designed to address these problems and disbursements are made conditional on achieving these targets (conditionality). The length of a SBA is typically 1224 months, and repayment is due within 3-5 years of disbursement. SBAs may be provided on a precautionary basis-where countries choose not to draw upon approved amounts but retain the option to do so if conditions deteriorate. The SBA provides for flexibility with respect to phasing, with front-loaded access where appropriate.

Flexible Credit Line (FCL): The FCL is for countries with very strong fundamentals, policies, and track records of policy implementation. FCL arrangements are approved, at the member countrys request, for countries meeting pre-set qualification criteria. The length of the FCL is either one year or two years with an interim review of continued qualification after one year. Access is determined on a case-by-case basis, is not subject to access limits, and is available in a single up-front disbursement rather than phased. Disbursements under the FCL are not conditional on implementation of specific policy understandings as is the case under the SBA because FCL-qualifying countries have a demonstrated track record of implementing appropriate macroeconomic policies. There is flexibility to either draw on the credit line at the time it is approved or treat it as precautionary. The repayment term of the FCL is the same as that under the SBA.

Precautionary and Liquidity Line (PLL): The PLL is for countries with sound fundamentals and policies, and a track record of implementing such policies. PLL-qualifying countries may face moderate vulnerabilities and may not meet the FCL qualification standards, but they do not require the substantial policy adjustments normally associated with SBAs. The PLL combines qualification (similar to the FCL) with focused conditions that aim at addressing the identified remaining vulnerabilities. Duration of PLL arrangements range from either six months or one to two years. Access under six-month PLL arrangements is limited to 250 percent of quota in normal times, but this limit can be raised to 500 percent of quota in exceptional circumstances where the balance of payments need is due to exogenous shocks, including heightened regional or global stress. One- to two-year PLL arrangements are subject to an annual access limit of 500 percent of quota, and all PLL arrangements are subject to a cumulative cap of 1000 percent of quota. There is flexibility to either draw on the credit line or treat it as precautionary. The repayment term of the PLL is the same as for the SBA.

Extended Fund Facility (EFF): This facility was established in 1974 to help countries address medium- and longer-term balance of payments problems reflecting extensive distortions that require fundamental economic reforms. Its use has increased substantially in the recent crisis period, reflecting the structural nature of some members balance of payments problems. Arrangements under the EFF are typically longer than SBAsnormally not exceeding three years at approval. However, a maximum duration of up to four years is also allowed, predicated on the existence of a balance of payments need beyond the three-year period, the prolonged nature of the adjustment required to restore macroeconomic stability, and the presence of adequate assurances about the members ability and willingness to implement deep and sustained structural reforms. Repayment is due within 410 years from the date of disbursement.

Rapid Financing Instrument (RFI): The RFI was introduced to replace and broaden the scope of the earlier emergency assistance policies. The RFI provides rapid financial assistance with limited conditionality to all members facing an urgent balance of payments need. Access under the RFI is subject to an annual limit of 50 percent of quota and a cumulative limit of 100 percent of quota. Emergency loans are subject to the same terms as the FCL, PLL and SBA, with repayment within 35 years.

Concessional lending:The new concessional facilities for LICs became effective in January 2010 under the Poverty Reduction and Growth Trust (PRGT) as part of a broader reform to make the Funds financial support more flexible and better tailored to the diverse needs of LICs (in April 2013, these facilities for LICs were refined to improve the tailoring and flexibility of Fund support). Access limits and norms have been approximately doubled compared to pre-crisis levels. Financing terms have been made more concessional, and the interest rate is reviewed every two years (currently zero percent until end-2014). All facilities support country-owned programs aimed at achieving a sustainable macroeconomic position consistent with strong and durable poverty reduction and growth.

The Extended Credit Facility (ECF) succeeds the Poverty Reduction and Growth Facility (PRGF) as the Funds main tool for providing medium-term support to LICs with protracted balance of payments problems. Financing under the ECF currently carries a zero interest rate, with a grace period of 5 years, and a final maturity of 10 years.

The Standby Credit Facility (SCF) provides financial assistance to LICs with short-term balance of payments needs. The SCF replaces the High-Access Component of the Exogenous Shocks Facility (ESF), and can be used in a wide range of circumstances, including on a precautionary basis. Financing under the SCF currently carries a zero interest rate, with a grace period of 4 years, and a final maturity of 8 years.

The Rapid Credit Facility (RCF) provides rapid financial assistance with limited conditionality to LICs facing an urgent balance of payments need. The RCF streamlines the Funds emergency assistance for LICs, and can be used flexibly in a wide range of circumstances. Financing under the RCF currently carries a zero interest rate, has a grace period of 5 years, and a final maturity of 10 years.

Governance Structure of IMF

The IMF's mandate and governance have evolved along with changes in the global economy, allowing the organization to retain a central role within the international financial architecture. The diagram below provides a stylized view of the IMF's current governance structure.

Board of GovernorsThe Board of Governors is the highest decision making body of the IMF. It consists of one governor and one alternate governor for each member country. The governor is appointed by the member country and is usually the minister of finance or the head of the central bank.

While the Board of Governors has delegated most of its powers to the IMF's Executive Board, it retains the right to approve quota increases, special drawing right (SDR) allocations, the admittance of new members, compulsory withdrawal of members, and amendments to the Articles of Agreement and By Laws .

The Board of Governors also elects or appoints executive directors and is the ultimate arbiter on issues related to the interpretation of the IMF's Articles of Agreement. Voting by the Board of Governors usually takes place by mail in ballot.

The Boards of Governors of the IMF and the World Bank Group normally meet once a year, during the IMF World Bank Spring and Annual Meetings, to discuss the work of their respective institutions. The Meetings, which take place in September or October, have customarily been held in Washington for two consecutive years and in another member country in the third year.

The Annual Meetings usually include two days of plenary sessions, during which Governors consult with one another and present their countries' views on current issues in international economics and finance. During the Meetings, the Boards of Governors also make decisions on how current international monetary issues should be addressed and approve corresponding resolutions.

The Annual Meetings are chaired by a Governor of the World Bank and the IMF, with the chairmanship rotating among the membership each year. Every two years, at the time of the Annual Meetings, the Governors of the Bank and the Fund elect Executive Directors to their respective Executive Boards.

Ministerial Committees :

The IMF Board of Governors is advised by two ministerial committees, the International Monetary and Financial Committee (IMFC) and the Development Committee.

The IMFC has 24 members, drawn from the pool of 187 governors. Its structure mirrors that of the Executive Board and its 24 constituencies. As such, the IMFC represents all the member countries of the Fund.

The IMFC meets twice a year, during the Spring and Annual Meetings. The Committee discusses matters of common concern affecting the global economy and also advises the IMF on the direction its work. At the end of the Meetings, the Committee issues a joint communiqu summarizing its views. These communiqus provide guidance for the IMF's work program during the six months leading up to the next Spring or Annual Meetings. There is no formal voting at the IMFC, which operates by consensus.

The Development Committee is a joint committee, tasked with advising the Boards of Governors of the IMF and the World Bank on issues related to economic development in emerging and developing countries. The committee has 24 members (usually ministers of finance or development). It represents the full membership of the IMF and the World Bank and mainly serves as a forum for building intergovernmental consensus on critical development issues.

The Executive Board :

The IMF's 24member Executive Board takes care of the daily business of the IMF. Together, these 24 board members represent all 188 countries. Large economies, such as the United States and China, have their own seat at the table but most countries are grouped in constituencies representing 4 or more countries. The largest constituency includes 24 countries.

The Board discusses everything from the IMF staff's annual health checks of member countries' economies to economic policy issues relevant to the global economy. The board normally makes decisions based on consensus but sometimes formal votes are taken. At the end of most formal discussions, the Board issues what is known as a summing up, which summarizes its views. Informal discussions may be held to discuss complex policy issues still at a preliminary stage.

Governance Reform :

To be effective, the IMF must be seen as representing the interests of all its 188 member countries. For this reason, it is crucial that its governance structure reflect todays world economy. In 2010, the IMF agreed wide ranging governance reforms to reflect the increasing importance of emerging market countries. The reforms also ensure that smaller developing countries will retain their influence in the IMF.

CHANGING ROLE OF THE IMF

The founders of the Bretton Woods system had largely assumed that private Capital flows would never again resume the prominent role they had in the nineteenth century. But a series of financial crises during the 1990s, triggered - bysharpchanges in thedirection of capital flows, forced both the Fund and national policymaker to revisit these assumptions. The first capital account crisis erupted in Mexico in 1944. Crises followed in Asia in 1997 98; in Russia in 1998; and elsewhere. It become clear that these crises were fundamentally different from earlier ones. All were capital account crises, large in scale, and, like most financial crises, involved enormous upheaval for the countries involved. The sharp reversal of capital flows to Asia in the later half of 1997 sparked the crises.The speed with which capital account crises erupted meant that financial support from the Funds for countries affected was often urgently needed -- in days rather than the weeks or months which Fund programs for current account crises had usually taken to put together. And the support needed tended to be on a much larger scale than the Fund had customarily provided because of the scale of the outflows experienced by crisis countries.

In this context, IMF's views on capital controls suffered a dramatic reversal. At the same time, the fund began to doubt both the efficacy and the desirability of capital controls and it started paying much closer attention to the efficiency of domestic financial sectors in dealing with increasing volumes of resources. Accordingly, the IMF began to champion the cause of financial liberalization, to allow free international movement of capital of any nature, pushing fro the dismantling controls and restriction on exchange any financial operations. To improve the efficiency of financial sectors in developing countries, the Funds started to propose their opening to foreign banks.

Wider Scope after Second AmendmentThe second amendment widened the scope in the following areas :1. Expansion of scope of consultations : The Second Amendment in 1978 resulted in the IMF dramatically expanding the scope of its consultations. It required each member country to try to direct its economic and financial policies toward fostering orderly economic growth. It also wanted the member states to promote stability by fostering orderly underlying economic and financial conditions and to follow exchange rate policies compatible with the undertakings objectives.

2. Expansion of Range of conditions : It also has resulted in an expansion in the range of conditions that the IMF attaches to the finance it provides to member states. In fact, in some cases in the late 1990s IMF financing arrangements contained over 100 conditions covering such issues as privatization, reform of tax administration, adoption of new laws such as bankruptcy codes, and budgetary allocations for health and education, in addition to ore traditional macroeconomic conditions. However, since the introduction of the new IMF policy of conditionality in 2002, there has been some reduction in the average number of condition attached to IMF financial programs.

3. Different Impacts: The Second Amendment had different impacts on different groups of IMF member states. The IMF lost its significance in the case of industrialized countries, that knew that they would not need to use or had no intention of using the IMFs services in the foreseeable future. They regained their monetary sovereignty from the IMF and escaped from its control. On the other hand, if the country knew that it needed or may need the IMFs financial support, it necessarily had to pay careful attention to the views of the IMF because they will influence the conditions that the IMF will attach to the funds it provides the state. The IMF can also influence these countries access to other sources of funds.

NEW INITIATIVES BY THE IMFIn the emerging context, the following initiatives were taken by the Fund.1. The IMF and Financial Integration : The IMF in the 1997 meeting in Hong Kong took the initiative to pursue convertibility of capital account transactions and dismantling of capital controls. Integration of global financial markets should allow capital to be allocated to its most productive use. Developing countries will benefit from integration because they offer ample opportunities for investment.At the same time, since India and China were relatively immune from the Asian crisis many argues that the capital account should be kept closed.According to the fund, the losses of financial globalization can be minimized, although they cannot be eliminated in three ways:1. By correctly sequencing the liberalization process.2. By having government to adopt only sound economic policies.3. By strengthening domestic financial systems.

Sequencing liberalization correctly is easier to say that to undertake. According to the Fund, the right sequence is to undertake first the liberalization of long term capita and FDI and later on liberalization of short term capital flows.Similarly, the sound economic policies are also a vague requirement. Most of the time, sound policies are defined as being consistent with stability. According to Stanley Fischer, a sound policy framework promotes growth by keeping inflation low, the budget deficit small and the current account sustainable.To strengthen domestic financial system, two steps are usually suggested, i.e., (i) Improving financial regulation and supervision, and (ii) Allow entry of foreign banks into the domestic financial system. The opening of domestic banking systems to foreign institutions is assumed to bring to the country their superior expertise in credit matters, their new technologies and the financial support from their headquarters in the event of a crisis.

2. Structural Adjustments to Promote Financial Globalisation :Introduction of capital account convertibility requires some definite conditionalities. The domestic economies should be prepared to accept and promote he free movement of capital. The reforms for financial liberalization do not consist just in removing capital and exchange controls. According to the Fund, stability of capital flows requires enforcing tough standards of transparency and good governance. Further, to minimize the effects of flow reversals, markets should be more flexible and responsive to supply and demand. Removing excessive regulations should help capital flows to be allocated in the best way. Crisis must be more flexible and responsive to supply and demand. Removing excessive regulations should help capital flows to be allocated in the best way. Crisis must be prevented by appeasing financial sectors concerns and hence, they will not find resons to suddenly transfer their financial capital to other economies.

In this context, the Fund sees the balance of payments crisis as the result of sudden reversals of capital flows out of a country that has lost the confidence of investors (or speculators), both foreign and domestic.

He crisis of the past affected mainly developed countries which was mainly due to unbalanced fiscal policies. However, the current crisis of emerging economies are much more difficult to deal with because they originate in more fundamental disequilibria. For instance, the crisis in Asia was due to financial vulnerabilities in the banking and corporate sector. The speed and size of capital reversals that occurred were very large once those vulnerabilities were revealed. The build up of thee problems showed deep rooted weaknesses in corporate governance, ineffective bank supervision, non-transparent relationships among government, banks and corporations; and macro economic imbalances reflected by rising current account deficit and short-term external debt. To solve such a crisis we have to redesign the afflicted economys structures and not just redimensioning fiscal expenditures and revenues.

3. The New Conditiopnalities :Since 1997 the Fund insisted on the need to promote structural reforms in order to get Funds help. According to Michael Camdessus, Managing Director of the Fund, to recover from todays balance of payments crisis an emerging economy had to go through a three-tier adjustment process. They are:(i) The First tier Is to Restore stability : This consists in raising interest rates to convince international investors to keep their capital in the country and I cutting fiscal deficits.(ii) The Second tier is to Improve Soundness : This is intended to restore lost confidence, especially in domestic financial and corporate systems, through fundamental institutional changes. This refers to initiatives such as cleaning the financial system of non viable institutions, putting an end to favors to private firms, streamlining government policies and so on.(iii) The Third tier is to boost efficiency :This means transforming government from an active player I the economy into a magistrate, a regulator and guarantor of an economic order that allows for the free interplay of private agents.

Implications of the New Role of IMF :A country that currently appeals to the support of the Fund has to be prepared to undergo a much deeper transformation of its economic structure than in the past. An emerging country with given capital and current accounts are always subject to sudden reassessments of risks and prospective gains that may lead to reversals of capital flows and balance of payments crisis.

In contrast to the Conditiopnalities of the past which consisted only in measures to affect fiscal deficits and revenues to influence aggregate demand, the current Conditiopnalities seek to change structure and to close options that governments want to adopt in the future and that could offend the sentiment of the market. Policies, that intensify financial integration, rare designed to eliminate the possibility of pursuing policies detrimental to the interest of financial investors in order to achieve undefined benefits in the future.

In the Post Bretton Woods System (since 1973) the IMFs functions under its new role include : Lending to Solve Balance of Payments problem due to change sin the world economy. International policy co-ordinator. Providing data and forecast in the world economic outlook on a basis for policy discussion. Purveyor of policy advice in regular consultation with member countries. Surveillance of exchange rates. Crisis manager as in situations like Mexico in 1994 and Asia (Far East) in 1997. Protector of Financial stability. Facilitator in the transition of economies as in the case of socialist economies into market oriented economies.

CONCLUSION

The IMFs primary purpose is to safeguard the stability of the international monetary system the system of exchange rates and international payments that enables countries (and their citizens) to buy goods and services from each other. This is essential for achieving sustainable economic growth and raising living standards. Providing advice to members on adopting policies that can help them prevent or resolve a financial crisis, achieve macroeconomic stability, accelerate economic growth, and alleviate poverty

Making financing temporarily available to member countries to help them address balance of payments problemsthat is, when they find themselves short of foreign exchange because their payments to other countries exceed their foreign exchange earnings and

Offering technical assistance and training to countries at their request, to help them build the expertise and institutions they need to implement sound economic policies.

Bibliography

Meaning of IMF - History of IMF -About & Overview of IMF

Books International Economics By JhinganEconomics of Global Trade and Finance By Jhonson