MARKETING STRATEGY & PLANNING

Master of Commerce
UNIVERSITY OF MUMBAI
(Semester I)
2014-15
Submitted By

Mr. MEGHNATH PANDURANG GHEVADE

Roll No. 08

V.E.S.COLLEGE OF ARTS, SCIENCE &

COMMERCE
SINDHI SOCIETY, CHEMBUR,
MUMBAI-400 071

CERTIFICATE
This is to certify that the project MARKETING STRATEGY
& PLANNING by Mr. Meghnath Pandurang Ghevade, Roll No.08,
completed in partial fulfillment of M.Com.(Part1) -

Semester I

Examination during the academic year 2014-15 has been found

satisfactory.
This report has not been submitted for any other examination
and does not form part of any other course undergone by the candidate.

Project guide/Internal examiner

(Prof.V.T.JOHNSON)

_________________
External Examiner

________________
Principal

___________________
Course co-ordinator

DECLARATION
I, Mr. Meghnath Pandurang Ghevade, student of M.Com (Part 1)
Semester I, Roll No.08 , hereby declare that this Project Report entitled
MARKETING STRATEGY & PLANNING is being submitted as a
partial fulfillment of the course, which is a necessary requirement to
pass the Semester I examination.
I further declare that the report is the output of my personal
research and all the information contained herein is correct to the best of
my knowledge.

Date:
Place: Chembur

Signature of student
(Meghnath Pandurang Ghevade)

ACKNOWLEDGEMENT
I would firstly like to thank the University of Mumbai for giving
me an opportunity to get an interesting and informative project on
MARKETING STRATEGY & PLANNING. I would like to express
my sincere gratitude and indebtedness to those people. I also take this
opportunity to thank Prof. V. T. JOHNSON

without whose

encouragement & help, this project would not have been possible.
A special mention to all those websites for providing me with the
required information about Tariffs and Non tariffs barriers and its
economic impact.
Finally, I would like to thank all those people who have directly
and indirectly helped me during the course of this project.

INTERNATIONAL MONETARY FUND

EXECUTIVE SUMMARY
The International Monetary Fund was originally laid out as a part of the
Bretton Woods system exchange agreement in 1944. During the earlier Great
Depression, countries sharply raised barriers to foreign trade in an attempt to
improve their failing economies. This led to the devaluation of national currencies
and a decline in world trade.
The IMF has drastically changed the way it defines its own mission since the
1990s. From being the manager of an international monetary system based on fixed
exchange rates and supplier of short-term liquidity to countries undergoing
temporary current account deficits to become the crusader of the brave new world
of global financial integration. The fund has taken its task to reform domestic
economics structures to prepare them for the new liberal financial order. As a
result, the impact of its policies for the client countries became much deeper than
in the past.
The IMF describes itself as 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.

INDEX
Sr. No.

DESCRIPTION

Pg. no.

1.

DESIGN OF STUDY

9 10

2.

INTRODUCTION

11

3.

HISTORY

12 15

4.

OBJECTIVES OF IMF

16

5.

MEMBER COUNTRIES

17 - 18

6.

FUNCTIONS

19 27

7.

LEADERSHIP

28 31

8.
9.

VOTING POWER

32 36
37 38

10.
11.
12.

IMF AND GLOBALIZATION

CRITICISMS
CONCLUSION
BIBLOGRAPHY

39 44
45
46

DESIGN OF STUDY
OBJECTIVE OF THE STUDY:
The study aims to achieve the following objectives:
To determine the progress of the International Monetary Fund and to
ascertain the future prospects of the IMF..
To find out the level of activity or the operating efficiency of the IMF.
To study the global impact of IMF..
To study the extent of influence of different factors on operation of IMF..

SCOPE OF THE STUDY:

This study has a wider scope to cover components and determinants of
various factors of operations .of IMF and its impact on Global Economy.

METHODOLOGY:
No study is completed until a proper method is adopted. The level of any
systematic research depends upon collection of data by keenly observing the
existing conditions, classification and interpretation of data and at the end
formation and generalization and conclusion.
The research design should be such that it maximizes reliability of the
evidence collected. The data required for the preparation of financial statement
analysis and working capital management was collected through Primary and
Secondary data.

Sources of Data:
This includes information relating too
Published text books.
Internet.

INTRODUCTION
The International Monetary Fund (IMF) is an international organization
that was initiated in 1944 at the Bretton Woods Conference and formally created in
1945 by 29 member countries. The IMF's stated goal was to assist in the
reconstruction of the world's international payment system postWorld War II.
Countries contribute money to a pool through a quota system from which countries
with payment imbalances can borrow funds temporarily. Through this activity and
others such as surveillance of its members' economies and the demand for selfcorrecting policies, the IMF works to improve the economies of its member
countries.
The IMF describes itself as 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. The organization's stated objectives are to
promote international economic co-operation, international trade, employment, and
exchange rate stability, including by making financial resources available to
member countries to meet balance of payments needs. Its headquarters are in
Washington, D.C., United States.

HISTORY

The International Monetary Fund was originally laid out as a part of the
Bretton Woods system exchange agreement in 1944. During the earlier Great
Depression, countries sharply raised barriers to foreign 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 co-operation created a need for
oversight. The representatives of 45 governments met at the Bretton Woods
Conference in the Mount Washington Hotel in the area of Bretton Woods, New
Hampshire in the United States, to discuss framework for post-World War II
international economic co-operation. The participating countries were concerned
with the rebuilding of Europe and the global economic system after the war.
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 US
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 International Monetary Fund formally came into existence on 27
December 1945, when the first 29 countries ratified its Articles of Agreement.
By the end of 1946 the Fund 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 organizations of the international economic
system; its design allowed the system to balance the rebuilding of international
capitalism with the maximization 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 US government
suspended the convertibility of the US$ (and dollar reserves held by other
governments) into gold. This is known as the Nixon Shock. As of January 2012,
the largest borrowers from the fund in order are Greece, Portugal, Ireland,
Romania and Ukraine.
In the October 2013 Financial Monitor publication, the IMF suggested that
a capital levy capable of reducing Euro-area government debt ratios to "end-2007
levels" would require a very high tax rate; about 10 percent.
The 188 members of the IMF include 187 members of the UN and the
Republic of Kosovo. All members of the IMF are also International Bank for
Reconstruction and Development (IBRD) members and vice versa.
Former members are Cuba (which left in 1964)] and the Republic of China,
which was ejected from the UN in 1980 after losing the support of then US
President Jimmy Carter and was replaced by the People's Republic of China.
However, "Taiwan Province of China" is still listed in the official IMF indices.
Apart from Cuba, the other UN states that do not belong to the IMF are
Andorra, Liechtenstein, Monaco, Nauru and North Korea.

The former Czechoslovakia was expelled in 1954 for "failing to provide

required data" and was readmitted in 1990, after the Velvet Revolution. Poland
withdrew in 1950allegedly pressured by the Soviet Unionbut returned in
1986.

BRETTON WOODS SYSTEM AND IMF

The purpose if IMF was to manage the international payment system
conceived in the Bretton Woods Conference to be based in fixed exchange rates. It
is to be based on the gold standard. Under the gold standard, countries having
deficits in their external accounts should bear the whole burden of adjustment.
Deficit countries had to contract their economics to reduce their impacts.

Objectives and Aims of IMF:

The Original aims of IMF are the following:

1. To promote international monetary cooperation through a permanent
institution which provides the machinery for consultation and collaboration
on international monetary problems/
2. To facilitate the expansion and balanced growth of international trade and
contribute therby to the promotion and development of the productive
resources of all members as primary objectives of economics policy.
3. To promote exchange rate stability, maintain orderly exchange arrangement
among members, and avoid competitive exchange depreciation.
4. To assist in the establishment of multilateral system of payments of current
transactions between and the elimination of foreign exchange restrictions
which hamper the growth of world trade.

5. In accordance with the above, to shorten the duration and lessen the degree
of disequilibrium in the international balance of payments of members.

MEMBER COUNTRIES

QUALIFICATION
Any country may apply to be a part of the IMF. Post-IMF formation, in the
early postwar period, rules for IMF membership were left relatively loose.
Members needed to make periodic membership payments towards their quota, to
refrain from currency restrictions unless granted IMF permission, to abide by the
Code of Conduct in the IMF Articles of Agreement, and to provide national
economic information. However, stricter rules were imposed on governments that
applied to the IMF for funding.
The countries that joined the IMF between 1945 and 1971 agreed to keep
their exchange rates secured at rates that could be adjusted only to correct a
"fundamental disequilibrium" in the balance of payments, and only with the IMF's
agreement.
Some members have a very difficult relationship with the IMF and even
when they are still members they do not allow themselves to be monitored.
Argentina for example refuses to participate in an Article IV Consultation with the
IMF.

BENEFITS TO MEMBER COUNTRIES

Member countries of the IMF have access to information on the economic
policies of all member countries, the opportunity to influence other members
economic policies, technical assistance in banking, fiscal affairs, and exchange
matters, financial support in times of payment difficulties, and increased
opportunities for trade and investment.

FUNCTIONS
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. The rationale for this is that private international capital markets function
imperfectly and many countries have limited access to financial markets. Such
market imperfections, together with balance of payments financing, provide the
justification for official financing, without which many countries could only
correct large external payment imbalances through measures with adverse effects
on both national and international economic prosperity. The IMF can provide other
sources of financing to countries in need that would not be available in the absence
of an economic stabilization program supported by the Fund.
Upon initial IMF formation, its two primary functions were: to oversee the
fixed exchange rate arrangements between countries,[6] thus helping national
governments manage their exchange rates and allowing these governments to
prioritize economic growth, and to provide short-term capital to aid balance-ofpayments. This assistance was meant to prevent the spread of international
economic crises. The Fund was also intended to help mend the pieces of the
international economy post the Great Depression and World War II.
The IMF's role was fundamentally altered after the floating exchange rates
post 1971. It shifted to examining the economic policies of countries with IMF

loan agreements to determine if a shortage of capital was due to economic

fluctuations or economic policy. The IMF also researched what types of
government policy would ensure economic recovery. The new challenge is to
promote and implement policy that reduces the frequency of crises among the
emerging market countries, especially the middle-income countries that are open to
massive capital outflows. Rather than maintaining a position of oversight of only
exchange rates, their function became one of surveillance of the overall
macroeconomic performance of its member countries. Their role became a lot
more active because the IMF now manages economic policy instead of just
exchange rates.
In addition, the IMF negotiates conditions on lending and loans under their
policy of conditionality, which was established in the 1950s. Low-income
countries can borrow on concessional terms, which means there is a period of time
with no interest rates, through the Extended Credit Facility (ECF), the Standby
Credit Facility (SCF) and the Rapid Credit Facility (RCF). Non-concessional
loans, which include interest rates, are provided mainly through Stand-By
Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and
Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides
emergency assistance via the newly introduced Rapid Financing Instrument (RFI)
to all its members facing urgent balance of payments needs

1. SURVEILLANCE OF THE GLOBAL ECONOMY

The IMF is mandated to oversee the international monetary and financial
system and monitor the economic and financial policies of its 188 member
countries. This activity is known as surveillance and facilitates international co-

operation. Since the demise of the Bretton Woods system of fixed exchange rates
in the early 1970s, surveillance has evolved largely by way of changes in
procedures rather than through the adoption of new obligations. The
responsibilities of the Fund changed from those of guardian to those of overseer of
members policies.
The Fund typically analyses the appropriateness of each member countrys
economic and financial policies for achieving orderly economic growth, and
assesses the consequences of these policies for other countries and for the global
economy
In 1995 the International Monetary Fund began work on data dissemination
standards with the view of guiding IMF member countries to disseminate their
economic and financial data to the public. The International Monetary and
Financial Committee (IMFC) endorsed the guidelines for the dissemination
standards and they were split into two tiers: The General Data Dissemination
System (GDDS) and the Special Data Dissemination Standard (SDDS).
The International Monetary Fund executive board approved the SDDS and GDDS
in 1996 and 1997 respectively, and subsequent amendments were published in a
revised Guide to the General Data Dissemination System. The system is aimed
primarily at statisticians and aims to improve many aspects of statistical systems in
a country. It is also part of the World Bank Millennium Development Goals and
Poverty Reduction Strategic Papers.
The primary objective of the GDDS is to encourage IMF member countries to
build a framework to improve data quality and increase statistical capacity
building. Upon building a framework, a country can evaluate statistical needs, set
priorities in improving the timeliness, transparency, reliability and accessibility of

financial and economic data. Some countries initially used the GDDS, but later
upgraded to SDDS.
Some entities that are not themselves IMF members also contribute statistical data
to the systems:

Palestinian Authority GDDS

Hong Kong SDDS

Macao GDDS

EU institutions:

the European Central Bank for the Eurozone SDDS

Eurostat for the whole EU SDDS, thus providing data from Cyprus
(not using any DDSystem on its own) and Malta (using only GDDS on its
own)

2. CONDITIONALITY OF LOANS (CL)

IMF conditionality is a set of policies or conditions that the IMF requires in
exchange for financial resources. The IMF does not require collateral from
countries for loans but rather requires the government seeking assistance to correct
its macroeconomic imbalances in the form of policy reform. If the conditions are
not met, the funds are withheld. Conditionality is perhaps the most controversial
aspect of IMF policies. The concept of conditionality was introduced in an
Executive Board decision in 1952 and later incorporated in the Articles of
Agreement.

Conditionality is associated with economic theory as well as an enforcement

mechanism for repayment. Stemming primarily from the work of Jacques Polak in
the Fund's research department, the theoretical underpinning of conditionality was
the " monetary approach to the balance of payments."

STRUCTURAL ADJUSTMENT OF CL
Further information: Structural adjustment
Some of the conditions for structural adjustment can include:

Cutting expenditures, also known as austerity.

Focusing economic output on direct export and resource extraction,

Devaluation of currencies,

Trade liberalisation, or lifting import and export restrictions,

Increasing the stability of investment (by supplementing foreign direct

investment with the opening of domestic stock markets),

Balancing budgets and not overspending,

Removing price controls and state subsidies,

Privatization, or divestiture of all or part of state-owned enterprises,

Enhancing the rights of foreign investors vis-a-vis national laws,

Improving governance and fighting corruption.

These conditions have also been sometimes labeled as the Washington
Consensus.

BENEFITS OF CL

These loan conditions ensure that the borrowing country will be able to
repay the Fund and that the country won't attempt to solve their balance of
payment problems in a way that would negatively impact the international
economy. The incentive problem of moral hazard, which is the actions of economic
agents maximizing their own utility to the detriment of others when they do not
bear the full consequences of their actions, is mitigated through conditions rather
than providing collateral; countries in need of IMF loans do not generally possess
internationally valuable collateral anyway.
Conditionality also reassures the IMF that the funds lent to them will be
used for the purposes defined by the Articles of Agreement and provides
safeguards that country will be able to rectify its macroeconomic and structural
imbalances. In the judgment of the Fund, the adoption by the member of certain
corrective measures or policies will allow it to repay the Fund, thereby ensuring
that the same resources will be available to support other members.
As of 2004, borrowing countries have had a very good track record for
repaying credit extended under the Fund's regular lending facilities with full
interest over the duration of the loan. This indicates that Fund lending does not
impose a burden on creditor countries, as lending countries receive market-rate
interest on most of their quota subscription, plus any of their own-currency

subscriptions that are loaned out by the Fund, plus all of the reserve assets that they
provide the Fund.

CRITICISMS OD CL
In some quarters, the IMF has been criticized for being 'out of touch' with
local economic conditions, cultures, and environments in the countries they are
requiring policy reform. The Fund knows very little about what public spending on
programs like public health and education actually means, especially in African
countries; they have no feel for the impact that their proposed national budget will
have on people. The economic advice the IMF gives might not always take into
consideration the difference between what spending means on paper and how it is
felt by citizens.
For example, some people believe that Jeffrey Sach's work shows that "the
Fund's usual prescription is 'budgetary belt tightening to countries who are much
too poor to own belts'. It has been said that the IMF's role as a generalist
institution specializing in macroeconomic issues needs reform. Conditionality has
also been criticized because a country can pledge collateral of "acceptable assets"
to obtain waivers on certain conditions. However, that assumes that all countries
have the capability and choice to provide acceptable collateral.
One view is that conditionality undermines domestic political institutions.
The recipient governments are sacrificing policy autonomy in exchange for funds,
which can lead to public resentment of the local leadership for accepting and
enforcing the IMF conditions. Political instability can result from more leadership
turnover as political leaders are replaced in electoral backlashes. IMF conditions

are often criticized for their bias against economic growth and reduce government
services, thus increasing unemployment.
Another criticism is that IMF programs are only designed to address poor
governance, excessive government spending, excessive government intervention in
markets, and too much state ownership. This assumes that this narrow range of
issues represents the only possible problems; everything is standardized and
differing contexts are ignored. A country may also be compelled to accept
conditions it would not normally accept had they not been in a financial crisis in
need of assistance.
It is claimed that conditionality retard social stability and hence inhibit the
stated goals of the IMF, while Structural Adjustment Programs lead to an increase
in poverty in recipient countries. The IMF sometimes advocates austerity
programmes, cutting public spending and increasing taxes even when the
economy is weak, to bring budgets closer to a balance, thus reducing budget
deficits. Countries are often advised to lower their corporate tax rate. In
Globalization and Its Discontents, Joseph E. Stiglitz, former chief economist and
senior vice-president at the World Bank, criticises these policies.[21] He argues that
by converting to a more monetarist approach, the purpose of the fund is no longer
valid, as it was designed to provide funds for countries to carry outKeynesian
reflations, and that the IMF "was not participating in a conspiracy, but it was
reflecting the interests and ideology of the Western financial community."[22]

3. REFORMS
The IMF is only one of many international organizations and it is a
generalist institution for macroeconomic issues only; its core areas of concern in
developing countries are very narrow. One proposed reform is a movement towards

close partnership with other specialist agencies to better productivity. The IMF has
little to no communication with other international organizations such as UN
specialist agencies like UNICEF, the Food and Agriculture Organization (FAO),
and the United Nations Development Program (UNDP).
Jeffrey Sachs argues in The End of Poverty: "international institutions like
the International Monetary Fund (IMF) and the World Bank have the brightest
economists and the lead in advising poor countries on how to break out of poverty,
but the problem is development economics". Development economics needs the
reform, not the IMF. He also notes that IMF loan conditions need to be partnered
with other reforms such as trade reform in developed nations, debt cancellation,
and increased financial assistance for investments in basic infrastructure to be
effective.[18] IMF loan conditions cannot stand alone and produce change; they
need to be partnered with other reforms or other conditions as applicable.

LEADERSHIP
BOARD OF GOVERNOR
The Board of Governors consists of one governor and one alternate governor
for each member country. Each member country appoints its two governors. The
Board normally meets once a year and is responsible for electing or appointing
executive directors to the Executive Board. While the Board of Governors is
officially responsible for approving quota increases, right allocations, the
admittance of new members, compulsory withdrawal of members, and
amendments to the Articles of Agreement and By-Laws, in practice it has delegated
most of its powers to the IMF's Executive Board.
The Board of Governors is advised by the International Monetary and
Financial Committee and the Development Committee. The International
Monetary and Financial Committee has 24 members and monitors developments in
global liquidity and the transfer of resources to developing countries. The
Development Committee has 25 members and advises on critical development

issues and on financial resources required to promote economic development in

developing countries. They also advise on trade and global environmental issues.

EXECUTIVE BOARD
24 Executive Directors make up Executive Board. The Executive Directors
represent all 188 member-countries. Countries with large economies have their
own Executive Director, but most countries are grouped in constituencies
representing four or more countries.
Following the 2008 Amendment on Voice and Participation, eight countries
each appoint an Executive Director: the United States, Japan, Germany, France, the
United Kingdom, China, the Russian Federation, and Saudi Arabia. The remaining
16 Directors represent constituencies consisting of 4 to 22 countries. The Executive
Director representing the largest constituency of 22 countries accounts for 1.55%
of the vote.

MANAGING DIRECTOR
The IMF is led by a managing director, who is head of the staff and serves
as Chairman of the Executive Board. The managing director is assisted by a First
Deputy managing director and three other Deputy Managing Directors.
Historically the IMF's managing director has been European and the president of
the World Bank has been from the United States. However, this standard is
increasingly being questioned and competition for these two posts may soon open
up to include other qualified candidates from any part of the world.[46][47]
In 2011 the world's largest developing countries, the BRIC nations, issued a
statement declaring that the tradition of appointing a European as managing

director undermined the legitimacy of the IMF and called for the appointment to be
merit-based.
The head of the IMF's European department is Antonio Borges of Portugal,
former deputy governor of the Bank of Portugal. He was elected in October 2010.
The following table shows name of Managing Director of IMF.

Dates

Names of M.D.

Nationality

6 May 1946 5 May 1951

Camille Gutt

Belgium

3 August 1951 3 October 1956

Ivar Rooth

Sweden

21 November 1956 5 May 1963

Per Jacobsson

Sweden

1 September 1963 31 August 1973 Pierre-Paul Schweitzer

France

1 September 1973 18 June 1978

Johan Witteveen

Netherlands

18 June 1978 15 January 1987

Jacques de Larosire

France

16 January 1987 14 February 2000

Michel Camdessus

France

1 May 2000 4 March 2004

Horst Khler

Germany

7 June 2004 31 October 2007

Rodrigo Rato

Spain

1 November 2007 18 May 2011 Dominique Strauss-Kahn

5 July 2011 Onwards

Christine Lagarde

France
France

On 28 June 2011, Christine Lagarde was named managing director of the

IMF, replacing Dominique Strauss-Kahn.
Previous Managing Director Dominique Strauss-Kahn was arrested in
connection with charges of sexually assaulting a New York room attendant.
Strauss-Kahn subsequently resigned his position on 18 May. On 28 June 2011
Christine Lagarde was confirmed as managing director of the IMF for a five-year
term starting on 5 July 2011

VOTING POWER
Voting power in the IMF is based on a quota system. Each member has a
number of "basic votes" (each member's number of basic votes equals 5.502% of
the total votes), plus one additional vote for each Special Drawing Right (SDR) of
100,000 of a member country's quota. The Special Drawing Right is the unit of
account of the IMF and represents a claim to currency. It is based on a basket of
key international currencies. The basic votes generate a slight bias in favour of
small countries, but the additional votes determined by SDR outweigh this bias.

The table below shows quota and voting shares for IMF members (Attention:
Amendment on Voice and Participation, and of subsequent reforms of quotas
and governance which were agreed in 2010 but are not yet in effect

IMF Member
Country

Quota:
Quota: % of
millions of
the total
SDRs

Number of
votes

% out of total
votes

United States

42,122.4

17.69

421,961

16.75

Japan

15,628.5

6.56

157,022

6.23

Germany

14,565.5

6.12

146,392

5.81

France

10,738.5

4.51

108,122

4.29

United Kingdom

10,738.5

4.51

108,122

4.29

China

9,525.9

4.00

81 151

3.65

IMF Member
Country

Quota:
Quota: % of
millions of
the total
SDRs

Number of
votes

% out of total
votes

Italy

7,055.5

3.24

95,996

3.81

Saudi Arabia

6,985.5

2.93

70,592

2.80

Canada

6,369.2

2.67

64,429

2.56

Russia

5,945.4

2.50

60,191

2.39

India

5,821.5

2.44

58,952

2.34

Netherlands

5,162.4

2.17

52,361

2.08

Belgium

4,605.2

1.93

46,789

1.86

Switzerland

3,458.5

1.45

35,322

1.40

Mexico

3,625.7

1.52

36,994

1.47

Spain

4,023.4

1.69

40,971

1.63

Brazil

4,250.5

1.79

43,242

1.72

South Korea

3,366.4

1.41

34,401

1.37

Australia

3,236.4

1.36

33,101

1.31

Venezuela

2,659.1

1.12

27,328

1.08

Pakistan

1,033.7

0.43

11,074

0.44

The rest of 165

countries

62,593.8

28.39

667,438

31.16

EFFECTS OF QUOTA SYSTEM

The IMF's quota system was created to raise funds for loans. Each IMF
member country is assigned a quota, or contribution, that reflects the country's
relative size in the global economy. Each member's quota also determines its
relative voting power. Thus, financial contributions from member governments are
linked to voting power in the organisation.
This system follows the logic of a shareholder-controlled organisation:
wealthy countries have more say in the making and revision of rules. Since
decision making at the IMF reflects each member's relative economic position in
the world, wealthier countries that provide more money to the fund have more
influence in the IMF than poorer members that contribute less; nonetheless, the
IMF focuses on redistribution.

DEVELOPING COUNTRIES

Quotas are normally reviewed every five years and can be increased when
deemed necessary by the Board of Governors. Currently, reforming the
representation of developing countries within the IMF has been suggested. These
countries' economies represent a large portion of the global economic system but
this is not reflected in the IMF's decision making process through the nature of the
quota system. Joseph Stiglitz argues "There is a need to provide more effective
voice and representation for developing countries, which now represent a much
larger portion of world economic activity since 1944, when the IMF was created."

In 2008, a number of quota reforms were passed including shifting 6% of quota

shares to dynamic emerging markets and developing countries.

UNITED STATE INFLENCE

A second criticism is that the United States' transition to neoliberalism and

global capitalism also led to a change in the identity and functions of international
institutions like the IMF. Because of the high involvement and voting power of the
United States, the global economic ideology could effectively be transformed to
match the US's. This is consistent with the IMF's function change during the 1970s
after the Nixon Shock ended the Bretton Woods system. Another criticism is that
allies of the United States are able to receive bigger loans with fewer conditions.[23]

OVERCOMING BORROWER / CREDITOR DIVIDE

The IMF's membership is divided along income lines: certain countries

provide the financial resources while others use these resources. Both developed
country "creditors" and country borrowers" are members of the IMF. The
developed countries provide the financial resources but rarely enter into IMF loan
agreements; they are the creditors. Conversely, the developing countries use the
lending services but contribute little to the pool of money available to lend because
their quotas are smaller; they are the borrowers. Thus, tension is created around
governance issues because these two groups, creditors and borrowers, have
fundamentally different interests in terms of the conditions of these loans.

The criticism is that the system of voting power distribution through a quota
system institutionalizes borrower subordination and creditor dominance. The
resulting division of the Fund's membership into borrowers and non-borrowers has
increased the controversy around conditionality because the borrowing members
are interested in making loan access easier while the creditor members want to
maintain reassurance that the loans will be repaid.

IMF AND GLOBALIZATION

IMF AND GLOBALIZATION

Globalization encompasses three institutions: global financial markets and
transnational companies, national governments linked to each other in economic
and military alliances led by the US, and rising "global governments" such as
World Trade Organization (WTO), IMF, and World Bank. Charles Derber argues in
his book People Before Profit, "These interacting institutions create a new global
power system where sovereignty is globalized, taking power and constitutional
authority away from nations and giving it to global markets and international
bodies."[63] Titus Alexander argues that this system institutionalises global
inequality between western countries and the Majority World in a form of global
apartheid, in which the IMF is a key pillar.
The establishment of globalised economic institutions has been both a
symptom of and a stimulus for globalisation. The development of the World Bank,
the IMF regional development banks such as the European Bank for
Reconstruction and Development (EBRD), and, more recently, multilateral trade

institutions such as the WTO indicates the trend away from the dominance of the
state as the exclusive unit of analysis in international affairs. Globalization has thus
been transformative in terms of a reconceptualising of state sovereignty.
Following US President Bill Clinton's administration's aggressive financial
deregulation campaign in the 1990s, globalization leaders overturned long-standing
restrictions by governments that limited foreign ownership of their banks,
deregulated currency exchange, and eliminated restrictions on how quickly money
could be withdrawn by foreign investors

CRITICISMS

Overseas Development Institute (ODI) research undertaken in 1980 pointed

to five main criticisms of the IMF which support the analysis that it is a pillar of
what activist Titus Alexander calls global apartheid.[66] Firstly, developed countries
were seen to have a more dominant role and control over less developed countries
(LDCs) primarily due to the Western bias towards a capitalist form of the world
economy with professional staff being Western trained and believing in the
efficacy of market-oriented policies.
Secondly, the Fund worked on the incorrect assumption that all payments
disequilibria were caused domestically. The Group of 24 (G-24), on behalf of LDC
members, and the United Nations Conference on Trade and Development
(UNCTAD) complained that the Fund did not distinguish sufficiently between
disequilibria with predominantly external as opposed to internal causes. This
criticism was voiced in the aftermath of the 1973 oil crisis. Then LDCs found
themselves with payments deficits due to adverse changes in their terms of trade,
with the Fund prescribing stabilization programmes similar to those suggested for
deficits caused by government over-spending. Faced with long-term, externally
generated disequilibria, the Group of 24 argued that LDCs should be allowed more
time to adjust their economies and that the policies needed to achieve such
adjustment are different from demand-management programmes devised primarily
with internally generated disequilibria in mind.

The third criticism was that the effects of Fund policies were antidevelopmental. The deflationary effects of IMF programmes quickly led to losses
of output and employment in economies where incomes were low and
unemployment was high. Moreover, it was sometimes claimed that the burden of
the deflationary effects was borne disproportionately by the poor.
Fourthly is the accusation that harsh policy conditions were self-defeating
where a vicious circle developed when members refused loans due to harsh
conditionality, making their economy worse and eventually taking loans as a
drastic medicine.
Lastly is the point that the Fund's policies lack a clear economic rationale. Its
policy foundations were theoretical and unclear due to differing opinions and
departmental rivalries whilst dealing with countries with widely varying economic
circumstances.
ODI conclusions were that the Fund's very nature of promoting marketoriented economic approach attracted unavoidable criticism, as LDC governments
were likely to object when in a tight corner. Yet, on the other hand, the Fund could
provide a 'scapegoat service' where governments could take loans as a last resort,
whilst blaming international bankers for any economic downfall. The ODI
conceded that the fund was to some extent insensitive to political aspirations of
LDCs, while its policy conditions were inflexible.[67]
Argentina, which had been considered by the IMF to be a model country in
its compliance to policy proposals by the Bretton Woods institutions, experienced a
catastrophic economic crisis in 2001, which some believe to have been caused by
IMF-induced budget restrictionswhich undercut the government's ability to

sustain national infrastructure even in crucial areas such as health, education, and
securityand privatization of strategically vital national resources. Others attribute
the crisis to Argentina's misdesigned fiscal federalism, which caused sub national
spending to increase rapidly. The crisis added to widespread hatred of this
institution in Argentina and other South American countries, with many blaming
the IMF for the region's economic problems. The currentas of early 2006trend
toward moderate left-wing governments in the region and a growing concern with
the development of a regional economic policy largely independent of big business
pressures has been ascribed to this crisis.
In

an

interview,

the

former

Romanian

Prime

Minister

Calin Popescu-Tariceanu claimed that "Since 2005, IMF is constantly making

mistakes when it appreciates the country's economic performances."

SUPPORT OF MILITARY DICTATORSHIP

The role of the Bretton Woods institutions has been controversial since the
late Cold War period, due to claims that the IMF policy makers supported military
dictatorships friendly to American and European corporations and other anticommunist regimes. Critics also claim that the IMF is generally apathetic or hostile
to their views of human rights, and labour rights. The controversy has helped spark
the Anti-globalization movement.
Arguments in favour of the IMF say that economic stability is a precursor to
democracy; however, critics highlight various examples in which democratised
countries fell after receiving IMF loans.

IMPACT ON ACCESS TO FOOD

A number of civil society organizations have criticised the IMF's policies for
their impact on people's access to food, particularly in developing countries. In
October 2008, former US president Bill Clinton presented a speech to the United
Nations World Food Day, which criticised the World Bank and IMF for their
policies on food and agriculture:
We need the World Bank, the IMF, all the big foundations, and all the
governments to admit that, for 30 years, we all blew it, including me when I was
president. We were wrong to believe that food was like some other product in
international trade, and we all have to go back to a more responsible and
sustainable form of agriculture.

IMPACT ON PUBLIC HEALTH

In 2009 a study by analysts from Cambridge and Yale universities published

on the open-access Public Library of Science concluded that strict conditions on
the international loans by the IMF resulted in thousands of deaths in Eastern
Europe by tuberculosis as public health care had to be weakened. In the 21
countries to which the IMF had given loans, tuberculosis deaths rose by 16.6%.
In 2009, a book by Rick Rowden titled The Deadly Ideas of Neoliberalism:
How the IMF has Undermined Public Health and the Fight Against AIDS, claimed
that the IMFs monetarist approach towards prioritising price stability (low
inflation) and fiscal restraint (low budget deficits) was unnecessarily restrictive and

has prevented developing countries from being able to scale up long-term public
investment as a percent of GDP in the underlying public health infrastructure. The
book claimed the consequences have been chronically underfunded public health
systems, leading to dilapidated health infrastructure, inadequate numbers of health
personnel, and demoralising working conditions that have fuelled the push
factors driving the brain drain of nurses migrating from poor countries to rich
ones, all of which has undermined public health systems and the fight against
HIV/AIDS in developing countries.

IMPACT ON ENVIRONMENT

IMF policies have been repeatedly criticised for making it difficult for
indebted countries to avoid ecosystem-damaging projects that generate cash flow,
in particular oil, coal, and forest-destroying lumber and agriculture projects.
Ecuador for example had to defy IMF advice repeatedly to pursue the protection of
its rain forests, though paradoxically this need was cited in IMF argument to
support that country. The IMF acknowledged this paradox in a March 2010 staff
position report which proposed the IMF Green Fund, a mechanism to issue special
drawing rights directly to pay for climate harm prevention and potentially other
ecological protection as pursued generally by other environmental finance.
While the response to these moves was generally positive possibly because
ecological protection and energy and infrastructure transformation are more
politically neutral than pressures to change social policy. Some experts voiced
concern that the IMF was not representative, and that the IMF proposals to
generate only US$200 billion a year by 2020 with the SDRs as seed funds, did not

go far enough to undo the general incentive to pursue destructive projects inherent
in the world commodity trading and banking systemscriticisms often levelled at
the World Trade Organization and large global banking institutions.
In the context of the May 2010 European banking crisis, some observers
also noted that Spain and California, two troubled economies within Europe and
the United States respectively, and also Germany, the primary and politically most
fragile supporter of a euro currency bailout would benefit from IMF recognition of
their leadership in green technology, and directly from Green Fundgenerated
demand for their exports, which might also improve their credit standing with
international bankers

CONCLUSION
The IMF has drastically changed the way it defines its own mission since the
1990s. From being the manager of an international monetary system based on fixed
exchange rates and supplier of short-term liquidity to countries undergoing
temporary current account deficits to become the crusader of the brave new world
of global financial integration. The fund has taken its task to reform domestic
economics structures to prepare them for the new liberal financial order. As a
result, the impact of its policies for the client countries became much deeper than
in the past.
Given the appropriate policies and the necessary support, all economies have
the potential to achieve accelerated growth and the accompanying rise in living
standards and reducing in poverty. By working to foster growth in the context of a
stable international economic environment, the IMF will continue to have a central
role in this evolutionary process.

BIBLOGRAPHY

1.

www.imf.com

2.

Wikipedia IMF.

3.

Book of Economics of Global Trade and Finance

M.Com Part I