IMF IN THE GLOBAL WORLD

1. Ms. PRINCY AGGARWAL 2. DIKSHA SHRESHTHA 3. SURBHI SINGHAL

ABSTRACT
The goal of the international monetary fund is to assist and upgrade global economic growth
and establish financial stability, encourage international trade and reduce poverty. It is a
global organization with 190 member counties and active programs in functioning. The Fund
attracts a great deal of attention, much of its critical. But the discussion is often polemic in
style. Strongly held, but frequently opposing, views are expressed. The aim of this paper is to
provide a compendious study of the international monetary funds in the global economy.
In this paper, we will discuss the aim, when and why was it founded, as well as the functions
it executes to achieve sustainable growth and prosperity for its members. The objectives such
as ensuring balanced international trade, promotion of multilateral payments etc. and its
regular collaboration with different banks such as the world bank is also included in this
research. This also states about the IMF mandate and how it has impacted the global
economy, as well as informing us about the finances, governance structure and its different
management policies. As a coin always has two sides, the restrictions of IMF are also
highlighted through this research survey. -

IMF DEFINITION
International Monetary Fund is a global organization that works to achieve global economic
growth, financial stability, sustainable growth and prosperity for all its 190 member
countries. It supports economic policies that encourage international trade, foster global
monetary corporation, and help in the reduction of poverty.

AIM of IMF
The main aim of IMF is to ensure the stability of international monetary system as it works to
foster global monetary cooperation. It does so by keeping track various economies of its
member countries as well as looks out for the global economy as well. The IMF provides
practical solutions to its member’s countries, land to its member countries with the balance of
payment difficulties. The summarization of above para is below: -
1. To secure international monetary cooperation
2. To stabilize currency exchange rate
3. To expand international liquidity (access to hard currency)

History of IMF
During the first half of the 20th century, the two world wars marked enormous physical and
economic destruction in Europe, following the great depression which bought economic
havoc in both Europe and the united states. These events were the basis to create a new
international monetary system that would promote financial stability, without backing

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currencies entirely with gold. To eliminate catastrophic mercantilist trade policies, for
example: -
 Completive devaluation
 Foreign exchange restriction
Multinational discussions were held which led to UN monetary and financial conference in
new hemisphere. In JULY 1944 the delegates who were representing the 44 countries drafted
the ARTICLE OF AGREEMENT for an International monetary fund that would supervise
the international monetary system. The founders of the new Bretton woods monetary regime
hoped to promote world trade, investment and economic growth by maintaining convertible
currencies at the stable exchange rate system. Countries with temporary moderate balance of
payments deficit were expected to finance their deficits by borrowing foreign currencies by
IMF rather than by imposing exchange controls, devaluation or defamatory economic policies
that could spread their economic problem to the other countries, the article of agreement
came into being on DECMBER 27th 1945, and today its membership embraces 190 countries
with staff drawn from 190 nations.

THE IMF GOVERNANCE STRUCTURE

The IMF is accountable and governed by those 190 countries which make up its near- global
membership. The top management of the organizational structure includes the board of
governors, consisting of one governor and alternative governor, usually the top officials from
the central bank or finance ministry. The top management meets and holds meeting annually
i.e. the IMF world bank annual meetings. At present 24 of the governors are working in
INTERNATIONAL MONETARY and financial committee or IMFC, which advise IMF’s
executive board. The routine work of IMF is supervised by the 24-member executive board,
which represents the entire membership and is supported by IMF staff. The MD (managing
director) is the head of IMF staff and chair of executive board is assisted by four deputy
managing director.

FUNCTION OF IMF
The IMF employs three main functions surveillance, financial assistance, and technical
assistance to promote the stability of their international monetary and financial system. The
three key are explained below: -

Surveillance
International monetary fund closely monitors each member economic and financial growth
and development and hold a policy dialogue with the member countries on a routine basis
(other name of this is Article IV Consultation), held annually. The IMF also reviews global
and regional development and outlook based on information from individual consultations. IT
publishes report on the multinational surveillance through the world economic outlook and
the global financial stability reports on the semi-annual basis.

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Financial assistance
The IMF lend to its member countries to help them achieve financial stability through
various loans instruments. An IMF loan is usually provided under an arrangement requiring
borrower, the member countries to look into its specific policies and measures, resolves its
balance of payment problems as specifies in the letter of intent. Majority of the IMF loan are
primarily financed by its member countries through payment of quotas. Therefore, the IMF
lending capacity is mainly determined by the number of quotas. If there is a necessity the
IMF may borrow from a number of financially strongest member countries through the New
Arrangement To Borrow (NAB) or General Arrangement To Borrow (GAB) to supplement
resources from its quotas.

Technical assistance
The IMF provided technical assistance to its member countries to help them strengthen their
capacity to design and implement effective policies in the following areas: -
1 Monetary and Financial Policy
2 Fiscal Policy and Management
3 Statistics
4 Economic and Legislation
Other than technical assistance the IMF also offers training courses and seminars to its
member’s countries at IMF institute in WASHINGTON DC, the other regional training
institutes (AUSTRIA, BRAZIL, CHINA, INDIA, SIGAPORE, UAE)

OBJECTIVE IF IMF
The main objective of IMF is listed as follows
1. To facilitate a balance international trade
2. To modify and promote global monetary corporation of the world
3. To secure financial stability by eliminating the exchange rate stability
4. To promote high employment through economic assistance and sustainable economic
growth
5. To reduce poverty around the world

IMF MEMBERSHIP
To become a part, a member of IMF the country must apply and be accepted by the majority
of the existing member countries. On joining the member countries is assigned a quota on the

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basis of its relative share in the global economy. A member quota delineates basic attempts of
its financial and organizational relationship with IMF including subscription

Subscription
The member quota subscription determines the maximum amount of financial resources that
the member country is obliged to provide to the IMF, it’s a must for the members to pay their
subscription in full on joining the IMF i.e. 25% must be paid in IMF own currency called
SPECIAL DRAWING RIGHTS (SDR) or widely accepted currencies (such as dollar, euro,
yen, pound, sterling)
While the rest must be paid in the members own currency.

VOTING POWER
Each member’s have 250 basic votes and additional votes for each SDR 100000 of quota.
The newly agreed quota and voice reforms will result in significant shift in representation of
the dynamic economics, many of which are emerging market countries. A tripling of the
number of the basic votes also envisaged as a means to give poorer countries a greater way in
running the institutions.
Access to financing
The access limit a member can finance from IMF for its based on quota. Understand by and
extended agreement, which are type of loans, a member can borrow up to 200% of its quota
annually and 600% cumulatively. However, access may be higher in exceptional cases.
Allocation of SDR, the IMF unit of account are used as an international reserve asset. A
member share of general SDR allocation is establishing in proportion of its quota.

WHO FUND THE IMF

It receives its funds from three sources that are: -
Member Quota
It is the primary source of funding and also known as the building blocks of the IMF’s
financial and governance structure.
Multilateral Borrowings
New Arrangement to Borrow (NAB) between the IMF are the main back stock of quota. As
of January 2020, the IMF executive board of director agreed to double the size of the NAB to
SDR 361 billion, or $482 billion.
Bilateral Borrowings
Members Committee has also committed resources through the Bilateral Borrowings
Agreement (BBA). In 2020, the IMF executive board of director approved a new round of
BBA’s, totalling SDR 139 billion to $ 185 billons.

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SDR (SPECIAL DRAWING RIGHTS) VALUATION
The Special Drawing Right (SDR) is a fixed cost international advance asset made by the IMF in 1969 to
supplement another reserve asset of the member countries.
The currency value of the SDR is set on by adding the values in U.S. dollars, based on market exchange
rates, of a group of major currencies (the U.S. dollar, Euro, Japanese yen). The SDR currency value is
calculated on a daily basis , only the IMF holidays are an exception or whenever the IMF is closed for
business , The valuation is reviewed and adjusted every five years.

currency unit Currency The rate U.S. % change in

amount of dollar the exchange
under exchange equivalent rate against the
rule 0-1 U.S dollar
from a past
calculation
Chinese Yuan 1.0993 6.97125 0.157691 -0.201
Euro 0.37379 1.06195 0.396946 -0.282
Japanes Yen 13.452 136.56500 0.098503 -1.157
e
U.K Pound 0.080870 1.23090 0.099543 -0.493
The dollar 0.57813 1.00000 0.578130
U.S.A.
1.330813 0.232
u.s.$1.00 0.751420
= SDR
SDR1 = 1.330810
US$

IMF ANNUAL REPORT

All the countries which are IMF’s members have appeared on its executive board which
delivered ahead of the Joint Annual meeting of the Board of Governors of the IMF and the
World bank and converse about the national, regional, global, and consequences of each
member’s policies and approves IMF to help its member counties to address the temporary
balance of payments problems as well as supervising its capacity development efforts. The
Annual report covers the activities of the Executive Board, its management, and the staff
during the financial year from 1st May to 30th April, and includes the audited statement of the
accounts, required by the IMF’s Article of Agreement. As used in the Annual report, the term
“country” does not in all cases refers to the territorial entity that is stated as understood by
international law and practices.

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On April 29, 2022, the SDR/US dollar exchange rate was US$1 = SDR 0.743880, and the US
dollar/SDR exchange rate was SDR 1 = US$1.34430.

THE WAR IN UKRAINE

The economic offshoot from Russia’s conquering of Ukraine is another massive blow to the
global economy. The gravity of disturbance in commodity markets and supply chains will be
having great weight on macro-financial stability and growth, adding to an already-involved
policy environment for countries still recovering from the COVID-19 pandemic. Financial
conditions have also stretched significantly, putting force on a wide range of emerging
markets and developing economies through higher borrowing costs and the risk of capital
leakage. The war in Ukraine may come with the threatening separation between boost and
arise market and developing economies. More broadly, it risks breaking up the global
economy into a geopolitical league with definite technology standards, cross-border payment
systems, and reserve currencies.
Stepping up

In answer, the IMF has come up with key financing, real-time advice, capacity development,
and support to its members.

$1.4 billion in emergency financing to Ukraine was approved for the Financial year 2022, and
at the appeal of several IMF member countries, a specific account was accepted that will
provide the subscriber with a reliable vehicle for governing further financial lift to Ukraine.
Support for Ukraine’s badly pretentious neighbors and member countries encountering
delicacy or dispute is also ongoing.

More than $219 billion in loans to 92 countries has been agreed upon the arrival of the
pandemic. To make a possible approach to urgent financing, increases to the gradual access
limits for the IMF’s emergency financing instruments were expanded through the end of June
2023. About 60% of the IMF’s technical support during the financial year was provided to
brittle and conflict-affected states, low-income countries, and small states.

IMF Financial Support

(cumulative, billions of US dollars)
IMF lending has provided countries with much-needed liquidity support.

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 250

200

150

100

50

0
Apr-20 Ju-20 No-20 Ju-21 No-21 Mar-22 Apr-22

UPPER-CREDIT TRANCHE RCF, RFI or RCF-RFI BLENDS FCL and PLL

IMF & COVID-19

The IMF has an answer to the coronavirus crisis with unrivaled tempo and proportion of
financial lift to member countries, especially to shield the most unsafe and place the stage for
overall and feasible readjustment. As of April 2021, IMF/World Bank Annual Meetings:
“The global economy is on firmer footing as millions of people benefit from vaccines”. In
June 2021, the IMF joined corps with the World Bank, W.H.O, and W.T.O to expedite access
to COVID-19 vaccines, Therapeutics, and Diagnostics. Led by the heads of the institutions, a
task force was generated to summon support and funding for a $50 billion project for its staff
to end the COVID pandemic. A global aim was a place to vaccinate at least 40% of the
population in all countries by the end of 2021 and 70% by mid-2022. To reach the goal, the
task team called on Group of Twenty countries to share more vaccine doses with low- and
middle-income countries; provide financing, including allowance and acknowledge
financing; and remove all roadblocks to exports of inputs for finished vaccines, diagnostics,
and therapeutics.

A global database and country-by-country data dashboards were built to trace and observe
development toward targets and enhance lucidity. Access to vital tools for the battle against
COVID-19, still, remains very rough. As of April 2022, only 7% of people in low-income
developing countries had been fully vaccinated, compared with 73% in advanced economies.

The April 2021 World Economic Outlook projects a stronger recovery for the global
economy in 2021 and 2022 compared to the forecast last October, with growth projected to
be 6% in 2021 and 4.4% in 2022. Nonetheless, the outlook presents daunting challenges
related to divergences in the speed of recovery both across and within countries and the
potential for persistent economic damage from the crises.
At this time, the IMF continues to support countries on the way to uplifting by giving policy
advice, financial support, capacity development, and debt relief for the poorest.

DEBT DYNAMICS

The war in Ukraine is counting up the distention on public finances as well as countries even
if it reeling from the pandemic. Exceptional policy carriers during the pandemic sustained
financial markets and slowly eased fluidity and credit control around the world, donating to
the repossession. But the shortage increased and debt piled up much faster than during past
downturns, including the global financial dilemma.

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According to the IMF’s Global Debt Database, altogether debt leap by 28% to 256% of GDP
In 2020. Funded debt accounted for about half of this expansion, with the nudge from
nonfinancial corporations and households. Government borrowings now appear close to 40%
of the global total the most in approximately six decennia.

To discourse, the issue of unfeasible debt, the G20 and the Paris Club come to an agreement
in Nov 2020 on a Common structure for Debt attention on the far side of the earlier Debt
Service Suspension Initiative (DSSI), which forces to deal with bankruptcy and secure
fluidity complication in suitable countries by giving debt relief consonant with the debtor’s
expending require and position to pay.

The Common Framework started with a slow start: not a single country has achieved
reorganizing to date. The essence of the waiting period is diverse and monitored both by
creditors and debtors, but acute measures are required by all applicable stakeholders to make
sure that the framework conveys. This involves elucidating action and records on the
framework process, advance tweetup with all stakeholders, more clarity on how parallelism
of action towards private sector creditors will be applied, and enlargement of the framework
to other non-DSSI-eligible heavily indebted countries.

In general, governments must embrace a month-long policy structure that adjusts temporary
requirements and speculation with month-long economic viability. Refine to enhance debt
translucency and heighten debt management policies and structure are necessary to decrease
risks. To assist low-income countries and evident market and expanding economies in this
attempt, the IMF and World Bank have, since 2018, been stating beginning debt
susceptibility through several outlooks. Work floated under the several approaches to
strengthen debt lucidity continues, including the enlargement of debt management volume,
appealing correct debt analysis tools, and upgrading policies. The IMF pursues working with
partners to enhance the debt purpose architecture.

For low-income countries, refine to the IMF’s debt limits policy, which execute in June 2021,
provides those countries more pliability to operate their debt while embracing safeguards to
conserve or reinstate debt viability. The debt limits policy is an important tool for stating debt
susceptibility and a functional mention structure for granting decisions by other creditors.

DEBT RELIEF

Debt relief by official creditors was offered through the G20 DSSI, which the IMF,
simultaneously with the World Bank, promotes. The lead took results in May 2020 and
provide $12.9 billion in debt relief to 48 countries prior to its deceased in December 2021.

More broadly, the IMF gives debt service relief on its own granting decisions under its
Catastrophe Containment and Relief Trust (CCRT) to its backward countries members. The
IMF Executive Board accept the fifth and final share of this solace in December 2021, and
the relief effort deceased in April 2022, conducting total debt relief close to SDR 690 million
(about $927 million). Eighteen IMF members and the European Union aid finance this
support, by lending a pledge of about SDR 609 million ($819 million).

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By the close of debt relief, and interest rates regulate to enhance, obtaining costs could
increase significantly, setting force on national budgets and making it more hindering for
low-income countries to service their debt. About 60% of low-income developing countries
are already at the hazard of debt torment. The economic crisis from the war in Ukraine only
added problems. Continued help from the international community will be censorious for
these countries.

Sudan, meanwhile, has taken the essential measures to start getting debt relief under the
inflated Heavily Indebted Poor Countries (HIPC) capability. It is the 38th country to reach
this climax, known as the HIPC decision point. Once it acquired the HIPC completion point,
Sudan’s external public debt will be decreased by more than $50 billion in net present value
terms, appearing as more than 90 percent of its total external debt. The standardization of
Sudan’s connections with the international community has a permit to gain links to additional
financial resources, putting the country on the way to achieving more integrated broadening.

Rising Debt Risks in Low-Income Countries

(percent of DSSI countries with LIC DSAs)
The proportion of countries in debt distress, or at high risk of
debt distress has doubled to 60 percent from 2015 levels.

100
90
80
70
60
50
40
30
20
10
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

LOW MODRATE HIGH IN DEBT DISTRESS

IMF LIMITATIONS: -
 Passive Approach by IMF
IMF has not been effective in promoting exchange stability and maintaining orderly exchange
arrangements. Over the year US gold stock declined and the US balance of payment suffered
it also led to the collapse of the Bretton Woods System in august 1972 when the US refused
the convertibility of the dollar into currencies. The member countries were also following
diverse exchange policies which automatically points out that IMF was not able to maintain
an international exchange rate system.

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  Fixation of Exchange Rate by IMF
Some of the provisions of the IMF are unsound like devaluation is justified when
international inflation causes fundamental disequilibrium. If inflation persists devaluation of
currency cannot be effective. Appropriate adjustment is desired only through internal
economic policy exchange.
 Non Removal of Foreign Exchange Rate by IMF
One of the major objectives of the IMF is to remove foreign exchange restrictions as it rets
yards the growth of global trade. However, many countries still follow unhealthy practices of
exchange control and multiple exchange rate.
 Inadequate Resources
The resources at the disposal of the IMF are not adequate to cater to the needs of member
countries which is a setback for the IMF. But developing countries are reluctant to increase
the quota of the fund.

 High-Interest Rate by IMF

Its charges on its advances are considered one of the major advances of the IMF. So, debt
servicing for less developed countries is difficult.

Condition Clauses of IMF: -

1. Liberalizing trade by using exchange and import controls.

2. Eliminating all subside so that the exporters are not in an advantageous position in
relation to other trading countries

3. Treating foreign lenders on an equal footing with domestic lenders.

The funds maintain a close watch on the activities of the borrowings country related
to monetary, fiscal, trade, and tiff programs. IMF intervention in domestic matters of
the borrowing countries places them in a difficult position.

LITERATURE REVIEW
IMF- International Monetary Fund is a global organization that works to achieve global
economic growth, financial stability, sustainable growth, and prosperity for all its 190
member countries. It supports economic policies that encourage international trade, foster
global monetary corporation, and help in the reduction of poverty. [7] Sustainable growth-
Organic growth without running into any problems. Global Economic- Activities that take
place within a country and between different countries. International Trade- International
trade is the exchange of goods and services by organizations in different countries.
Consumer goods, raw materials, food, and machinery all are bought and sold in the
international marketplace. [11] Mercantilism- Mercantilism is the policy that aims to
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minimize imports and maximize exports for an economy. [12] Foreign Exchange- Foreign
exchange is defined as exchanging the currency of one country to another country at
prevailing exchange rates. Special Drawing right- Special Drawing Right (SRD) is a fixed-
cost international advance asset made by the IMF in 1969 to supplement another reserve asset
of the member countries. Bilateral Borrowings- Bilateral Loan is a form of loan business in
which one bank provides loans for one borrower for working capital, CAPEX, or General
Corporate Purposes. Debt Relief- Debt relief by official creditors was offered through the
G20 DSSI, which the IMF, simultaneously with the World Bank, promotes. The lead took
results in May 2020 and provide $12.9 billion in debt relief to 48 countries prior to its
deceased in December 2021.

Findings

As of April 2022, only 7% of people in low-income developing countries

had been fully vaccinated, compared with 73% in advanced economies.

Public debt now represents close to 40% of the global total—the most in
almost six decades.

The IMF provided debt relief totalling SDR 690 Million (around $927
million) to its poorest members.

REFERENCES
1. https://www.imf.org/en/Publications/AREB

2. https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance

3. https://www.imf.org/external/np/exr/center/mm/eng/mm_intro.htm

4. https://www.imf.org/en/About

5. https://www.imf.org/en/Topics/imf-and-covid19/

6. https://www.investopedia.com/terms/d/debt-relief.asp/

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 7. https://en.wikipedia.org/wiki/International_Monetary_Fund/

8. https://www.imf.org/en/About/Factsheets/Sheets/2022/IMF-World-Bank-New

9. https://www.investopedia.com/ask/answers/061115/what-are-advantages-and-
disadvantages-international-monetary-fund.asp

10. https://www.jagranjosh.com/general-knowledge/international-monetary-fund-imf-
1448884605-1//

11. https://www.investopedia.com/insights/what-is-international-trade/

12. https://www.britannica.com/topic/mercantilism//

13. https://pecunica.com/knowledge-point/what-are-bilateral-and-multilateral-lending/

14. https://www.imf.org/external/pubs/ft/ar/2022/in-focus/debt-dynamics/

Conclusion
The proposed work gives us a comprehensive enlightenment about IMF and its different
aspect. It gives us an insight about the evaluation that could improve the effectiveness of the
IMF in its crisis related activities namely in conduct in surveillance in helping coordinates
responses to the crisis and in providing the financial safety. The IMF played an important role
in the global response to crisis. This research gives us a depth about IMF fund, its governance
structure, and its debts dynamics. How it helped us to cope up with Covid-19 crisis. As a
coins have two sides, this research is raped up with its conditions and limitations.

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