The International Monetary Fund (IMF)
The International Monetary Fund (IMF) was established in 1944.
Its financial resources stem mainly from quota subscriptions which are assigned to each member according to its relative size in the world economy. A member’s quota also determines its voting power as well as its access to IMF financing.
There is an urgent need for IMF’s quota reform in favour of developing and emerging market countries to enable them have a more vocal voice in its policy making.
Aims and Objectives of International Monetary Fund (IMF)
- To make all currencies freely convertible thereby encouraging international trade.
- To provide some means of assisting member nations having temporary balance of payments difficulties.
- To keep exchange rates of international trading nations stable.
- To provide stand-by credit facilities for nations in dire need of this assistance.
- To send technical teams to assist member-nations in policy formulation especially monetary policies and structural adjustment programmes.
- To promote international monetary co-operation.
- To contribute to productive resources of member nations.
International Monetary Fund (IMF) and its Special Drawing Rights
The Special Drawing Rights of the International Monetary Fund (IMF) is an international reserve asset created in 1969 to supplement the existing official reserves of member nations.
Special Drawing Rights are allocated to member nations in proportion to their IMF quotas which determine their borrowing limits.
The value of the SDR will be the sum of the values of the following amounts of each currency.
0.632 per United States dollar;
0.410 per European Euro;
18.40 per Japanse Yen;
0.903 per British Pound Sterling.
The above became operational with effect from January 9, 2006.
Note that the actual share of each currency in the valuation of the SDR on any particular day depends on the market values on that day of the mixed amounts of each currency in the basket.
International Monetary Fund (IMF) Conditionalities on Developing Countries
The International Monetary Fund (IMF) feels that Structural adjustment programmes should be embarked upon by the developing countries to bail them out of their chronic balance of payments difficulties and to put them along the path of economic growth and development.
The International Monetary Fund (IMF), therefore, imposes the underlisted conditionalities on them as a pre-requisite for the enjoyment of its lending facilities and those of the World Bank.
- Devaluation of their national currencies.
- Pursuance of trade liberalization policy.
- Removal of subsides on certain goods and services e.g. petroleum.
- A drastic reduction in overall government expenditure as it affects capital budget.
- A reduction in the size of government deficit financing.
- Wage and salary control in the country.
- Short term rescheduling of the external debt and restriction of fresh short to medium term borrowings.
- Tying of IMF loans to other international agency loans such as the World Bank structural loans.
Benefits of International Monetary Fund (IMF)
- It assists the country in carrying but surveys and provides useful information to it for decision making and projections.
- It assists the cduntry in the management of its external debts.
- It enables it to enjoy Special Drawing Rights.
- It gives it financial assistance in the form of aids and grants.
- It serves as an International Clearing House.
- It advises it on financial policy and helps to train government and central bank staff.