The IMF regularly conducts general reviews of quotas to assess the adequacy of overall quotas and their distribution among members. The most recent increase in total international monetary fund meaning quotas, to US$ 651 billion, was agreed to under the 14th Review and took effect in January 2016. The largest member of the IMF is the United States, with a current quota of about US$118 billion. When it began operations, the IMF based its lending rates on exchange rates— the value of one nation’s currency versus the currency of another nation. As of June 3, 2022, the exchange rate is 1.0721, meaning it takes $1.0721 to buy one euro.
The situation was particularly precarious because no process had been established for bailing out a country in financial distress in the eurozone. European financial experts were concerned that a messy default would trigger trouble in Europe’s already weak banks. Experts also feared that the crisis would lead to Greece and perhaps others leaving the common currency. Faced with such conditions, the IMF joined the eurozone countries in developing a program to help keep Greece in the eurozone. The IMF provided thirty billion euros, and eurozone countries initially put up eighty billion euros, raising that amount steadily over time. But in the process, the IMF also joined the European Central Bank and the European Commission in forcing Greece to implement reforms.
What are the Special Drawing Rights?
The International Monetary Fund, colloquially known as the IMF, stands as a pillar of global economic cooperation. The Conference also set up a modified gold standard to help countries maintain the value of their currencies. The planners wanted to avoid the trade barriers and high-interest rates that helped cause the Great Depression. The Extended Fund Facility (EFF) is a medium-term arrangement by which countries can borrow a certain amount of money, typically over four to 10 years.
This type of IMF loan consists of medium-term arrangements, which provide loans for probably 4–10 years maximum. The purpose of EFF is to correct structural problems in the macroeconomy of a country that caused the balance of payments disequilibrium. In this type of loan, the IMF provides a loan for a short period of time, probably months, to the countries facing balance of payment problems, but this period can be extended to a maximum of 36 months.
What is your current financial priority?
Rather than turning to the IMF, some governments are instead finding support from other countries with significant reserves. In 2015, Pakistan turned to China and Arabian Gulf countries for loans before ultimately going to the IMF. And Turkey has turned to Qatar for support in bolstering its depleted central bank reserves.
- Treasury Department official, Harry Dexter White envisioned an IMF that functioned much like a traditional bank, making sure that its loans were made with reasonable assurance that borrowing countries could repay their debts on time.
- Despite these concerns, the World Bank plays an important role in global development, as over seven hundred million people live in extreme poverty.
- Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones.
G20 Economies Should Target Reforms to Boost Medium-Term Growth Prospects
The IMF can also raise money through multilateral and bilateral borrowing agreements. At the top of its organizational structure is the Board of Governors, consisting of one governor (usually the minister of finance or the governor of the central bank) and one alternate governor from each member country. The day-to-day work of the IMF is overseen by its 25-member Executive Board, which represents the entire membership and is supported by IMF staff. The Managing Director is the head of the IMF staff and Chair of the Executive Board and is assisted by four Deputy Managing Directors.
Because the IMF lends its money with “strings attached” in the form of its SAPs, many people and organizations are vehemently opposed to its activities. Opposition groups claim that structural adjustment is an undemocratic and inhumane means of loaning funds to countries facing economic failure. Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones. The value of SDRs lies in the fact that member states commit to honor their obligations to use and accept SDRs. Each member country is assigned a certain amount of SDRs based on how much the country contributes to the IMF (which is based on the size of the country’s economy). However, the need for SDRs lessened when major economies dropped the fixed exchange rate and opted for floating rates instead.
The IMF provides loan payments to those countries that are facing financial problems or economic decline in their country due to political activities or fraudulent activities such as money laundering. They create a pool of money by using the quota system to aid the deserving country in terms of IMF lending. In 2019, an amount of SDR $11.4 billion was dedicated to loan resources to support those member countries or invest in the lending activities of the IMF into the next decade. The IMF uses capacity-building programmes for its member countries by providing technical assistance, policy advice, and training to them.
Historical Background of the IMF
These austerity policies caused sustained economic decline and enormous unemployment in the country. The IMF is a quota-based organisation in which each member country is assigned an initial quota. The member country’s quota depends on how rich a country is and what is its relative position in the global economy. The rich countries, with strong economies, pay more quotas as compared to the poor ones with weak economies. The pool of these quotas is then used by IMF to extend loans to the member countries in need of financial assistance. These quotas also determine the voting power of the member countries, their access to IMF resources and the allocation of Special Drawing Rights (SDRs) among them.
Representatives from 44 countries drafted Articles of Agreement for a proposed International Monetary Fund that would supervise the new international monetary system. The framers hoped the new Bretton Woods monetary system, based on maintaining convertible and flexible currencies at stable exchange rates, would promote world trade, investment, and economic growth. Before SDRs, the Bretton Woods system had been based on a fixed exchange rate, and it was feared that there would not be enough reserves to finance global economic growth. Therefore, in 1969, the IMF created the SDRs, which are a kind of international reserve asset. They were created to supplement the international reserves of the time, which were gold and the U.S. dollar.
