This is a critical analysis of IMF and its importance and influence in modern day international trade and marketing. Prepared for an International Marketing Assignment.

1. International Monetary Fund
Presented by,
Srikiran C. Rai
10048
INTERNATIONAL MONETARY
FUND

2. Agenda
 IMF – Objectives, History & Members
 Members – qualifications, decision making
 Functioning of the IMF
 Data Dissemination System
 Criticism
 Structural Adjustment Policies

3. IMF – Objectives
 The International Monetary Fund (IMF) is an
intergovernmental organization that promotes
international economic cooperation, focusing in
particular on policies that have an impact on the
exchange rate and the balance of payments.
 To promote
 International economic cooperation
 International trade & employment
 Exchange rate stability
 And making resources available to
member countries to meet balance
of payments
 Headquarters – Washington D.C.

4. History of the IMF
 Bretton Woods Agreement – first three weeks of July 1944
 to regulate the international monetary and financial order after the
conclusion of World War II
 International Monetary Fund (IMF) and the International Bank for
Reconstruction and Development (IBRD) were formed in 1945.
 Need
 To avoid a recurrence of the closed markets and economic warfare
that had characterized the 1930s
 Currency troubles exacerbated by the absence of any established
procedure or machinery for intergovernmental consultation.
 Chief outcomes
 An obligation for each country to adopt a monetary policy that
maintained the exchange rate by tying its currency to the U.S. dollar
 The ability of the IMF to bridge temporary imbalances of payments.

5. Two competing proposals
 Harry Dexter White – drafted the U.S. blueprint
for international access to liquidity
 John Maynard Keynes – would have established
a world reserve currency “Bancor”
 Central bank with the possibility of „creating‟
money
 Authority to take actions on a much larger scale
 Balance of payments imbalances – both debtors
and creditors should change their policies
 Countries with payment surpluses increase their
imports from the deficit countries and thereby
create foreign trade equilibrium.
 Overall, White's scheme tended to favor
incentives designed to create price stability
within the world's economies, while Keynes'
wanted a system that encouraged economic

6. IMF Member Countries
Members
 187 members of the UN
 Kosovo – a partially recognized state and a disputed territory in the
Balkans, South Eastern Europe
Former Members
 Cuba
 Cuba was a member of the IMF until 1964, when it left under
revolutionary leader Fidel Castro following his confrontation with the
United States.
 Republic of China (Taiwan)
 Taiwan isn't recognized by the U.S. and most other major nations as a
fully independent state, and an IMF application would be unlikely to
succeed. Taiwan was booted out of the IMF in 1980 when China was
admitted, and it hasn't applied to return since.
Non-members
 North Korea, Andorra, Monaco, Liechtenstein, Nauru, Cook Islands,
Niue, Vatican City and states with limited recognition

7. IMF Member Countries
IMF Member states
IMF Member States not accepting obligations of the
Article VIII, sections 2,3,4

8. Agenda
 IMF – Objectives, History & Members
 Members – qualifications, decision making
 Functioning of the IMF
 Data Dissemination System
 Criticism
 Structural Adjustment Policies

9. IMF – Membership Qualifications
 Member‟s quota determines
 Amount of its subscription
 Voting weight
 Access to IMF financing
 Allocation of Special Drawing Rights
(SDRs).
 Member state cannot unilaterally
increase its quota
 Increases must be approved by the
Executive Board of IMF
 Linked to many variables such as the
size of a country in the world economy.
 Control tilted away from heavily
indebted mature economies, such as
the United States and the United
Kingdom, in favour of BRIC economies
of Brazil, Russia, India, and China.
 After the financial crisis of 2008

10. IMF – Decision Making Dynamics
 Major decisions require an 85 percent
supermajority.
 United States has been the only country able to
block a supermajority on its own.
 The top 20 members have almost 70% of the
voting power.
 The 27 member states of EU have a combined
voting power of 32.07%
 On October 23, 2010, the ministers of finance of
G-20, governing most of the IMF member quotas,
agreed to reform IMF and shift about 6 percent of
the voting shares to major developing nations and
countries with emerging markets

11. Agenda
 IMF – Objectives, History & Members
 Members – qualifications, decision making
 Functioning of the IMF
 Data Dissemination System
 Criticism
 Structural Adjustment Policies

12. Functioning of the IMF
 Subscriptions & Quotas
 Handling of trade deficit
 Currency Par Value Adjustment
 Mode of Operation
 Representation model
 Special Drawing Rights

13. Subscriptions & Quotas
 The IMF has a fund, composed of contributions of
member countries in gold and their own currencies.
 Members have „quotas‟ ~ economic power
 Quotas measured in SDRs
 Pay „subscriptions‟ – amount ~ quota
 25% in gold/currency convertible to gold
 75% in member‟s own currency
 Quota – largest source of money for IMF
 Can withdraw 25% in case of payment problems
 If insufficient, is able to request loans

14. Functioning of the IMF
 Subscriptions & Quotas
 Handling of trade deficit
 Currency Par Value Adjustment
 Mode of Operation
 Representation model
 Special Drawing Rights

15. Handling of Trade Deficits
 In case of a current account deficit, can withdraw
from IMF – amount: 25% of quota
 Beyond that they have to take a loan from IMF
 More the quota, more the sum available for borrowing
 Loan Period – 18 months to 7 years
 As of August 2010 Romania ($13.9 billion), Ukraine
($12.66 billion), Hungary ($11.7 billion), and Greece
($30 billion) are the largest borrowers of the fund.
 Purpose to avoid the vicious circle of deficit

16. Functioning of the IMF
 Subscriptions & Quotas
 Handling of trade deficit
 Currency Par Value Adjustment
 Mode of Operation
 Representation model
 Special Drawing Rights

17. Currency Par Value Adjustment
 Discontinuous exchange rate adjustments –
changing a member‟s par value
 Member countries permitted to adjust their
currency exchange rates by 10%
 Helped restore equilibrium by reducing imports
and increasing exports
 Thereby reducing the deficit

18. Functioning of the IMF
 Subscriptions & Quotas
 Handling of trade deficit
 Currency Par Value Adjustment
 Mode of Operation
 Representation model
 Special Drawing Rights

19. Mode of operation
 Voting rights allocated on the basis of proportion
of quotas
 Not on a „one-country-one-vote‟ basis
 Drawback – Since 85% supermajority was
required, any country with a contribution more
than 15% of the Fund could veto any decision
 US has always had this veto since inception
 Current share of US – 16.77% of voting rights

20. Functioning of the IMF
 Subscriptions & Quotas
 Handling of trade deficit
 Currency Par Value Adjustment
 Mode of Operation
 Representation model
 Special Drawing Rights

21. Representation Model
 All member states participate directly in the IMF.
 24-member executive board
 Five executive directors are appointed by the five
members with the largest quotas
 Nineteen executive directors are elected by the
remaining members
 All members appoint a governor to the IMF's
board of governors.
 All members of the IMF are also International
Bank for Reconstruction and Development (IBRD)
members and vice versa.

22. Functioning of the IMF
 Subscriptions & Quotas
 Handling of trade deficit
 Currency Par Value Adjustment
 Mode of Operation
 Representation model
 Special Drawing Rights

23. Special Drawing Rights (1/3)
 Supplementary foreign exchange reserve assets
maintained by International Monetary Fund (IMF)
 Not a currency, instead represent a claim to currency
held by IMF member countries
 Can only be exchanged for Euros, Japanese yen, UK
pounds, or US dollars.
 Created in 1969 to supplement a shortfall of preferred
foreign exchange reserve assets, namely gold and the
US dollar
 SDR's value is defined by a weighted currency basket
of four major currencies: the Euro, the US dollar, the
British pound, and the Japanese yen

24. Special Drawing Rights (2/3)
 As of March 2011, the amount of SDRs in existence is
around XDR 238.3 billion
 Currently, the value of one SDR is equal to the sum of
0.423 Euros, 12.1 Yen, 0.111 pounds, and 0.66 US
Dollars.
 This basket is re-evaluated every five years, and the
currencies included as well as the weights given to
them can then change.
 Functions of SDRs
 Used as a unit of account by a few other organizations
other than IMF like ADB
 Currency Peg – exchange rate fixed in relation to the
SDR, e.g. Syrian Pound
 For paying charges, penalties or fees paid in

25. Special Drawing Rights (3/3)
18%
7%
6%
4%
4%
4%
3%3%3%2%2%
2%2%
2%2%
2%1%
1%
1%
1%
29%
Percentage of SDR Deposits by Country
United States
Japan
Germany
United Kingdom
France
China
Italy
Saudi Arabia
Canada
Russia
India
Netherlands
Belgium
Brazil
Spain
Mexico
Switzerland
South Korea
Australia
Venezuela
remaining 166 countries

26. Agenda
 IMF – Objectives, History & Members
 Members – qualifications, decision making
 Functioning of the IMF
 Data Dissemination System
 Criticism
 Structural Adjustment Policies

27. Data Dissemination Systems
(1/2)
 Purpose
 Guiding members to disseminate their economic
and financial data to the public
 To improve many aspects of statistical systems in a
country.
 Two Tiers
 General Data Dissemination System (GDDS)
 Special Data Dissemination Standard (SDDS)

28. Data Dissemination Systems
(2/2)

29. Agenda
 IMF – Objectives, History & Members
 Members – qualifications, decision making
 Functioning of the IMF
 Data Dissemination System
 Criticism
 Structural Adjustment Policies

30. Criticisms of the IMF (1/6)
 Attribution of disequilibria to internal factors
 Fund did not distinguish between disequilibria
with predominantly external as opposed to
internal causes
 During the 1973 oil crisis, suggested stabilization
programs similar to those suggested for deficits
caused by government over-spending
 Anti Developmental Policies
 Deflationary effects of IMF programs led to
losses of output and employment in economies
where incomes were low and unemployment
was high

31. Criticisms of the IMF (2/6)
 Self-defeating nature of the harsh policy conditions
 A vicious circle developed when members refused
loans due to harsh conditionality, making their
economy worse and eventually taking loans as a
drastic medicine.
 No clear economic rationale
 Policy foundations were theoretical and unclear due
to differing opinions and departmental rivalries
whilst dealing with countries with widely varying
economic circumstances.

32. Criticisms of the IMF (3/6)
 Impact on access to food
 Food and agricultural produce treated as
commodity in international trade
 Impact on public health
 Strict conditions on the international loans meant
public health care had to be weakened
 21 countries to which the IMF had given
loans, tuberculosis deaths rose by 16.6%.

33. Criticisms of the IMF (4/6)
 Impact on environment
 IMF has been repeatedly criticized 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.
 Criticism from free-market advocates
 IMF advocates a monetarist approach
 Advocates currency devaluation, criticized by
proponents of supply-side economics as inflationary

34. Criticisms of the IMF (5/6)
 Support of military dictatorships
 IMF policy makers supported military dictatorships
friendly to American and European corporations and
other anti-communist regimes
 IMF is generally apathetic or hostile to their views of
human rights, and labor rights.

35. Criticisms of the IMF (6/6)
Country
indebte
d to
IMF/Wor
ld Bank
Dictator
In
power
Debt % at
start of
dictatorsh
ip
Debt % at
end of
dictatorsh
ip
Countr
y
debts
in
1996
Dictator
debts
generat
ed $
billion
Dictator
generat
ed
debt %
of total
debt
Chile Augusto Pinochet 1973 - 1989 5.2 18 27.4 12.8 47%
Argentina Military dictatorship 1976 - 1983 9.3 48.9 93.8 39.6 42%
Pakistan Zia-ul Haq 1977 - 1988 7.6 17
Ethiopia Mengistu Haile Mariam 1977 - 1991 0.5 4.2 10 3.7 37%
Liberia Doe 1979 - 1990 0.6 1.9 2.1 1.3 62%
El Salvador Military dictatorship 1979 - 1994 0.9 2.2 2.2 1.3 59%
Kenya Daniel arap Moi 1979- 2002 2.7 6.9 6.9 4.2 61%
Nigeria Buhari/Babangida/Abacha 1984- 1998 17.8 31.4 31.4 13.6 43%
Pakistan Pervez Musharraf 1999- 2008

36. Agenda
 IMF – Objectives, History & Members
 Members – qualifications, decision making
 Functioning of the IMF
 Special Drawing Rights
 Data Dissemination System
 Criticism
 Structural Adjustment Policies

37. Structural Adjustment Programs (1/2)
 SAPs policies implemented by the IMF and the
World Bank in developing countries
 „Conditionalities‟ are implemented to ensure money
lent will be spent in accordance with the overall
goals of the loan
 The SAPs are supposed to allow the economies of
the developing countries to become more market
oriented.
 This then forces them to concentrate more on trade
and production so it can boost their economy.

38. Structural Adjustment Programs (2/2)
 Conditions for SAP
1. Cutting expenditures, also known as austerity.
2. Focusing economic output on direct export and resource
extraction,
3. Devaluation of currencies,
4. Trade liberalization, or lifting import and export
restrictions,
5. Increasing the stability of investment (by supplementing
foreign direct investment with the opening of domestic
stock markets),
6. Balancing budgets and not overspending,
7. Removing price controls and state subsidies,
8. Privatization, or divestiture of all or part of state-owned

39. IMF‟s SAP vs. World Bank‟s SAP
 IMF mainly lends to countries that have balance of
payment problems, while the
 World bank offers loans to fund particular development
projects.
 IMF loans focus on temporarily fixing problems that
countries face as a whole.
 World Bank SAPs focus on providing loans and grants to
countries that provide funding on a project basis.
 IMF loans were meant to be repaid in a short duration
between 2½ and 4 years (Today there are options to lend
to countries in times of crises such as natural disasters or
conflicts)
 The World Bank is divided into two lending and development
institutions; the IBRD and IDA. IBRD focuses on "middle
income and credit-worthy poor countries" while the IDA
focuses on the lowest income and least credit worthy

40. Thank you !!