International Monetary Fund (IMF): Objectives, Organisation and Other Details

By Vidya Sethy

Objectives of IMF:

The main objectives of IMF, as noted in the Articles of Agreement, are as follows:

(i) International Monetary Co-Operation:

The most important objective of the Fund is to establish international monetary co-operation amongst the various member countries through a permanent institution that provides the machinery for consultation and collaborations in various international monetary problems and issues.

(ii) Ensure Exchange Stability:

Another important objective of the Fund is to ensure stability in the foreign exchange rates by maintaining orderly exchange arrangement among members and also to rule out unnecessary competitive exchange depreciations.

(iii) Balanced Growth of Trade:

IMF has also another important objective to promote international trade so as to achieve its required expansion and balanced growth. This would ensure development of production resources and thereby promote and maintain high levels of income and employment among all its member countries.

(iv) Eliminate Exchange Control:

Another important objective of the Fund is to eliminate or relax exchange controls imposed by almost each and every country before Second World War as a device to deliberately fix the exchange rate at a particular level. Such elimination of exchange controls was made so as to give encouragement to the flow of international trade.

(v) Multilateral Trade and Payments:

To establish a multilateral trade and payment system in respect to current transactions between members in place of the old system of bilateral trade agreements was another important objective of IMF.

(vi) Balanced Growth:

Another objective of IMF is to help the member countries, especially the backward countries, to attain balanced economic growth by exchange the level of employment.

(vii) Correction of BOP Maladjustments:

IMF also helps the member countries in eliminating or reducing the disequilibrium or maladjustments in balance of payments. Accordingly, it gives confidence to members by selling or lending Fund’s foreign currency resources to the member nations.

(viii) Promote Investment of Capital:

Finally, the IMF also promotes the flow of capital from richer to poorer or backward countries so as to help the backward countries to develop their own economic resources for attaining higher standard of living for its people, in general.

Organisation of IMF:

The IMF, which started functioning in March 1947, is an autonomous organisation and is affiliated to U.N.O. As per Fund Agreement, the headquarters of the IMF should be located in that country which usually possess the highest quota of capital of the IMF. Accordingly, the head office of IMF is located at Washington. At the initial stage, the IMF had 30 countries as its members. Later, as on April 30, 1986, the total membership of the IMF rose to 149.
Since inception, the management of the IMF is rested on two bodies:
(a) Board of Governors and
(b) Board of Executive Directors.
Every member country appoints one Governor for participating in the meetings of Board of Governors and also appoints one Alternate Governor to represent the Governor is respect of its absence. The Board of Governors in authorized to formulate the general policies of the Fund. To carry on day to day activities of the IMF, the Board of Executive Directors in formed.
At present, there are 22 members in the Board of Executive Directors, six of which are appointed by members maintaining largest quotas, i.e. USA, UK, Germany, France, Japan and Saudi Arabia and the remaining sixteen directors are elected by other nations. The Managing Director of Board of Directors, the top most official of IMF, in elected by the Board of Directors. He is responsible for organisation and management of the Fund.

Resources of IMF:

The resources of IMF is built up by the subscription of members. Again the subscription quota of each member is determined by its national income and its condition of international trade. After determination of quota, every member nation contributes 25 per cent of its quota in international reserve assets and the remaining 75 per cent is contributed in member’s own currency.
The contribution of first 25 per cent was made originally in terms of gold but now it is being made in Special Drawing Rights (SDRs), an international reserve asset created by the IMF in 1969. There is also provision to enlarge the resources of the Fund by resorting to borrowing, by selling gold to the people and also by receiving fee from its borrowing members.
There is provision of revising the quotas of member countries in every five years. The latest general increase in quotas as result of 9th review has enlarged the capital base of the Fund and accordingly the Fund could increase the loan assistance extended to its member countries.
Quota has a great significance to the member nations because of its following implications:
(i) Quota determines the subscription of members to the IMF and that determines the quantum of IMF resources;
(ii) It also determines the member country’s access to IMF resources either through drawings or borrowings from the IMF.
(iii) The quota can also determine the voting power of member in IMF management.
(iv) The quota can also determine the share of member country in respect of allocation of SDRs.

Critical Appraisal of IMF:

It would be better to make an appraisal of the activities of IMF in the form of its achievements and failures.

Achievements:

The functioning of IMF has become successful in certain areas like—expansion of fund, making adequate provision of credit for the developing countries, attaining exchange stability, expansion of world trade, raising international liquidity, removing international monetary system, setting up multilateral trade and payment system, eliminating short-term disequilibrium of balance of payments, checking competitive currency devaluation and setting up machinery for consultation so as to provide export guidance to member countries in formulating its fiscal and financial policies.

Failures:

In spite of achieving some degree of success by the IMF in certain areas, the Fund suffers as a result of failures in many fronts.
Following are some of these failures:
(i) The IMF has failed in respect of achieving the basic objectives of international exchange stability. Neither the Fund put any loan exchange fluctuations nor it prevents competitive devaluation of currencies by its members.
(ii) The Fund has followed discriminatory treatment in favour of certain members in its day to day functioning. It favours some Western countries and neglects the genuine interests of underdeveloped and backward countries.
(iii) The IMF has also failed to establish a stable and sound international monetary system and thereby experiences serious monetary crisis arising out of rapidly fluctuating exchange rates. Thus the Fund has failed to bring complete stability in foreign exchange rates.
(iv) The Fund has also failed to persuade the member countries to eliminate exchange controls and other restrictions on foreign trade.
(v) In respect of promoting international liquidity the Fund has found it difficult to meet the foreign exchange requirements of the members.
(vi) The IMF has also failed to eliminate the multiple exchange rates with regard to different transactions.
(vii) The IMF has also failed to bring the free convertibility of currency of different countries.
(viii) In respect of problems of long term disequilibrium in the balance of payments faced by different countries, the IMF can provide only short term credit facilities.
(ix) The IMF has also failed to tackle the problem of petro dollars. The Fund should have played an effective role in recycling the surpluses of OPEC countries towards the developmental purposes of developing countries.
(x) The IMF has also failed to remove the various restrictions of trade imposed by different countries. Accordingly, the most of the countries are making extensive use of the trade and exchange controls.
(xi)In IMF affairs, the developing countries are having inadequate representation. Although developing countries of Asia, Africa and Latin America constitute about 90 per cent of the members of IMF but in reality these countries are having 38 per cent of the total voting power in various affairs of Fund.
(xii) As a result of non-revision of quota of IMF, the share of quotas as a percentage of world trade has been declining fast from 16 per cent in 1965 to a mere 4 per cent in 1981.
(xiii) As a result of following faulty and biased method of extending credit on the basis of quotas but not on the basis of need, the underdeveloped and developing countries are not getting adequate financial support from the IMF because of their small quotas.
(xiv) The rich member countries are maintaining larger quotas and thereby can influence the policies and decisions of the IMF easily. Therefore, the IMF has been branded as Rich Men’s Club because of their growing dominance.
(xv) Finally, it has also been argued that IMF has been interfering or influencing the economic policies of poor and developing countries by putting various restrictions on them.