International Monetary Fund (IMF) – Core Framework

Global Monetary System • Balance of Payments Support • Quotas • Lending Toolkit

1. Origin, Purpose & Mandate

The International Monetary Fund (IMF) was conceived at the Bretton Woods Conference (1944) and formally came into existence in 1945. It was created to prevent a repeat of the currency chaos, competitive devaluations and depression of the inter-war years.

1.1 Core Objectives

• Promote international monetary cooperation.
• Enable exchange rate stability and orderly currency arrangements.
• Facilitate balanced growth of trade and employment.
• Provide short- to medium-term financial assistance to members facing balance of payments (BoP) problems.
• Act as a key pillar of the global financial safety net.

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2. Membership, Quotas, Voting Power & Governance

2.1 Membership & Subscriptions

• IMF has 190+ member countries; almost the entire world economy.
• Each member is assigned a quota (measured in Special Drawing Rights – SDR), reflecting its relative size in the world economy.
• The quota broadly determines:
  • Financial contribution to the IMF
  • Voting power in IMF decisions
  • Maximum amount a member can typically borrow

2.2 Governance Structure

2.3 Quota Reforms & 16^th General Review (Latest Trend)

Quota shares are formally reviewed every few years. Under the 16^th General Review of Quotas (approved December 2023), member quotas are being increased by about 50% in aggregate, mainly to replace temporary borrowing arrangements and strengthen the permanent resource base of the IMF. Distribution of shares among countries, however, remains broadly unchanged for now.

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3. Special Drawing Rights (SDRs)

Special Drawing Rights (SDRs) are an international reserve asset created by the IMF to supplement member countries’ official reserves. SDRs are not a currency but a potential claim on the freely usable currencies (like USD, EUR, CNY, JPY, GBP) of IMF members.

3.1 SDR Basket

• SDR value is based on a basket of major currencies reviewed every five years.
• Countries can exchange SDRs for hard currency through voluntary trading arrangements.

3.2 Uses of SDRs

• Boost foreign exchange reserves.
• Pay quota increases or charges to the IMF.
• On-lend or allocate to development or climate funds (depending on national policy).

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4. Main Functions of the IMF

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  A --> C["Lending"]:::n2
  A --> D["Capacity Development"]:::n3

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4.1 Surveillance

• Bilateral surveillance: Annual “Article IV consultations” with each member – IMF staff assess policies, risks and give recommendations.
• Multilateral surveillance: Global flagship reports like World Economic Outlook, Global Financial Stability Report etc.
• Goal is to detect vulnerabilities early and promote sound policies.

4.2 Capacity Development

• Technical assistance in tax policy, central banking, financial regulation, statistics, etc.
• Training officials through IMF institutes and online programs.
• Helps countries build institutions, not just receive money.

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5. IMF Lending Toolkit – Facilities for Different Needs

IMF lending is mainly of two broad types:

• General Resources Account (GRA): Non-concessional loans for middle- and high-income members.
• Poverty Reduction and Growth Trust (PRGT): Concessional loans for low-income countries.

5.1 Major GRA Facilities (Non-Concessional)

5.2 PRGT Facilities for Low-Income Countries (Latest Trend)

• Extended Credit Facility (ECF): Prolonged BoP needs + structural reforms.
• Stand-By Credit Facility (SCF): Short-term or potential BoP needs.
• Rapid Credit Facility (RCF): Urgent BoP needs with limited conditionality.

Recent reforms have updated the interest rate structure on concessional facilities so that the poorest and most vulnerable countries often pay zero or very low interest on PRGT loans.

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6. Conditionality, Critiques & Ongoing Reforms

6.1 What is IMF Conditionality?

• When countries borrow, they commit to a policy programme of fiscal, monetary, structural measures.
• Conditions are framed as prior actions, quantitative performance criteria, and structural benchmarks.
• Disbursements are typically in tranches, linked to programme reviews.

6.2 Typical Criticisms

• Programmes sometimes seen as austerity-heavy, hurting growth or social spending.
• Past perception of a “one-model-fits-all” approach (liberalisation, privatisation, fiscal tightening).
• Under-representation of emerging & developing economies in governance structures.

6.3 Reform Direction

• More focus on social protection floors and pro-poor spending in programme design.
• Greater emphasis on country ownership and realistic adjustment paths.
• Calls for further quota reforms to reflect the rise of emerging markets like India, China, Brazil.

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