International Monetary Fund And World Bank
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INTERNATIONAL MONETARY FUND AND WORLD BANK
Origin: In June 1944 representatives of 44 allied nations met at Bretton Woods, New Hampshire, USA to give concrete shape to the objectives of finding a system which would (a) help in removing the restrictions on trade. (b)ensure free convertibility of currencies which was suspended during the war period due to multitude of exchange controls and (c) maintain stability in exchange rates among the currencies. The agreement reached at the meeting provided for establishing two institutions which came to be known as ‘Bretton Woods twins’ – the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development - IBRD (World Bank). In these efforts USA represented by H.D.White & UK represented by Lord Keynes had a greater role to play.
1.
2.
3.
4.
5.
Increasing international monetary co-operation through a permanent institution which will provide machinery for consultation and collaboration on international monetary problems Promoting the growth of international trade to achieve high level of employment and income and real income. Promoting exchange rate stability, to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation. Establishing a system of multilateral payments, eliminating exchange restrictions which hamper the growth of world trade and encouraging convertibility of currencies. Building a reserve base to be available to members to correct disequilibrium in the BOPs
IMF was meant to achieve two main objectives – (1) it is an organisation to monitor the proper conduct of international monetary system and
(2) a source of liquidity for countries in need of foreign exchange to finance temporary balance of payment difficulties.
1.
2. 3.
4.
5.
6.
Reviewing and monitoring national and global economic and financial developments and advising members on their economic policies. Lending them hard currencies to support adjustment and reform policies designed to correct BOP and promote sustainable growth. Offering wide range of technical assistance as well as training for government and central bank officials . Working with governments, international organisations, regulatory bodies and the private sector to strengthen the international monetary and financial system. Working along with World Bank to asses the financial sectors of countries to help identify actual and potential weaknesses. Working with the Basel Committee on Banking Supervision to improve the regulatory standards.
I. Quotas
The main resource for IMF is member’s quotas It represents the subscription of a country to the capital of IMF It is fixed for each country based broadly on its economic size (GDP) Quotas also forms the basis for determining its drawing right from the IMF, its voting power and share in allocation of SDRs. All these are available in proportion to the quota allotted to it. Initially 25% of a country’s quota was paid in the form of gold or USD and 75% in the country’s own currency. At present instead of gold 25% is contributed in the form of SDRs or widely accepted foreign currency i.e USD, Euro, Yen, GBP. Since quotas are fixed on the economic strength (GDP), developed countries had largest quotas, hence voting rights. Decision making rests with a few industrially advanced countries.
I.Quotas… Quotas are reviewed by the IMF at intervals of not more than 5 years. Initially the quotas totalled approx. USD 7 billion and currently it stands at USD 720 billon. The latest –fourteenth is under review will be over by January 2013.
IMF Quotas Fact sheet.pdf
II. Borrowings To supplement quota subscriptions IMF can borrow from members : GAB, NAB and Trust Funds General Arrangement to Borrow– introduced in 1962 under which 10 countries G-10 (Belgium, Canada, France, Germany, Italy, Japan, Nederland, Sweden, UK and USA). Switzerland joined later making it 11. IMF can borrow only when the funds are needed for a participant in the arrangement.
New Arrangement to Borrow- similar to GAB, IMF entered into a new arrangement to borrow in 1998, under which 25 countries have agreed to lend SDR 34 billion. The stipulation for IMF is that borrowings under GAB and NAB cannot exceed SDR 34 billion
Trust Funds – IMF provides financial assistance to low-income countries through concessional lending under Poverty Reduction and Growth Facility (PRGF) and debt relief under Heavily Indebted Poor Countries (HIPC) initiatives. Resources for these programs are through bilateral contributions and are separate from the quota subscriptions and IMF only acts as a trustee.
Crisis Lending crislend1.pdf Standby Arrangement sba.pdf Flexible credit line fcl.pdf Precautionary and Liquidity Line pll.pdf Standby Credit Facility scf.pdf Extended Fund Facility eff.pdf
In the late 1960s, the growth in world resources did not keep pace with the growth in international trade. During 1963-68, the monetary reserves in the form of gold and USD increased by about 16% while in the same period the growth in the international trade was about 70%. The growth slackness in resources was due to the dependence on accretion of gold to monetary reserves. It was felt that the slow growth in the monetary reserves would hamper the growth of international trade and lead to serious BOP difficulties to many countries. The need to increase the international liquidity for settlement of international debts was felt which resulted in the introduction of Special Drawing Rights (SDR) in 1969 by the IMF. SDR Fact Sheet. SDR Fact Sheet.pdf
IBRD is a part of the Group of five independent international development institutions Known as the World Bank Group: International Bank for Reconstruction and Development IBRD (1944) International Development Association – IDA (1956) International Finance Corporation – IFC (1960) Multilateral Investment Guarantee Agency – MIGA (1988) International Center for the Settlement of Investment Disputes – ICSID (1966):
International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries. International Development Association (IDA) provides interest-free loans—called credits— and grants to governments of the poorest countries. International Finance Corporation (IFC) is the largest global development institution focused exclusively on the private sector. Helps developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfils this mandate by offering political risk insurance (guarantees) to investors and lenders. International Centre for Settlement of Investment Disputes (ICSID) provides international facilities for conciliation and arbitration of investment disputes.
The World Bank Group has set two goals for the world to achieve by 2030:
End extreme poverty by decreasing the percentage of people living on less than $1.25 a day to no more than 3%. Promote shared prosperity by fostering the income growth of the bottom 40% for every country.
The International Monetary Fund (IMF) maintains international monetary co-operation among its members.
The World Bank aids in the development and reconstruction of it members.
IBRD is an offshoot of the Bretton Woods Conference of 1944 promoted along with IMF. IBRD is structured like a co-operative that is owned and operated for the benefit of its 188 member countries. Established to provide long-term assistance to its member countries for reconstruction and development. Initially it concentrated on reconstruction of the war shattered European economies. Later shifted its focus to poverty reduction in middleincome and credit worthy poorer countries.
To assist in the reconstruction & development and facilitating investment of capital for productive purposes. To promote foreign private investment by guarantees or through participation in loan & other investments of capital for productive purposes. Where private capital is not available on reasonable terms, to provide loan for productive purposes out of its own resources or out of the funds borrowed by it. To promote long range growth of international trade and maintenance of equilibrium in the BOP of members by encouraging international investment.
I.
II. III.
Strategy and Co-ordination Services Financial Services Knowledge Services Poverty Assessments Social and Structural Reviews Public Expenditure Reviews Sector Reports Country Economic Memoranda Knowledge Sharing
Students are advised to explore the IBRD website for details.
Origin: In June 1944 representatives of 44 allied nations met at Bretton Woods, New Hampshire, USA to give concrete shape to the objectives of finding a system which would (a) help in removing the restrictions on trade. (b)ensure free convertibility of currencies which was suspended during the war period due to multitude of exchange controls and (c) maintain stability in exchange rates among the currencies. The agreement reached at the meeting provided for establishing two institutions which came to be known as ‘Bretton Woods twins’ – the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development - IBRD (World Bank). In these efforts USA represented by H.D.White & UK represented by Lord Keynes had a greater role to play.
1.
2.
3.
4.
5.
Increasing international monetary co-operation through a permanent institution which will provide machinery for consultation and collaboration on international monetary problems Promoting the growth of international trade to achieve high level of employment and income and real income. Promoting exchange rate stability, to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation. Establishing a system of multilateral payments, eliminating exchange restrictions which hamper the growth of world trade and encouraging convertibility of currencies. Building a reserve base to be available to members to correct disequilibrium in the BOPs
IMF was meant to achieve two main objectives – (1) it is an organisation to monitor the proper conduct of international monetary system and
(2) a source of liquidity for countries in need of foreign exchange to finance temporary balance of payment difficulties.
1.
2. 3.
4.
5.
6.
Reviewing and monitoring national and global economic and financial developments and advising members on their economic policies. Lending them hard currencies to support adjustment and reform policies designed to correct BOP and promote sustainable growth. Offering wide range of technical assistance as well as training for government and central bank officials . Working with governments, international organisations, regulatory bodies and the private sector to strengthen the international monetary and financial system. Working along with World Bank to asses the financial sectors of countries to help identify actual and potential weaknesses. Working with the Basel Committee on Banking Supervision to improve the regulatory standards.
I. Quotas
The main resource for IMF is member’s quotas It represents the subscription of a country to the capital of IMF It is fixed for each country based broadly on its economic size (GDP) Quotas also forms the basis for determining its drawing right from the IMF, its voting power and share in allocation of SDRs. All these are available in proportion to the quota allotted to it. Initially 25% of a country’s quota was paid in the form of gold or USD and 75% in the country’s own currency. At present instead of gold 25% is contributed in the form of SDRs or widely accepted foreign currency i.e USD, Euro, Yen, GBP. Since quotas are fixed on the economic strength (GDP), developed countries had largest quotas, hence voting rights. Decision making rests with a few industrially advanced countries.
I.Quotas… Quotas are reviewed by the IMF at intervals of not more than 5 years. Initially the quotas totalled approx. USD 7 billion and currently it stands at USD 720 billon. The latest –fourteenth is under review will be over by January 2013.
IMF Quotas Fact sheet.pdf
II. Borrowings To supplement quota subscriptions IMF can borrow from members : GAB, NAB and Trust Funds General Arrangement to Borrow– introduced in 1962 under which 10 countries G-10 (Belgium, Canada, France, Germany, Italy, Japan, Nederland, Sweden, UK and USA). Switzerland joined later making it 11. IMF can borrow only when the funds are needed for a participant in the arrangement.
New Arrangement to Borrow- similar to GAB, IMF entered into a new arrangement to borrow in 1998, under which 25 countries have agreed to lend SDR 34 billion. The stipulation for IMF is that borrowings under GAB and NAB cannot exceed SDR 34 billion
Trust Funds – IMF provides financial assistance to low-income countries through concessional lending under Poverty Reduction and Growth Facility (PRGF) and debt relief under Heavily Indebted Poor Countries (HIPC) initiatives. Resources for these programs are through bilateral contributions and are separate from the quota subscriptions and IMF only acts as a trustee.
Crisis Lending crislend1.pdf Standby Arrangement sba.pdf Flexible credit line fcl.pdf Precautionary and Liquidity Line pll.pdf Standby Credit Facility scf.pdf Extended Fund Facility eff.pdf
In the late 1960s, the growth in world resources did not keep pace with the growth in international trade. During 1963-68, the monetary reserves in the form of gold and USD increased by about 16% while in the same period the growth in the international trade was about 70%. The growth slackness in resources was due to the dependence on accretion of gold to monetary reserves. It was felt that the slow growth in the monetary reserves would hamper the growth of international trade and lead to serious BOP difficulties to many countries. The need to increase the international liquidity for settlement of international debts was felt which resulted in the introduction of Special Drawing Rights (SDR) in 1969 by the IMF. SDR Fact Sheet. SDR Fact Sheet.pdf
IBRD is a part of the Group of five independent international development institutions Known as the World Bank Group: International Bank for Reconstruction and Development IBRD (1944) International Development Association – IDA (1956) International Finance Corporation – IFC (1960) Multilateral Investment Guarantee Agency – MIGA (1988) International Center for the Settlement of Investment Disputes – ICSID (1966):
International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries. International Development Association (IDA) provides interest-free loans—called credits— and grants to governments of the poorest countries. International Finance Corporation (IFC) is the largest global development institution focused exclusively on the private sector. Helps developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfils this mandate by offering political risk insurance (guarantees) to investors and lenders. International Centre for Settlement of Investment Disputes (ICSID) provides international facilities for conciliation and arbitration of investment disputes.
The World Bank Group has set two goals for the world to achieve by 2030:
End extreme poverty by decreasing the percentage of people living on less than $1.25 a day to no more than 3%. Promote shared prosperity by fostering the income growth of the bottom 40% for every country.
The International Monetary Fund (IMF) maintains international monetary co-operation among its members.
The World Bank aids in the development and reconstruction of it members.
IBRD is an offshoot of the Bretton Woods Conference of 1944 promoted along with IMF. IBRD is structured like a co-operative that is owned and operated for the benefit of its 188 member countries. Established to provide long-term assistance to its member countries for reconstruction and development. Initially it concentrated on reconstruction of the war shattered European economies. Later shifted its focus to poverty reduction in middleincome and credit worthy poorer countries.
To assist in the reconstruction & development and facilitating investment of capital for productive purposes. To promote foreign private investment by guarantees or through participation in loan & other investments of capital for productive purposes. Where private capital is not available on reasonable terms, to provide loan for productive purposes out of its own resources or out of the funds borrowed by it. To promote long range growth of international trade and maintenance of equilibrium in the BOP of members by encouraging international investment.
I.
II. III.
Strategy and Co-ordination Services Financial Services Knowledge Services Poverty Assessments Social and Structural Reviews Public Expenditure Reviews Sector Reports Country Economic Memoranda Knowledge Sharing
Students are advised to explore the IBRD website for details.
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