IMF

Question 1

Bretton Woods

Answer 1

A conference was held in 1944- the united nations monetary and financial conference. It popularly came to be known as Bretton woods conference. It lead to:

1. IMF: to foster monetary stability at global level
2. IBRD: To speed up the post war reconstruction

Started functioning in 1946.

Question 2

IMF objectives

Answer 2

1. To promote monetary cooperation at global level.
2. To promote exchange rate stability and to avoid competitive exchange rate revaluation
3. To help members at the time of BoP crisis
4. To facilitate balanced growth of international trade for the economic growth of all economies.

Question 3

How IMF achieve its target?

Answer 3

1. Surveilänce: Monitoring of economic and financial developments mainly related to exchange rate policies of countries There is also provision of policy advice to prevent crisis.

2 Lending: to be discussed next

3 Technical training and assistance in its area of expertise

Question 4

Functioning of IMF

Answer 4

Upon joining each member country is assigned a quota The quota guides

1. Subscriptions: How much money that country will provide to IMF

2 Voting power

3. Access to financing

Quota reflects broadly a country’s economic power

Question 5

How quota is paid

Answer 5

1) 1/4th in Accepted foreign currency or SDR

2) 3/4th in country’s own currency

Question 6

SDR

Answer 6

The SDR an international reserve asset, created by the IMF in 1969 to supplement its member countries official reserves.

So far SDR 204.2 billion (equivalent to about US$291 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global
financial crisis

The value of the SDR is based on a basket of five currencies-the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling

Question 7

SDRi

Answer 7

The SDRi provides the basis for calculating the interest rate charged to members on their non-concessional borrowing from the IMF and paid to members for their remunerated creditor positions in the IMF. It is also the interest paid to members on their SDR holdings and charged on their SDR allocation.

Question 8

SDR weightage

Answer 8

Refer Acads

Question 9

IMF borrowing arrangememt

Answer 9

Primary source: Quota subscriptions of member countries

GAB: General arrangement to borrow
Started in 1962
Enable IMF to borrow from 11 industrialized countries at market rate

NAB; New arrangement to borrow
Setup in 1998
Credit arrangement between IMF and 39 member countries
It has corpus of $590 Billion
Recent reforms in NAB
• Increase in membership. 13 new emerging economies are added including India.
• Increase in Corpus

GAB and NAB are arrangements to provide additional resources to cope with international monetary system or with an exceptional situation

Question 10

India and IMF

Answer 10

Quota:

a. 275%
b. 13000 Million SDR
c. 8th in world
d. It was increased in 2010 reviews of Quota

NAB:
a India is a member of NAB
b. Contributed $2 Billion in 2009

Financial Transactions plan:
Only 47 countries are allowed to lend to IMF. Aims at helping low income countries during BOP crisis

More:

1. $40 B during Mexico meet of G-20 for the Eurozone crisis.
2. India joined IMF in 1950 as one of the original member.
3. Accepted the obligations related to capital account convertibility in 1994,
4. Subscribe to IMF’s Special data dissemination standard.
5. India borrowed from IMF on two occasions
   a. 1981-82
   b. 1991

Question 11

How IMF lends

Answer 11

Refer Acads

Question 12

IMF conditionalities

Answer 12

1. Reduce fiscal deficit
2. Less subsidy
3. Less priority sector lending
4. Follow LPG
5. Deregulate economy
6. Flexible labour reforms
7. Reduce trade barrier (not sure)

Question 13

IMF criticism

Answer 13

1. Anti poor and Anti welfarism
2. Too many conditionalities, Danger to sovereignty
3. One size fits all.

Question 14

IMF reforms needed

Answer 14

1. Change the one size fits all policy under which it gives the same solution to all problems
2. Conditionalities that come with loan are anti-poor
3. Need to end the convention that director is invariably from Europe
4. Emerging economies like India, china should be recognized.
5. Need for better surveillance.
6. World should no longer rely in single dominant currency like dollar.
   a. Stiglitz: New global system based on SDR
   b. Keynes: Global currency Banker
7. Need to increase its corpus.
   a. Step taken: NAM increased to 580 B
8. 85% of votes are required for major decisions. But US alone has 16% vote share and wields a veto. Need for restructuring quotas

Question 15

IMF vs WB

Answer 15

Refer Acads