News Highlight
Last week, the International Monetary Fund (IMF) confirmed a $3 billion bailout plan for Sri Lanka’s struggling economy.
Key Takeaway
- Officials from the IMF are also in talks with Pakistan about a $1.1 billion bailout proposal.
- The country faces a severe economic crisis with a collapsing currency and rising prices.
- Governments typically request IMF assistance when their economies face serious macroeconomic risk, most commonly in a currency crisis.
- For example, in Sri Lanka and Pakistan, domestic prices have risen significantly while the exchange value of their currencies has fallen precipitously against the US dollar.
International Monetary Fund (IMF)
- About
- The Bretton Woods Conference in 1944 kicked off the foundation of the IMF.
- The IMF was established on December 27, 1945, and is now an international institution with 189 member countries.
- The International Monetary Fund (IMF), headquartered in Washington, D.C.
- It is dedicated to;
- Developing global monetary cooperation
- Ensuring financial stability
- Facilitating and promoting international trade
- Employment
- Economic growth worldwide.
- The IMF is a United Nations specialised organisation.
- Objectives
- Encourage global monetary cooperation.
- Maintain financial stability.
- Make international trade easier.
- Encourage high employment and long-term economic prosperity.
- And alleviate global poverty.
- Macroeconomic expansion.
- Developing countries receive policy advice and funding.
- Exchange rate stability and an international payment system are promoted.
Functions of IMF
- Provides Financial Assistance
- The IMF lends money to member nations with balance-of-payments concerns to replenish foreign reserves, stabilise currencies, and improve economic growth conditions.
- Governments must implement structural adjustment measures that the IMF oversees.
- IMF Surveillance
- It is in charge of overseeing the international monetary system.
- As well as monitoring the economic and financial policies of its 190 member countries.
- As part of this process occurs both at the global and national levels.
- The IMF identifies potential threats to stability and advises on necessary policy adjustments.
- Capacity Development
- It assists central banks, finance ministries, tax authorities, and other economic entities with technical help and training.
- This assists governments in increasing public revenue, modernising banking systems, developing robust legal frameworks, improving governance, and improving macroeconomic and financial data reporting.
- It also aids governments in achieving Sustainable Development Goals (SDGs).
Governance Setup of the IMF
- Board of Governors
- Each member country has one governor and one alternate governor.
- Each member country selects two governors.
- It is in charge of electing or appointing Executive Directors to the Board.
- Approving quota increases and distributions of Special Drawing Rights.
- New members are admitted, and existing ones are required to withdraw.
- Modifications to the Articles of Agreement and By-Laws.
- The International Monetary and Financial Committee (IMFC) and the Development Committee advise the Board of Governors.
- Ministerial Committees
- Two ministerial committees advise the Board of Governors.
- International Monetary and Financial Committee (IMFC): The IMFC comprises 24 members chosen from a pool of 190 governors and represents all member countries.
- It examines the administration of the global monetary and financial system.
- It also considers the Executive Board’s suggestions to alter the Articles of Agreement.
- As well as any other common concern affecting the global economy.
- It is a platform for achieving intergovernmental agreements on crucial development issues.
IMF and India
- India is an IMF founding member.
- International regulation of money by the IMF has undoubtedly helped expand of international trade.
- To some extent, India has benefited from these successful outcomes.
- The Fund provided loans to India to help it deal with the financial consequences of the Indo-Pak conflict of 1965 and 1971.
- During the IMF’s founding until March 31, 1971, India purchased foreign currency worth Rs. 817.5 crores from the IMF, which was fully repaid.
- Following a sharp increase in the prices of its imports, including food, gasoline, and fertilisers, India was forced to borrow from the Fund.
- To review the status of the Indian economy, India has engaged the services of IMF professionals.
- India has so benefited from impartial scrutiny and guidance.
- India has a particular place on the Fund’s Board of Directors. Consequently, India played an essential role in determining the Fund’s policies.
- This has boosted India’s standing in international circles.
- Since 1993, India has not received any financial help from the IMF.
Pic Courtesy: The Hindu
Content Source: The Hindu