International Monetary Fund

  • Post last modified:21/11/2021
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International Monetary Fund

The International Monetary Fund (IMF) came into official existence on December 27, 1945, when 29 countries signed its Articles of Agreement (its Charter) agreed at a conference held in Bretton Woods, New Hampshire, USA, from July 1-22, 1944.

The IMF commenced financial operations on March 1, 1947. Its current membership is 182 countries. Its total quotas are SDR 212 billion (almost US$300 billion), following a 45 percent quota increase effective from January 22, 1999.

What is International Monetary Fund?

IMF is a cooperative institution that 182 countries have voluntarily joined because they see the advantage of consulting with one another on this forum to maintain a stable system of buying and selling their currencies so that payments in foreign currency can take place between countries smoothly and without delay. Its policies and activities are guided by its charter known as the Articles of Agreement.

IMF lends money to members having trouble meeting financial obligations to other members, but only on the condition that they undertake economic reforms to eliminate these difficulties for their own good and that of the entire membership. Contrary to widespread perception, the IMF has no effective authority over the domestic economic policies of its members.

What authority the IMF does possess is confined to requiring the member to disclose information on its monetary and fiscal policies and to avoid, as far as possible, putting restrictions on exchange of domestic for foreign currency and on making payments to other members.

There are several major accomplishments to the credit of the International Monetary System. For example, it

  • Sustained a rapidly increasing volume of trade and investment;

  • Displayed flexibility in adapting to changes in international commerce;

  • Proved to be efficient (even when there were decreasing percentages of reserves to trade);

  • Proved to be hardy (it survived a number of pre-1971 crises, speculative and otherwise, and the down-and-up swings of several business cycles);

  • Allowed for a growing degree of international cooperation;

  • Established a capacity to accommodate reforms and improvements.

To an extent, the fund served as an international central bank to help countries during periods of a temporary balance of payments difficulties by protecting their rates of exchange. Because of that, countries did not need to resort to exchange controls and other barriers to restrict world trade.


Purpose of International Monetary Fund

The purposes of the International Monetary Fund are:

  • To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

  • To facilitate the expansion and balanced growth of international trade and to contribute, thereby, to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

  • To promote exchange stability, to maintain orderly exchange arrangements among members and to avoid competitive exchange depreciation.

  • To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

  • To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustment in their balance of payments without resorting to measures destructive to national or international prosperity.

  • In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

IMF Financial Policies and Operations

Though the IMF remains, primarily, a supervisory institution for coordinating efforts to achieve greater cooperation in the formulation of economic policies, nevertheless, its financial function is a significant activity as is evident from the role it played in the Mexican financial meltdown and the Asian financial crises.

The IMF makes its financial resources available to member countries through a variety of financial facilities.

The main source of finance remains the pool of funds from the quota subscriptions. Besides this, IMF has had, since 1962, a line of credit, now worth $24 billion, with a number of governments and banks throughout the world – also known as the General Arrangements to Borrow.

Financial Assistance

The IMF lends money only to member countries with balance of payments problems. A member country with a payments problem can immediately withdraw from the IMF 25 per cent of its quota. A member in greater difficulty may request for more money from the IMF and can borrow up to three times its quota provided the member country undertakes to initiate a series of reforms and uses the borrowed money effectively. The frequently used mechanisms by the IMF to lend money are:

  1. Standby Arrangements
  2. Extended Arrangements
  3. Structural Adjustment Mechanism

Regular IMF Facilities

  • Standby Arrangements (SBA) are designed to provide a short-term balance of payments assistance for deficits of a temporary or cyclical nature; such arrangements are typically for 12 to 18 months.

    Drawings are phased on a quarterly basis, with their release made conditional on meeting performance criteria and the completion of periodic programme reviews.

    Repurchases are made 3¼ to 5 years after each purchase.


  • Extended Fund Facility (EFF) is designed to support medium-term programmes that generally run for three years. The EFF aims at overcoming balance of payments difficulties stemming from macroeconomic and structural problems.

    Performance criteria are applied, similar to those in standby arrangements and repurchases are made in 4½ to 10 years.

Concessional IMF Facility

Enhanced Structural Adjustment Facility (ESAF) was established in 1987 and enlarged and extended in 1994.

Designed for low-income member countries with protracted balance of payments problems, ESAF drawings are loans and not purchases of other members’ currencies.

They are made in support of three years programmes and carry an annual interest rate of 0.5 per cent, with a 5½ year grace period and a 10-year maturity. Quarterly benchmarks and semi-annual performance criteria apply; 80 low-income countries are currently eligible to use the ESAF.

Other Facilities

  • Systemic Transformation Facility (STF) was in effect from April 1993 to April 1995. The STF was designed to extend financial assistance to transition economies experiencing severe disruption in their trade and payments arrangements.

    Repurchases are made over 4 ½ to 10 years.


  • Compensatory and Contingency Financing Facility (CCFF) provides compensatory financing for members experiencing temporary export shortfalls or excesses in cereal import costs, as well as financial assistance for external contingencies in Fund arrangements.

    Repurchases are made over 3¼ to 5 years.


  • Supplemental Reserve Facility (SRF) provides financial assistance for exceptional balance of payments difficulties due to a large short-term financing need resulting from a sudden and disruptive loss of market confidence.

    Repurchases are expected to be made within 1 to 1½ years, but can be extended, with IMF Board approval, to 2 to 2 ½ years.


  • Contingent Credit Lines (CCL) is aimed at preventing the spread of a crisis. Whereas the SRF is for use by members already in the throes of a crisis, the CCL is intended solely for members that are concerned with potential vulnerability.

    This facility will enable countries that are basically sound and well managed to put in place precautionary financing should a crisis occur.

    Short-term financing – if the need arises – will be provided under the CCL to help members overcome the exceptional balance of payments financing needs that can arise from a sudden and disruptive loss of market confidence, largely generated by circumstances beyond the members’ control.

    Repurchase terms are the same as under the SRF.

IMF Charges

If a member borrows money from the IMF, it pays various charges to cover the IMF’s operational expenses and to recompensate the member whose currency it is borrowing.

  • Service charges and commitment fees ¼ of 1 per cent of the amount borrowed.
  • Interest charges of 4½ per cent (except for Structural Adjustment Mechanism).
  • Earning on quota by the member: 4 pecent.

IMF Services

Besides supervising the International Monetary System and providing financial support to member countries, the IMF assists its members by:

  • Providing technical assistance in certain areas of its competence.

  • Running an educational institute in Washington and offering training courses abroad.

  • Issuing wide variety of publications containing valuable information and statistics that are useful not only to the member countries but also to banks, research institutes, university and the media.

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