INTRODUCTION

A landmark in the history of world economic cooperation is the creation of the International
Monetary Fund, briefly called IMF. The International Monetary Fund (IMF) is an international
organization headquartered in Washington, D.C., of "188 countries working to foster global
monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty around the world. "Formed in
1944 at the Bretton Woods Conference, it came into formal existence in 1945 with 29 member
countries and the goal of reconstructing the international payment system.

HISTORY
The IMF was originally laid out as a part of the Bretton Woods system exchange agreement in
1944.During the Great Depression, countries sharply raised barriers to trade in an attempt to
improve their failing economies. This led to the devaluation of national currencies and a decline
in world trade.
The Gold Room within the Mount Washington Hotel where the Bretton Woods Conference
attendees signed the agreements creating the IMF and World Bank
This breakdown in international monetary co-operation created a need for oversight. The
representatives of 45 governments met at the Bretton Woods Conference in the Mount
Washington Hotel in Bretton Woods, New Hampshire, in the United States, to discuss a
framework for postwar international economic cooperation and how to rebuild Europe.
There were two views on the role the IMF should assume as a global economic institution.
British economist John Maynard Keynes imagined that the IMF would be a cooperative fund
upon which member states could draw to maintain economic activity and employment through
periodic crises. This view suggested an IMF that helped governments and to act as the U.S.
government had during the New Deal in response to World War II. American delegate Harry
Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing
states could repay their debts on time. Most of White's plan was incorporated into the final acts
adopted at Bretton Woods.
The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified
its Articles of Agreement. By the end of 1946 the IMF had grown to 39 members.[26] On 1
March 1947, the IMF began its financial operations, and on 8 May France became the first
country to borrow from it. The IMF was one of the key organizations of the international
economic system; its design allowed the system to balance the rebuilding of international
capitalism with the maximization of national economic sovereignty and human welfare, also
known as embedded liberalism. The IMF's influence in the global economy steadily increased as
it accumulated more members. The increase reflected in particular the attainment of political

independence by many African countries and more recently the 1991 dissolution of the Soviet
Union because most countries in the Soviet sphere of influence did not join the IMF.
Objectives of IMF:
The main objectives of IMF, as noted in the Articles of Agreement, are as follows:
(i) International Monetary Co-Operation:
The most important objective of the Fund is to establish international monetary co-operation
amongst the various member countries through a permanent institution that provides the
machinery for consultation and collaborations in various international monetary problems and
issues.
(ii) Ensure Exchange Stability:
Another important objective of the Fund is to ensure stability in the foreign exchange rates by
maintaining orderly exchange arrangement among members and also to rule out unnecessary
competitive exchange depreciations.
(iii) Balanced Growth of Trade:
IMF has also another important objective to promote international trade so as to achieve its
required expansion and balanced growth. This would ensure development of production
resources and thereby promote and maintain high levels of income and employment among all its
member countries.
(iv) Eliminate Exchange Control:
Another important objective of the Fund is to eliminate or relax exchange controls imposed by
almost each and every country before Second World War as a device to deliberately fix the
exchange rate at a particular level. Such elimination of exchange controls was made so as to give
encouragement to the flow of international trade.
(v) Multilateral Trade and Payments:
To establish a multilateral trade and payment system in respect to current transactions between
members in place of the old system of bilateral trade agreements was another important objective
of IMF.
(vi) Balanced Growth:
Another objective of IMF is to help the member countries, especially the backward countries, to
attain balanced economic growth by exchange the level of employment.

(vii) Correction of BOP Maladjustments:

IMF also helps the member countries in eliminating or reducing the disequilibrium or
maladjustments in balance of payments. Accordingly, it gives confidence to members by selling
or lending Funds foreign currency resources to the member nations.
(viii) Promote Investment of Capital:
Finally, the IMF also promotes the flow of capital from richer to poorer or backward countries so
as to help the backward countries to develop their own economic resources for attaining higher
standard of living for its people, in general.

ORGANISATION OF IMF
The IMF, which started functioning in March 1947, is an autonomous organization and is
affiliated to U.N.O. As per Fund Agreement, the headquarters of the IMF should be located in
that country which usually possess the highest quota of capital of the IMF. Accordingly, the head
office of IMF is located at Washington. At the initial stage, the IMF had 30 countries as its
members. Later, as on April 30, 1986, the total membership of the IMF rose to 149.
Since inception, the management of the IMF is rested on two bodies:
(a) Board of Governors and
(b) Board of Executive Directors.
Every member country appoints one Governor for participating in the meetings of Board of
Governors and also appoints one Alternate Governor to represent the Governor is respect of its
absence. The Board of Governors in authorized to formulate the general policies of the Fund. To
carry on day to day activities of the IMF, the Board of Executive Directors in formed.
Managing Director
The IMF is led by a managing director (Present Christine Lagarde), who is head of the staff
and serves as Chairman of the Executive Board. The managing director is assisted by a First
Deputy managing director and three other Deputy Managing Directors. Historically the IMF's
managing director has been European and the president of the World Bank has been from the
United States. However, this standard is increasingly being questioned and competition for these
two posts may soon open up to include other qualified candidates from any part of the world.
FUNCTIONS
Some of the main functions of International Monetary Fund are as follows:
1. Exchange Stability:

The first important function of IMF is to maintain exchange stability and thereby to discourage
any fluctuations in the rate of exchange. The Found ensures such stability by making necessary
arrangements likeenforcing declaration of par value of currency of all members in terms of
gold or US dollar, enforcing devaluation criteria, up to 10 per cent or more by more information
or by taking permission from IMF respectively, forbidding members to go in for multiple
exchange rates and also to buy or sell gold at prices other than declared par value.
2. Eliminating BOP Disequilibrium:
The Fund is helping the member countries in eliminating or minimizing the short-period
equilibrium of balance of payments either by selling or lending foreign currencies to the
members. The Fund also helps its members towards removing the long period disequilibrium in
their balance of payments. In case of fundamental changes in the economies of its members, the
Fund can advise its members to change the par values of its currencies.
3. Determination of Par Value:
IMF enforces the system of determination of par values of the currencies of the members
countries. As per the Original Articles of Agreement of the IMF every member country must
declare the par value of its currency in terms of gold or US dollars. Under the revised Articles,
the members are given autonomy to float or change exchange rates as per demand supply
conditions in the exchange market and also at par with internal price levels.
As per this article, IMF is exercising surveillance to ensure proper working and balance in the
international monetary system, i.e., by avoiding manipulation in the exchange rates and by
adopting intervention policy to counter short-term movements in the exchange value of the
currency.
4. Stabilize Economies:
The IMF has an important function to advise the member countries on various economic and
monetary matters and thereby to help stabilize their economies.
5. Credit Facilities:
IMF is maintaining various borrowing and credit facilities so as to help the member countries in
correcting disequilibrium in their balance of payments. These credit facilities include-basic credit
facility, extended fund facility for a period of 3 years, compensatory financing facility, Lucifer
stock facility for helping the primary producing countries, supplementary financing facility,
special oil facility, trust fund, structural adjustment facility etc. The Fund also charges interest
from the borrowing countries on their credit.

6. Maintaining Balance Between Demand and Supply of Currencies:

IMF is also entrusted with important function to maintain balance between demand and supply of
various currencies. Accordingly the fund can declare a currency as scarce currency which is in
great demand and can increase its supply by borrowing it from the country concerned or by
purchasing the same currency in exchange of gold.
7. Maintenance of Liquidity:
To maintain liquidity of its resources is another important function of IMF. Accordingly, there is
provision for the member countries to borrow from IMF by surrendering their own currencies in
exchange. Again for according accumulation of less demand currencies with the Fund, the
borrowing countries are directed to repurchase their own currencies by repaying its loans in
convertible currencies.
8. Technical Assistance:
The IMF is also performing an useful function to provide technical assistance to the member
countries. Such technical assistance in given in two ways, i.e.,firstly by granting the members
countries the services of its specialists and experts and secondly by sending the outside experts.
Moreover the Fund has also set up two specialized new departments:
(a) Central Banking Services Department and
(b) Fiscal Affairs Department for sending specialists to member countries so as to manage its
central banks and also on fiscal management.
9. Reducing Tariffs:
The Fund also aims at reducing tariffs and other restrictions imposed on international trade by
the member countries so as to cease restrictions of remittance of funds or to avoid discriminating
practices.
10. General Watch:
The IMF is also keeping a general watch on the monetary and fiscal policies followed by the
member countries to ensure no flouting of the provisions of the charter.

INDIA AND IMF

India joined the IMF on December 27, 1945, as one of the IMF's original members. India
accepted the obligations of Article VIII Article VIII of the IMF Articles of Agreement on current
account convertibility on August 20, 1994.

India subscribes to the IMF's Special Data Dissemination Standard. Countries belonging to this
group make a commitment to observe the standard and to provide information about their data
and data dissemination practices.
Financial Assistance
While India has not been a frequent user of IMF resources, IMF credit has been instrumental in
helping India respond to emerging balance of payments problems on two occasions. In 1981-82,
India borrowed SDR 3.9 billion under an Extended Fund Facility, the largest arrangement in IMF
history at the time. In 1991-93, India borrowed a total of SDR 2.2 billion under two stand by
arrangements, and in 1991 it borrowed SDR 1.4 billion under the Compensatory Financing
Facility.
Technical Assistance
In recent years, the Fund has provided India with technical assistance in a number of areas,
including the development of the government securities market, foreign exchange market reform,
public expenditure management, tax and customs administration, and strengthening statistical
systems in connection with the Special Data Dissemination Standards. Since 1981 the IMF
Institute has provided training to Indian officials in national accounts, tax administration, balance
of payments compilation, monetary policy, and other areas.

THE GAINS INDIA HAS ACHIEVED BY JOINING IMF

IMF has played an importance role in Indian economy. IMF had provided economic assistance
from time to time to India and has also provided appropriate consultancy in determination of
various policies in the country. India is the founder member of IMF. It played a significant role in
the formulation of Fund Policies.
The Finance Minister is ex-officio Governor in IMF Board of Governors. Till 1970, India was
among the first five nations having the highest quota with IMF and due to this status India was
allotted a permanent place in Executive Board of Directors. India has taken loans in foreign
currencies from IMF or improving its balance of payments imbalances. India has also taken
technical consultancy for solving its internal economic problems. The expert groups of the IMF
have visited India on various occasions.
In addition to this India also got the following benefits of becoming the IMF members:
1. Independence of the Indian Rupee:
Before the establishment of the IMF, the Indian rupee was linked with the British Pound Sterling.
But Indian rupee has become independent after the establishment of IMF. Its value is expressed
in terms of gold. It is not determined by the Pound Sterling. It means that Indian rupee is easily
convertible into the currency of any other country.

2. Membership of the World Bank:

India has become a member of the World Bank also by virtue of its membership of the Fund. As
a result, India got several loan facilities from the World Bank for the development purposes.
3. Availability of Foreign Currencies:
The Government of India has been purchasing foreign currencies from the Fund from time to
time to meet the requirements of development activities. The large amount of availability of
foreign currencies has greatly promoted the economic development of the country.
4. Reputation in International Circle:
India is one of those six countries which have occupied a special place in the Board of Directors
of the Fund. Thus, India had played a creditable role in determining the policies of the Fund.
This has increased Indias prestige in the international circles. India takes keen interest in the
formulation of Funds policies.
5. Guidance and Advice:
Being member of the Fund, India got the expert opinion from the Fund for solving its economic
problems. The attitude of the Fund towards India has always remained sympathetic. The Fund
has given valuable advice to the Government of India with regard to the financing of the FiveYear Plans.
6. Timely Help:
India has received timely help from the Fund to eliminate the deficit on its balance of payments.
The Fund granted loans to meet the financial difficult is arising out of the Indo-Pak conflict of
1965 and 1971. Thus, the fund has given timely help to solve economic crisis.
7. Freedom from Sterling:
Indian rupee was convertible into other currencies through the medium of sterling before
becoming the member of the fund. With the fixation of paper value of the rupee in gold, Indian
currency is now freely convertible into any other currency.
8. Sale and Purchase of Foreign Exchange:
Fund has entrusted the sale and purchase of foreign exchange worth more than Rs. 2 lakh to
Reserve Bank of India. The latter cannot enter into any transaction of foreign exchange that is of
the value of less than Rs. 2 lakh.

9. Economic Consultation:
In the financial management of Five- Year Plans, IMF has given valuable advice to Government
of India and to suggest measures for its economic development.
10. Help during Emergency:
India got a large amount of financial assistance from the Fund to solve its economic crisis arising
due to natural calamities like flood, earthquakes, famines etc.