The International Monetary Fund is an organization of 189-member countries. It stabilizes the global economy in three ways.
- First, it  monitors global conditions and identifies risks.
- Second, it  advises its members on how to improve their economies.
- Third, it  provides technical assistance and short-term loans to prevent financial crises.

The IMF's  goal is to prevent these disasters by guiding its members.

Background:
• The IMF was born at the end of World War II, out of the Bretton Woods Conference in 1945.
• It was created out of a need to prevent economic crises like the Great Depression.
• With its sister organization, the World Bank, the IMF is the largest public lender of funds in the world.
• Membership is open to any country that conducts foreign policy and accepts the organization's statutes.

What does IMF work for?
• The IMF is responsible for the creation and maintenance of the international monetary  system, the system by which international payments among countries take place.
• It thus strives to provide a  systematic mechanism for foreign exchange transactions in order to foster investment and promote balanced global economic trade.
• To achieve these goals, the IMF focuses and advises on the macroeconomic policies of a country, which affect its exchange rate and its government's budget, money and credit  management.
• The IMF will also appraise a country's financial sector and its regulatory policies, as well as structural policies within the macro economy that relate to the labor market and employment.
• In addition, as a fund, it may offer financial assistance to nations in need of correcting balance of payments discrepancies.
• The IMF is thus entrusted with nurturing economic growth and maintaining high levels of employment within countries.

Internal working arrangement of IMF:
Board of Governors:
• The Board of Governors, the highest decision-making body of the IMF, consists of one governor and one alternate governorfor each member country.
• The governor is appointed by the member country and is usually the minister of finance or the governor of the central bank.
• All powers of the IMF are vested in the Board of Governors. The Board of Governors may delegate to the Executive Board all except certain reserved powers.
• The Board of Governors normally meets once a year.

The Executive Board:
• The Executive Board (the Board) is responsible for conducting the day-to-day business of the IMF.
• It is composed of 24 Directors, who are elected by member countries or by groups of countries, and the Managing Director, who serves as its Chairman.
• The Board usually meets several times each week.
• It carries out its work largely on the basis of papers prepared by IMF management and staff.

Working:
• The IMF gets its money from  quota subscriptions paid by member states.
• The  size of each quota is determined by how much each government can pay according to  the size of its economy.
• The quota in turn determines the weight each country has within the IMF-and hence its voting rights-as well as how much financing it can receive from the IMF.
• Twenty-five percent of each country's quota is paid in the form of special drawing rights (SDRs), which are a claim on the freely usable currencies of IMF members.
• Before SDRs, the Bretton Woods system had been based on a fixed exchange rate , and it was  feared that there would not be enough reserves to finance global economic growth.
• Therefore, in 1969 , the IMF created the SDRs, which are a kind of international reserve asset. They were created to supplement the international reserves of the time, which were gold and the U.S. dollar.
• Each member country is assigned a certain amount of SDRs based on how much the country contributes to the Fund (which is based on the size of the country's economy).
• However, the need for SDRs lessened when major economies dropped the fixed exchange rate and opted for floating rates instead.
• The IMF does all of its accounting in SDRs, and commercial banks accept SDR denominated accounts.
• The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies(the U.S. dollar, Euro, Japanese yen, pound sterling and the Chinese renminbi). The SDR currency value is calculated daily (except on IMF holidays or whenever the IMF is closed for business) and the valuation basket is reviewed and adjusted every five years.
• The larger the country, the larger its contribution; thus the U.S. contributes about 18% of  total quotas while the Seychelles Islands contribute a modest 0.004 %. If called upon by the IMF, a country can pay the rest of its quota in its local currency.
• The IMF may also borrow funds, if necessary, under two separate agreements with member  countries. In total, it has SDR 212 billion (USD 290 billion) in quotas and SDR 34 billion (USD  46 billion) available to borrow.

Special Drawing Rights (SDRs):
• The SDR is not a currency; it is a unit of account by which member states can exchange with one another in order to settle international accounts.
• The SDR can also be used in exchange for other freely-traded currencies of IMF members.
• A country may do this when it has a deficit and needs more foreign currency to pay its international obligations.
• The SDR's value lies in the fact that member states commit to honor their obligations to use and accept SDRs.

Facilities of IMF to lend money:
- A  stand-by agreement offers financing of a short- term balance of payments, usually between  12 to 18 months.
- The  extended fund facility (EFF)
• It is a medium-term arrangement by which countries  can borrow a certain amount of  money, typically over a  three - to four - year period.
- Poverty reduction and growth facility (PRGF): As the name implies, it aims to reduce poverty in the poorest of member countries while laying the foundations for economic development. Loans are administered with especially low interest rates.

Emergency Funds:
• The IMF also offers  emergency funds to collapsed economies, as it did for Korea during the  1997 financial crisis in Asia.
• The funds were injected into Korea's foreign reserves in order to boost the local currency, thereby helping the country avoid a damaging devaluation.
• Emergency funds can also be loaned to countries that have faced economic crisis as a result of a natural disaster.

Criticisms
• Because the IMF lends its money with "strings attached" in the form of its SAPs (Structural Adjustment Policies), many people and organizations are vehemently opposed to its  activities.
• Opposition groups claim that structural adjustment is an undemocratic and inhumane means of loaning funds to countries facing economic failure.
• Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones.
• Thus, by being required to open up their economies to foreign investment, to privatize public enterprises, and to cut government spending, these countries suffer an inability to properly fund their education and health programs.
• Moreover, foreign corporations often exploit the situation by taking advantage of local cheap labor while showing no regard for the environment.
•The oppositional groups say that locally cultivated programs, with a more grassroots  approach towards development, would provide greater relief to these economies. Critics of  the IMF say that, as it stands now, the  IMF is only deepening the rift between the wealthy  and the poor nations of the world.
• One of the other basic criticisms of the IMF has been that voting procedure in the governing body gives abundant voting rights to the states which are major contributors to its fund. The procedure is based on the Special Drawing Rights (SDR) which is supplementary foreign exchange reserves.The decision-making power of each country depends on its SDR quota  and is clearly against the interests of the poorer countries.

Key changes (Important IMF reforms):
• Gives boost the representation of emerging economies like India, China, Brazil, Russia and  increases their power and greater say in IMF.
• India’s  voting rights increased by 0.3% from the current 2.3% to 2.6%.China’s voting rights increased by 2.2% from current 3.8% to 6 %.
• These reforms shifted more than 6% of the quota shares to emerging and developing countries from the US and European countries. Russia and Brazil also have gained from the reforms. US’s quota share dropped from 16.7 per cent to 16.5 per cent but it will retain its veto power.
• China will have the 3rd largest IMF quota and voting share after the US and Japan. While,India, Russia and Brazil will also be among the top 10 members of the IMF.
• The combined quotas or the capital resources of IMF also have doubled due to reforms to $659 billion from current $329 billion.
• The doubling of quotas means that the shares (roles) of advanced European and Gulf  countries have been reduced and that of emerging nations particularly China has been increased.
• The voting power and quota shares of the IMF’s poorest member countries will be protected.
• Under the reform, for the first time IMF’s Executive Board will consist entirely of elected  Executive Directors  and it ends the category of appointed Executive Directors.