International Monetary Fund (IMF)

This document provides an overview of the International Monetary Fund (IMF), including its functions, such as economic surveillance, lending, and capacity development. It also discusses the cost of IMF and the debate surrounding its necessity. The IMF aims to promote monetary cooperation, support international trade, and foster sustainable economic growth and poverty reduction worldwide.

Running head: ECONOMICS
Economics
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Table of Contents
International Monetary Fund (IMF)...........................................................................................2
Functions of IMF........................................................................................................................3
Economic Surveillance...........................................................................................................3
Lending..................................................................................................................................3
Capacity Development...........................................................................................................3
Cost of IMF................................................................................................................................4
Need for IMF..............................................................................................................................5
References..................................................................................................................................6

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International Monetary Fund (IMF)
The International Monetary Fund (IMF) is a world organization having 189 member
countries. Headquarter of IMF is situated in Washington, D.C. The organization works to
promote monetary cooperation in the world. IMF is working to support international trade,
facilitate high employment, and foster sustainable economic growth and lower poverty across
the globe. The organization was formed in 1944 a Bretton Woods Conference. IMF was
formally coming into effect in 1945. Then only 29 countries formed the international
payment system. The organization now has a crucial role in managing difficulties in balance
of payment and maintaining monetary stability during the financial crisis. The member
nations govern the organization and it is accountable to is 189 member countries (imf.org,
2019) The member countries of IMF spread all over the world. The main purpose of IMF is
to stabilize global monetary system, exchange rate system and that of international payment
system enabling transaction between countries. The member countries contribute to IMF
through a system of quota using which the countries can borrow funding during crisis in
balance of payment. As recorded in 2016, the accumulated funds of IMF were SDR 477
billion.
Using the accumulated funds and other activities such like collecting statistics and
making analysis, investing current state of the economy and scrutinizing different policies
IMF attempts to improve state of economy. Two major source of funding of IMF are loans
and quotas. Quotas are the pooled funds from member countries. This constitutes the largest
part of IMF funds. Size of quota belonging to each of the member state depends on the
financial and economic position of the nation in the world. Countries having greater
economic importance contribute to larger quotas (Kentikelenis et al., 2015). In order to boost
resource base of IMF, there is a periodic increase in size of the quota. The activities of IMF

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were updated in 2012 in order to include issues related to all the financial and
macroeconomic sectors having implication for global financial stability.
Functions of IMF
The primary mission of IMF is to maintain stability in global monetary system. In
order to do so it has three alternative channels. First, keep a track on activities of global
economy especially the economic state of the member countries. Second, lend funds to
countries suffering from balance of payment problem. Third, practically help the member
nations. The main functions of IMF are discussed below
Economic Surveillance
IMF oversees the monetary system globally and monitors the financial and economic
policies of the 189 member nations. In the process the organization taken into consideration
of economic state of global as well as of the individual countries. After examining state of the
economy, the organization highlights possible threats to the economic and financial stability
(Broome & Seabrooke, 2015). Along with this, it is also the responsibility of IMF to
recommend suitable policy measures to resolve the economic issues faced by these countries
Lending
Lending funds to the member nations in times of financial crisis is one of the major
functions of IMF. Countries participating in international trade often face problems leading to
problems related to balance of payment, stability of exchange rate, lack of funds to purchase
import and instability in economic growth (Wade & Vestergaard, 2015). Under such
circumstances, it is the responsibility of IMF to bail out countries to maintain their reserve of
foreign exchange, restore stability in exchange rate, help them to pay for imports and ensure a
stable economic growth. By correcting underlying problems, the organization contributes to
global stability.

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Capacity Development
The IMF works together the government of different countries to improve economic
policies and build institution and train people of the nation. The objective is to strengthen the
economy to achieve a higher growth and create more jobs. The capacity development
program of IMF helps the government to utilize revenue in an efficient manner and develop
an efficient resource management program. This include tax and custom policies, formulation
of budget, financial management, management of domestic and foreign debt and spending on
social safety net (imf.org, 2019). IMF also works with central bank to develop policies
related to exchange rate and monetary policy framework. Development of legal framework
and providing financial data to countries are also part of IMF’s capacity development
program. Along with this IMF also arranges a broad array of training program to train people
adding to human capital of the nation.
Cost of IMF
The primary source of fund of IMF is quotas. Each member countries of IMF are
assigned a particular quota depending mainly on relative position of the nation in world
(imf.org, 2019). IMF though help the member countries in times of their crisis through
supplying loans but funding IMF imposes significant cost to its member countries. IMF
however has not cost the taxpayers of an economy one dime. Contributions made to IMF are
not actually considered as an expense to the taxpayers rather these are considered as
investments of the nations. These claims are however not entirely supported. In United State,
funds given to IMF are considered as costless as people can earn interest on the given fund
and theoretically can be withdrawn if US chooses to do so. US however never go for that
route. Rather IMF and Washington continuously demand and collect more cash from the
taxpayers in order to make loans associated with high risk at a subsidized rate (cato.org,

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2019). In reality, it is not true that IMF has not cost taxpayers of US one dime. The interest
that US earns is actually lowers than the interest earned on U.S. Treasury bonds. Therefore,
by funding IMF nations cannot recover the entire borrowing cost. The nations that fund IMF
actually lose money as they borrow at one rate (rate of bonds) and invest the funds to IMF at
a relatively lower rate. The Congressional Research Services has estimated that funding to
IMF has added nearly $4.6 billion national debt. Debt will be further increased subject to
approval of more funds. The cost to support IMF funds are much larger than the monetary
outlays of nations. The supporters of IMF however deny the real costs associated with IMF
funds.
Need for IMF
The different functions of IMF have meant to contribute national and international
stability. The IMF’s function of economic surveillance covers two related issues- sustainable
policies of a country and associated external effect. Maintaining stability in exchange rate is
one mandatory aspect of economic surveillance (imf.org, 2019). In the world market IMF
acts as a lender of last resort. During financial crisis it provides sufficient money to the
solvent banks to save them from bankruptcy. Viewing the initial functions of IMF, it was
considered as an international organization that world needs to escape financial crisis.
However, today funds provided by IMF do not actually function (Polak & Boughton, 2016).
IMF now has become lender of daily resort that dispenses funds in an undiscriminating
function. A lender of last resort that IMF was believed to be in its earlier days’ acts
differently. It actually imposes a penalty on the loan given instead of offering subsidized
credit like IMF. Funding IMF and support ability of IMF to rescue countries during shocks
only leads to perverse set of incentives that actually rewards investors and governments for
impulsive behavior and actually results in larger crisis in future. The working mechanism of
IMF also results in delays in market reforms that government could have otherwise

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undertake. If in the past sixty years IMF was needed for global economy, it is now the time
when global economy faces huge imbalances (Reinhart & Trebesch, 2016). After scrutinizing
the working mechanism of IMF, it really casts doubt about need of such an organization for
the world economy.
References
Broome, A., & Seabrooke, L. (2015). 2. The IMF’s governance of economic policy
knowledge: Comment. In The Politics of International Organizations (pp. 148-155).
Routledge.
cato.org. (2019). The True Costs of the IMF. Retrieved from
https://www.cato.org/publications/commentary/true-costs-imf
imf.org. (2019). About the IMF. Retrieved from https://www.imf.org/en/About
imf.org. (2019). IMF Capacity Development. Retrieved from
https://www.imf.org/en/About/Factsheets/imf-capacity-developmen
imf.org. (2019). The IMF in Action: Why do we need the IMF? Smoothing the bumps in the
flow of foreign exchange. Retrieved from
https://www.imf.org/external/np/exr/center/action/eng/exchange/index.htm
imf.org. (2019). Where the IMF Gets Its Money. Retrieved from
https://www.imf.org/en/About/Factsheets/Where-the-IMF-Gets-Its-Money
Kentikelenis, A., King, L., McKee, M., & Stuckler, D. (2015). The international monetary
fund and the ebola outbreak. The Lancet Global Health, 3(2), e69-e70.
Polak, J. J., & Boughton, J. M. (2016). The World Bank and the International Monetary
Fund: A Changing Relationship. In Economic Theory and Financial Policy (pp. 92-
146). Routledge.

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Reinhart, C. M., & Trebesch, C. (2016). The international monetary fund: 70 years of
reinvention. Journal of Economic Perspectives, 30(1), 3-28.
Wade, R. H., & Vestergaard, J. (2015). Why is the IMF at an impasse, and what can be done
about it?. Global Policy, 6(3), 290-296.