Objective and function of international monetary fund
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Objectives:
Article 1 of the Articles of Agreement (AGA) spell out 6 purposes for which the IMF was set up.
These are:
I. To promote international monetary cooperation through a permanent institution which provides the machinery for consolation and collaboration on international monetary problems.
II. 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 objective of economic policy.
III. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
IV. 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.
V. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in their balance of payments, without resorting to measures destructive of national or international prosperity.
VI. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
All these objectives of the IMF may be summarised:
To promote international cooperation; to facilitate the expansion and balanced growth of international trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to make its general resources available to its members experiencing balance of payments difficulties under adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
Functions:
The principal function of the IMF is to supervise the international monetary system. Several functions are derived from this. These are: granting of credit to member countries in the midst of temporary balance of payments deficits, surveillance over the monetary and exchange rate policy of member countries, issuing policy recommendations. It is to be noted that all these functions of the IMF may be combined into three.
These are: regulatory, financial, and consultative functions:
Regulatory Function:
The Fund functions as the guardian of a code of rules set by its (AOA— Articles of Agreement).
Financial Function:
It functions as an agency of providing resources to meet short term and medium term BOP disequilibrium faced by the member countries.
Consultative Function:
It functions as a centre for international cooperation and a source of counsel and technical assistance to its members.
The main function of the IMF is to provide temporary financial support to its members so that ‘fundamental’ BOP disequilibrium can be corrected. However, such granting of credit is subject to strict conditionality. The conditionality is a direct consequence of the IMF’s surveillance function over the exchange rate policies or adjustment process of members.
The main conditionality clause is the introduction of structural reforms. Low income countries drew attraction of the IMF in the early years of 1980s when many of them faced terrible BOP difficulties and severe debt repayment problems. Against this backdrop, the Fund took up ‘stabilisation programme’ as well as ‘structural adjustment programme’. Stabilisation programme is a demand management issue, while structural programme concentrates on supply management. The IMF insists member countries to implement these programmes to tackle macroeconomic instability.
Its main elements are:
(i) Application of the principles of market economy;
(ii) Opening up of the economy by removing all barriers of trade; and
(iii) Prevention of deflation.
The Fund provides financial assistance. It includes credits and loans to member countries with balance of payments problems to support policies of adjustment and reform. It makes its financial resources available to member countries through a variety of financial facilities.
Article 1 of the Articles of Agreement (AGA) spell out 6 purposes for which the IMF was set up.
These are:
I. To promote international monetary cooperation through a permanent institution which provides the machinery for consolation and collaboration on international monetary problems.
II. 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 objective of economic policy.
III. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
IV. 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.
V. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in their balance of payments, without resorting to measures destructive of national or international prosperity.
VI. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
All these objectives of the IMF may be summarised:
To promote international cooperation; to facilitate the expansion and balanced growth of international trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to make its general resources available to its members experiencing balance of payments difficulties under adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.
Functions:
The principal function of the IMF is to supervise the international monetary system. Several functions are derived from this. These are: granting of credit to member countries in the midst of temporary balance of payments deficits, surveillance over the monetary and exchange rate policy of member countries, issuing policy recommendations. It is to be noted that all these functions of the IMF may be combined into three.
These are: regulatory, financial, and consultative functions:
Regulatory Function:
The Fund functions as the guardian of a code of rules set by its (AOA— Articles of Agreement).
Financial Function:
It functions as an agency of providing resources to meet short term and medium term BOP disequilibrium faced by the member countries.
Consultative Function:
It functions as a centre for international cooperation and a source of counsel and technical assistance to its members.
The main function of the IMF is to provide temporary financial support to its members so that ‘fundamental’ BOP disequilibrium can be corrected. However, such granting of credit is subject to strict conditionality. The conditionality is a direct consequence of the IMF’s surveillance function over the exchange rate policies or adjustment process of members.
The main conditionality clause is the introduction of structural reforms. Low income countries drew attraction of the IMF in the early years of 1980s when many of them faced terrible BOP difficulties and severe debt repayment problems. Against this backdrop, the Fund took up ‘stabilisation programme’ as well as ‘structural adjustment programme’. Stabilisation programme is a demand management issue, while structural programme concentrates on supply management. The IMF insists member countries to implement these programmes to tackle macroeconomic instability.
Its main elements are:
(i) Application of the principles of market economy;
(ii) Opening up of the economy by removing all barriers of trade; and
(iii) Prevention of deflation.
The Fund provides financial assistance. It includes credits and loans to member countries with balance of payments problems to support policies of adjustment and reform. It makes its financial resources available to member countries through a variety of financial facilities.
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