The Function of the International Monetary Fund

Abstract

Much can be said about the differences and similarities of the IMF and WB. But that is not the concentration of this paper. Instead, this paper shall concentrate and focus on the various functions that fall upon the International Monetary Fund as a part of the world economic foundation. Within the next pages, I shall discuss the three main types of the IMF function. These functions fall under the Surveillance, Technical Assistance, and Lending categories.

Introduction

During the closing years of World War II, nations across the continents found themselves in economic shambles after having been involved in a lengthy war on both fronts between the Japanese in Asia and the Germans in Europe. These smaller countries would need help in rebuilding their countries in order to have a viable and sustainable economy. It was this need for financing their needs that prompted the Brettonwood Convention in 1944 which led to the creation of the International Monetary Fund and World Bank, also known as the Bretton wood Institutions.

Differences of IMF and WB

Although founded upon the same principles, the IMF and World Bank actually have very different job descriptions.

1. The bank is actually the fund and the fund is actually the lender. It certainly gets confusing for most people to understand what the exact structure and job description of the entities are considering that their titles could not be any further from their actual job descriptions.
2. The World Bank is actually the development arm and does not lend out money. That money flow and disbursement are handled by the International Monetary Fund instead. Therefore each entity has a specific and different purpose and organizational structure.
3. The IMF has 186 member countries under its fold. These countries’ economic, monetary and financial policies are constantly being examined by the IMF in order to ensure that they can be properly advised regarding any policy adjustments that may have an adverse effect on the worldwide economy.

The importance of IMF Surveillance

1. The IMF is responsible for the policy adjustments, and in the cases when some problems appear should be responsible for regulating the activity. Such activity of IMF is known as surveillance.
2. Any action taken by the IMF during this activity mostly pertains to the possible risks both domestic and international, of specific countries’ monetary policies in relation to economic growth in the country and region.

Country surveillance

1. Surveillance activities are done in person by visiting IMF economists in various countries.
2. Person by visiting IMF meets with the most important members of a country’s economic sector — such as the central bank, in order to understand the existing policies and perhaps suggest changes on a case-to-case basis.
3. The main purpose of IMF Executive Board visits is to discuss and comment on a particular country’s economic policy.

Multilateral Surveillance

1. Multilateral Surveillance pertains to the review of global and economic trends.
2. Multilateral discussions are held in the form of a debate that is used in the development of policy actions so that regional economic problems can be properly addressed.

Technical Assistance

1. Technical assistance is usually given to countries that need to be guided in the use and proper management of their economic policies.
2. The IMF technical assistance is provided on the basis of various platforms such as macroeconomic policy, tax policy and revenue administration, expenditure management, monetary policy, the exchange rate system, financial sector sustainability, and macroeconomic and financial statistics.
3. The method by which this technical assistance is provided depends on the nature of the necessity. It can come in the form of staff missions of limited duration, placement of experts or advisors on a definite time frame of weeks, months, or years, or even as technical and diagnostic studies, training courses, seminars, workshops, etc.

An IMF loan

1. The countries in need of aid learn how to utilize properly their human and institutional resources so that they can develop sound, macroeconomic, financial, and structural policies with the help of the IMF.

Who can loan?

2. The loans are usually provided to member countries under terms of “arrangement”.

3. Arrangements indicate specific policies which the borrowing country plans to implement in order to meet their international debt payment requirements in the future. Such conditions are usually developed under the advice of or upon consultation with the IMF.

How to get an IMF loan approval

Once approved, the loan is released in tranches as the various economic development programs are undertaken by the borrower country.

Types of loans

1. The IMF found itself having to develop various types of loan instruments in order to answer the needs of the borrower countries.
2. Facilities are the Poverty Reduction and Growth Facility, Exogenous Shock Facility, Stand-By Arrangements, Flexible Credit Line, Extended Loan Facility, and Emergency Assistance.
3. Each loan facility is designed to meet the needs of a member nation’s loan and is used on a case-to-case basis.

Literature review

The area of investigation has been commented on Heakal Reem, David D Driscoll, and Sandra Blanco & Enrique Carrasco studies, who concentrate their attention on the International Monetary Fund and its difference from World Bank.

Methodology

The main methodological issue that was used is the literature analysis and the focusing on the International Monetary Fund in the Internet sites, consideration of the processes in the society which were backgrounds for International Monetary Fund appearing and its function and developmental processes.

Results or findings

1. Surveillance actions are important because of the way the economics of the world exist in a symbiotic relationship. Without an entity like the IMF to facilitate such a relationship, it will be difficult for these nations to find some sort of middle ground where everyone can effectively function.
2. The IMF finds itself involved mostly in multilateral and bilateral surveillance while trying to maintain a neutral stance on any issue.
3. It is believed that 90 percent of the IMF technical assistance benefits are enjoyed by the low to lower-income countries, as well as countries experiencing conflict.
4. The assistance provided allows the countries to enjoy a sort of economic buffer so that their weaknesses and vulnerabilities will not have too adverse an effect on the rebuilding of their economy.

Conclusions

1. The IMF provides free technical assistance to the countries that require it since about one-fifth of the IMF operating budget is allotted to this commitment.
2. The funding is sourced from various internal and external sources such as bilateral and multilateral donors.

Recommendations

It is not hard to see why the IMF is such an integral part of nation-building. Without the International Monetary Fund, it would be next to impossible to get nations to help each other out financially. It is that bartering ability that is so admirable and proves to be useful to all IMF member nations.

References

Blanco, Sandra & Carrasco, Enrique. “The Functions of the IMF & the World Bank”. The University of Iowa Center For International Finance and Development. 2007.

Driscoll, David D. “The IMF and the World Bank: How Do They Differ?”. International Monetary Fund. 1996.

“IMF Lending”. International Monetary Fund. 2009.

“IMF Surveillance”. International Monetary Fund. 2009. Web.

Reem, Heakal. “What Is The International Monetary Fund?” Investopedia. N.A. 2009.

Technical Assistance. International Monetary Fund. 2009. Web.

“What The IMF Does”. International Monetary Fund. N.A. 2009. Web.