INTERNATIONAL MONETARY FUND Introduction This

This research provides an overview of the International Monetary Fund (IMF). Covered in this overview is the historical development that prompted the creation of the organization, the founding of the IMF, membership requirements, the role of the IMF in the enhancement of international trade, and current activities of the organization to include some financial statistics.

The impetus for the creation of the IMF was provided by events which staggered the international economy from 1929 to the beginning of the Second World War (Horsefield, 1992, p. 5). Attempting to maintain domestic economic stability and retain international market positions during this time period, most countries engaged in competitive devaluations, foreign exchange controls, and import restrictions (Driscoll, 1994, p. 1). The disastrous consequences of these actions resulted in a near universal recognition of a need to establish some sort of mechanism through which international economic stability could be both created and maintained (Heller, 1993, p. 51).

Following international negotiation on such a mechanism during the period of the Second World War, the Bretton Woods Agreement of 1944 created the IMF (Driscoll, 1994, p. 2). The institution became a reality in December 1945, when the thirtieth nation signed the Agreement. Actual financial operations were commenced by the IMF in early1947 (Heller, 1993, p. 65). Membership Requirements

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itially, the currency exchange regulating activities of the IMF were supplemented by limited loans to member nation's for balance of payments support (Chandavarkar, 1993, p. 201). Over the years, the organization's loan activities, together with those of The World Bank, have assumed an ever greater role within the IMF/World Bank activity matrix, and since 1978 have become the prime activity of the two institutions. Since 1963, several special financing facilities have been established to supplement standby authority loans. These special facilities are as follows: 1. The compensatory financing facility established in 1963 provides temporary loans to cover unexpected and temporary shortfalls in export receipts. In 1981, a separate financing facility, but one which is fully integrated with the compensatory financing facility, was established to provide assistance to member nations experiencing temporary problems with payments for cereal imports. 2. The extended financing facility was created in 1974, to provide for loans larger than tranche quota loans, and to provide for longer repayment periods than those associated with tranche loans. The extended facility loans were intended for nations where balance of payments problem

Category: Economics - I