Page 444 - Encyclopedia of Business and Finance

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International Monetary Fund

ORGANIZATIONAL STRUCTURE The most immediate assistance to a member country
The organization of the IMF has at its top a board of gov- with payments difficulty is permission to withdraw 25
ernors and alternate governors, who are usually the minis- percent of the quota subscription that was initially paid in
ters of finance and heads of central banks of each member the form of gold or convertible currency. If the country
country. Because of their positions, they are able to speak still cannot meet its payments obligations it can, ulti-
authoritatively for their countries. The entire board of mately, borrow up to three times its original quota pay-
governors and alternate governors meets once a year in ment. The borrowing country must produce a plan of
Washington, D.C., to formally determine IMF policies. reform that will overcome the payments problem.
During the rest of the year, a twenty-four-member execu- The IMF has a number of additional lending plans to
tive board, composed of representatives or the total board meet various problems experienced by its members as well
of governors, meets a number of times each week to super- as emergency lending programs. There are Stand-By
vise the implementation of the policies adopted by the Arrangements disbursed over one to two years for tempo-
board of governors. The IMF staff is headed by its manag- rary deficits, the Compensatory and Contingency Financ-
ing director, who is appointed by the executive board. The ing Facility for sudden drops in export earnings,
managing director chairs meetings of the executive board Emergency Assistance for natural disasters, Extended
after appointment. Most staff members work at IMF Fund Facility to correct structural problems with maturi-
headquarters in Washington, D.C. A small number of ties of greater length, the Supplemental Reserve Facility to
staff members are assigned to offices in Geneva, Paris, and provide loans to countries experiencing short-term pay-
Tokyo and at the United Nations.
ments problems due to a sudden loss of market confi-
dence in the country’s currency, and the Systemic
SURVEILLANCE AND Transformation Facility for the former communist coun-
CONSULTATIONS tries in Eastern Europe and Russia.
At least annually, a team of IMF staff members visits each
member country for two weeks. The team of four or five SPECIAL DRAWING RIGHTS (SDRS)
meets with government officials, makes inquiries, engages
In the 1960s, during an expansion of the world economy
in discussions, and gathers information about the coun-
while gold and the U.S. dollar were the reserve currencies,
try’s economic policies and their effectiveness. If there are
it appeared that reserves were insufficient to provide for
currency exchange restrictions, the consultation includes international trade needs. The IMF was empowered to
inquiry as to progress toward the elimination of such create a new reserve asset, called the special drawing right
restrictions. Statistics are also collected on such matters as
(SDR), which it could lend to member countries. The
exports and imports, tax revenues, and budgetary expen-
value assigned to the SDR is the average of the world’s
ditures. The team reports the results of the visit to the
major currencies. Countries with strong currencies agreed
IMF executive board. A summary of the discussion is to buy SDRs when needed by a country because of pay-
transmitted to the country’s government, and for coun- ment problems, and in turn sell other currencies. How-
tries agreeing to the release of the summary, to the public.
ever, at present SDRs are used mostly for repayment of
IMF loans. Creation of SDRs is limited by the IMF con-
FINANCIAL ASSISTANCE stitution to times when there is a long-term global reserve
The IMF endeavors to stabilize the international mone- shortage. The board of governors and alternate governors
tary system by temporarily lending resources in the form is empowered to make such a determination.
of foreign currencies and gold to countries experiencing
international payment difficulties. There are a number of
LOANS TO POOR, INDEBTED
reasons why a country may need such assistance. One
COUNTRIES
possibility is that the country has a trade deficit, which is
The IMF has created various loan facilities such as the
often offset by lending, capital investment, and possibly
aid from richer countries. However, confidence in the Trust Fund to provide loans to its poorest member coun-
country’s economic system and its ability to repay its tries. In addition, the IMF works cooperatively with the
debts becomes diminished in such a situation. The IMF World Bank, other international organizations, individual
requires that the borrowing country provide a plan for countries, and private lenders to assist poor, debt-ridden
reform that will ultimately result in resolving the pay- countries. It encourages such countries to restructure their
ments problems. Reforms such as tighter fiscal and mon- economies to create better economic conditions and bet-
etary policies, good government control of expenditures, ter balance of payment conditions.
elimination of corruption, and provision for greater dis- There have been critics of the IMF’s effectiveness.
closure are required. Such critics have noted, for example, instances of massive

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 421