Purpose of IMF

The IMF or International Monetary Fund was established way back in 1944 with a vision to improve as well as stabilize world economy.

Keeping in mind the economic crisis that the world has experienced during the Great Depression and World War II, the representatives of 45 countries assembled in Bretton Woods, New Hampshire in the United States to create a new economic framework to avoid such crisis in future.

The new monetary system initiated at the conference became known as Bretton Wood system. International Monetary Fund, the brain child of this conference, came into being in July 1944, and started its operation in 1947 with the membership of 30 countries.

Though the Bretton Wood system collapsed, IMF is still instrumental in carrying out its financial operation, and is headquartered in Washington, D.C., USA. In tha paragraphs below, you will learn more about the purpose of IMF.

• The main purpose of the International Monetary Fund is to create an economic system that can instill stability and growth in the world economy by economic cooperation among the nations.
• It aims at establishing exchange rate stability, and elimination of the shortage of international liquidity.

• For ensuring exchange rate stability, it discourages the practice of competitive depreciation of exchange rates.
• It also acts as an institution for ensuring international monetary cooperation.

• Another important objective is 'expansion of global trade' which in turn will not only promote high level of employment and income, but would also be able to sustain it.

• It also intends to promote international trade by removing foreign exchange restrictions.
• It aims at maintaining balanced growth of the world economy.
• It provides assistance to its member countries for correcting BOP or balance of payment disequilibrium.

• It provides liberal assistance to the countries, especially to the less developed countries to overcome BOP difficulties.

• It also provides technical assistance to the member countries for promoting their economic growth and stability.
• It implements lending operations for helping the countries for overcoming economic crisis.

IMF derives its resources from the member countries. Its resources consist of gold and the money contributed by the member countries according to their respective quota.

A quota is assigned to a member country on the basis of its economic strength or national income, and its relative position in the international trade. Out of the total quota, a country can pay 75% in its own currency, while the remaining 25% has to be paid in the form of Special Drawing Rights (SDR) or international reserve assets.

The borrowing facility provided to the individual countries also depend on their respective quotas, which are revised every five years.

IMF is often criticized for providing financial assistance on the condition of structural adjustment, which involves change of economic policy of the particular country. It is believed that the structural adjustments can be a cause of hindering social stability.

Many experts also attribute the economic crisis witnessed by Argentina in 2001 to the budget restrictions prescribed by IMF, which caused a general resentment against IMF in South American countries. Some critics also point out that many members of IMF have gone through banking collapse, and reduction in Gross Domestic Product (GDP).

However, IMF has taken many reformatory measures since its inception to eliminate some of its inherent weaknesses. By acting as an international financial institution with a membership of 185 countries, it is playing an important role in the world economy.

It has also succeeded in ensuring economic growth and stability to an extent by providing financial aid, stabilizing exchange rate, and maintaining international liquidity.