Research Analyst
Oct 12 - 18, 2009

International Monetary Fund (IMF) is an international organization that oversees global financial system by following in particular those macroeconomic policies of its member countries that have an impact on exchange rates and their balance of payments.

It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating developments. It also offers highly leveraged loans mainly to poor countries. It is headquartered in Washington D.C., United States.



United States 37149.3 17.09 371743 16.79
Japan 13312.8 6.13 133378 6.02
Germany 13008.2 5.99 130332 5.88
United Kingdom 10738.5 4.94 107635 4.86
France 10738.5 4.94 107635 4.86
China 8090.1 3.72 81151 3.66
Italy 7055.5 3.25 70805 3.2
Saudi Arabia 6985.5 3.21 70105 3.17
Canada 6369.2 2.93 63942 2.89
Russian Federation 5945.4 2.74 59704 2.7


Today, IMF is an organization comprising 186 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty. With the exception of Taiwan (expelled in 1980), North Korea, Cuba (left in 1964), Andorra, Monaco, Liechtenstein, Tuvalu, and Nauru, all UN member states participate directly in the IMF. Most are represented by other member states on a 24-member Executive Board but all member countries belong to the IMF's Board of Governors.


The primary mission of the IMF is to provide financial assistance to countries that experience serious financial and economic difficulties using funds deposited with the IMF from the institution's 186 member countries. Member states with balance of payments problems, which often arise from these difficulties, may request loans to help fill gaps between what countries earn and/or are able to borrow from other official lenders and what countries must spend to operate, including covering the cost of importing basic goods and services. In return, countries are usually required to launch certain reforms, which have often been dubbed the Washington Consensus.

These reforms are thought to be beneficial to countries with fixed exchange rate policies that may engage in fiscal, monetary, and political practices, which may lead to the crisis itself. For example, nations with severe budget deficits, rampant inflation, strict price controls, or significantly over-valued or under-valued currencies run the risk of facing balance of payment crises. Thus, the structural adjustment programs are at least ostensibly intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness.


In fall 2008, the Pakistani government embarked on a stabilization program to address the balance of payment crisis, and it was supported by nearly US$7.6 billion under a 23-month stand-by arrangement (SBA). This exceptional financial support was required due to the country's sizeable external imbalances and the risk of large capital outflows. In August 2009, IMF support was raised to US$11.3 billion to address increased risks and financing needs and the program was extended to 25 months. Pakistan's economy has gone in to stabilization mode after the program. Macroeconomic imbalances have shrunk and inflation has fallen. The exchange rate has stabilized and foreign currency reserves have increased from $3.3 billion in November (before the IMF stabilization program) to about $14.3 billion in Oct 2009.

The IMF plays an important role in alleviating financial crisis. However, its role has come under intense scrutiny and it has been criticised for variety of reasons and from a range of different sources. The conditions of IMF loans cause more harm than good. In the Asian crisis of 1997, many criticised the IMF's insistence on deflationary fiscal policy (spending cuts and tax rises) and higher interest rates. It is argued the IMF turned a minor financial crisis into a major economic recession with unemployment rates in countries like Thailand, Indonesia, and Malaysia shooting up.

The IMF frequently argues for the same economic policies regardless of the situation. For example, devaluation of the exchange rate may help many countries, but it doesn't mean that this is always the solution. Policies of privatisation and deregulation may work better in developed countries in the West, but, maybe more difficult to implement in the developing world. The other problem IMF faces at the moment is that it simply doesn't have the necessary funds to dole out debts in emerging economies.

The President of Pakistan has complained that the current response of the IMF has been tardy and too slow. It may require greater intervention from member states such as the US, Gulf States, and the European Union. If the intervention is carefully managed, then short-term loans may mitigate some of the worst effects of the current financial crisis.


In response to the deepening global economic difficulties, the IMF is implementing a series of reforms that will strengthen its lending framework. These measures are consultations with Fund members and stakeholders, and will enable the Fund to respond more effectively to the evolving challenges of crisis-affected countries. However, IMF needs to further reform policies, as there is a need for the IMF to focus on its activities on monetary and financial issues, and to clearly distinguish its role from that of the World Bank.