Saturday, August 22, 2009

I.M.F; Objectives and its Advantages

There was complete lack of monetary cooperation amongst the countries of the world after the First World War. A sort of economic war was going amongst the majority of the countries of the world. Infact the Second World War broke out primarily on account of these economic causes. During the closing years of war an international monetary conference was held at Bretton Woods in the U.S.A. in July 1944 to prepare a plan to root out the economic causes leading to the out break of war. The Bretton Woods Plan was divided into two parts (1) the establishment of I. M. F. and (2) the setting up of World Bank. I. M. F. started functioning on the 1st march 1947.
OBJECTIVES OF I. M. F.
Following are the objectives of I. M. F.
1. To bring about international monetary cooperation.
2. To ensure stability in foreign exchange rates.
3. To eliminate exchange control.
4. To establish system of multinational trade and payments system.
5. To promote international trade.
6. To help member nations to achieve balanced economic growth.
7. To eliminate of to reduce the disequilibrium in the balance of payments.
8. To promote investment of capital in backward and under developed countries.
CAPITAL AND ORGANIZATION
The capital of the I. M. F. consists of the aggregate of the quotas allotted to member countries. Each member pays either 20 percent of quota or 10 percent of its entire gold and dollar holdings, whichever is less, in gold. The balance of quota is paid to the I. M. F. in the national currency of the member country. The quota as of member countries of the I. M. F. are normally revised once every five years.
There are two bodies to run the management of the I. M. F. (a) The Board of Governors and (b) The Board of Directors. Every member country appoints one Governor to participate in the meetings of the Board of Governors. The Board of Governors formulates the general policy of the Fund. There are 21 members in the Board of Directors. Seven of then are permanent members, while fourteen are elected from amongst the remaining members.
According to the Fund Agreement, the headquarters of the Fund are located in a country which happens to have the highest quota of capital of I. M. F. The head office of the Fund is at present located in Washington.
FUNCTIONS OF THE I. M. F.
There are three important functions of the Fund. They are (1) The Fund helps the member countries to eliminate or at least to minimize the short period disequilibrium in their balance of payments.
(2) The Fund also helps the member countries to remove the long period disequilibrium in their balance of payments.
(3) The Fund tenders advice to the member countries on economic and monetary matters, because it is in a position to do so in view of its special quota.
ADVANTAGES OF THE FUND
Following are the main advantages which have occurred to the world from the functions of the Fund.
1. Establishment of a Monetary Reserve Fund from which foreign exchange requirements of various are met.
2. Setting up of multilateral trade and payments system.
3. Improvements in short term disequilibrium in balance of payments.
4. Stability in foreign exchange rates.
5. Check in competitive currency devaluation.
6. No interference in domestic economic affairs.
7. Gains of Gold Standard.
CRITICISM OF THE FUND
The functions of the Fund is often subjected to the criticism on the following grounds.
1. Limited scope of the functioning of the Fund.
2. Quota fixation is on unscientific basis.
3. Discriminating treatment.
4. Inability to remove exchange controls.
5. No success in securing exchange stability.
6. No provision for automatic revaluation of currency.
7. No solution of the liquidity of problem.
8. Failure to tackle the problem of pertro-dollars.
9. No elimination of multiple exchange rates.
10. Free convertibility of currencies not attained.
11. Inadequate representation to developing countries.
12. Provision of inadequate resources to developing countries. Erosion of sovereignty of poor nations.

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