A Brief Introduction to the IMF 2017-04-27 A Brief Introduction to the IMF Kyung Kwak Counsel Legal Department International Monetary Fund

Outline Purposes and Functions of the IMF Membership and Capital Organs of the IMF Surveillance Financial Assistance Technical Assistance The views expressed herein are those of the author and should not be attributed to the IMF, its Executive Board, or its management.

PURPOSES AND FUNCTIONS Legal Status of the IMF Articles of Agreement = International Treaty UN “Specialized Agency”? Different from the World Bank Purposes Article I of the Articles of Agreement Guardian of the international monetary system. Main Functions: Surveillance, Financial Assistance, Technical Assistance

MEMBERSHIP AND CAPITAL 2017-04-27 MEMBERSHIP AND CAPITAL Only countries = members (185) Member quotas Each member assigned a quota Broadly determined by economic position relative to other members Economic considerations include the member’s GDP, volume of current account transactions, and official reserves Determines a member’s maximum financial commitment to the Fund, voting power and size of its access to financial resources

Reviewed every 5 years Voting power Each member has 250 basic votes, plus One additional vote for each SDR 100,000 of quota 85% of total voting power required for change in quotas (US alone has 17.14%) Ongoing quota and voice reform under the Medium-Term Strategy

Quotas Distributed Among Regions

Subscriptions Equal to a member’s quota Up to 25 percent of subscription must be paid in reserve assets specified by the IMF – foreign currencies acceptable to the IMF or “Special Drawing Rights”. The balance of a member’s subscription may be paid in the member’s own currency Member’s subscriptions are the primary source of funds that finances IMF financial assistance to its members

Borrowing Borrowing from governments is an additional source of financing General Arrangements to Borrow - $23 billion Additional $2 billion through an associated agreement with Saudi Arabia New Arrangements to Borrow - $21 billion Could borrow from private parties, but has not done so

ORGANS OF THE IMF Organizational Structure of the IMF (Chart)

Board of Governors Highest policy making body of the IMF One governor and one alternate governor appointed by each member Usually finance ministers or central bank chiefs Serve without compensation from the IMF Hold Annual Meetings

The Executive Board Responsible for conducting the business of the IMF and exercising power delegated by the Board of Governors 24 Executive Directors; each ED appoints one alternate 5 EDs each appointed by the 5 members with the largest quotas (at present USA, UK, Germany, France, and Japan); 19 elected by the other members for two year terms; Executive Board meets in continuous session Voting – most decisions by a simple majority of votes cast, other decisions when specified in the Articles of Agreement; some 70% or 85% of total voting power Voting is rare; most decisions by consensus

The Managing Director The Managing Director is appointed by the Executive Board; term of 5 years Chairman of the Executive Board and chief of the staff Presides over Executive Board meetings MD assisted by First Deputy Managing Director and 2 Deputy Managing Directors

Rodrigo de Rato, John Lipsky, Takatoshi Kato, Murilo Portugal

The Staff of the IMF International civil servants; owe duty entirely to the IMF Staff is appointed from member countries on as wide a geographical basis as possible Majority of professional staff are economists

Three Functions of the IMF Surveillance Technical Assistance Financial Assistance

SURVEILLANCE Major part of the IMF’s work Stems from Article IV of the Articles of Agreement “The Fund shall oversee the international monetary system in order to ensure its effective operation...the Fund shall exercise firm surveillance over the exchange rate policies of members.” Surveillance at the global, regional and country levels Medium Term Strategy –making surveillance more effective

FINANCIAL ASSISTANCE For balance of payments adjustment Available under a number of policies and facilities depending on the type of underlying balance of payments problem to be addressed. For example, Stand-by arrangement Emergency assistance Poverty Reduction and Growth Facility

Provided under adequate safeguards – achieved through the member implementing a program of economic reform dealing with problem Access level Conditionality as a means to safeguard Principle of uniform treatment – Similarly situated members should be treated similarly

Some legal issues relating to IMF-supported programs Programs, as described in a member’s letter of intent and memorandum of economic policies, are those of members IMF financing arrangements are not “contracts” No breach of obligation results from a member’s failure to carry out conditionality

TECHNICAL ASSISTANCE Article V, Section 2(b) “...the Fund may decide to perform financial and technical services, including the administration of resources contributed by members, that are consistent with the purposes of the Fund....”

Provision of technical assistance to members Fiscal affairs, e.g., drafting of tax legislation Statistics, e.g., framework for collection and analysis of data Banking sector reform, e.g., banking laws, supervision matters, financial sector restructuring Law reform, e.g., anti-money laundering/countering financing of terrorism (AML/CFT), corporate insolvency.