Introduction and Facts on IMF

The International Monetary Fund (IMF) which is alternatively referred to plainly as the “Fund,” was established in the United States’ state of New Hampshire at a United Nation’s convention in Bretton Woods, during the July of 1994 (Lombardi & Boughton, 2009). There were 44 nations represented at the convention which led to the conception of the organization. These nations were seeking to establish a structure that would enable economic cooperation between these nations in order to avert potential occurrences of repetitive devaluations which had led to the depression that occurred in 1930s.

Currently, the organization is headquartered in Washington, D.C and consists of 187 nations (Dick, 2009). The organization has an estimated 2500 employees from member states and 24 directors that represent groups of nations in the body. The original objectives of the organizations as conceived were: (a). enhance monetary exchange stability. (b). Facilitate balanced growth and expansion in international trading. (c). Enhance monetary cooperation on an international scale. (d). Ensuring availability of resources for members with difficulties in their balance of payments (this requires ensuring the presence of adequate safeguards). (e). Help in the creation of a multilateral payment settlement system (Charlton & Stiglitz, 2005).


Responsibilities of IMF

The main objective of IMF is to enhance stability within the global monetary system. The “International Monetary System” is what defines the rates of exchange in payments between nations and this system enables the citizens and nations in different places to transact in a smooth manner. The maintenance of such a system is important for the promotion of sustainability with regard to economic growth and development, alleviating poverty levels, and raising the standards of life. The IMF has the responsibility to offer advice to member nations on how to implement financial and economic policy which will enhance stability, encourage growth that is sustainable, raise the standards of life and decrease their levels of vulnerability to most financial crises (Dick, 2009).

The organization is also tasked with the review of economic trends on a world-wide scale as well as any other developments which may negatively affect the health of the international financial and monetary system (Charlton & Stiglitz, 2005). The IMF also engages its member states into dialogues meant to discuss the global financial and economic implications of their financial and economic policies. The IMF carries regular surveys on nation’s economies and offers its analytical results to the public and other financial institutions under its surveillance programs. Additionally, it offers technical support to member states in helping to strengthen their institutional capacity. This assistance is many at times coupled with resource facilitation that is meant to help the member states make adjustments in case of deficits in their balance of payments.

The 2008 global crisis that spun from the United States mortgage crisis due to the dollar’s position in the reserve system was an important reminder of the need of financial stability. The fund took this unfortunate opportunity to reiterate about its mandate to increase coverage to the full range of financial sector and macroeconomic issues which have significance in determining global financial and economic stability (IMF, 2011a).


The importance of global economic stability

The promotion of economic stability is meant to avert occurrences of financial and economic instability or crises that de-stabilize these systems. This includes preventing extreme shifts in economic activity, high exchange rates volatility, high inflationary rates, and volatility of the financial markets. The occurrence of instability raises concerns that may lead to the reduction of investments made and therefore leading to the discouragement of investment, which consequently leads to reduced economic growth which lowers the standards of living (Dick, 2009). However, it is good to be cognizant that standard financial markets within the economies are never stable and the shifts are a common and normal occurrence.

However, this raises concerns when the shifts are extreme, erratic and with very little probability in terms of predictability. There for instability and occasional gradual change in the structure of markets is a usual thing. Policy makers in such markets have the challenge of improving predictability and reducing the level of instability observed. However, this should be done without a negative effect on the economy’s ability to better the standards of living through raising efficiency, productivity and employment. The concerns of stability are both multilateral and national in nature (IMF, 2011a).

The spread of the influence in the recent past’s recession showed clearly that the global financial markets are becoming more and more connected and integrated to the extent that reliance has increased significantly. As a result, challenges in one seemingly isolated market sector, in a certain nation, may result in tumults that could send ripples across other national economies. This spillover was experienced in the 2008 recession. Therefore, global financial and economic state has great significance on the levels of development in the economies of various nations and this clearly portrays that no nation is an ‘island’ as long as it participates in the global financial market.


The Role of IMF and how it promotes global financial stability

The IMF carries out its functions through three most basic approaches. The key functions through which it implements its policies include lending, technical assistance and surveillance.


Surveillance Approach towards enhancing stability: all nations that join IMF allow their financial and economic policies and systems to be subjected to surveillance and scrutiny by the IMF, and as such transparency is desired. The IMF takes the task of overseeing the set IMF system, to make sure it operates efficiently and that each nation within the body conforms to its edicts as stipulated under Article Four. The article requires each member nation to implement policies that are consistent to external and internal stability measures. Therefore this international body assesses and monitors policies and developments at the global, regional and national level. This surveillance is important because there has been great globalization and policies of nations affect economies beyond their borders and as a result there is a dire need for cooperation at an international level. (IMF, 2011b).

The IMF is currently the largest provider of 187 countries in this facilitation apart from regional blocks of cooperation between nations. The surveillance takes on two forms: (a). Multilateral surveillance in which it looks at the whole economy in general. (b). Bilateral surveillance in which it advises and appraises members about the policies. The IMF visits member nations on an annual basis to evaluate and discuss economic policies by checking whether there is any vulnerability and any adjustments that may be required to avoid it (Charlton & Stiglitz, 2005). The IMF members may also consult with other stakeholders such as labor unions, parliamentarians and the civil society in evaluating the economy. After a comprehensive report on this is submitted to IMF’s Executive Board, deliberations are made and the views are released to the nation. As transparency increases, such reports are made publicly available.

The IMF offers advise that is drawn from across the board of its members. The IMF also evaluates the regional and global trends of economy. The key tools that evaluate this element are two of its publications that are done semi-annually. These keys of multilateral surveillance are (GFSR) Global Financial Stability Report and (WEO) World Economic Outlook. WEO offers the picture of the world’s economy and it addresses issues of global significance, and this results help both member and non-member states to make decisions about their economies and policy (IMF, 2011a). On the other hand, GFSR offers analysis of the world’s financial markets and any risks and vulnerabilities that may exist with regard to some factors. It basically exposes risks and vulnerabilities tat may exist. This body also provides “Regional Economic Outlook Reports” which gives details of analysis of the economic situation in the five major regions if the world. All these international analyses are important to any nation’s economy and most countries use them in making their own financial and economic policies.

Generally, surveillance should narrow on financial, fiscal, monetary and rates of exchange policy and the assessment of any risks associated to them. After clear evaluations the IMF offers guidance to its members on how to formulate and implement policies pertaining to the exchange rates in ways that will be consistent with the objectives of promoting stability and preventing manipulation. Therefore, the surveillance is one important tool that helps in policy development through the use of information gathered and it also serves as an early warning system that detects vulnerabilities and potential risks that pertain to instability. The information that results from surveillance is also applied to policy making which is meant offset imbalances and create stability through the generation of appropriate financial and economic policies (IMF, 2011a).


The technical assistance approach towards enhancing stability: Technical assistance in IMF plays a great role in helping low income nations to develop their structural operations. Notably, the IMF is not made up of only well-of nations, and among them there are nations that have low incomes. These nations do not have structural capacity to develop their own policies and appropriately define their exchange systems as well as other financial issues of national and international importance. If left to do this on their own, the lacking capacity will definitely predispose them to erratic planning that may cause great challenges to the national and global economy and financial markets.

The IMF offers various technical support systems for the creation of resources for its members through helping them to make effective management of their financial affairs and economic policies. The major efforts in this bid are directed towards the development of the institutional and human capacity which helps in designing the necessary structural, financial and macroeconomic policies. In fact, technical assistance is one of the greatest benefits of all members of IMF, but more particularly the poor nations with little ability to carry out their own financial activities (IMF, 2011b). Much of the technical assistance offered goes to low-income and middle-income nations as well as those exiting conflict periods. This assistance offers direct and immediate benefit to these nations whilst offering stability to the world economy through reducing vulnerability and weakness among nations.

Basically, when the low earning countries within the IMF network are stabled their stability contributes to the general stability of other member nations and the globe as a whole. This assistance is however, not exclusive to such nations, the developed and developing nations also receive technical assistance in some selected areas that highly significant to their stability too (IMF, 2011b). Areas of technical assistance offered by IMF cover monetary policy, tax policy, macroeconomic policy, expenditure management, revenue administration, stabilizing the financial sector, financial statistics as well as instituting legislative frameworks. Since the recent recession the technical support of IMF has been called for in order to help in technical research into how to make financial systems more stable. The IMF has been recently called to help in addressing financial weaknesses.

There is also a continuing demand for an increase of technical support to the help developing nations build their ability to put in place development and growth programs as well as reduce poverty. A number of these poor nations are also helped to handle their debts sustainable and work towards reducing poverty. It also offers technical support to poor nations in helping them engage in active global economy participation in order to enhance their stability (IMF, 2011b). Basically, poor nations may in one way or another lead to a non-stable world economy and as such the IMF plays a very important role in helping improve the economies of these nations, and this ultimately contributes to the development of a better world economy which enhances stability across the board. Technical support to member nations is offered in various forms including the provision of staff missions for a period of time, or posting of advisors or experts to member countries for the purpose of offering technical support.

Other forms of technical assistance may include seminars, training sessions, workshops, diagnostic studies and active online support and advice. In order to create firm support the IMF has established region based centers that special not only in offering regional expertise support, but also act as regional centers to conduct surveillance of the financial systems. Currently, the IMF runs technical centers in the West, Central and East Africa, Caribbean, Central America, Pacific and the Middle East. A part from technical training programs offered at its centers IMF also offers these training programs within it centers and through localized national training through seminars and workshops designed for country financial leaders and officials. The IMF has also recently launched “Global topical trust funds.” These trust funds concentrate on creating capacity to handle issues that are pertinent to the world economy.

Financing terrorism and money laundering are examples of threats to world financial stability that are currently being handled by a number of the first IMF 2009 topical trust fund (Charlton & Stiglitz, 2005).These funds are supposed to technically support topical issues that generally threaten the economy of any nation. Most of the member nations are unable to handle challenges such as money laundering which may span over national borders due to limited financial and technical mandate as well as the lack of clear cooperation (Lombardi & Boughton, 2009). It is for this reason that technical issues are delegated to such funds which are coupled with the necessary technical support to handle the issue of concern. Currently, there are two trust funds in the pipeline, which are supposed to commence operations in May 2011 and there are more planned for the future (IMF, 2011b).


The lending approach towards enhancing stability: IMF lending is one among the three tools that the body uses to enhance the development of balance in the economy especially, through lending to low-income nations as well as developing nations. At times national economies may be on the imminent brink of collapse especially in instances whereby the nation is unable to maintain sufficient reserved buffers as well as pay off its net international debts (Dick, 2009). If left at this juncture to handle its own economy and finances a nation may drop deep in to inflation and poverty resulting from budgetary deficits and this may de-stabilize the country’s economy and render it a threat to the global stability too. Therefore, the loans offered by IMF provide a soft landing in such tough situations which enables the nation to continue investing in a number its activities and work its way to economic recovery without getting destabilized or destabilizing the economy.

The cushioning loans helps the member countries to re-establish adjusted policies that can see it work its way out of the problem. This act of helping nations at deficit to rectify their respective balances of payment is important towards helping nations to establish restoration. The number of loans and amounts offered may have greatly fluctuated in the recent past due to various factors such as the 70s oil shock, the 80’s debt crisis, and the 90’s demand for transitioning nations all called for high lending which has negatively affected the current lending capacity of IMF. Despite the low lending the little provided is channeled to crucial sectors that are important in establishing stability (IMF, 2011c). The process of lending is usually simple and prompted by nations that have a deficit and desire to get support. The loans are given under ‘arrangements’ prepared in consultation with IMF officials and presented as a “Letter of Intent” for consideration which is usually forwarded to the Executive Board that analyzes and endorses the letter and later the funds are given in phases as the designated program runs.


IMF lending is not uniform, but tailored for specific purposes. This is important because not all nations have the same financial capacity and as such there are different prepared facilities of lending tailored for different purposes. For example low-income nations are allowed to use concessional terms to borrow finances through an ‘extended credit facility’ which enables them to repay their borrowed amounts over an extended period of time. This facility has a maturity of ten years and a zero rated interest rate. This was particularly developed under the “Poverty Reduction and Growth Trust” as a means to support low earning nations with deficits to get a source of funds to maintain their financial stability which ultimately contributes to the stability of the general global economy (IMF, 2011c).

Terms of financing under IMF are concessional and the rates of repayments are reviewed at least after every two years. Other facilities include (SCF) stand by credit facility which supports Low-Income Countries (LICs) having a balance of payments that I short-term. The SCF has a 4 year grace period and it matures after 8 years. LICs facing urgent balances may seek help from IMF under “Rapid Credit facilities” (RCF), which has few conditions. A part from these facilities there are also other numerous facilities for all members provided under different circumstances including emergencies. These may include “Stand-By Arrangements” (SBA), “Flexible Credit Line” (FCL), “Precautionary Credit Line” (PCL), and “Extended Fund Facilities” (EFF) and “Emergency Assistance.” All these lending facilities help nations in financial difficulties to liberate themselves and form a new stable starting in their economy and thus keeping the global economy and financial markets stable (IMF, 2011c).


The integrative element supporting stability and conclusion

Notably, the three elements employed in supporting global financial and economic stability cannot exclusively manage to work each on its own. Technical support, surveillance and lending have to work together, in synergy that characterizes IMF operation. Surveillance help support technical assistance because the IMF has to conduct a survey in order to develop technical supports which will be appropriate to any specific nation (IMF, 2011c). Fit-all solutions are not possible and each nation’s case is unique (Charlton & Stiglitz, 2005). Additionally, the IMF has to conduct surveillance before offering lending to assess the situation in the nation, and additionally, it has to follow up the use of the funding as part of the surveillance procedure and offer advise on implementation and policy all of which are important in the policy making phase.


In conclusion the three elements are basic to the control and maintenance of financial stability and economic stability in nations all over the globe, and the implementation of stabilizing strategies have to take into account all three. Surveillance comes first as a kind of reconnaissance, which is followed by planning and policy formulation which may be coupled with funding in order to implement appropriate remedial measures to enhance stability.



Charlton, A. and Stiglitz, E. J. (2005),. The Strategic Role of the IMF: Risks for Emerging Market Economies amid Increasingly Globalized Financial Markets. Paper prepared for the G24 Technical Group Meeting

Dick, K. N. (2009),. Global financial crisis: Analysis and policy implications RL34742. Congressional Research Service: Report, p1-153, 157p, 1 <

International Monetary Fund (IMF) (2011a),. Fact sheet: The IMF at a Glance, retrieved on 23rd April, 2011 from

International Monetary Fund (IMF) (2011b),. Fact sheet: IMF Surveillance, retrieved on 23rd April, 2011 from

International Monetary Fund (IMF) (2011c),. Fact sheet: IMF Lending, retrieved on 23rd April, 2011 from


Lombardi, D. and Boughton, M. J. (2009),.Finance, Development, and the IMF, Oxford University Press