INTERNATIONAL MONETARY FUND (IMF)

ORIGIN AND HISTORY

• Establishment (1944): The IMF was conceived in July 1944 at the

United Nations Monetary and Financial Conference, held in Bretton
Woods, New Hampshire (often called the Bretton Woods Conference).
• Key Figures: The framework was primarily designed by John Maynard
Keynes (UK) and Harry Dexter White (USA).
• Formal Inception (1945): It officially came into existence on December
27, 1945, when 29 countries signed its Articles of Agreement.
• HQ of IMF – Washington DC of USA
• the International Monetary Fund (IMF) has 191 member countries.
Newest Member: Liechtenstein (191st).
• Relationship with World Bank: Usually, a country must be a member
of the IMF before it can join the World Bank (IBRD).
• First Deputy MD – Gita Gopinath
• Present Managing Director Kristalina Georgieva
• The IMF acts as a “Lender of Last Resort” for national governments.
• Board of Governors: India is represented by the Union Finance
Minister (Governor) and the RBI Governor (Alternate Governor).

GOVERNANCE OF IMF

• Board of Governors: The highest decision-making body, consisting of

one governor (usually a Finance Minister or Central Bank head) from
each member country.
• Executive Board: A 24-member board that conducts the daily
business. The five largest shareholders (USA, Japan, China, Germany,
France, and the UK) traditionally held permanent seats, though recent
reforms have moved toward an all-elected board to increase
representation for emerging markets.
• Managing Director: The head of the IMF staff and Chair of the
Executive Board. Kristalina Georgieva is the current Managing
Director and Chairman of the Executive Board of the International
Monetary Fund (IMF)
• The International Monetary and Financial Committee (IMFC) :
➢ primary advisory body of the IMF Board of Governors,
comprising 24 members (ministers or central bank governors)
representing the 190 member countries.
➢ It meets twice a year to discuss global economic issues, advise
on financial system developments, and set policy direction for
the IMF
 ➢ The IMFC advises the IMF on the management of the
international monetary and financial system, monitors global
liquidity, and suggests responses to crises.
➢ Decision Making: The committee operates by consensus rather
than formal voting.
➢ IMFC discusses matters of concern affecting the global economy
and advises the International Monetary Fund (IMF) on the
direction of its work.
➢ A number of international institutions, including the World
Bank, participate as observers in the IMFC’s meetings.

FINANCING FACILITIES AND INSTRUMENTS OF IMF

General Resources Account (GRA)

• Available to all member countries. These loans carry market-based

interest rates (the “Rate of Charge”).
• •Stand-By Arrangement (SBA): The workhorse of IMF lending.
Designed for short-term balance of payments (BOP) problems.
Typically lasts 12–36 months.
• Extended Fund Facility (EFF): For countries with deeper, structural
economic problems that require more time to fix. These programs are
longer (up to 4 years) and have longer repayment periods. Current
Example: In February 2026, the IMF approved a major $8.1 billion
EFF for Ukraine to support its long-term recover
• Flexible Credit Line (FCL): A “precautionary” line of credit for countries
with very strong economic fundamentals. There is no “conditionality”
(required policy changes) after the money is approved.
• Precautionary and Liquidity Line (PLL): For countries with sound
foundations but some remaining vulnerabilities.
• Short-Term Liquidity Line (SLL): A backstop for countries facing
potential, short-term moderate BOP volatility.
• Rapid Financing Instrument (RFI): Emergency financial assistance
provided quickly without the need for a full, multi-year program (e.g.,
following a natural disaster).

Poverty Reduction and Growth Trust (PRGT)

• Reserved for low-income countries. These loans are “concessional,”

meaning they currently carry 0% interest (as of the latest 2026
resource adequacy update).
• Extended Credit Facility (ECF): The primary tool for providing
medium-to-long-term support to low-income countries with protracted
BOP issues.
 • Stand-By Credit Facility (SCF): Provides financial assistance to low-
income countries with short-term or precautionary needs.
• Rapid Credit Facility (RCF): One-off, rapid disbursements for low-
income countries facing urgent needs with limited capacity to
implement a full program.

Resilience and Sustainability Trust (RST)

• Focus: Specifically targets Climate Change and Pandemic

Preparedness.
• Maturity: Offers exceptionally long repayment terms (20 years) with a
10.5-year grace period.
• Eligibility: Low-income and “vulnerable” middle-income countries.
• Requirement: A country must already have a “standard” IMF program
(like an EFF or ECF) in place to qualify for an RSF.

Reserve Tranche Position (RTP)

• The Reserve Tranche is the portion of a member country’s quota that

it can access immediately, unconditionally, and without interest.
• How it is formed: When a country joins the IMF, it pays 25% of its
quota in reserve assets (SDRs or major currencies) and 75% in its own
local currency. That initial 25% becomes its “Reserve Tranche.”
• The “First Resort” Asset: If a country faces a sudden cash crunch, it
can “purchase” foreign currency from the IMF using its own currency
up to the limit of its Reserve Tranche.
• The “Gold Tranche”: Historically, this was called the “Gold Tranche”
because that initial 25% used to be paid in gold.
• Unlike IMF loans (which require policy changes), the IMF cannot say
“no” to a Reserve Tranche withdrawal.
• No Cost: There are no service fees or interest charges.
• Creditor Status: A country with a large Reserve Tranche is essentially
a “lender” to the IMF.

Special Drawing Rights (SDR)

• The SDR is an international reserve asset created by the IMF in 1969

to supplement the official reserves of member countries. It is not a
currency, but a potential claim on the currencies of IMF members.
• Countries can exchange SDRs for “freely usable” currencies among
themselves
• India holds approximately 2.75% of total SDR allocations.
 • The SDR is an international reserve asset, not a currency
• The Basket: Its value is based on a basket of five major currencies: US
Dollar, Euro, Chinese Renminbi (Yuan), Japanese Yen, and British
Pound :-
➢ US Dollar: 43.38% (Highest)
➢ Euro: 29.31%
➢ Chinese Renminbi (Yuan): 12.28%
➢ Japanese Yen: 7.59%
➢ British Pound: 7.44%

How SDRs Work -

• Allocation: The IMF “creates” SDRs out of thin air and distributes
them to members in proportion to their quotas.
• Exchange: A country in need can swap its SDRs for “freely usable”
currencies (like Dollars or Euros) with other member countries.
• Interest: If a country holds more SDRs than it was given, it earns
interest. If it holds fewer (because it sold them for cash), it pays
interest to the IMF’s SDR Department.

HPIC INITIATIVE

• The IMF and World Bank launched the Heavily Indebted Poor
Countries (HIPC) Initiative in 1996 to ensure that no poor country
faces an unmanageable debt burden.
• In 2005, to accelerate progress toward the United Nations’ Sustainable
Development Goals, the HIPC Initiative was supplemented by the
Multilateral Debt Relief Initiative (The Multilateral Debt Relief Initiative
was adopted by the IMF in late 2005 + its a debt relief proposal
initially advanced by the G-8 in June 2005, which called for the
cancellation of 100 percent of the claims of three multilateral
institutions—the IMF, the International Development Association (IDA)
of the World Bank, and the African Development Fund (AfDF)—on
countries under the enhanced Initiative for Heavily Indebted Poor
Countries)
• This allows countries completing the HIPC Initiative process to receive
100 percent relief on eligible debts by the IMF, the World Bank, and
the African Development Fund.
• In 2007, the Inter-American Development Bank provided additional
(“beyond HIPC”) debt relief to the five HIPCs in the Western
Hemisphere.
• How do countries participate in the HIPC Initiative?
➢ Be eligible to borrow from the World Bank’s International
Development Agency, which provides interest-free loans and
 grants to the world’s poorest countries, and from the IMF’s
Poverty Reduction and Growth Trust, which provides loans to
low-income countries at concessional rates.
➢ Face an unsustainable debt burden that cannot be addressed
through traditional debt-relief mechanisms.
➢ Develop a Poverty Reduction Strategy Paper (PRSP) through a
broad-based participatory process.

KEY NON-FINANCIAL INSTRUMENTS & TOOLS OF THE IMF

• Policy Support Instrument (PSI): Designed for low-income countries

that do not need IMF financial assistance but want to signal policy
strength to creditors and donors. Note: The IMF proposed eliminating
the PSI in October 2023.
• Policy Coordination Instrument (PCI): Enables closer dialogue and
policy coordination, allowing countries to demonstrate commitment to
reform.
• Staff Monitored Programs (SMP): An informal agreement where IMF
staff monitors a country’s economic program, often used to build a
track record for future financial arrangements.
• Capacity Development (Technical Assistance & Training): Experts
help member countries strengthen institutions in areas like taxation,
expenditure management, monetary policy, and financial regulation.
• Surveillance (Article IV Consultations): Regular monitoring and
analysis of a member country’s economic and financial policies.
• Analytical Tools & Datasets: The IMF provides various diagnostic
tools, such as the Tax and Benefits Analysis Tool (TAXFIT) and the
Fiscal Risk Assessment Tool

INDIA AND IMF

• Quota in SDR: India’s current quota is SDR 13,114.4 million

(approximately $17.5 billion & represents 2.75% of the total IMF
quotas.
• Voting Power: India holds 2.63% of the total votes & 8 th largest
member in case of voting Power
• India’s Reserve Tranche Position is valued at $4.8 billion & It is
considered a “liquid asset” and is part of India’s official Foreign
Exchange Reserves.
 • The “India Stack” Export: The IMF has formally recognized India’s
Digital Public Infrastructure (DPI)—including UPI and Aadhaar—as a
global gold standard

REPORTS OF IMF

• World Economic Outlook – According to the IMF World Economic

Outlook, India is the world’s 4th largest economy by nominal GDP and
its published twice a year
• Global Financial Stability Report – IMF publishes this report twice a
year
• Fiscal Monitor Report – IMF publishes this report twice a year
• External Sector Report – IMF publishes every year
• Regional Economic Outlook – IMF publishes twice a year