Context:
The Appointments Committee of the Cabinet has appointed Parameswaran Iyer as the new Executive Director, representing India at IMF’s Executive Board.
International Monetary Fund (IMF):
- Established: 1944, at the Bretton Woods Conference
- Headquarters: Washington, D.C., USA
- Members: 190 countries
- Objectives of IMF –
- Promote international monetary cooperation among member nations.
- Ensure financial stability and prevent economic crises.
- Facilitate international trade by maintaining stable exchange rates.
- Support high employment and sustainable economic growth.
- Reduce poverty worldwide through financial assistance.
- Functions of IMF –
- Economic Surveillance: Monitors global economic trends and advises member countries.
- Financial Assistance: Provides loans to countries facing balance-of-payments crises.
- Capacity Development: Offers technical assistance and training to strengthen economic policies.
- Exchange Rate Stability: Helps maintain stable exchange rates and prevent currency crises.
- IMF Lending Programs –
- Stand-By Arrangements (SBA): Short-term financial assistance for economic stabilization.
- Extended Fund Facility (EFF): Long-term support for structural reforms.
- Rapid Financing Instrument (RFI): Emergency funding for economic shocks.
- Poverty Reduction and Growth Trust (PRGT): Low-interest loans for developing nations.
- Special Drawing Rights (SDR) –
- Introduced: 1969 to supplement global reserves.
- Value Determination: Based on a basket of five currencies (USD, EUR, CNY, JPY, GBP).
- Usage: Countries can exchange SDRs for freely usable currencies.
India & IMF:
- India’s Membership: Founding member since 1944.
- IMF’s Role in India: Provides policy advice, financial assistance, and economic monitoring.
- Recent Developments: India has advocated for reforms in IMF’s quota system to reflect emerging economies’ influence.
Criticism & Challenges:
- Conditionality Issues: IMF loans often come with strict economic policy conditions.
- Western Dominance: Voting power is skewed towards developed nations.
- Impact on Sovereignty: IMF-imposed austerity measures can affect domestic policies.
- Debt Burden: Some countries struggle with IMF loan repayments.
Source: IE
Previous Year Question
Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR?
[UPSC Civil Services Exam – 2016 Prelims]
(a) Rouble
(b) Rand
(c) Indian Rupee
(d) Renminbi
Answer: (d)