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Brief Introduction Of International Financial Institution -IMF

IFIs are institutions that provide financial support and professional advice for economic and social development activities in developing countries and promote international economic cooperation and stability. The term international financial institution typically refers to the International Monetary Fund (IMF) and the five multilateral development banks (MDBs): the World Bank Group, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank, and the European Bank for Reconstruction and Development.

The last four of these each focus on a single world region and hence are often called regional development banks. IMF and the World Bank, in contrast, are global in their scope; they are also specialized agencies in the UN system but are governed independently of it.

An International Financial Institution (IFI) is a specialized financial entity established by two or more countries to foster international economic cooperation and development. These institutions play a pivotal role in the global financial landscape, offering financial services, policy advice, and technical assistance to member nations. IFIs work towards promoting stability, sustainability, and economic growth on an international scale. Common examples include the International Monetary Fund (IMF), the World Bank, and regional development banks.

IFIs facilitate collaboration among member countries, pooling resources to provide financial aid, promote trade, and address economic challenges. Their mandate often includes addressing issues such as poverty alleviation, infrastructure development, and sustainable economic practices. IFIs operate within a framework of international regulations and agreements, contributing significantly to the stability and development of the global economy

All IFIs admit only sovereign countries as owner-members, but all are characterized by a broad country membership, including both borrowing developing countries and developed donor countries; membership in the regional development banks is not limited to countries from the region but includes countries from around the world. Each IFI has its own independent legal and operational status, but because a considerable number of countries have membership in several IFIs, a high level of cooperation is maintained among them.

Broadly speaking, IMF provides temporary financial assistance to member countries to help ease balance of payments adjustment.

MDBs provide financing for development to developing countries through the following:
  • Long-term loans (with maturities of up to 20 years) based on market interest rates. To obtain the financial resources for these loans, MDBs borrow on the international capital markets and re-lend to borrowing governments in developing countries.
  • Very-long-term loans (often termed credits, with maturities of 30 to 40 years) at interest rates well below market rates. These are funded through direct contributions by governments in the donor countries.
  • Grant financing is also offered by some MDBs, mostly for technical assistance, advisory services, or project preparation.
All IFIs are active in supporting programs that are global in scope, in addition to their primary role of financing and providing technical assistance to programs at the country level. Their global activities are discussed later in the chapter.

Several other publicly owned international banks and funds also lend to developing countries, and these are often grouped together as other multilateral financial institutions rather than as IFIs. They usually have a relatively narrow ownership or membership structure or focus on particular sectors or activities. Among these are the European Investment Bank, the International Fund for Agricultural Development, the Islamic Development Bank, the Nordic Development Fund and the Nordic Investment Bank, and the Organization of the Petroleum Exporting Countries Fund for International Development.

A number of subregional banks established for development purposes are also classified as multilateral banks rather than as IFIs, as they are owned by a group of countries (typically borrowers and not donors). Among these are the Corporaci�n Andina de Fomento (Andean Development Corporation), the Caribbean Development Bank, the Central American Bank for Economic Integration, the East African Development Bank, and the West African Development Bank.

Some other international institutions, such as the Bank for International Settlements, the Financial Stability Forum, and the Basel Committee, also perform important roles in the international financial system but are not involved in lending. These, too, are not counted among IFIs and are not discussed in this chapter, which discusses IMF and MDBs only.

Types Of International Financial Institution:

These are major six types of International Financial Institution or International Monitory Institution.

Regional Development Bank:

The regional development banks are made up of a number of regional organizations that do comparable tasks to those performed by the World Bank group, but with an emphasis on a particular area. Typically, shareholders include both the big donor countries and the regional nations. A regional development bank is a financial institution that operates within a specific geographic region, catering to the economic needs and development priorities of countries within that area.

Unlike global institutions such as the World Bank, regional development banks are more focused on addressing the unique challenges and opportunities within a particular region. These banks provide financial assistance, technical expertise, and resources to support a wide range of development projects, including infrastructure, poverty alleviation, and sustainable growth initiatives.

Founded Name HQ
1959 IDB: Interamerican Development Bank Washington
1960 CABEI: Central American Bank for Economic Integration Tegucigalpa
1964 AfDB: African Development Bank Abidjan
1973 IsDB: Islamic Development Bank Group Jeddah
1966 ADB: Asian Development Bank Manila
1970 CAF: Development Bank of Latin America Caracas
29/5/91 EBRD: European Bank for Reconstruction and Development London
1956 CEB: Council of Europe Development Bank Paris
14/11/73 BOAD: Banque ouest-africaine de d�veloppement West African Development Bank Lom�
1975 BDEAC: Banque de developpement des �tats de l'Afrique centrale, Development Bank of Central African States Brazzaville, Congo
2006 EDB: Eurasian Development Bank Almaty, Kazakhstan

Bileteral Development Bank & Agencies:

A Bilateral Development Bank and its associated agencies are financial institutions established by a single country to provide development assistance and support to other countries. Unlike multilateral institutions, which involve multiple nations, bilateral development banks and agencies operate on a country-to-country basis. These institutions are typically funded by the government of the donor country and aim to promote economic development, poverty reduction, and other socio-economic goals in the recipient country. The assistance can come in the form of grants, concessional loans, technical expertise, and capacity-building programs.

Founded Name HQ
1970 The Netherlands Development Financial Company FMO The Hague
1962 The DEG German Investment Corporation Cologne, Germany
1816 The French Development Agency Paris, France
1948 CDC Group London

Multi-Lateral Development Bank:

A Multilateral Development Bank (MDB) is a financial institution that operates on an international level and is owned by multiple countries, known as member nations. The primary purpose of MDBs is to provide financial and technical assistance to developing countries to support their economic and social development efforts. MDBs raise capital by receiving contributions from their member countries and by borrowing from international capital markets. The funds are then used to provide loans, grants, and other forms of financial support to member countries for various development projects.

Founded Institution Headquarters
1944 World Bank Washington, D.C., United States

1958 European Investment Bank (EIB) Luxembourg
1973 Islamic Development Bank (IsDB) Jeddah, Saudi Arabia
1966 Asian Development Bank (ADB) Mandaluyong, Metro Manila, Philippines
1991 European Bank for Reconstruction and Development (EBRD) London, United Kingdom
1970 CAF � Development Bank of Latin America and the Caribbean (CAF) Caracas, Venezuela
1959 Inter-American Development Bank Group (IDB, IADB) Washington, D.C., United States
1964 African Development Bank (AfDB) Abidjan, C�te d'Ivoire
2014 New Development Bank (NDB) Shanghai, China
2016 Asian Infrastructure Investment Bank (AIIB) Beijing, China
1975 Arab Petroleum Investments Corporation (APICORP) Dammam, Saudi Arabia
1985 Eastern and Southern African Trade and Development Bank (TDB) Nairobi, Kenya

Regional Multilateral Development Bank:

A Regional Multilateral Development Bank is a financial institution that operates within a specific geographic region, catering to the economic and developmental needs of countries within that particular area. Unlike global multilateral development banks that have a worldwide focus, regional ones concentrate on addressing the unique challenges and opportunities within a defined region. These banks facilitate collaboration among member countries to provide financial assistance, technical expertise, and resources for various projects that promote economic growth, poverty reduction, and sustainable development in the region.

Founded Name HQ
1959 IDB - Interamerican Development Bank Washington
1960 CABEI - Central American Bank for Economic Integration Tegucigalpa
1964 AfDB - African Development Bank Abidjan
1973 IsDB - Islamic Development Bank Group Jeddah
1966 ADB - Asian Development Bank Manila
1970 CAF - Development Bank of Latin America Caracas
29/5/91 EBRD - European Bank for Reconstruction and Development London
1956 CEB - Council of Europe Development Bank Paris
14/11/73 BOAD - Banque ouest-africaine de development West African Development Bank Lom�
1975 BDEAC - Banque de development des �tats de l'Afrique centrale, Development Bank of Central African States Brazzaville, Congo
2006 EDB - Eurasian Development Bank Almaty, Kazakhstan

Others Regional Financial Institution:

"Other Regional Financial Institutions" typically refer to financial organizations and entities that are specific to certain geographic regions and are designed to address the financial and economic needs of countries within those regions. These institutions may vary in their structures, functions, and areas of focus, but they share a commonality in operating within a defined regional scope. These entities often provide financial services, support economic development initiatives, and contribute to regional cooperation.

Founded Name HQ
17/5/1930 BIS - Bank for International Settlements Basle, Basel, B�le
1958 EIB - European Investment Bank Luxembourg
2/15/1965 AACB - African Association of Central Banks, ABCA Association des Banques Centrales Africaines Dakar, Senegal.
10/7/1970 IIB - International Investment Bank Moscow, Russia
1974 ACU - Asian Clearing Union  
8/1976 NIB - Nordic Investment Bank[6] Helsinki, Finland
3/2/1982 SEACEN - South East Asian Central Banks Centre Kuala Lumpur, Malaysia
24/1/1997 BSTDB - Black Sea Trade and Development Bank Thessaloniki, Greece
1998 ECB - European Central Bank Frankfurt am Main

Bretten Woods Institution:

The Bretton Woods Institutions refer to two major international financial organizations that were established during the Bretton Woods Conference in 1944. These institutions played a pivotal role in shaping the post-World War II economic order and fostering global economic cooperation.

The term "Bretton Woods Institutions" is derived from the Bretton Woods Conference held in Bretton Woods, New Hampshire, USA, where representatives from 44 nations gathered to create a framework for international economic cooperation after World War II. The agreements reached at this conference led to the establishment of the IMF and the World Bank, shaping the post-war global economic system.

Founded Name HQ
1944 IMF: International Monetary Fund Washington, DC
1944 IBRD: International Bank for Reconstruction and Development Washington, DC
1956 IFC: International Finance Corporation Washington, DC
1960 IDA: International Development Association Washington, DC
1966 ICSID: International Centre for Settlement of Investment Disputes Washington, DC
1988 MIGA: Multilateral Investment Guarantee Agency Washington, DC
1995 GATT: General Agreement on Tariffs and Trade, basis for the creation of World Trade Organization (WTO) in 1995 Geneva for the WTO

International Monetary Fund:

The need for an organisation like the IMF became evident during the great depression that ravaged the world economy in the 1930s. A widespread lack of confidence in paper money led to a spurt in the demand for gold and severe devaluation in the national currencies. The relation between money and the value of goods became confused as did the relation between the value of one national currency and another. In the 1940s, Harry Dexter (US) and John Maynard Keynes (UK) put forward proposals for a system that would encourage the unrestricted conversion of one currency into another, establish a clear and unequivocal value for each currency and eliminate restrictions and practices such as competitive devaluations. The system required cooperation on a previously un-attempted scale by all nations in establishing an. innovative monetary system and an international institution to monitor it.

After much negotiations in the difficult war time conditions, the international community accepted the system and an organisation was formed to supervise it. The IMF began operations in Washington DC in May 1946. It then had 39 members. The IMF's membership now is 182.

Evolution Of The IMF's Financial Structure:

The single most important feature of the financial structure of the IMF is that it is continuously developing. This is necessary for the IMF to meet the needs of an ever-changing global economic and financial system. The IMF has introduced and refined a variety of lending facilities and policy changes over the years to address changing conditions in the global economy or the specific circumstances of members. It discontinued or modified such adaptations when the need for them was reduced or eliminated.
  • During 1945�60, the IMF facilitated the move to convertibility among countries for current payments and the removal of restrictions on trade and payments that had been put in place before and during the war. This was also a period of relatively low financing by the IMF, as the Marshall Plan of the United States largely assumed that role.
  • During 1961�70, to meet the pressures on the Bretton Woods fixed exchange rate system, the IMF developed a new supplementary reserve asset (the special drawing right, or SDR) and a standing borrowing arrangement with the largest creditor members to supplement its resources during times of systemic crisis.
  • During 1971�80, the two world oil crises led to an expansion of IMF financing and the development of new lending facilities funded from borrowed resources. The decade also marked the IMF's expansion into concessional lending to its poorest members.
  • During 1981�90, the developing country debt crisis triggered a further sharp increase in IMF financing, with higher levels of assistance to individual countries, again financed in part by borrowed resources.
  • During 1991�2000, the IMF established a temporary lending facility to facilitate the integration of the formerly centrally planned economies into the world market system. The globalization of financial markets also required adaptation of the financing facilities designed for an earlier era when current account imbalances predominated to a world in which large and sudden shifts in international capital flows resulted in payments imbalances originating in the capital account.

Roles And Purpose Of The IMF:

The International Monetary Fund is a cooperative international monetary organization whose members currently include 183 countries of the world. It was established together with the World Bank in 1945 as part of the Bretton Woods conference convened in the aftermath of World War II.

The responsibilities of the IMF derive from the basic purposes for which the institution was established, as set out in Article I of the IMF Articles of Agreement-the charter that governs all policies and activities of the IMF:
  • To promote international cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
  • To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
  • To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
  • To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
  • To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
  • In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

The IMF is best known as a financial institution that provides resources to member countries experiencing temporary balance of payments problems on the condition that the borrower undertake economic adjustment policies to address these difficulties. In recent years, IMF lending increased dramatically as the institution played a central role in resolving a series of economic and financial crises in emerging market countries in Asia, Latin America, and Europe.

The IMF is also actively engaged in promoting economic growth and poverty reduction in its poorer members by providing financing on concessional terms in support of efforts to stabilize economies, implement structural reforms, and achieve sustainable external debt positions. Often missing from the public perception of the IMF, however, is the broader context in which this financing takes place.

IMF Engages In Three Types Of Activities:

Current Financial Structure And Lending Mechanisms Of The IMF:

The IMF provides financing to its members through three channels, all of which have the common purpose of transferring reserve currencies to member countries. In both its regular and concessional lending operations, financing is provided primarily under "arrangements" with the IMF, which are similar to lines of credit.

For the large majority of IMF lending, use of these lines of credit is conditional upon the achievement of economic stabilization and structural reform objectives agreed between the borrowing member and the IMF. The IMF can also create international reserve assets by allocating SDRs to members, which can be used to obtain foreign exchange from other members. Use of SDRs is unconditional, although a market: based interest rate is charged.

Regular Lending Operations

Unlike other international financial institutions (such as the World Bank or the regional development banks), the IMF is, in effect, a repository for its members' currencies and a portion of their foreign exchange reserves. The IMF uses this pool of currencies and reserve assets to extend credits to member countries when they face economic difficulties as reflected in their external balance of payments.

The IMF's regular lending is financed from the fully paid-in capital subscribed by member countries. It is conducted through the GRA of the General Department, which holds the capital subscribed by members. A country's capital subscription is equal to its IMF quota.

Upon joining, each country is assigned a quota that is broadly based on its relative position in the world economy and represents its maximum financial commitment to the IMF. The member country provides a portion of its quota subscription in the form of reserve assets (foreign currencies acceptable to the IMF or SDRs) and the remainder in its own currency. This "reserve position" is made instantly available to a member if the member has a balance of payments need.

For its lending the IMF utilizes the reserve assets it already holds and calls on countries that are considered financially strong to exchange the IMF's holdings of their currency for reserve assets that are then made available to borrowing countries.

SDR Mechanism

The SDR is a reserve asset created by the IMF and allocated to participating members in proportion to their IMF quotas to meet a long-term global need to supplement existing reserve assets. A member may use SDRs to obtain foreign exchange reserves from other members and to make international payments, including to the IMF. The SDR is not a currency, nor is it a liability of the IMF, rather it is primarily a potential claim on freely usable currencies.

Freely usable currencies, as determined by the IMF, are the U.S. dollar, euro, Japanese yen, and pound sterling. Members are allocated SDRs unconditionally and may use them to obtain freely usable currencies in order to meet a balance of payments financing need without undertaking economic policy measures or repayment obligations.

A member that makes net use of its allocated SDRs pays the SDR interest rate on the amount used, while a member that acquires SDRs in excess of its allocation receives the SDR interest rate on its excess holdings. Thus far, the IMF has allocated a total of SDR 21.4 billion, most recently in 1981.

A special, one-time equity allocation of SDRs that would double the amount of SDRs outstanding is now pending final approval by the membership. The purpose of this allocation is to address a perceived inequity that more than one-fifth of IMF members have never received an SDR allocation because they joined after the last allocation. Provisions have been made for future new members to receive equal treatment.

The SDR serves as the unit of account for the IMF and the SDR interest rate provides the basis for calculating the interest charges on regular IMF financing and the interest rate paid to members that are creditors to the IMF.
  • The value of the SDR is based on a basket of currencies, comprising the U.S. dollar, euro, Japanese yen, and pound sterling, and is determined daily based on exchange rates quoted on the major international currency markets.
  • The SDR interest rate is determined weekly based on the same currency amounts as in the SDR valuation basket, prevailing exchange rates, and representative interest rates on short-term financial instruments in the markets of the currencies included in the valuation basket.

All SDR transactions are conducted through the SDR Department of the IMF. The SDR is solely an official asset. SDRs are held largely by member countries with the balance held in the IMF's GRA and by official entities prescribed by the IMF to hold SDRs. Neither prescribed holders nor the IMF receive SDR allocations but can acquire and use SDRs in transactions with IMF members and with other prescribed holders under the same terms and conditions as IMF members.

Concessional Financing

The IMF lends to poor countries at an interest rate of � of 1 percent and over a longer repayment period than non: concessional IMF lending while these countries restructure their economies to promote growth and reduce poverty. The IMF also provides assistance on a grant (no-cost) basis to heavily indebted poor countries to help them achieve sustainable external debt positions.

These activities are undertaken separately from the IMF's regular lending operations, with resources provided voluntarily by members independently of their IMF capital subscriptions, and in part from the IMF's own resources. The IMF's concessional assistance is extended through the Poverty Reduction and Growth Facility (PRGF) Trust and in the context of the Heavily Indebted Poor Country (HIPC) Initiative through the PRGFHIPC Trust, both of which the IMF operates as Trustee. In March 2000, the IMF put in place a new investment strategy for the resources supporting these initiatives with the objective of supplementing returns over time while maintaining prudent limits on risk.

Safeguards For Imf Resources:

The Articles of Agreement require the IMF to adopt policies that will establish adequate safeguards for the temporary use of the organization's resources. These safeguards can be divided into those aimed at protecting currently available or outstanding credit and those focused on limiting the duration of, and clearing, overdue obligations.

Safeguards to protect committed and outstanding credit include:
  • Limits on access to appropriate amounts of financing, with incentives to contain excessively long and heavy use;
  • Conditionality and program design;
  • Safeguards assessments of central banks;
  • Post-program monitoring;
  • Measures to deal with misreporting; and
  • Voluntary services and supplementary information provided by the IMF, including technical assistance; the transparency initiative, comprising the establishment and monitoring of codes and standards, including statistical standards and codes for monetary and fiscal transparency and the assessment of financial sector soundness; and the improved governance initiative.

Financial Reporting And Audit Requirements:

The IMF's By-Laws mandate that its accounts and statements provide a "true and fair view" of its financial position. The IMF prepares its financial statements in accordance with International Accounting Standards (IAS) but is not bound by specific legal provisions or accounting pronouncements in effect in individual member countries. The IMF is required to publish an Annual Report containing audited statements of its accounts and to issue summary statements of its holdings of SDRs, gold, and members' currencies at intervals of three months or less.

As part of its financial reporting, the IMF makes extensive information on financial and other activities available to the public on its website ( in order to provide a timely and comprehensive view of the IMF's financial position. The IMF's financial year covers the period from May 1 through April 30.

The IMF's finances are analogous to those of other financial institutions, and comparison between the IMF and such institutions has been made easier by recent changes in the presentation of the IMF's financial statements. A typical financial institution holds liquid assets and loan claims and securities among its assets, financed by its deposit (monetary) liabilities and capital resources.

Similarly, in the GRA the IMF holds assets (currencies, SDRs, and gold) and credit outstanding to its members, and issues monetary liabilities (referred to as reserve tranche positions), while its capital includes members' quota subscriptions. Similar practices are followed in the financial statements of the SDR Department and of the PRGF and PRGF-HIPC Trusts in order to make their financial operations transparent.

The audit procedures in place call for an external audit of the IMF's accounts and activities. The external audit of the financial statements of the IMF's General Department, SDR Department, Administered Accounts, and Staff Retirement Plans is conducted annually by an external audit firm selected by the Executive Board.

The external audit is conducted in accordance with International Standards on Auditing (ISA) under the general oversight of an External Audit Committee (EAC). The EAC consists of three persons, each representing a different member country, who are selected by the Executive Board for an initial term of three years (EAC members may be reappointed for an additional three-year period).

The Executive Board approves the terms of reference of the EAC, but the EAC may recommend changes to the terms of reference for the approval of the Executive Board. At least one person on the EAC must be selected from one of the six largest quota holders of the IMF.

The nominees must possess the qualifications required to carry out the oversight of the IMF's annual audit and the nominees are therefore typically experienced independent auditors or auditors in public service. The EAC elects one of its members as chairman, determines its own procedures, and is otherwise independent of the management of the IMF in overseeing the annual audit.

The audit committee is responsible for transmitting the audit reports issued by the external audit firm to the Board of Governors through the IMF's Managing Director and the Executive Board. The chairman of the EAC is also required to brief the Executive Board on the work of the EAC at the conclusion of the annual audit.

Reform Of The International Financial Institutions:

IFIs' unique comparative advantage and the contributions they have made toward addressing global issues are well recognized. Yet there is a rising expectation on the part of almost all stakeholders-developed and developing country shareholders, academics and think tanks, civil society organizations, and business leaders-that IFIs need to do still more in this domain.

However, a number of concerns about IFIs raise questions about the role they can play in global issues management. Many suggestions have been put forward for reform of IFIs. IFIs themselves agree that reform is needed if their shareholders expect them to play an increasing role in regional and global development issues. The suggested reforms can be categorized under the headings of legitimacy, effectiveness, and conditionality.

Legitimacy concerns relate to the extent to which IFIs are perceived as impartial advisers, given that their ownership structure and their policy making powers are skewed in favor of the rich nations. Many in developing countries- officials and citizens alike-as well as international nongovernmental organizations (NGOs) and researchers believe that the developed countries, particularly the United States and the European countries, have an undue influence on IFIs' policies, policy advice, and allocation of funds. Their influence is so great, in this view, that IFIs' advice cannot be trusted to be impartial but, rather, is infected by political and ideological bias.

Those who hold this view also criticize the way the heads of IFIs are chosen:
By convention, the head of IMF has always been a European, the head of the World Bank an American, the head of the EBRD a European, and the head of ADB a Japanese. (However, the head of AfDB is always an African, and the head of IDB a Latin American.) The critics argue that leadership selections should be made on the basis of merit and in public hearings, not on the basis of national origin.

Given their global nature and influence, concerns over legitimacy are most acute in the case of IMF and the World Bank, and, in response, proposals for reform of these institutions have been tabled for consideration by their shareholders. IMF's medium-term strategy paper proposes the reallocation of existing shareholdings (called quotas) so as to improve the share of developing countries.

Other proposals would give more votes to developing countries with large and growing shares of the global economy (such as Brazil, China, India, and South Africa) and to smaller nations (particularly in Africa) that represent a significant share of the work of the two institutions.

At the Spring 2006 meetings of IMF and the World Bank, some promising breakthroughs were made when the International Monetary and Financial Committee of the Board of Governors of IMF agreed on the need for fundamental reform and called on IMF's managing director to present concrete proposals for agreement at the annual meetings in September 2006.

Concerns about effectiveness relate to the adequacy of the results produced by IFIs' development assistance programs, the soundness of their policy advice (for example, on privatization and the liberalization of financial markets), the relevance of such advice for countries' realities, and the need for safeguards both to prevent the loss of development assistance to fraud and corruption and to protect the environment and the rights of people who may be adversely affected by development projects.

IFIs are heeding the call for greater effectiveness in all these areas of concern. In 2002, they launched a Managing for Development Results Initiative, which led to the adoption of the Paris Declaration on Aid Effectiveness. The Paris Declaration, endorsed on March 2, 2005, is an international agreement by nearly 100 ministers, heads of agencies, and other senior officials to continue and increase efforts toward harmonization, alignment, and managing aid for results with a set of monitorable actions and indicators.

In April 2006, MDBs agreed on a Common Performance Assessment System to provide a consolidated source of data on how MDBs are contributing to positive development results. Data will be provided in seven categories: country-level capacity development, performance-based concessional financing, results-based country strategies, projects and programs, monitoring and evaluation, learning and incentives, and interagency harmonization. MDBs hope that this system will improve accountability.

In the area of safeguards on the proper use of funds, all MDBs have policies and procedures in place to prevent fraud and corruption and to protect people and environmental resources that the projects they finance might endanger. However, MDBs have acknowledged that there is room to do more and to do better in this domain, and they have launched efforts to improve and harmonize their policies so as to improve the policies' effectiveness.

IMF's medium-term strategy also lays out several proposals to improve the organization's effectiveness in several areas: country and global surveillance to promote global financial stability; prevention and resolution of crises in emerging markets; and IMF's role in low-income countries to promote a stable macroeconomic environment that promotes growth and poverty reduction.

Conditionality is a standard feature of the loans provided IFIs. It typically refers to the actions that a borrower must take in order to obtain the loan; failure to comply with these conditions may result in suspension, cancellation, or recall of the loan. The purpose of conditionality is to ensure that borrowers take the necessary actions-in terms of policies, provision of technical inputs, implementation, and safeguard measures-to produce the intended development results.

Most observers agree that conditionality related to procurement, financial bookkeeping, auditing, environmental issues, resettlement, and organizational change is needed if development projects are to be implemented effectively. In fact, such conditionality has always been a part of development assistance, and some conditionality is in response to advocacy by NGOs with respect to environmental issues and indigenous peoples' rights.

What is controversial about conditionality relates mostly to policy and institutional reforms such as privatization, trade and capital account liberalization, elimination of subsidies, and limits on public expenditure. All of these often feature prominently in adjustment lending (more recently called development policy lending or budget support lending) by MDBs and IMF.

Critics argue, sometimes on the basis of credible evidence, that this type of conditionality has not worked and sometimes has done more harm than good. They also argue that some conditions are merely an attempt to impose Western free market policies on developing countries where they are neither appropriate nor desired.

IFIs generally agree that policy and institutional conditionality is most effective when it supports reforms on which the country is already taking the lead and that it is ineffective when there is little or no political will to undertake the reforms. At the same time, IFIs face the challenge of assessing whether a country's proposed reforms really address the key policy distortions hampering equitable (pro-poor) growth and whether the borrower is genuinely committed to reform. Without such reform the development objectives supported by the lending cannot be achieved-hence the conditionality.

IFIs are beginning to take a more flexible approach to conditionality. They are looking for more evidence of borrowers' commitment to reforms and are rewarding reforms already undertaken; they are reducing the average number of conditions per lending operation; they are focusing more on long-term institutional issues and on the actions that are most critical for achieving results; and they are increasing transparency and encouraging public debate on the need for reform.

Sources Of Information On Imf Finances:
IMF's Website: Comprehensive and timely data on IMF finances are available on the IMF website. Through a specially designed portal entitled "IMF Finances" see, which is prominently referenced on the homepage of the IMF website (, anyone with access to the Internet can obtain current and historical data on all aspects of IMF lending and borrowing operations.

Financial data are updated on a daily, weekly, monthly, or quarterly basis, as appropriate. In addition, the "IMF Finances" portal provides a gateway to a wealth of general information on the financial structure, terms, and operations of the institution, including this pamphlet. The financial data are presented in aggregate form for the institution as a whole, and in country-specific form for each member of the IMF on:
  • Exchange rates (twice daily)
  • IMF interest rates (weekly)
  • Financial activities and status of lending arrangements (weekly)
  • Financial resources and liquidity (monthly)
IFIs, and particularly IMF and the World Bank, have a mandate from their shareholders to provide both sophisticated analysis and effective financing to address global issues such as those discussed in this article. IFIs undoubtedly have comparative advantage in mobilizing resources and channeling them into projects that can effectively address these issues. Indeed, IFIs have been playing this role for many years but never on a scale commensurate with the problems.

Their efforts are hampered by concerns relating to their legitimacy, their effectiveness, their use of conditionality, and their financial capacity. Many proposals for reforming IFIs have been put forward, and some of these are being implemented. Successful reform of IFIs will go a long way toward improving their capacity to address the global issues identified in this article.

Written By: Abhishek Jaiswal, LL.M, Student of Department of Law, School of Legal Studies, Central University of Tamil Nadu.
Email: [email protected]

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