Imf in Nepal free essay sample

During the end of the World War II, many countries started mulling the plight of the future world. There were valid concerns about reconstruction of devasted areas, and re-building and developing the war-hit economies. Remarkable decisions were made in Bretton Woods conference in 1944 to boost international trade and economic growth, and to achieve monetary stability in the global economy. Along with IMF (International Monetary Fund), IBRD (World Bank) and ITO (International Trade Organization) were the outcomes of the historical Bretton Woods Conference. However, in this report we focus on IMF as a financial institution and its activities and contribution in Nepalese economy. 1. 2 Objectives of the study †¢ To know about the IMF’s role in Strengthening the International Financial System †¢ To know the role of IMF in resolving economic crisis. To find out the impact of IMF in monetary policy. To know the IMF’s role to meet the changing needs of its member countries in an evolving world economy. †¢ To find out the impact of IMF in Nepalese economy. †¢ To know about the IMF lending in Nepal. 1. 3 Importance of the study The following are the points, which throw light on the importance of this fieldwork: †¢ It serves as the partial fulfillment of requirement of B. B. A. program. It has helped us to boost up our confidence. †¢ It has helped us to gain an experience of working in group. It might be useful for the other researchers, who can take it to be their guideline. †¢ It might be useful for the library, so that any student wanting to prepare a report on such field can have some ideas and basic guidelines. 1. 4 Limitations of the study This study has the following limitations: †¢ We had to collect the information in very short period of time so all the required information couldn’t be collected adequately. †¢ All expenses related to this project are managed by students themselves. We could not find information as the source of relevant information and data was only internet and book. The help and cooperation provided by the personal administration of the department was not sufficient. †¢ The researcher couldn’t go beyond the responses provided. Chapter 2 An introduction to IMF The IMF is the worlds central organization for international monetary cooperation. It is an organization in which almost all countries in the world work together to promote the common good. The IMFs primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to buy goods and services from each other. This is essential for sustainable economic growth and rising living standards. The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of mployment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical assistance—have developed to meet the changing needs of its member countries in an evolving world economy. 2. 1 The origins of IMF The IMF was conceived in July 1944, when representatives of 45 governments meeting in the town of Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for international economic cooperation. They believed that such a framework was necessary to avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s. During that decade, attempts by countries to shore up their failing economies—by limiting imports, devaluing their currencies to compete against each other for export markets, and curtailing their citizens freedom to buy goods abroad and to hold foreign exchange—proved to be self-defeating. World trade declined sharply, and employment and living standards plummeted in many countries. Seeking to restore order to international monetary relations, the IMFs founders charged the new institution with overseeing the international monetary system to ensure exchange rate stability and encouraging member countries to eliminate exchange restrictions that hindered trade. The IMF came into existence in December 1945, when its first 29 member countries signed its Articles of Agreement. Since then, the IMF has adapted itself as often as needed to keep up with the expansion of its membership—185 countries as of June 2006—and changes in the world economy. The IMFs membership jumped sharply in the 1960s, when a large number of former colonial territories joined after gaining their independence, and again in the 1990s, when the IMF welcomed as members the countries of the former Soviet bloc upon the latters dissolution. The needs of the new developing and transition country members were different from those of the IMFs founding members, calling for the IMF to adapt its instruments. Other major challenges to which it has adapted include the end of the par value system and emergence of generalized floating exchange rates among the major currencies following the United States abandonment in 1971 of the convertibility of U. S. dollars to gold; the oil price shocks of the 1970s; the Latin American debt crisis of the 1980s; the crises in emerging financial markets, in Mexico and Asia, in the 1990s; and the Argentine debt default of 2001. Despite the crises and challenges of the postwar years, real incomes have grown at an unprecedented rate worldwide, thanks in part to better economic policies that have spurred the growth of international trade—which has increased from about 8 percent of world GDP in 1948 to about 25 percent today—and smoothed boom-and bust cycles. But the benefits have not flowed equally to all countries or to all individuals within countries. Poverty has declined dramatically in many countries but remains entrenched in others, especially in Africa. The IMF works both independently and in collaboration with the World Bank to help its poorest member countries build the institutions and develop the policies they need to achieve sustainable economic growth and raise living standards. The IMF has continued to develop new initiatives and to reform its policies and operations to help member countries meet new challenges and to enable them to benefit from globalization and to manage and mitigate the risks associated with it. Cross-border financial flows have increased sharply in recent decades, deepening the economic integration and interdependence of countries, which has been beneficial overall although it has increased the risk of financial crisis. The emerging market countries—countries whose financial markets are in an early stage of development and international integration—of Asia and Latin America are particularly vulnerable to volatile capital flows. And crises in emerging market countries can spill over to other countries, even the richest. Particularly since the mid-1990s, the IMF has made major efforts to help countries prevent crises and to manage and resolve those that occur. Globalization, poverty, the inevitability of occasional crises in a dynamic world economy—and, no doubt, future problems impossible to foresee—make it likely that the IMF will continue to play an important role in helping countries work together for their mutual benefit for many years to come. 2. 2 Purposes of IMF †¢ To promote international cooperation by providing the machinery for consultation and collaboration on international monetary issues †¢ To acilitate balanced growth of international trade and its expansion so as to contribute to the promotion and maintenance of high levels of employment and real income and to the development for the productive resources of all members as primary objectives of economic policy. †¢ To promote exchange stability and orderly exchange arrangements among its members. †¢ To foster a multilateral system of payments in respect of current transactions between members and seek elimination of foreign exchange restrictions which hamper the growth of world trade. To provide financial resources temporarily to correct maladjustment in BOPs. †¢ To shorten the duration and magnitude of payment imbalances. 2. 3 IMF’s Organization and Operation The IMF is governed by, and is accountable to, its member countries through its Board of Governors. There is one Governor from each member country, typically the finance minister or central bank governor. The Governors usually meet once a year, in September or October, at the Annual Meetings of the IMF and the World Bank. Key policy issues related to the international monetary system are considered twice a year by a committee of Governors called the International Monetary and Financial Committee, or the IMFC. A joint committee of the Boards of Governors of the IMF and the World Bank—the Development Committee—advises and reports to the Governors on development policy and other matters of concern to developing countries. The day-to-day work of the IMF is carried out by the Executive Board, which receives its powers from the Board of Governors, and the IMFs internationally recruited staff. The Executive Board usually meets three times a week, in full-day sessions, and more often if needed, at the IMFs headquarters in Washington, D. C. Of the 24 Executive Directors on the Board, 8 are appointed by single countries—the IMFs 5 largest quota-holders (the United States, Japan, Germany, France, and the United Kingdom) and China, Russia, and Saudi Arabia. The other 16 Executive Directors are elected for two-year terms by groups of countries known as constituencies. The Executive Board selects the IMFs Managing Director, who is appointed for a renewable five-year term. The Managing Director reports to the Board and serves as its chair and the chief of the IMFs staff and is assisted by a First Deputy Managing Director and two other Deputy Managing Directors. Unlike some international organizations (such as the United Nations General Assembly) that operate under a one-country-one-vote principle, the IMF has a weighted voting system. The larger a countrys quota in the IMF—determined broadly by its economic size—the more votes the country has, in addition to its basic votes, of which each member has an equal number. But the Board rarely makes decisions based on formal voting; most decisions are based on consensus. In the early 2000s, in response to changes in the weight and role of countries in the world economy, the IMF began to reexamine the distribution of quotas and voting power to ensure that all members are fairly represented. IMF employees, who come from over 140 countries, are international civil servants. Their responsibility is to the IMF, not to the national authorities of the countries of which they are citizens. About one-half of the IMFs approximately 2,700 staff members are economists. Most staff works at the IMFs Washington, D. C. , headquarters, but the IMF also has over 85 resident representatives posted in member countries around the world. In addition, it maintains offices in Brussels, Paris, and Tokyo, which are responsible for liaison with other international and regional institutions and civil society organizations, as well as in New York and Geneva, which focus on liaison with institutions in the UN system. The Geneva office is also responsible for liaison with the World Trade Organization. Evaluating the IMFs operations: In 2001, the IMFs Executive Board established the Independent Evaluation Office (IEO), which reviews selected IMF operations and presents its findings to the Board and to IMF management. The IEO operates independently of management and at arms length from the Board, although the Board appoints the IEOs director. The IEO establishes its own work program, selecting operations for review based on suggestions from stakeholders inside and outside the IMF. Its recommendations strongly influence IMF policy and activity.