The IMF also referred to as The Fund, is an autonomous international financial institution established in 1945 under the Bretton Woods Agreement of 1944. Thus, it is a sister institution of the International Bank for Reconstruction and Development (IBRD). The main objectives of the IMF, set out in article 1 of its articles of Agreement are:
- To promote international monetary co-operations through a permanent institution that 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.
- To promote exchange rate stability, to maintain orderly exchange arrangement among members, and to discourage competitive currency devaluation.
- To assist in the establishment of a multilateral system of payment in respect of current transactions and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
- To help member countries overcome their balance of payment difficulties through the provision of short to medium term credit and technical guidance.
The IMF introduced the Special Drawing Rights (SDRs) in 1970 to facilitate the expansion and balanced growth of world trade. The SDRs is an international financial asset designed to supplement gold, dollars, and convertible currencies in settling international debt between countries. Most countries now use their allocation of SDRs (which are mere book entries) when they face balance of payment or reserve problems.
A member country that applies for IMF loan is expected to meet certain stipulated conditions, known collectively as “IMF conditionalities”, before such facility is granted. The conditions stipulated for some developing member countries to meet to qualify them for the use of the Fund’s financial resources have included devaluation of currency, removal of government subsidy on some products, reduction of public expenditure, trade liberalisation, strengthening of the operational efficiency of revenue collection agencies, and reduction of grants and subventions to government parastatals.
The benefits derived by developing member countries, including West African countries, from their membership of the IMF include:
- The signing of agreement with the Fund for stand-by facilities worth millions of dollars which boosted their credit worthiness in international trade.
- The use of SDRs allocation to solve their balance of payments and reserve problems.
- Manpower development efforts of member countries have been complemented by the Fund through training courses provided on economic and financial management.
- The Fund, on a regular basis, conducts studies on member countries’ economies and recommends necessary reform measures to improve growth performance.