As the central institution in the international monetary and payments system, the IMF must be in a position to assist any of its member countries having balance of payments difficulties. It must also be prepared, at all times, to guard against unexpected events that might threaten the stability of the system. The IMF needs adequate financial resources to carry out these responsibilities. This is particularly important now, given the fundamental political and economic changes that are taking place in the former Soviet Union, Eastern Europe, and in many other parts of the world. This pamphlet takes a brief look at the functions of the IMF, why it needs more resources, and how these resources will be used.
With every twist and turn in the global financial crisis that started in 2007, the International Monetary Fund (IMF) has been at the heart of efforts to restore financial stability and return the world economy to sustainable growth. This year was no exception. The Fund was focused intensely on providing the financing, policy advice, and technical assistance that members need to manage economic and financial risks and achieve lasting growth. New nonconcessional financing arrangements were initiated for seven countries. At the same time, the institution was pursuing many strands of work to strengthen its approach to surveillance and policy design, to improve the instruments in its lending toolkit, and to improve the governance structure of the organization.
After a major setback in late 2011, global economic prospects gradually improved in early 2012, but concerns over the strength of the recovery resurfaced in the second quarter. Stronger activity in the United States and policies in the euro area in response to its deepening economic crisis helped to address the sharp deterioration in financial conditions and boost market confidence in the first few months of 2012. However, downside risks remained elevated at the end of FY2012, and markets were jittery as concerns about sovereign debt in parts of Europe and pressure on the European banking sector resurfaced.
The IMF continued in FY2012 to respond flexibly to members’ financing needs in an environment of heightened global uncertainty. The demand for Fund resources remained strong and commitments increased further, although at a slower pace compared to the previous year.
Faced with lower fiscal buffers than before the onset of the crisis in 2008, and given uncertain prospects for donor assistance in the future, low-income countries remained highly exposed during FY2012 to global shocks. The IMF worked on several fronts to help low-income countries deal with these and other ongoing challenges they face. In addition to the concessional financing the Fund provided to low-income countries during the year, and the additional concessional resources it secured through use of windfall gold sale profits (see Chapter 3), as well as new borrowing agreements signed to support financing for low-income countries (see Chapter 5), the Executive Board took up a number of issues particularly pertinent to low-income countries during the year. Debt issues were addressed in Board reviews of the HIPC Initiative and MDRI, as well as of the IMF–World Bank debt sustainability framework for low-income countries. Additionally, the Board examined ways of managing global growth risks and commodity price shocks in these countries.