IMF General Information

Introduction.
The International Monetary Fund (IMF) is an international
organization headquartered in Washington, D.C., of "188 countries
working to foster global monetary cooperation, secure financial
stability, facilitate international trade, promote high employment and
sustainable economic growth, and reduce poverty around the world.
"Formed in 1944 at the Bretton Woods Conference, it came into
formal existence in 1945 with 29 member countries and the goal of
reconstructing the international payment system. Countries
contribute funds to a pool through a quota system from which
countries experiencing balance of payments difficulties can borrow
money. As of 2010, the fund had about US$755.7 billion at then
exchange rates.
Through the fund, and other activities such as statistics-keeping and
analysis, surveillance of its members' economies and the demand for
particular policies, the IMF works to improve the economies of its
member countries. The organization's objectives stated in the
Articles of Agreement are: to promote international monetary
cooperation, international trade, high employment, exchange-rate
stability, sustainable economic growth, and making resources
available to member countries in financial difficulty.
Functions.
According to the IMF itself, it works to foster global growth and
economic stability by providing policy, advice and financing to
members, by working with developing nations to help them achieve
macroeconomic stability and reduce poverty. The rationale for this is
that private international capital markets function imperfectly and
many countries have limited access to financial markets. Such
market imperfections, together with balance-of-payments financing,
provide the justification for official financing, without which many
countries could only correct large external payment imbalances

through measures with adverse economic consequences. The IMF
provides alternate sources of financing.
Upon the founding of the IMF, its three primary functions were: to
oversee the fixed exchange rate arrangements between countries,
thus helping national governments manage their exchange rates and
allowing these governments to prioritise economic growth, and to
provide short-term capital to aid balance of payments. This
assistance was meant to prevent the spread of international
economic crises. The IMF was also intended to help mend the pieces


of the international economy after the Great Depression and World
War II. As well, to provide capital investments for economic growth
and projects such as infrastructure.
The IMF's role was fundamentally altered by the floating exchange
rates post-1971. It shifted to examining the economic policies of
countries with IMF loan agreements to determine if a shortage of
capital was due to economic fluctuations or economic policy. The IMF
also researched what types of government policy would ensure
economic recovery. The new challenge is to promote and implement
policy that reduces the frequency of crises among the emerging
market countries, especially the middle-income countries that are
vulnerable to massive capital outflows. Rather than maintaining a
position of oversight of only exchange rates, their function became
one of surveillance of the overall macroeconomic performance of
member countries. Their role became a lot more active because the
IMF now manages economic policy rather than just exchange rates.
History.
The IMF was originally laid out as a part of the Bretton Woods system
exchange agreement in 1944. During the Great Depression,

countries sharply raised barriers to trade in an attempt to improve
their failing economies. This led to the devaluation of national
currencies and a decline in world trade.
This breakdown in international monetary co-operation created a
need for oversight. The representatives of 45 governments met at
the Bretton Woods Conference in the Mount Washington Hotel in
Bretton Woods, New Hampshire, in the United States, to discuss a
framework for postwar international economic cooperation and how
to rebuild Europe.
There were two views on the role the IMF should assume as a global
economic institution. British economist John Maynard Keynes
imagined that the IMF would be a cooperative fund upon which
member states could draw to maintain economic activity and
employment through periodic crises. This view suggested an IMF
that helped governments and to act as the U.S. government had
during the New Deal in response to World War II. American delegate
Harry Dexter White foresaw an IMF that functioned more like a bank,
making sure that borrowing states could repay their debts on time.
Most of White's plan was incorporated into the final acts adopted at
Bretton Woods.


The IMF formally came into existence on 27 December 1945, when
the first 29 countries ratified its Articles of Agreement. By the end of
1946 the IMF had grown to 39 members. On 1 March 1947, the IMF
began its financial operations, and on 8 May France became the first
country to borrow from it.
The IMF was one of the key organisations of the international
economic system; its design allowed the system to balance the
rebuilding of international capitalism with the maximisation of

national economic sovereignty and human welfare, also known as
embedded liberalism. The IMF's influence in the global economy
steadily increased as it accumulated more members. The increase
reflected in particular the attainment of political independence by
many African countries and more recently the 1991 dissolution of the
Soviet Union because most countries in the Soviet sphere of
influence did not join the IMF.
The Bretton Woods system prevailed until 1971, when the U.S.
government suspended the convertibility of the US$ (and dollar
reserves held by other governments) into gold. This is known as the
Nixon Shock.
Since 2000.
In May 2010, the IMF participated, in 3:11 proportion, in the first
Greek bailout that totalled €110 billion, to address the great
accumulation of public debt, caused by continuing large public
sector deficits. As part of the bailout, the Greek government agreed
to adopt austerity measures that would reduce the deficit from 11%
in 2009 to "well below 3%" in 2014. The bailout did not include debt
restructuring measures such as a haircut, to the chagrin of the Swiss,
Brazilian, Indian, Russian, and Argentinian Directors of the IMF, with
the Greek authorities themselves (at the time, PM George
Papandreou and Finance Minister Giorgos Papakonstantinou) ruling
out a haircut.
A second bailout package of more than €100 billion was agreed over
the course of a few months from October 2011, during which time
Papandreou was forced from office. The so-called Troika, of which the
IMF is part, are joint managers of this programme, which was
approved by the Executive Directors of the IMF on 15 March 2012 for
SDR23.8 billion, and which saw private bondholders take a haircut of
upwards of 50%. In the interval between May 2010 and February

2012 the private banks of Holland, France and Germany reduced
exposure to Greek debt from €122 billion to €66 billion.


As of January 2012, the largest borrowers from the IMF in order were
Greece, Portugal, Ireland, Romania, and Ukraine.
On 25 March 2013, a €10 billion international bailout of Cyprus was
agreed by the Troika, at the cost to the Cypriots of its agreement: to
close the country's second-largest bank; to impose a one-time bank
deposit levy on Bank of Cyprus uninsured deposits. No insured
deposit of €100k or less were to be affected under the terms of a
novel bail-in scheme.
The topic of sovereign debt restructuring was taken up by the IMF in
April 2013 for the first time since 2005, in a report entitled
"Sovereign Debt Restructuring: Recent Developments and
Implications for the Fund’s Legal and Policy Framework". The paper,
which was discussed by the board on 20 May, summarised the
recent experiences in Greece, St Kitts and Nevis, Belize, and
Jamaica. An explanatory interview with Deputy Director Hugh
Bredenkamp was published a few days later, as was a
deconstruction by Matina Stevis of the Wall Street Journal.
In the October 2013 Fiscal Monitor publication, the IMF suggested
that a capital levy capable of reducing Euro-area government debt
ratios to "end-2007 levels" would require a very high tax rate of
about 10%.
The Fiscal Affairs department of the IMF, headed at the time by
Acting Director Sanjeev Gupta, produced a January 2014 report
entitled "Fiscal Policy and Income Inequality" that stated that "Some
taxes levied on wealth, especially on immovable property, are also
an option for economies seeking more progressive taxation ...

Property taxes are equitable and efficient, but underutilized in many
economies ... There is considerable scope to exploit this tax more
fully, both as a revenue source and as a redistributive instrument."
At the end of March 2014, the IMF secured an $18 billion bailout fund
for the provisional government of Ukraine in the aftermath of the
2014 Ukrainian revolution.
Member countries.
Not all member countries of the IMF are sovereign states, and
therefore not all "member countries" of the IMF are members of the
United Nations. Amidst "member countries" of the IMF that are not
member states of the UN are non-sovereign areas with special
jurisdictions that are officially under the sovereignty of full UN
member states, such as Aruba, Curaçao, Hong Kong, and Macau, as


well as Kosovo. The corporate members appoint ex-officio voting
members, who are listed below. All members of the IMF are also
International Bank for Reconstruction and Development (IBRD)
members and vice versa.
Former members are Cuba (which left in 1964) and the Republic of
China, which was ejected from the UN in 1980 after losing the
support of then U.S. President Jimmy Carter and was replaced by the
People's Republic of China. However, "Taiwan Province of China" is
still listed in the official IMF indices.
Qualifications.
Any country may apply to be a part of the IMF. Post-IMF formation, in
the early postwar period, rules for IMF membership were left
relatively loose. Members needed to make periodic membership
payments towards their quota, to refrain from currency restrictions
unless granted IMF permission, to abide by the Code of Conduct in

the IMF Articles of Agreement, and to provide national economic
information. However, stricter rules were imposed on governments
that applied to the IMF for funding.
The countries that joined the IMF between 1945 and 1971 agreed to
keep their exchange rates secured at rates that could be adjusted
only to correct a "fundamental disequilibrium" in the balance of
payments, and only with the IMF's agreement.
Some members have a very difficult relationship with the IMF and
even when they are still members they do not allow themselves to
be monitored. Argentina, for example, refuses to participate in an
Article IV Consultation with the IMF.
Benefits.
Member countries of the IMF have access to information on the
economic policies of all member countries, the opportunity to
influence other members’ economic policies, technical assistance in
banking, fiscal affairs, and exchange matters, financial support in
times of payment difficulties, and increased opportunities for trade
and investment.
When can a country borrow from the IMF?
One of the IMF's single biggest functions is lending money to
members in need. If a country is unable to make payments to other
countries without taking "measures destructive of national or
international prosperity," such as implementing trade restrictions or


devaluing its currency, it may borrow money from the IMF. When the
IMF lends a country money, it often requires the borrower to follow a
program aimed at meeting certain quantifiable economic goals,
which are described in a letter of intent from the borrowing
government to the IMF's managing director. IMF loans are not

provided to fund particular projects or activities, they are provided to
promote a country's overall economic health. The duration, payment
terms, and lending conditions vary on a case-by-case basis. The IMF
charges borrowers a market-related interest rate and also requires
service charges and a refundable commitment fee. Low-income
countries pay as little as 0.5% interest per year.
The IMF also lends money to countries dealing with sudden losses of
financial confidence, such as after natural disasters or wars, in order
to prevent the spread of financial crises stemming from those
countries. There are five main facilities from which the IMF makes
loans: IMF Stand-By Arrangements (for short-term lending), the
Extended-Fund Facility, the Poverty Reduction and Growth Facility,
the Supplemental Reserve Facility, and the Exogenous Shocks
Facility.
Conditionality of loans.
IMF conditionality is a set of policies or conditions that the IMF
requires in exchange for financial resources. The IMF does require
collateral from countries for loans but also requires the government
seeking assistance to correct its macroeconomic imbalances in the
form of policy reform. If the conditions are not met, the funds are
withheld. Conditionality is perhaps the most controversial aspect of
IMF policies. The concept of conditionality was introduced in a 1952
Executive Board decision and later incorporated into the Articles of
Agreement.
Conditionality is associated with economic theory as well as an
enforcement mechanism for repayment. Stemming primarily from
the work of Jacques Polak, the theoretical underpinning of
conditionality was the "monetary approach to the balance of
payments".
The process of IMF lending.

Upon request by a member country, IMF resources are usually made
available under a lending “arrangement,” which may, depending on
the lending instrument used, specify the economic policies and
measures a country has agreed to implement to resolve its balance
of payments problem. The economic policy program underlying an


arrangement is formulated by the country in consultation with the
IMF and is in most cases presented to the Fund’s Executive Board in
a “Letter of Intent” and is further detailed in the annexed
“Memorandum of Understanding”. Once an arrangement is approved
by the Board, IMF resources are usually released in phased
installments as the program is implemented. Some arrangements
provide very strongly performing countries with one-time up-front
access to IMF resources and thus are not subject to explicit policy
understandings.
Similarly, the steps involved for acquiring an IMF loan, are as follows:
The country has to be in Trouble! - Firstly, the nation that wants to
borrow from the IMF needs to be in a crisis such as a balance of
payment crisis(i.e. Too much of Import money owed and other
External debts)
Loan Application - The country, then as a last resort turns to the IMF
for financial help. The country needs to submit a request to the IMF
stating their current scenario, the consequences etc.
IMF decides - On receiving the country's request, IMF's help is made
available under a lending arrangement, which will depend on the
kind of lending instrument to be used, stipulate specific economic
policies and measures a country has agreed to implement to resolve
its problem. A economic recovery program is then formulated by the
Country in consultation with the IMF and is in most cases presented

to the Fund’s Executive Board in a “Letter of Intent.”
Fund Release - Once IMF's board approves the nation's request,
Steps are taken to release the fund in installments and phases thus
ensuring the rightful implementation of the recovery program. In
rare cases, if the country has a strong credibility, the resources are
released directly as a one-time payment.
Top 10 debtor countries owe 86% of total IMF loans (2015).
Data collected from the IMF website suggest that a total of 79
countries owed a staggering 68.82 billion in SDRs (special drawing
rights) as on May 31 this year. As on May 31, 2015, the value of one
SDR in dollar terms stood at 1.390500, valuing the total amount due
from the borrowing countries at $84.57 billion.
Among continents, Africa (40 African countries) owes a combined
$8.46 billion.


It is followed by Central America (11 countries), Asia (nine), Europe
(seven) and the European Union (six).
Of the total amount owed to IMF as on May 31, the 10 biggest
borrowing countries, including Portugal, Greece, Ukraine, Ireland and
Pakistan, owed $72.4 billion, or nearly 86% of the total amount lent.
The biggest outstanding loans from the IMF were issued to European
nations, notably Greece and Portugal. In the past few years,
European countries have been the biggest borrowers of loans from
the organisation.
Most nations turn to the IMF for a loan when they run into dire
financial woes.
Examples.
Thailand.
Pressures on Thailand’s currency, the baht, which had been evident

already in late 1996, increased dramatically during the first half of
1997. Primary contributors to this built up pressure were an
unsustainable current account deficit, significant appreciation of the
real effective exchange rate, rising foreign debt (in particular shortterm), a deteriorating fiscal balance, and increasing difficulties in the
financial sector. Reserve money growth accelerated sharply as the
Bank of Thailand provided liquidity support for ailing financial
institutions. “Most of the policy responses to the pressures in the
exchange market focussed on spot and forward intervention,
introduction of controls on some capital account transactions and
limited measures to halt the weakening of the fiscal situation.” On
July 2, 1997, following more and more speculative attacks on its
currency, Thailand’s Central Bank decided to float its exchange rate.
However, the policy changes introduced with the floatation of the
baht were inadequate. Market confidence failed to return and the
baht depreciated by 20 percent against the U.S. dollar during. On
August 20, 1997, the IMF’s Executive Board approved financial
support for Thailand of up to SDR 2.9 billion or about $4 billion,
equivalent to approximately 505 percent of Thailand’s quota, over a
34 month period (see Table 5). Additional financing in the amount of
$2.7 billion was pledged by the World Bank and the Asian
Development Bank while Japan and other interested countries
pledged another $10.5 billion. “The underlying adjustment program
was aimed at restoring confidence, bringing about an orderly
reduction in the current account deficit, reconstituting foreign
exchange reserves and limiting the rise in inflation to the one-off


effects of the depreciation.” Growth was expected to slow down
dramatically, but still remain positive. Key elements of the initial
economic reform package included restructuring of the financial

sector (focusing on the identification and closure of insolvent
financial institutions; included 56 finance companies); fiscal
measurers equivalent to about three percent of GDP to correct the
public sector deficit to a surplus of one percent of GDP in
1997/1998.and contribute to shrinking the current account deficit;
and control the domestic credit, with indicative ranges for interest
rates.
In subsequent months, the baht continued to depreciate as roll-over
of short-term debt declined and the crisis in Asia spread. Despite the
fact that macroeconomic policies were on track and nominal interest
rates were raised, market confidence further declined because of
delays in the implementation of financial sector reform, political
instability and poor communications of the key aspects of the
program. In light of a larger than expected depreciation in the baht
and a sharper than anticipated slowdown in the economy, the
bailout program was strengthened at the first quarterly review on
December 8, 1997. The indicative range for interest rates was raised
and a specific timetable for financial sector restructuring was
announced. In early February 1998, the baht started to strengthen
as improvements in the policy setting revived market confidence. At
each subsequent quarterly review (March 4, 1998; June 10, 1998;
September 11, 1998), the program was again revised. Real GDP
growth projections were continuously revised downward, reaching a
projected decline of 4-5 percent in 1998 as of June 10 and a decline
of 6-8 percent as of September 11. From February to May, the baht
strengthened markedly (almost 35 percent vs. the U.S. dollar from
the low in January), but the economy fell into a deeper than
expected recession. In order to stimulate growth (or more
appropriately, curb the real GDP contraction), further adjustments
were made to allow for an increase in the fiscal deficit target for

fiscal-year 1997/98. The fiscal deficit target for 1997/98 was raised
from two percent to three percent of GDP.
Interest rates started to slowly decrease in late March of 1998.
Additional measures to strengthen the social safety net were
planned and the program for financial sector and corporate
restructuring was further specified. By the fourth quarter review
completed September 11, 1998, foreign exchange market conditions


were relatively stable, allowing room for further lowering of interest
rates.
Table: Selected Economic Indicators for Thailand.
1996

1997

1998(1)

1999(2)

percent change
Real GDP Growth

5
.5

Consumer Prices
(period avg.)

0.4

5
.9

-7 to –
8

5
.6

1
.0

8
.9

2.5 to
3.0

percent of GDP; a minus signifies a deficit
Central
government
balance(3)
Current account
balance

1
.9

1.4

7.9

2.4

2.0

3.0

11
.5

8
.5

(billions U.S. dollars)
External debt

90
.5

93
.4

73
.0

N.A
.

Source: Thai authorities and IMF staff estimates.
(1)

Estimate.

(2)

Program.

(3)

Fiscal year, which runs from October 1 to September 30.

Indonesia.
In July 1997, soon after the floating of the Thai baht, pressure on the
Indonesian rupiah intensified. While the key macroeconomic
indicators in Indonesia were stronger than in Thailand (the current
account deficit had been modest, export growth had been
reasonably well maintained, and the fiscal balance had remained in
surplus), Indonesia’s short-term private sector external debt had
been rising rapidly. Increased evidence of weakness in the financial
sector raised doubts about the government’s ability to defend the
currency peg.
On July 11, 1997, Indonesia widened the exchange rate intervention
band. On August 14, 1997, the rupiah was floated. The exchange
rate depreciated sharply and despite a temporary small recovery,


the rupiah fell further against the U.S. dollar. By early October, the
cumulative depreciation of over 30 percent since early July became

the largest in the region. On November 5, 1997, the IMF’s Executive
Board approved a three-year stand-by arrangement with Indonesia
totaling $10 billion, equivalent to approximately 490 percent of the
country’s quota. Key objectives of the IMF program included
restoring market confidence; bringing about an orderly adjustment in
the current account; limiting the unavoidable decline in output
growth; and containing the inflationary impact of exchange rate
depreciation. After an initial brief strengthening of the rupiah, the
exchange rate fell again during December 1997 and January 1998.
Poor implementation of proposed structural changes signaled a lack
of commitment to the program. Coupled with political uncertainty
due to the President’s health problems and the upcoming
presidential election, capital outflows increased and reserves
declined sharply.
A revised strengthened program was announced on January 15, 1998
in an attempt to stop and reverse the decline in the rupiah, but
market reaction was skeptical. Despite the revised rescue program
by the IMF, implementation of the structural reforms continued to lag
again and the macroeconomic program quickly ran off track. The
economic downturn deepened and inflation accelerated sharply.
Indonesia’s economy was on the verge of a vicious circle of currency
depreciation and hyperinflation. The first review of the IMF programs
was completed on May 4, 1998, after the new government headed
by re-elected President Soeharto was formed, and resulted in several
modifications to the original program. “In order to stabilize the
exchange rate, reduce inflation and limit the decline in output (and
eventually restore growth), the revised program included: tight
monetary policy with drastically higher interest rates and strict
control over the central bank’s net domestic assets; expanded farreaching structural reforms, including privatization and dismantling
of monopolies and prices controls, to improve efficiency,

transparency and governance in the corporate sector; adjusted fiscal
framework that took into account the less favorable outlook for
growth; and a revised plan for the restructuring of the banking
system.”Unfortunately, the program was once again steered off
course, this time by civil unrest which culminated with the
resignation of President Soeharto on May 21, 1998. “While food
prices sky-rocketed, production, exports and domestic supply
channels were disrupted and banking activities came to a virtual
standstill.” The rupiah hit an all time low against the U.S. dollar in


mid June 1998, with a cumulative depreciation of approximately 85
percent since June 1997.
On June 4, 1998, a critical agreement with private creditors was
reached which covered the restructuring of interbank debt falling
due before the end of March 1999. The government also established
a framework for the voluntary restructuring of corporate debt
involving a government exchange guarantee scheme. By the time of
the IMF’s second program review in July 1998, output for fiscal year
1998/99 was expected to decline by 10-15 percent and inflation was
projected to average 60 percent. On August 25, 1998, the IMF’s
Executive Board replaced the previously agreed upon stand-by
agreement with an extended arrangement with access to the same
capital amounts of the original agreement. Additionally, the World
Bank and Asian Development Bank pledged $2 billion and bilateral
sources close to $1 billion of additional financing sources.
Since then, macroeconomic policies have been generally speaking
on track and policies regarding financial and corporate sector
restructuring have been further strengthened. The last major hurdle
seems to have been overcome on September 23, 1998, with an

agreement on the rescheduling or refinancing of Indonesia’s
principal payments on official debt and export credit for the period
from August 6, 1998 to March 31, 2000, totaling $4.1 billion. In
recent months, the rupiah has appreciated significantly, allowing
interest rates to be lowered. Inflation has decreased to reach 80
percent at year-end. Some of the key economic indicators for
Indonesia are summarized in the table below:
Table: Selected Economic Indicators for Indonesia(1).
1996/97

1997/98

1998/99

1999/00

(2)

(2)

percent change
Real GDP Growth

8
.2

Consumer Prices
(period avg.)

2

.0

5
.2

-

-2.0 to
1.0

16.0
12

.9

65
.0

17
.0

percent of GDP; a minus signifies a deficit
Central
government
balance

1
.2

0.9

4.5

5.7


Current account
balance

3.3

1.2

4
.1

1.5 to
2.0

(billions U.S. dollars)
External debt

112
.7

137
.9

148
.1

N.A
.

Source: Indonesian authorities and IMF staff estimates
(1)

Fiscal year, which runs from April 1 to March 31.

(2)

Program.

Korea.
Through the beginning of the crisis in Thailand and Indonesia, Korea
appeared relatively unaffected. Its exchange rate remained generally
stable through October 1997. However, high amounts of short-term
debt and only moderate levels of international reserves made the
economy very vulnerable to a shift in market sentiment. Concerns
about the soundness of financial institutions and chaebol had
increased significantly after several large corporate bankruptcies
earlier in the year. Korean banks started to experience difficulties in
rolling over their short-term foreign liabilities. As a response, the
Bank of Korea shifted foreign reserves to the banks’ offshore
branches and the government announced a guarantee of foreign
borrowing by Korean banks. As external financing conditions
deteriorated in late October, the won fell sharply while exchange
reserves declined rapidly. Monetary policy was initially tightened, but
concerns about the effect of high interest rates on the highly
leveraged corporate sector lead to a loosing of monetary policy

again. By December 1997, the won had depreciated by over 20
percent against the U.S. dollar.
As a response to Korea’s financial crisis, the IMF approved on
December 4, 1997 a three-year stand-by arrangement totaling $21
billion, equivalent to approximately 1,940 percent of the country’s
quota. The World Bank and Asian Development Bank and other
interested countries pledged another $14 billion and $22 billion,
respectively. Similar to the programs announced in Thailand and
Indonesia, however, positive impacts of the announced program
were short-lived and the won continued to fall. Adding to the existing
uncertainty, the leading candidates for the December 18 presidential
election all hesitated in publicly endorsing the program. With the
won in a free fall and a sever credit crunch, a temporary agreement
was reached on December 24, 1997 with private bank creditor to


maintain exposure and discussions on voluntary rescheduling of
short-term debt were initiated. During the first two weeks of January
1988, roll-over rates increased, the current account had moved into
surplus and general signs of stabilization emerged. However, due to
the large depreciation in the exchange rate, inflation increased
above projections and economic activity decreased more than
expected. On January 28, 1998, Korea reached an agreement with
private bank creditor on a voluntary rescheduling of short-term debt
covering a total of $22 billion.
During the next few months, the IMF rescue program remained on
track and market confidence increased as the new government
stated its commitment to the bailout program. Economic growth
projections were further revised downward, yet by July, Korea had
made substantial progress in overcoming its external crisis. By the

end of August, output was projected to decline by 5 percent in 1998,
but inflation had decreased significantly and was expected to
average 8.5 percent during the year. Fiscal deficit targets were
raised to four percent of GDP to stimulate growth through additional
expenditures, especially social programs and the won remained
broadly stable and appreciated against the U.S. dollar.
Table 4: Selected Economic Indicators for Korea.
1996

1997

1998(1)

1999(2)

-

-

Percent change
Real GDP Growth

7
.1

Consumer Prices
(period avg.)

5
.5

4
.9

7.0

1.0

6
.6

5
.5

3
.5

Percent of GDP; a minus signifies a deficit
Central
government
balance
Current account
balance

0
.3

0
.1

4.7

5.0

5.1

1.8

-

13
.3

6
.6

(billions U.S. dollars)
External debt

157
.5

154
.4

147
.9

Source: Korean authorities and IMF staff estimates.

N.A
.


(1)

Estimate.

(2)

Program.

Surveillance activity.
When a country joins the IMF, it agrees to subject its economic and
financial policies to the scrutiny of the international community. It
also makes a commitment to pursue policies that are conducive to
orderly economic growth and reasonable price stability, to avoid
manipulating exchange rates for unfair competitive advantage, and
to provide the IMF with data about its economy. The IMF's regular
monitoring of economies and associated provision of policy advice is
intended to identify weaknesses that are causing or could lead to
financial or economic instability. This process is known as
surveillance.
Country surveillance.
Country surveillance is an ongoing process that culminates in regular
(usually annual) comprehensive consultations with individual
member countries, with discussions in between as needed. The
consultations are known as "Article IV consultations" because they
are required by Article IV of the IMF's Articles of Agreement. During
an Article IV consultation, an IMF team of economists visits a country

to assess economic and financial developments and discuss the
country's economic and financial policies with government and
central bank officials. IMF staff missions also often meet with
parliamentarians and representatives of business, labor unions, and
civil society.
The team reports its findings to IMF management and then presents
them for discussion to the Executive Board, which represents all of
the IMF's member countries. A summary of the Board's views is
subsequently transmitted to the country's government. In this way,
the views of the global community and the lessons of international
experience are brought to bear on national policies. Summaries of
most discussions are released in Press Releases and are posted on
the IMF's web site, as are most of the country reports prepared by
the staff.
Regional surveillance.
Regional surveillance involves examination by the IMF of policies
pursued under currency unions—including the euro area, the West
African Economic and Monetary Union, the Central African Economic
and Monetary Community, and the Eastern Caribbean Currency


Union. Regional economic outlook reports are also prepared to
discuss economic developments and key policy issues in Asia Pacific,
Europe, Middle East and Central Asia, Sub-Saharan Africa, and the
Western Hemisphere.
Global surveillance.
Global surveillance entails reviews by the IMF's Executive Board of
global economic trends and developments. The main reviews are
based on the World Economic Outlook reports, the Global Financial
Stability Report, which covers developments, prospects, and policy

issues in international financial markets, and the Fiscal Monitor,
which analyzes the latest developments in public finance. All three
reports are published twice a year, with updates being provided on a
quarterly basis. In addition, the Executive Board holds more frequent
informal discussions on world economic and market developments.
The IMF’s main goal is to ensure the stability of the international
monetary and financial system. It helps resolve crises, and works
with its member countries to promote growth and alleviate poverty.
It has three main tools at its disposal to carry out its mandate:
surveillance, technical assistance and training, and lending. These
functions are underpinned by the IMF’s research and statistics.
The IMF promotes economic stability and global growth by
encouraging countries to adopt sound economic and financial
policies. To do this, it regularly monitors global, regional, and
national economic developments. It also seeks to assess the impact
of the policies of individual countries on other economies.
This process of monitoring and discussing countries’ economic and
financial policies is known as bilateral surveillance. On a regular
basis—usually once each year—the IMF conducts in depth appraisals
of each member country’s economic situation. It discusses with the
country’s authorities the policies that are most conducive to a stable
and prosperous economy, drawing on experience across its
membership. Member countries may agree to publish the IMF’s
assessment of their economies, with the vast majority of countries
opting to do so.
The IMF also carries out extensive analysis of global and regional
economic trends, known as multilateral surveillance. Its key outputs
are three semiannual publications, the World Economic Outlook, the
Global Financial Stability Report, and the Fiscal Monitor. The IMF also
publishes a series of regional economic outlooks.

The IMF recently agreed on a series of actions to enhance
multilateral, financial, and bilateral surveillance, including to better
integrate the three; improve our understanding of spillovers and the
assessment of emerging and potential risks; and strengthen IMF
policy advice.
Why is IMF surveillance important?
Surveillance is essential to identify risks that policies may need to
address to sustain growth. Moreover, in today's globalized economy,
where the policies of one country typically affect many other
countries, international cooperation is essential.
The IMF’ surviellance work.
Surveillance in its present form was established by Article IV of the
IMF’s Articles of Agreement, as revised in the late 1970s following
the collapse of the Bretton Woods system of fixed exchange rates.
Under Article IV, member countries undertake to collaborate with the
IMF and with one another to promote stability.
There are two main aspects:
Bilateral surveillance, or the appraisal of and advice on the policies
of each member country.
IMF economists continually monitor members’ economies. They visit
member countries—usually annually—to exchange views with the
government and the central bank and consider whether there are
risks to domestic and global stability that argue for adjustments in
economic or financial policies. Discussions mainly focus on exchange
rate, monetary, fiscal, and financial policies, as well as macro-critical
structural reforms. During their missions, IMF staff also typically
meets with other stakeholders, such as parliamentarians and
representatives of business, labor unions, and civil society, to help

evaluate the country’s economic policies and outlook.
Upon return to headquarters, the staff presents a report to the IMF’s
Executive Board for discussion. The Board’s views are subsequently
transmitted to the country’s authorities, concluding a process known
as an Article IV consultation. In recent years, surveillance has
become more transparent. Almost all member countries now agree
to publish a Press Release summarizing the views of the Board, as
well as the Staff Report and accompanying analysis. Many countries
also publish a statement by staff at the end of an IMF mission.
Multilateral surveillance, or oversight of the world economy.


The IMF also monitors global and regional economic trends, and
analyzes spillovers from members’ policies onto the global economy.
The key instruments of multilateral surveillance are the regular
publications World Economic Outlook (WEO), Global Financial
Stability Report (GFSR), and Fiscal Monitor . The WEO provides
detailed analysis of the world economy and its growth prospects,
addressing issues such as the macroeconomic effects of global
financial turmoil. It also assesses key potential global spillovers with
a particular focus on the cross-border impact of economic and
financial policies in systemic economies. The GFSR assesses global
capital market developments and financial imbalances and
vulnerabilities that pose risks to financial stability. The Fiscal Monitor
updates medium-term fiscal projections and assesses developments
in public finances.
The IMF also publishes Regional Economic Outlook reports, providing
more detailed analysis for major regions of the world. It cooperates
closely with other groups such as the Group of Twenty (G20)
industrialized and emerging market economies, since 2009

supporting the G20’s efforts to sustain international economic
cooperation through its mutual assessment process. The IMF
provides analysis of whether policies pursued by member countries
are consistent with sustained and balanced global growth. Since
2012, it has prepared Pilot External Sector Reports, which analyze
the external positions of systemically large economies in a globally
consistent manner. Twice a year, the IMF also prepares a Global
Policy Agenda that pulls together the key findings and policy advice
from multilateral reports and defines a future agenda for the Fund
and its members.
These actions help ensure that the IMF is in a better position to
address spillovers from members’ policies on global stability;
monitor members’ external sectors in a more comprehensive
manner; more effectively engage members in a constructive
dialogue; better safeguard the effective operation of the
international monetary system; and support global economic and
financial stability.