2.1.1. Purpose

The IMF's 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 transact with each other. It does so in three ways:

♤ Keeping track of the global economy and the economies of member countries. It highlights possible risks to stability and advises on needed policy adjustments. 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.

o 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.

o It 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.

♤ Lending to countries with balance of payments difficulties to help them rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while correcting underlying problems. IMF lending serves three main purposes.

o First, it can smooth adjustment to various shocks, helping a member country avoid disruptive economic adjustment or sovereign default, something that would be extremely costly, both for the country itself and possibly for other countries through economic and financial ripple effects (known as contagion).

o Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders. This is because the program can serve as a signal that the country has adopted sound policies, reinforcing policy credibility and increasing investors' confidence.

o Third, IMF lending can help prevent crisis. The experience is clear: capital account crises typically inflict substantial costs on countries themselves and on other countries through contagion. The best way to deal with capital account problems is to nip them in the bud before they develop into a full-blown crisis.

It is to be noted that The IMF is not a development bank and, unlike the World Bank and other development agencies, it does not finance projects.

♤ Giving practical help to members in terms of modernizing their economic policies and institutions, and training their people. This helps countries strengthen their economy, improve growth and create jobs. The IMF's technical assistance takes different forms, according to needs, ranging from long-term hands-on capacity building to short-notice policy support in a financial crisis. About 80 percent of the IMF's technical assistance goes to low- and lower-middle-income countries, in particular in sub-Saharan Africa and Asia. Post-conflict countries are major beneficiaries.