BACKGROUND:
On July 1, 1944 the U.S. invited 44 countries to attend united Monetary & Financial conference at Bretton Woods, New Hampshire. The conference prepared not only the articles of proposed IMF but also the World Bank ( IBRD ). The agreement signed by 27 countries became effective on December 27, 1945. In May, 1946 the IMF became operational. The articles were amended in 1969, 1978, and 1992 following the collapse of fixed exchange rate system and oil price in early 70s. The first amendment gave rise to the creation of Special Drawing Rights ( SDR ). The second amendment was on the review of the IMF's responsibilities. The third was on empowering the Fund to suspend the membership of its member that failed to fulfill its obligations. In mid 90s the IMF provided $ 8 billion to Mexico and $ 9 billion to Russia and Ukraine. These were the largest ever packages in the history of IMF which squeezes its financial resources. The Group of seven summit in Halifax, arranged in June 1995 recommended to double the IMF's general arrangements to borrow up to $ 55 million.
IMF has adopted a strategy to lend to those countries on following conditions.
1. Public spending cuts including defense expenditure.
2. Credit controls.
3. Trade liberalization.
The IMF is coming close to act as an international central bank. It performs many central banking functions as:
1. It acts as a lender of last resort at the international level.
2. It has the ability to create international money (e.g. SDR).
3. It has the ability to act as a clearing house in the settlement of multinational deficits and surpluses.
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