What Is the International Monetary Fund? - the JVI eCampus!

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Regional surveillance, under which the IMF examines policies pursued under regional
arrangements. This includes, for example, Board discussions of developments in the
European Union, the euro area, the West African Economic and Monetary Union, the
Central African Economic and Monetary Community, and the Eastern Caribbean Currency
Union.
IMF management and staff also participate in surveillance discussions of such groups of
countries as the G-7 (the Group of Seven major industrial countries) and APEC (the Asia-
Pacific Economic Cooperation forum).
Lending to Help Countries in Difficulty
The IMF lends foreign exchange to countries with balance of payments problems. An IMF
loan eases the adjustment that a country has to make to bring its spending in line with its
income so as to correct its balance of payments problem. But IMF lending is also intended to
support policies, including structural reforms, that will improve a country's balance of
payments position and growth prospects in a lasting way.
Any member country can turn to the IMF for financing if it has a balance of payments needthat
is, if it needs official borrowing to be able to make external payments and maintain an
appropriate level of reserves without taking "measures destructive of national or international
prosperity." Such measures might include restrictions on trade and payments, a sharp
compression of demand in the domestic economy, or a sharp depreciation of the domestic
currency. Without IMF lending, countries with balance of payments difficulties would have
to adjust more abruptly or take such other measures damaging to national and international
prosperity. Avoiding such consequences is among the IMF's purposes (see Box 2, (v)
and (vi)).
What Is an IMF-Supported Program?
When a country approaches the IMF for financing, it may be in a state of economic crisis or
near-crisis, with its currency under attack in foreign exchange markets and its international
reserves depleted, economic activity stagnant or falling, and bankruptcies increasing. To
return the country's external payments position to health and to restore the conditions for
sustainable economic growth, some combination of economic adjustment and official and/or
private financing will be needed.
The IMF provides the country's authorities with advice on the economic policies that may be
expected to address the problems most effectively. For the IMF also to provide financing, it
must agree with the authorities on a program of policies aimed at meeting specific,
quantified goals regarding external viability, monetary and financial stability, and
sustainable growth. Details of the program are spelled out in a "letter of intent" from the
government to the Managing Director of the IMF.
A program supported by IMF financing is designed by the national authorities in close
cooperation with IMF staff, and is tailored to the special needs and circumstances of the
country. This is essential for the program's effectiveness and for the government to win