IMF Overview
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Transcript of IMF Overview
Page 1
Page 2
1. Role and Place of the International Monetary Fund
2. Principle of Conditioning and Programs of Economic Stabilization: Basic Characteristics and Most Frequent Criticisms
3. Role of the IMF in Solving Some of the Important Problems of the International Community in the Last Two Decades
4. Introducing Improvements into the Work of the IMF
CONTENTS AND PURPOSE
purpose:
present the IMF and basic logic of its activities
Page 3
1. Role and Place of the International
Monetary Fund
Establishment, Goals and Membership
basic goals of founding the IMF:
establish an international monetary system that would promote
international trade, be based on stable exchange rates and ensure
the needed international liquidity
explicitly expressed tendency of the USA for the new
institution to have a paternalistic role and/or the tendency
to introduce the principle of conditioning into its
administration
Page 4
Quotas
quota should represent economic power of a country
importance of quotas:
determination of the voting power of a country and funds a country can potentially borrow from the IMF
calculation of the voting power:
principle of the equality of countries
principle of economic power
occasional revisions of quotas:
in principle every 5 years
division of quotas among member countries principle of proportionality and principle of selectivity
payment of quotas:
25 per cent in SDR or any other convertible currency, remaining 75 per cent in its national currency
Page 5
Organization
Board of Governors:
the most important body of the IMF, each member country has its
representative
usually meets annually, competent for accepting the most
important decisions for the functioning of the institution
Board of Directors:
operatively manages the functioning of the IMF
24 executive directors who meet at lest twice a week
Page 6
Organization
International Monetary and Financial Committee:
central bank governors/ministers of finance of the same 24
countries that have a representative in the Board of Executive
Directors
meets twice annually, but has no formal power of accepting
decisions
Director and his deputy:
named by the Board of Directors for the period of 5 years
Civil servants:
formally accountable for their work to the Director of the IMF and
not their country of origin
Page 7
Sources of Financial Funds
quotas are the main and until the middle of 1960s the only
source of funds of the funds of the IMF
General Arrangement to Borrow (GAB) (1962):
arrangements in the form of credit lines with the governments
and/or central banks of 11 industrialized countries
New Arrangement to Borrow (NAB) (1998):
made with 24 governments and/or central banks of the member
countries
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Financial Arrangements, Accessible to Member
Countries – April 1999
Financial Arrangements from General Account Resources:
gold or reserve tranche
first credit tranche – equivalent to 25 per cent of a country’s quota
higher credit tranches (three) – each of them is equivalent to 25 per
cent of a country’s quota:
program of economic stabilization
Extended Fund Facility (EFF)
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Financial Arrangements, Accessible to Member
Countries – April 1999
Supplemental Reserve Facility/ Contingent Credit Lines
(SRF/CCL)
Compensatory and Contingency Financing Facility (CCFF)
Buffer Stock Financing Facility (BSFF)
Financial Arrangements from Other Resources:
Enhanced Structural Adjustment Facility (ESAF)
Page 10
Restrictions of Access to IMF Funds by Financial
Arrangements
access criteria:
size of the balance-of-payments deficit and therefore the need for
its financing
program of the elimination of the balance-of-payments
disequilibrium
a country’s ability to repurchase its currency from the IMF and/or
its ability to service the debt
Page 11
Size of Financing from the IMF
transfers of financial assets between the IMF and member countries and the size of the total outstanding credit provided by the IMF in 1990 - 1999 (in millions of SRD)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
A. Total disbursements 5,3 6,8 5,9 5,9 5,9 11,2 12,3 5,6 19,9 22,4
B. Repurchases and
repayments 6,4 5,6 4,8 4,1 4,5 4,2 7,1 7,2 4,4 11,1
C. Net funds inflow from
the IMF (A – B) - 1,1 1,2 1,1 1,8 1,4 7,0 5,2 -1,6 15,5 11,3
D. Total outstanding
credit provided by the
IMF
24,4 25,6 26,7 28,5 29,9 36,8 42,0 40,5 56,0 67,2
Page 12
Regular Activities of the IMF
until the collapse of the Bretton Woods monetary system in
1971:
“guardian” of the exchange rate stability:
approving bigger changes in par values of given currencies and
securing funds for financing the balance-of-payments deficits
now:
surveillance of the exchange rate policies of member countries
financial assistance to member countries
technical assistance
Page 13
2. Principle of Conditioning and Programs of
Economic Stabilization: Basic Characteristics
and Most Frequent Criticisms
one of the disputed points at the Bretton Woods conference
operatively implemented in the beginning of 1952
stringency:
stringent use of the concept of conditioning
increasing the share of the IMF funds that member countries utilize
at the high rate of conditioning (assumes the existence of the
program of economic stabilization)
Page 14
Institutional Basis of the Programs of Economic
Stabilization
most often a Stand-by arrangement, less often EFF and
ESAF
Stand-by Arrangement:
credit line
letter of intent - program of economic stabilization
high rate of conditioning of the utilized funds, depending on the
success of implementing the program of economic stabilization,
contained in the letter of intent
Page 15
Goals of the Programs of Economic Stabilization
Article I of the Statute of the IMF :
economic growth, reducing unemployment, price stability and
balance-of-payments equilibrium
priority goal of the program of economic stabilization from the
point of view of the IMF is achieving a viable balance-of-payments
deficit, that can be financed with net capital inflow in the long run
Page 16
Components of the Program of Economic
Stabilization
conditions for the program of economic stabilization:
change in exchange rate, change in interest rates and price policy
measures
monetary approach to balance-of-payments adjustments:
reducing aggregate demand to the level of available aggregate supply - demand-side policy measures
increasing aggregate supply to the level of existing aggregate demand – supply-side policy measures
Page 17
Components of the Program of Economic
Stabilization
criteria for assessing success of implementing the program
of economic stabilization:
credit ceiling
devaluation/depreciation of the home currency
financial liberalization, especially liberalization of interest rates
Page 18
Criticisms of the Programs of Economic
Stabilization
mainly by developing countries and countries in transition
principle of conditioning
size of the funds of the IMF and the ratio between the
funds approved at low and at high rate of conditioning
asymmetry of the balance-of-payments adjustment
declaration of causes for the balance-of-payments deficit
concept and short-term orientation of the programs of
economic stabilization
Page 19
Criticisms of the Programs of Economic
Stabilization
effects of the programs of economic stabilization:
comparison of the economic situation during the program implementation
and prior to it
comparison of the results of the program with the goals
comparison of the results of the program with a hypothetical situation in
the country in the absence of the program of economic stabilization
results of empirical studies:
improvement in a country’s balance-of payments in a prevailing number of
cases
lower growth rates during the implementation of programs of economic
stabilization than prior to them
lower reduction in the rate of inflation than anticipated in the program in most
countries
income redistribution
Page 20
IMF did not have an important influence on the formation and implementation of the economic policy of industrialized countries
as a rule, the IMF took over a leading role in forming solutions and answering to international community challenges and problems that affected either developing countries or countries in transition and the solution of which required engagement of public as well as private funds in industrialized countries
3. Role of the IMF in Solving Some of the
Important Problems of the International
Community in the Last Two Decades
Page 21
IMF and the Developing Countries Debt Crisis in
the 1980s
after the debt crisis outbreak in 1982, the IMF took over
the role of the architect for the solution of the crisis
basic mechanism for the solution of the debt crisis:
repeatedly restructuring liabilities of the debtor countries towards
foreign commercial banks and creditor countries
important role also in both official programs for the
solution of the debt crisis:
Baker Program (1985)
Brady Program (1989)
Page 22
IMF and the Inclusion of the Countries in
Transition into the World Economy
IMF, together with other international financial
institutions, especially the World Bank and EBRD, has a
crucial role in:
designing the macroeconomic policies that would lead these
countries through the transition from centrally planned to market
economies
securing financial funds, needed for financing their balance-of-
payments deficits:
Systemic Transformation Facility (STF) (1993)
Page 23
The Role of the IMF in Solving Financial Crises of
Developing Countries/Countries in Transition in
the Second Half of the 1990s
active participation of the IMF in solving financial crises:
Mexico (1994), Asia (1997), Russia (1998), Brazil (1999)
not only the “architect” of the solution, also the main financier
formation of SRF and CCL
moral hazard?
Page 24
4. Introducing Improvements into the
Work of the IMF
Early Warning System
unsuitability of the capital transfer data
General Data Dissemination System:
secure an integral and more timely insight into various kinds of statistical data on a given country to all participants in international financial community
Improved Surveillance of Economic Policies
trend of deepened analysis of the functioning of the
financial system and various structural reforms
more clear reports on the basis of Article IV consultations
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Increased Pace of Securing Funds
better qualification for quick intervention
Increasing the Size of the Available Funds
strengthening activities in all areas in which the size of the
available funds can be increased:
agreement of the economically most important countries about a
big issue of SDR
further increases in the funds of the IMF by regular revisions of the
member countries quotas