The International Monetary Fund Hamad, Serdar and Srikant.
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Transcript of The International Monetary Fund Hamad, Serdar and Srikant.
Agenda IMF History IMF Main Responsibilities Details of how IMF works Examples of positive Impact (India and Czech) Example of negative Impact (Turkey) Conclusion and Recommendations Q and A ???
IMF History
Established at a United Nations conference in Bretton Woods, New Hampshire, in July 1944.
Initially composed of 45 governments with the intention of building an economic cooperation that would help avoid economic disasters such as, the Great Depression of the 1930s. and long term direction
IMF Main Responsibilities Promoting international monetary cooperation Facilitating the expansion and balanced growth of
international trade Promoting exchange stability Assisting in the establishment of a multilateral
system of payments Making its resources available (under adequate
safeguards) to members experiencing balance of payments difficulties
How does the IMF achieve its objectives?
Surveillance: monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention.
Lending to countries with balance of payments difficulties providing temporary financing
Support policies aimed at correcting the underlying problems and reduce poverty.
Providing technical assistance and training in its areas of expertise.
IMF work is supported by its economic research and statistics
Executive Management Selection Managing Director position is traditionally
European while the Deputy is American. The Developing Countries complain that they have
a stake in the IMF and their voting power is limited. Voting power is proportional to a member’s
contribution ( quota) which was set 50 years ago.
IMF Finances
Quota System: Each member’s quota is based on its relative size in the world economy. Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely accepted foreign currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling) or Special Drawing Rights (SDRs). The remaining three-quarters is paid in the country's own currency.
IMF Finance cont’d
Gold holdings: Valued at current market prices, are worth about $68 billion as of March end 2007, making the Fund one of the largest official holders of gold in the world
Lending capacity: The IMF can only use its quota-funded holdings of currencies of financially strong economies to finance lending. The IMF's Executive Board selects these currencies every three months.
Special Drawing Rights (SDR) potential claim on the freely usable currencies of
International Monetary Fund members. SDRs are defined in terms of a basket of major
currencies used in international trade and finance. They are used as international reserve assets. They are proportional to a member’s quota.
IMF Finance cont’d
When can a country borrow from the IMF? A member country may request IMF financial
assistance if it has a balance of payments need when it cannot find sufficient financing on affordable terms to meet its net international payments. An IMF loan eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.
Current IMF facts and Statistics
Current membership: 185 countries Staff: approximately 2,716 from 165 countries Total Quotas: $317 billion (as of 7/31/06) Loans outstanding: $28 billion to 74 countries, of which
$6 billion to 56 on agreed terms (as of 7/31/06) Technical Assistance provided: 429.2 person years during
FY2006 Surveillance consultations concluded: 128 countries during
FY2006, of which 122 voluntarily published information on their consultation.
India and IMF
Member since December 27, 1945 Lender or borrower? Last loan of 2.5 billion SDRs in 1991 Repayment in 2000
IMF’s Conditions for Loan
1991 loan for 2.5 billion SDRs Sweeping set of reforms Private sector freed from Govt Controls Tighter Expenditure Policy Price Reforms Imports Liberalized Market determined Exchange rate
IMF and Czech Republic Czechoslovakia - Founding Member
since 1944 Communist rule since 1948 Severed ties in 1955 Officially rejoins in September 1990. On 1 January 1993, Czechoslovakia
ceased to exist and was replaced by the Czech Republic and Slovakia
Czech and IMF cont’d
As a CIT, Czech sought IMFs cooperation immediately
Czech follows economic policies consistent with Market economy.
Gains IMF’s confidence and bags 471 million USD loan.
First post communist country to repay debt in 1995
How did Czech achieve this
Czech National Bank agreed to let the crown float.
Also followed IMF’s suggested privatization
Opened it’s economy to foreign investment
How is IMF’s influence on Czech different from other countries
Czech Republic volunteered for change to Market economy
No pressure from IMF Need to strengthen it’s application to EU
membership Prague became the 20th city to host the Annual
Session of the Council of Governors of the IMF/WB in 2000.
Stagflation cont’d
Standby arrangement to solve the stagflation and some other issues in Turkey in 1999.
Crisis in Turkey 2000-2001 CRISIS IN TURKEY 9/11/2001 AND GEOGRAPHICAL-STRATEGIC
IMPORTANCE OF TURKEY ARGUMENTS ABOUT OBJECTIVITY OF THE
IMF
Conclusion and Recommendations
One Size fits all Model does not work. The interests of the G-7 Nations. Forces tighter Monetary policy (Ex Korea Interest
rates > 25%). Should give equal importance to Social and
Political issues.