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					INTERNATIONAL
MONETARY FUND


    by Didem Kurt
The Origins of IMF

   The IMF was conceived in July 1944 at an
    international conference held at Bretton
    Woods, New Hampshire, U.S.A.
   Delegates from 44 governments agreed on
    a framework for economic cooperation
    partly designed to avoid a repetition of the
    disastrous economic policies that had
    contributed to the Great Depression of the
    1930s.
The Origins of IMF
(cont’d)

   The IMF came into existence in
    December 1945.
   The IMF Articles of Agreement were
    heavily influenced by interwar
    experience of financial and price level
    instability and unemployment.
The Origins of IMF
(cont’d)
   The intention was to provide a mixture of
    discipline and flexibility.
   Countries that joined the IMF between 1945
    and 1971 agreed to tie their exchange rates
    to USD ($35 an ounce). (Bretton Woods
    System)
   IMF was setup to oversee the system and
    facilitate its functioning by lending to
    countries with temporary BOP problems.
Breakdown of Bretton
Woods System
   Increases in U.S monetary growth to
    finance fiscal expenditures after the
    mid 1960’s
   Loss of confidence in dollar and the
    termination of the dollar’s
    convertibility into gold.
   System forced other counties to
    “import” inflation from U.S.
Growth in IMF
membership
Current Membership: 184 countries
IMF's main
responsibilities:
 promoting international monetary
  cooperation
 facilitating the expansion and
  balanced growth of international
  trade
 promoting exchange stability
IMF's main responsibilities:
(cont’d)

 assisting in the establishment of a
  multilateral system of payments
 making its resources available
  (under adequate safeguards) to
  members experiencing balance of
  payments difficulties
Functions of IMF
   Surveillance: is the regular dialogue and
    policy advice that the IMF offers to each of
    its members.
   Technical assistance: to help member
    countries strengthen their capacity to design
    and implement effective policies.
   Financial assistance: is available to give
    member countries the breathing room they
    need to correct balance of payments
    problems.
Technical Assistance
Financial Assistance
Instruments of IMF lending
   Stand-By Arrangements:
    – usually over 12-18 months
    – to deal with a short-term balance of
      payments problem.
   Extended Fund Facility:
    – usually over three to four years
    – to help it tackle structural economic
      problems that are causing serious
      weaknesses in its balance of payments.
Financial Assistance
Instruments of IMF lending
   Poverty Reduction and Growth Facility
    – A low-interest facility to help the poorest
      member countries facing protracted balance of
      payments problems
   Supplemental Reserve Facility
    – short-term financing to member countries
      experiencing exceptional balance of payments
      difficulty
   Emergency Assistance
    – Cope with balance of payments problems arising
      from sudden natural disasters and military
      conflicts
Financial Assistance
Loans outstanding: $71 billion to
82 countries
Where does IMF get its
money?
   Quota subscriptions
   A member's quota determines its
    maximum financial commitment to the
    IMF and its voting power.
   Total quotas at end-August 2005 were
    SDR 213 billion (about $312 billion).
Where does IMF get its
money? (cont’d)
Who makes decisions at
IMF?
   Board of Governors
   The Executive Board
   Managing Director
   International Monetary and
    Financial Committee
   Development Committee
Criticisms

   The IMF is dominated by the G-8
    (especially the U.S. Treasury)
    – The Group of Eight (G8) consists of
      Canada, France, Germany, Italy, Japan,
      United Kingdom, U.S., and Russia.
    – U.S. has the largest quota (17.6%)
    – G8 account for approximately 50% of
      total quota.
Criticisms (cont’d)

   IMF-supported programs impose
    austerity on countries in financial crisis
    – Classical IMF recipe, with tight fiscal and
      monetary policies rather than customized
      technical assistance
    – IMF is no more responsible for recent
      crises than is the fireman for the fire
Criticisms (cont’d)

   The IMF encourages developing
    countries to reduce trade barriers
    when industrial countries don't.

   The availability of IMF lending
    encourages "moral hazard“.
Criticisms (cont’d)

   Programs supported by the IMF
    constrain spending on priority sectors,
    like education and health, by
    “imposing” fiscal deficit limits.


				
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posted:1/9/2012
language:English
pages:20