Recommending a Strategy

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Transcript Recommending a Strategy

The International Monetary
Fund
Hamad, Serdar and Srikant
Agenda
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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
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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
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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.
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Lending to countries with balance of payments difficulties
providing temporary financing
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Support policies aimed at correcting the underlying
problems and reduce poverty.
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Providing technical assistance and training in its areas of
expertise.
IMF work is supported by its economic research and statistics
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IMF Organization Chart
Executive Management Selection
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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
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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
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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.
IMF Finance cont’d
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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.
When can a country borrow from the
IMF?
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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
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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
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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
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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
India: Financial position as
of April 30, 2007
IMF and Czech Republic
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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
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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
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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
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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.
Czech Republic: Financial
Position in the Fund as of
April 30, 2007
TURKEY AND IMF
STAGFLATION
Stagflation cont’d
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Standby arrangement to solve the stagflation and
some other issues in Turkey in 1999.
Turkey and IMF cont’d
Crisis in Turkey
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2000-2001 CRISIS IN TURKEY
9/11/2001 AND GEOGRAPHICAL-STRATEGIC
IMPORTANCE OF TURKEY
ARGUMENTS ABOUT OBJECTIVITY OF THE
IMF
Conclusion and
Recommendations
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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.
Q and A ???
Thank you!!!