Transcript The Roles of the IMF and the World Bank and the Case study

The 16th Annual Asia Business Conference, Stephen M. Ross School of Business, University of Michigan
Regional and International
Financial Issues Facing Asia
January 21, 2006
Dr. Oh, Jong Nam
Executive Director
International Monetary Fund
I. Introduction
 Many financial issues facing Asia



Regional cooperation: currency SWAP, Asian Bond Initiative
FDI and portfolio investment
Foreign reserve management …
 Lessons from the 1997-98 Asian Crisis

Emergency financing
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II. Growing Cross-border Capital Flows
 Global financial markets are becoming deeper and more
liquid.

US$ 119 trillion (2004) → US$ 209 trillion (2010)
 Cross-border capital flows have more than tripled, more
than US$ 4 trillion annually.

Foreign purchases of US financial instruments (%)
US Securities
US Corporate Bonds
Treasury Securities
1975
4
1
20
2003
12
25
44
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III. How the IMF Helps to Resolve
Financial Crises
 IMF lending aims to give countries breathing room to
implement adjustment policies and reforms …
 For a loan, the authorities and the IMF must agree on
the appropriate program of economic policies.
 IMF’s financial position as of January 2006
Outstanding Credit
US$ 31.4 billion
Liquidity (available resources)
US$ 162.2 billion
42 Arrangements (10 SBA, 2 EFF, 30 PRGF)
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IV. Recent Progress in Regional Financial
Cooperation & Further Consideration
 Foreign reserve holdings by Asian countries as of end2005

Japan ($ 847 bill.) + China ($819 bill.) + Taiwan ($ 253 bill.) +
Korea($ 210 bill.)+ HK ($124 bill.) + Singapore ($ 117 bill.)+…
► Over US$ 2.5 trillion
 Abundant liquidity cannot be a substitute for sound
economic management and institutional development.
 No complacency with regard to implementing necessary
structural and institutional reforms.
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IV. 1. Recent Progress in Regional
Financial Cooperation (1)
 Chiang Mai Initiative (CMI): liquidity provision

16 agreements and US$ 39.5 billion
→ New agreements (May 4, 2005): increasing the size by up to
100 % (a first step toward multilateralism)
 Asian Bond Markets Initiative (ABMI)
 Information-sharing : East Asia Summit, ASEAN,
ASEAN+3, SEACEN, …
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IV. 1. Recent Progress in Regional
Financial Cooperation (2)

Asian countries urge the membership to address the imbalances in
IMF quotas, where the size of quota is clearly out of line with the
economic weight and strength of Asian countries.
Asia’s Actual
Quota Share
Calculated Quota
Share*
GDP Share of World
GDP (2004)
16.5%
23.0%
35.0%
China
2.98
5.07
4.00
Japan
6.20
7.20
11.40
Korea
0.76
2.23
1.70
9.94
14.50
17.10
* Based on a formula by IMF Staff (2005)
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IV. 2. Further Consideration
(1)
 A more systemized version of a multilateral reserve
pooling arrangement:

How to proceed from the present state of case-by-case
cooperative agreements (a decentralized, multilateral design)
→ to a system of centralized resource pooling and a
possible institutional set-up
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IV. 2. Further
Consideration (2)
 The Role of IMF :

the macroeconomic policy advice on field of
expertise: macroeconomic policies, economic and
financial governance, tax reform, and improved
expenditure management, will remain to play an important
role…

There may also be cases where balance-of-payments
instabilities are structural and fundamental in nature
…
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IV. 2. Further
Consideration (3)
 Quotas, voice and representation in the IMF:

Continued cooperation in the region should be in place
on the issue.

In the meantime, measures to address the underrepresentation should be developed not only in quotas but
also in voice and representation.
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V. Conclusion (1)
 All in all, Asia is emerging as an important pillar of the
world economy.
Share in World GDP(%)
1990
1995
2000
2004
Japan
8.7
8.3
7.3
6.9
Newly industrialized Asian
Economies*
2.6
3.3
3.5
3.5
Developing Asia
14.6
19.3
21.7
24.6
Asia
25.9
30.9
32.5
35.0
* Hong Kong SAR, Korea, Singapore, Taiwan. Based on the PPP valuation
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V. Conclusion (2)
 What does that mean ?

Provide more opportunities for students majoring in
business administration.
 How should a window of favorable environment be best
utilized?
 Try to familiarize yourselves with financial issues of your
own country as well as international financial ones.
 And … .
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Thank You !
The 16th Annual Asia Business Conference