Transcript Kitty Law

THE INTERNATIONAL MONETARY FUND
BACKGROUND INFORMATION
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When? Founded in 1944 during
the Bretton Woods Conference
Why? to prevent economic crises,
to help rebuild war-torn countries,
and to correct economical policies
(which had led to the Great
Depression)
Who? To date, it has 184 member
countries
How? Accomplishes goals by
monitoring, assisting, and
stabilizing global economy and
with a budget of 331 billion dollars
contributed by member countries
SOUTH KOREA
SOUTH KOREA
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The Situation:
It is the year 1997, and your nation has plummeted into
a catastrophic economical crisis. For the previous 20
years, your national economy has seen much success,
with an annual growth of 8% GDP; the highest in all
developing nations. The causes of this economical
crisis were heavy dependence on foreign investment,
the collapse of a number of conglomerates (large
corporations) in the banking system, and the drawback
that the Thailand currency drop had done to trade
effectiveness.
SOUTH KOREA
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IMF Intervention:
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At this time, the IMF offered to intervene to relieve the
economic crises that are occurring in not only your
nation but also in your neighbouring countries across
Southeast Asia. The fund promised to issue a bailout
of $57 billion, the largest amount ever, if you and your
country are willing to undergo total economic
restructure for their nation. The requirements are:
 Adopt
a macroeconomic policy for higher taxes;
 Reduce spending;
 Higher interest rates
 Neo-liberal policies
SOUTH KOREA
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The Actual After-effects of the IMF Intervention:
Lose economic sovereignty: All policies are going to be
made by the IMF. Government will lose their control of
their economy.
Massive layoffs: In 1997, the unemployment rate was at
2.5%. By 1998, the unemployment rate had reached 8%.
Thirty percent of individuals in the banking sector were laid
off, and another 20% from various sectors.
Currency crisis continues: The value of the “Won”
continues to decrease. Decreased from 1000 per US
Dollar to 1700 per US dollar.
Unparallel rises to poverty
Decrease in social programs
SOUTH KOREA
SOUTH KOREA
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Please Consider These Facts:
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In 2000, three years after the turmoil of the economic
crisis, the South Korean Union sues the IMF for the
policies that they have imposed during the crisis. These
policies, which directly led to mass layoffs in South
Korea, resulted in worsening conditions for those who
were luckily enough not to be fired, less job security,
and increase poverty in many families. With the sole
income of a family gone, the social implications were
devastating. Also, the cut in government spending also
resulted in loss of many social programs, ultimately
worsening the living conditions for the poor.
SOUTH KOREA
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Due to the crisis, there has been rising school
dropouts, rising suicide rates, and rising divorce
rates. Think of these factors, when making
your decision. To what extent, do the crisis
affect these rates?
SOUTH KOREA
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Do you believe the IMF will become a moral hazard? If
governments know that they will be bailed out, will this
increase reckless behaviour in economical and
financial situations? Who benefits the most when
receiving the loans from the IMF?
SOUTH KOREA
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The Dilemma:
 Knowing
the possible repercussions, will you be
willing to accept the IMF bailout and follow its
policies? Justify your decision.
SOUTH KOREA
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Sources:
 http://www.hofstra.edu/pdf/biz_MLC_Lee1.pdf
 http://www.50years.org/cms/ejn/story/214
 http://prsco.agbi.tsukuba.ac.jp/Meetings/mexico_
6th/pdf_files/Seong_Woo_Lee.pdf
BULGARIA
BULGARIA
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The Situation:
 In
1989, Bulgaria underwent a transition from a
Communist state to a democracy. As a result, the
nation required financial assistance to help in its
transition. During this time, the nation suffered
hyperinflation (when inflation goes out of control as
a result of plummeting currency values). In 1997,
inflation went up 500%, and by 2001, it was at
2000%.
BULGARIA
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The IMF Intervention:
 Excessively
high interest rates on government loans
 Central bank lending
 Less social programs
 Raising
pensionable age
 Change from public to private health
BULGARIA
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Advantages:
 More
growth in economy with 4.5%*
 Stable economy
 Opportunity to enter the European Union
*Please note that this growth in economy is largely
due to the heavy foreign investments by large
corporations, the “real income” of regular
BULGARIA
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Disadvantages:
 Loss
of economic sovereignty: IMF does not allow
Bulgarian government to improve the social
programs for their citizens. IMF refused the
nation’s proposal to raise minimum salary of $75 a
month, and to increase pension pay.
 Corruption: Due to IMF’s intense time pressure,
many corporations resorted to bribery and/or
bankruptcy, leaving thousands jobless.
 Raised taxes: The government raised taxes to
lessen the national deficits, taking MORE money
away from the poor, and middle-low incomers.
BULGARIA
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Dilemma:
 Do
you think the advantages of the IMF policies
outweigh the disadvantages? Will you accept the
IMF policies on behalf of your nation?
 If accept, what will you do about the raising taxes
and the jobless? Do you think it is fair that the poor
has to pay the highest price?
 If refuse, how will you stable the economy?
JAMAICA
JAMAICA
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The Situation:
 As
a developing nation, the IMF offers you a chance
to strengthen your economies by lending your
nation money used to relieve debt problems. In
general, the loans given by the IMF are designed to
promote economic growth, generate employment
and income, and help repay debts.
 However, the IMF insists on imposing Structural
Adjustment Programs.
JAMAICA
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IMF Intervention:
 The
programs require countries to:
 Devalue
their currencies against the US dollar,
 Lift import and export restrictions,
 Balance budgets, not overspend, and
 Remove price controls and state subsidies.
JAMAICA
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Advantage:
 You
get the loan.
JAMAICA
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Disadvantage:
 Devaluing
currency = Price escalation for goods and
services for citizens
 Encouraged to export cash crops and raw materials
= Helps economy grow only minimally
 Cut Government spending = Less social programs
 Cut subsidies = no price control of food = starvation
JAMAICA
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Dilemma:
 Is
it worthwhile to accept the loan knowing the
negative implications it brings to your nation?
 SAP programs will affect the poor most. Should
national economical growth take precedence over
the well-being of the poor?
 What alternative methods to improve and develop
your economy, if you do not accept the loan?
UNITED STATES
UNITED STATES
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The Situation:
 As
of 1997, your nation has already contributed
more than $47 billion dollars to the International
Monetary Fund. There has been numerous reports
on the effectiveness of the IMF. You want to please
your regular citizens, many of which are against
supporting this fund further. You also want to take
into account the economical benefits the IMF and
its policies bring into your nation.
UNITED STATES
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Advantages:
 When
developing countries are asked to open
markets, large corporations, for example NIKE, can
enter their country and make goods at a cheaper
price.
 The lift of import/export in developing countries will
help you. When countries export a lot of raw
materials, they will have competition amongst each
other, hence lowering the cost of the goods. Also,
large increases in exporting goods will lead to drop
in prices for cash crops, like coffee.
UNITED STATES
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Disadvantages:
 IMF
does not reach any of its goals.
 IMF does not help the third-world country.
 It costs a lot of money to support this fund.
UNITED STATES
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Dilemma:
 Do
you continue funding for the IMF, despite its
controversial effectiveness? Should you open door
for your country’s corporations, increasing their
profits? Should you take advantage of developing
countries to strengthen your economy? What is the
most important?
THE GOALS OF IMF
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To encourage cooperation of countries on international monetary policies
and provide required resources to consult and establish such policies so
that effects of international financial crises can be minimized;
To assist in liberalizing international trade so that countries can promote
and maintain high levels of employment and real income;
To stabilize exchange rates and to maintain orderly exchange policies;
To establish a complex system of payments for current transactions
between members so that foreign exchange restrictions, which hamper the
growth of world trade, can be eliminated;
To temporarily provide to IMF members the general resources of the IMF
under adequate safeguards, allowing them the opportunity to correct
maladjustments in their balance of payments without hindering national
and/or international prosperity;
To lessen the degree of disequilibrium in the international balances of
payments of members
IS THE IMF EFFECTIVE?
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YES
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NO
IMF
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The IMF is ineffective because it creates long
term dependency rather than short-term
assistance, fails to help less developed
countries improve economically, and is
unsuccessful in economic crisis managements.
CARTOON
CARTOON