IMF

*All information, charts, and graphs were taken from the IMF website www.imf.org

Reviewed by Juan Ortiz for the Masters in Global Development 130 class: Summer Session 1 (2012)

HISTORY PRECEDING THE IMF CREATION

During the Great Depression of the 1930s, countries sharply raised barriers to foreign trade devaluated their currencies to compete against each

other for export markets limited their citizens' freedom to hold foreign exchange.

Consequence: World trade declined Decrease in employment and standards of living This breakdown in international monetary cooperation led

the IMF's founders to plan an institution charged with overseeing the international monetary system

IMF CREATION

July 1944 after the United Nations conference in Bretton Woods, New Hampshire (US)

The 44 governments were represented at that conference

Purpose: build a framework for economic cooperation that would avoid a repetition of the vicious circle of competitive devaluations that had contributed to the Great Depression of the 1930s.

IMF BEGINNINGS 1945

US dollar was pegged to gold “ Gold Standard”

All other currencies were pegged to the dollar at fixed rates – Par system

Rates could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments

1945 it had 29 members.

END OF THE PAR SYSTEM (1968-1973) 1960’s there was a sizable increase in domestic

spending on President Lyndon Johnson's Great Society programs

And a rise in military spending caused by the Vietnam War

Overvaluation of the dollar 1971- Delinked the dollar from Gold ( need for a more

flexible money supply ) 1973- Major currencies began to float against the

dollar

IMF’S RESPONSIBILITIES

The IMF's primary purpose is to ensure the stability of:the international monetary systemthe system of exchange rates the international payments that enable countries (and their citizens) to transact with one other. This system is essential for promoting :sustainable economic growth, increasing living standardsreduction in poverty

IMF SURVEILLANCE

To maintain stability and prevent crises in the international monetary system, the IMF

reviews country policies, as well as national, regional, and global economic and financial developments

Encourage policies that foster economic stability, reduce vulnerability to economic and financial crises, and raise living standards.

It publishes regular assessments of global prospects in its World Economic Outlook, financial markets in its Global Financial Stability Report, and public finance developments in its Fiscal Monitor

FINANCIAL ASSISTANCE

IMF financing provides member countries the breathing room they need to correct balance of payments problems.

A policy program supported by IMF financing is designed by the national authorities in close cooperation with the IMF, and continued financial support is conditioned on effective implementation of this program.

TECHNICAL ASSISTANCE

Provide technical assistance and training to help member countries strengthen their capacity to design and implement effective policies.

Technical assistance is offered in several areas, including tax policy and administration expenditure managementmonetary and exchange rate policiesbanking and financial system supervision and regulationlegislative frameworksstatistics

SDRS SDRs: The IMF issues an international reserve asset

known as Special Drawing Rights (SDRs) that can supplement the official reserves of member countries. Two allocations in August and September 2009 increased the outstanding stock of SDRs almost ten-fold to total about SDR 204 billion (US$312 billion).

Members can also voluntarily exchange SDRs for currencies among themselves. In a recent paper, IMF staff explore options to enhance the role of the SDR to promote international monetary stability.

WHERE DOES THE IMF GET ITS RESOURCES?

QUOTAS

Determine the share in allocations of special drawing rights or SDRs (the reserve currency created by the IMF in 1969).

Countries pay 25 percent of their quota subscriptions in SDRs or major currencies, such as U.S. dollars, euros, pounds sterling, or Japanese yen. They pay the remaining 75 percent in their own currencies.

Quota reviews Quotas are normally reviewed every five

years and can be increased when deemed necessary by the Board of Governors.

WHAT IF THEIR RESOURCES FALL SHORT?

They supplement its own resources by borrowing

Currently it has two standing multilateral borrowing arrangements and one bilateral borrowing agreement.

Through the New Arrangements to Borrow (NAB) and the General Arrangements to Borrow (GAB)

The GAB and NAB are credit arrangements between the IMF and a group of members and institutions to provide supplementary resources of up to SDR 34 billion (about US$50 billion)

RECENT REFORMS In recent years, the IMF began a number of reforms related to

rebalancing members' quotas to ensure they continue to broadly reflect countries' relative size in the world economy.

In 2011, the number of basic votes was nearly tripled, which helped to ensure poorer countries maintained a say in running the institution.

Once they take effect, a further set of quota and voice reforms will produce a shift of 6 percent of quota shares to the dynamic emerging market and developing countries. This will result in a significant shift in the representation of these countries in IMF decision making.

In the most recent reforms, IMF lending instruments were improved further to provide flexible crisis prevention tools to a broad range of members with sound fundamentals, policies, and institutional policy frameworks.

In low-income countries, the IMF doubled loan access limits and is boosting its lending to the world’s poorer countries, with interest rates set at zero through end-2012.

IMF CRITICISM - “STRUCTURAL ADJUSTMENT LOANS”

These adjustments require states to: Sell state enterprises to the private sector Raise producer prices for agricultural goods Devaluating local currency to their world

market Reduce government spending Encourage free trade Attract foreign capital

IS THERE A BETER ALTERNATIVE THAN THE IMF?

It is up to you to decide!

DISCLAIMER

This power point is for educational purposes and is being posted as a sample. The IMF is the author of the content, and this power point is a review for classroom purposes.