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International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
International Monetary Fund
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International Monetary Fund

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This is a critical analysis of IMF and its importance and influence in modern day international trade and marketing. Prepared for an International Marketing Assignment.

This is a critical analysis of IMF and its importance and influence in modern day international trade and marketing. Prepared for an International Marketing Assignment.

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  • 1. International Monetary Fund Presented by, Srikiran C. Rai 10048 INTERNATIONAL MONETARY FUND
  • 2. Agenda  IMF – Objectives, History & Members  Members – qualifications, decision making  Functioning of the IMF  Data Dissemination System  Criticism  Structural Adjustment Policies
  • 3. IMF – Objectives  The International Monetary Fund (IMF) is an intergovernmental organization that promotes international economic cooperation, focusing in particular on policies that have an impact on the exchange rate and the balance of payments.  To promote  International economic cooperation  International trade & employment  Exchange rate stability  And making resources available to member countries to meet balance of payments  Headquarters – Washington D.C.
  • 4. History of the IMF  Bretton Woods Agreement – first three weeks of July 1944  to regulate the international monetary and financial order after the conclusion of World War II  International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) were formed in 1945.  Need  To avoid a recurrence of the closed markets and economic warfare that had characterized the 1930s  Currency troubles exacerbated by the absence of any established procedure or machinery for intergovernmental consultation.  Chief outcomes  An obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar  The ability of the IMF to bridge temporary imbalances of payments.
  • 5. Two competing proposals  Harry Dexter White – drafted the U.S. blueprint for international access to liquidity  John Maynard Keynes – would have established a world reserve currency “Bancor”  Central bank with the possibility of „creating‟ money  Authority to take actions on a much larger scale  Balance of payments imbalances – both debtors and creditors should change their policies  Countries with payment surpluses increase their imports from the deficit countries and thereby create foreign trade equilibrium.  Overall, White's scheme tended to favor incentives designed to create price stability within the world's economies, while Keynes' wanted a system that encouraged economic
  • 6. IMF Member Countries Members  187 members of the UN  Kosovo – a partially recognized state and a disputed territory in the Balkans, South Eastern Europe Former Members  Cuba  Cuba was a member of the IMF until 1964, when it left under revolutionary leader Fidel Castro following his confrontation with the United States.  Republic of China (Taiwan)  Taiwan isn't recognized by the U.S. and most other major nations as a fully independent state, and an IMF application would be unlikely to succeed. Taiwan was booted out of the IMF in 1980 when China was admitted, and it hasn't applied to return since. Non-members  North Korea, Andorra, Monaco, Liechtenstein, Nauru, Cook Islands, Niue, Vatican City and states with limited recognition
  • 7. IMF Member Countries IMF Member states IMF Member States not accepting obligations of the Article VIII, sections 2,3,4
  • 8. Agenda  IMF – Objectives, History & Members  Members – qualifications, decision making  Functioning of the IMF  Data Dissemination System  Criticism  Structural Adjustment Policies
  • 9. IMF – Membership Qualifications  Member‟s quota determines  Amount of its subscription  Voting weight  Access to IMF financing  Allocation of Special Drawing Rights (SDRs).  Member state cannot unilaterally increase its quota  Increases must be approved by the Executive Board of IMF  Linked to many variables such as the size of a country in the world economy.  Control tilted away from heavily indebted mature economies, such as the United States and the United Kingdom, in favour of BRIC economies of Brazil, Russia, India, and China.  After the financial crisis of 2008
  • 10. IMF – Decision Making Dynamics  Major decisions require an 85 percent supermajority.  United States has been the only country able to block a supermajority on its own.  The top 20 members have almost 70% of the voting power.  The 27 member states of EU have a combined voting power of 32.07%  On October 23, 2010, the ministers of finance of G-20, governing most of the IMF member quotas, agreed to reform IMF and shift about 6 percent of the voting shares to major developing nations and countries with emerging markets
  • 11. Agenda  IMF – Objectives, History & Members  Members – qualifications, decision making  Functioning of the IMF  Data Dissemination System  Criticism  Structural Adjustment Policies
  • 12. Functioning of the IMF  Subscriptions & Quotas  Handling of trade deficit  Currency Par Value Adjustment  Mode of Operation  Representation model  Special Drawing Rights
  • 13. Subscriptions & Quotas  The IMF has a fund, composed of contributions of member countries in gold and their own currencies.  Members have „quotas‟ ~ economic power  Quotas measured in SDRs  Pay „subscriptions‟ – amount ~ quota  25% in gold/currency convertible to gold  75% in member‟s own currency  Quota – largest source of money for IMF  Can withdraw 25% in case of payment problems  If insufficient, is able to request loans
  • 14. Functioning of the IMF  Subscriptions & Quotas  Handling of trade deficit  Currency Par Value Adjustment  Mode of Operation  Representation model  Special Drawing Rights
  • 15. Handling of Trade Deficits  In case of a current account deficit, can withdraw from IMF – amount: 25% of quota  Beyond that they have to take a loan from IMF  More the quota, more the sum available for borrowing  Loan Period – 18 months to 7 years  As of August 2010 Romania ($13.9 billion), Ukraine ($12.66 billion), Hungary ($11.7 billion), and Greece ($30 billion) are the largest borrowers of the fund.  Purpose to avoid the vicious circle of deficit
  • 16. Functioning of the IMF  Subscriptions & Quotas  Handling of trade deficit  Currency Par Value Adjustment  Mode of Operation  Representation model  Special Drawing Rights
  • 17. Currency Par Value Adjustment  Discontinuous exchange rate adjustments – changing a member‟s par value  Member countries permitted to adjust their currency exchange rates by 10%  Helped restore equilibrium by reducing imports and increasing exports  Thereby reducing the deficit
  • 18. Functioning of the IMF  Subscriptions & Quotas  Handling of trade deficit  Currency Par Value Adjustment  Mode of Operation  Representation model  Special Drawing Rights
  • 19. Mode of operation  Voting rights allocated on the basis of proportion of quotas  Not on a „one-country-one-vote‟ basis  Drawback – Since 85% supermajority was required, any country with a contribution more than 15% of the Fund could veto any decision  US has always had this veto since inception  Current share of US – 16.77% of voting rights
  • 20. Functioning of the IMF  Subscriptions & Quotas  Handling of trade deficit  Currency Par Value Adjustment  Mode of Operation  Representation model  Special Drawing Rights
  • 21. Representation Model  All member states participate directly in the IMF.  24-member executive board  Five executive directors are appointed by the five members with the largest quotas  Nineteen executive directors are elected by the remaining members  All members appoint a governor to the IMF's board of governors.  All members of the IMF are also International Bank for Reconstruction and Development (IBRD) members and vice versa.
  • 22. Functioning of the IMF  Subscriptions & Quotas  Handling of trade deficit  Currency Par Value Adjustment  Mode of Operation  Representation model  Special Drawing Rights
  • 23. Special Drawing Rights (1/3)  Supplementary foreign exchange reserve assets maintained by International Monetary Fund (IMF)  Not a currency, instead represent a claim to currency held by IMF member countries  Can only be exchanged for Euros, Japanese yen, UK pounds, or US dollars.  Created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and the US dollar  SDR's value is defined by a weighted currency basket of four major currencies: the Euro, the US dollar, the British pound, and the Japanese yen
  • 24. Special Drawing Rights (2/3)  As of March 2011, the amount of SDRs in existence is around XDR 238.3 billion  Currently, the value of one SDR is equal to the sum of 0.423 Euros, 12.1 Yen, 0.111 pounds, and 0.66 US Dollars.  This basket is re-evaluated every five years, and the currencies included as well as the weights given to them can then change.  Functions of SDRs  Used as a unit of account by a few other organizations other than IMF like ADB  Currency Peg – exchange rate fixed in relation to the SDR, e.g. Syrian Pound  For paying charges, penalties or fees paid in
  • 25. Special Drawing Rights (3/3) 18% 7% 6% 4% 4% 4% 3%3%3%2%2% 2%2% 2%2% 2%1% 1% 1% 1% 29% Percentage of SDR Deposits by Country United States Japan Germany United Kingdom France China Italy Saudi Arabia Canada Russia India Netherlands Belgium Brazil Spain Mexico Switzerland South Korea Australia Venezuela remaining 166 countries
  • 26. Agenda  IMF – Objectives, History & Members  Members – qualifications, decision making  Functioning of the IMF  Data Dissemination System  Criticism  Structural Adjustment Policies
  • 27. Data Dissemination Systems (1/2)  Purpose  Guiding members to disseminate their economic and financial data to the public  To improve many aspects of statistical systems in a country.  Two Tiers  General Data Dissemination System (GDDS)  Special Data Dissemination Standard (SDDS)
  • 28. Data Dissemination Systems (2/2)
  • 29. Agenda  IMF – Objectives, History & Members  Members – qualifications, decision making  Functioning of the IMF  Data Dissemination System  Criticism  Structural Adjustment Policies
  • 30. Criticisms of the IMF (1/6)  Attribution of disequilibria to internal factors  Fund did not distinguish between disequilibria with predominantly external as opposed to internal causes  During the 1973 oil crisis, suggested stabilization programs similar to those suggested for deficits caused by government over-spending  Anti Developmental Policies  Deflationary effects of IMF programs led to losses of output and employment in economies where incomes were low and unemployment was high
  • 31. Criticisms of the IMF (2/6)  Self-defeating nature of the harsh policy conditions  A vicious circle developed when members refused loans due to harsh conditionality, making their economy worse and eventually taking loans as a drastic medicine.  No clear economic rationale  Policy foundations were theoretical and unclear due to differing opinions and departmental rivalries whilst dealing with countries with widely varying economic circumstances.
  • 32. Criticisms of the IMF (3/6)  Impact on access to food  Food and agricultural produce treated as commodity in international trade  Impact on public health  Strict conditions on the international loans meant public health care had to be weakened  21 countries to which the IMF had given loans, tuberculosis deaths rose by 16.6%.
  • 33. Criticisms of the IMF (4/6)  Impact on environment  IMF has been repeatedly criticized for making it difficult for indebted countries to avoid ecosystem-damaging projects that generate cash flow, in particular oil, coal, and forest-destroying lumber and agriculture projects.  Criticism from free-market advocates  IMF advocates a monetarist approach  Advocates currency devaluation, criticized by proponents of supply-side economics as inflationary
  • 34. Criticisms of the IMF (5/6)  Support of military dictatorships  IMF policy makers supported military dictatorships friendly to American and European corporations and other anti-communist regimes  IMF is generally apathetic or hostile to their views of human rights, and labor rights.
  • 35. Criticisms of the IMF (6/6) Country indebte d to IMF/Wor ld Bank Dictator In power Debt % at start of dictatorsh ip Debt % at end of dictatorsh ip Countr y debts in 1996 Dictator debts generat ed $ billion Dictator generat ed debt % of total debt Chile Augusto Pinochet 1973 - 1989 5.2 18 27.4 12.8 47% Argentina Military dictatorship 1976 - 1983 9.3 48.9 93.8 39.6 42% Pakistan Zia-ul Haq 1977 - 1988 7.6 17 Ethiopia Mengistu Haile Mariam 1977 - 1991 0.5 4.2 10 3.7 37% Liberia Doe 1979 - 1990 0.6 1.9 2.1 1.3 62% El Salvador Military dictatorship 1979 - 1994 0.9 2.2 2.2 1.3 59% Kenya Daniel arap Moi 1979- 2002 2.7 6.9 6.9 4.2 61% Nigeria Buhari/Babangida/Abacha 1984- 1998 17.8 31.4 31.4 13.6 43% Pakistan Pervez Musharraf 1999- 2008
  • 36. Agenda  IMF – Objectives, History & Members  Members – qualifications, decision making  Functioning of the IMF  Special Drawing Rights  Data Dissemination System  Criticism  Structural Adjustment Policies
  • 37. Structural Adjustment Programs (1/2)  SAPs policies implemented by the IMF and the World Bank in developing countries  „Conditionalities‟ are implemented to ensure money lent will be spent in accordance with the overall goals of the loan  The SAPs are supposed to allow the economies of the developing countries to become more market oriented.  This then forces them to concentrate more on trade and production so it can boost their economy.
  • 38. Structural Adjustment Programs (2/2)  Conditions for SAP 1. Cutting expenditures, also known as austerity. 2. Focusing economic output on direct export and resource extraction, 3. Devaluation of currencies, 4. Trade liberalization, or lifting import and export restrictions, 5. Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets), 6. Balancing budgets and not overspending, 7. Removing price controls and state subsidies, 8. Privatization, or divestiture of all or part of state-owned
  • 39. IMF‟s SAP vs. World Bank‟s SAP  IMF mainly lends to countries that have balance of payment problems, while the  World bank offers loans to fund particular development projects.  IMF loans focus on temporarily fixing problems that countries face as a whole.  World Bank SAPs focus on providing loans and grants to countries that provide funding on a project basis.  IMF loans were meant to be repaid in a short duration between 2½ and 4 years (Today there are options to lend to countries in times of crises such as natural disasters or conflicts)  The World Bank is divided into two lending and development institutions; the IBRD and IDA. IBRD focuses on "middle income and credit-worthy poor countries" while the IDA focuses on the lowest income and least credit worthy
  • 40. Thank you !!

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