General Meeting (9.23.2013)

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Spencer Pettiti discusses international financial institutions

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  • Include Article Competition Date!
  • I’d like to talk about two major events that shaped the future of these international financial institutions, or IFI’sBretton Woods – Created the IMF and the International Bank for Reconstruction and Development (IBRD or World Bank)
  • Breakdown of the bretton woods ideas, not institutions – market fundamentalism as opposed to interventionist or mixed economyDebt crisis solved standardized reform packages
  • Hard Power examples: - Binding terms in a contractual obligation (Loans, policy reforms)Soft Power examples: - Indirect influence (Papers, teaching institutions, basically things that put pressure on the current policy paradigm)
  • Mexican crisis happened under the nose of the IMF, it was difficult to obtain the data from mexican officialsTroika – IMF, European Central Bank (ECB), European Commission (EU)
  • MIGA – deals with risk insurance for international investorsICSID – deals with legal resolution for international investors
  • IBRD (International Bank for Reconstruction and Development)IDA (International Development Association)IFC (International Finance Corporation)
  • Ex-ante conditionality – the influence of the previously mentioned world bank areas of soft power can lead countries to reform according to the policy paradigm promoted by the world bank without any actual legal agreements being signed
  • Special Drawing Rights: Unit of Account; has (daily posted) exchange rate with currenciesFIND QUOTA FORMULA“Small Quota Policy”: Attempt to give smaller countries more voting powers
  • Jacques Polak – Heavily influenced the IMF’s mandate GDP growth above money supply creates imbalances in the economy, focused on utilizing easy to gather dataStringent policy stipulations accompany loans
  • Vietnam – US congress threatened to remove funding for the special fund contributing to the IDA unless the in-the-works loan to vietnam was cancelledIMF – the quota amount (over 15%) of the united states allows it to block most major loans that require 85% of the votes
  • 1. Cross-conditionality can give further power to the already powerful IFI’s – countries going to the IMF are already in trouble and put in a weaker position2.Pressure from US to approve the loan, IMF wanted to wait for further austerityThe world bank, also under US pressure, and disagreeing with the IMF on austerity approved four loans to Argentina totaling $1.25 billion
  • General Meeting (9.23.2013)

    1. 1. Undergraduate Economics Association First Meeting (9/12/13)
    2. 2. Undergraduate Economics Association 2 Announcements Econ Talk  Sunday, Sept. 15, 12:00pm in GSU Starbucks Writing Committee + STATA Workshop  Sunday, Sept. 29, 1:00-2:00 pm in CAS 322 UEA Article Competition  Tuesday, Oct. 22
    3. 3. Undergraduate Economics Association 3 Announcements Luke Rebecchi’s Article: The Ironic Implications of Relativism
    4. 4. Undergraduate Economics Association 4 Opportunities Sales Development Program Virtual Info Session: Thurs, 9/26 9pm – 10pm PST https://attendee.gotowebinar.com/register/53 62629723283066368  Learn the retail structure of the many brands  Attain sales and corporate experience  3-5 year program Field Sales Leadership Program Virtual Info Session: Thurs, 9/26 2pm – 3pm PST https://attendee.gotowebinar.com/register/14 61167743259911680  Help in the selling and promoting of the best brands  Real-time decision making  Coaching and developing your team  1 year program
    5. 5. Undergraduate Economics Association Platform for gaining insights into today’s economic issues Platform for generating discussions on economic issues Platform for showcasing your talent 5 Our mission is to socially, academically, and professionally develop Boston University students interest in the economics field. Mission Undergraduate Economics Association?
    6. 6. Undergraduate Economics Association 6 UEA Website Student Writers Article Competition UEA Journal Database Events Gallery Constitution Presentations Economics Calendar Case Competition BUUEA.com
    7. 7. Undergraduate Economics Association 7 UEA Event Résumés, Cover Letters and CVs Tuesday, Oct. 1st, 7-8 p.m. at CAS 211  To learn the differences between résumés & CVs  How to write a formal and perfect cover letter  Very important skills for jobs, research positions and life!  You require CVs for UROP or any research positions  Don’t miss it!
    8. 8. The World Bank The International Monetary Fund and
    9. 9. Bretton Woods, 1944 • How can we prevent another depression? • Control the (new) international financial markets • How can we contain the spread of communism? • Link the world markets to the US • Peg world currencies to dollar (+- 1%) • Dollar stays linked to gold at price of $35 per ounce
    10. 10. Washington Consensus, 1980 • Breakdown of BrettonWoods system • Liberalization of international financial system • Debt Crisis • The need to meet interest payments was lead by IMF • Protect the international financial system (banks) • Ensure Payment • New loans to help meet these payments • Net income for IFI’s
    11. 11. Hard Power vs. Soft Power
    12. 12. The IMF – “Hard Power” • The “Fire Brigade” • Emergency Financing • Balance of payments assistance • Fundamental Disequilibrium • Debt rollover • Bridge the gap between payments
    13. 13. The IMF – “Soft Power” • Signaling / Surveillance • Publishing country reports • Provides potential investors with information confidence • Lock-in Effect • Conditionality allows countries to push blame onto IMF • Think-Tank • Publishes Working Papers • Controls Data • The IMF Institute • Created for foreign government officials (technocrats) • Helps find interlocutors in potential clientele
    14. 14. IMF Projects • Mexico • 1980’s • Series of economic reforms • 1990’s • Widening of exchange rate band • Rapid capital outflow • Greece, Ireland, Portugal • Late 2000’s • Sovereign Debt Crisis, Banking Crisis • Governments took on private debt • IMF called in
    15. 15. The World Bank (Group) TheWorld Bank
    16. 16. Three World Bank Agencies • The IBRD • Lends to creditworthy low and middle income countries • The IDA • Provides interest-free loans (credits) to the lowest income countries • The IFC • Works exclusively with development in the private sector
    17. 17. The World Bank – “Hard Power” • “Potholes and Pipes” • Structural Adjustment Lending • Initially: • Infrastructure Development • Now: • Many general projects (environmental, societal issues) • “Only Economic considerations shall be relevant to their decisions” • (Article IV, section 5) • Non-GNP Based goals (McNamara, 1968)
    18. 18. The World Bank – “Soft Power” • World Development Report • Annual report on areas of important economic development • Research Grants • ThinkTanks • Creates civil society experts • Field-oriented • Ex-ante conditionality
    19. 19. World Bank Projects • The IBRD • Tunisia • “Improving business environment by removing red tape” • “Advancing transparency through improved public access to information” • The IDA • Nicaragua • Rural development • Gender issues • The IFC • Microfinance companies
    20. 20. Funding • Largely determines votes • (IMF) US 17%, EU 32%, China 4% • IMF: Special Drawing Rights (SDRs) • World Bank: US Dollars • “Small Quota Policy” • WeightedVoting • Super-majority requirements for loan disbursement
    21. 21. The Polak Model • Based on a series of conditions • Identified crises as short-term liquidity crisis or balance of payments • GDP growth should = money supply growth • Easy data: banking system assets and liabilities • Monetary targets • Balance of payment problems? • Buzzword: Austerity • Reduce government spending, increase taxes, reduce domestic credit creation
    22. 22. Conditionality • When borrowing from IFI’s, countries agree to specific policy prescriptions • Loan disbursement is contingent on following the policies • E.g., Eurozone Crisis, Greece • Spending cuts, tax increases • Predicted growth returning after a few years of downturn • The problem of ex-post conditionality • Discussions usually involve isolated economically focused governmental areas • E.g.,Central Banks, Finance Ministers, etc. • May be blocked by parliaments or other government organs
    23. 23. “Western” Influences • IMF Managing Director – European • Christine Lagarde • World Bank President – American • JimYong Kim
    24. 24. “Western” Influences • The Case of the IDA • Special Fund • 1970’s,Vietnam • Influence in the IMF • No specific injunction such asWorld Bank • The Fund shall “respect the domestic social and political policies of members” (Article IV, section 3)
    25. 25. Collaboration • Occasionally the IMF andWorld Bank will work together to create loan agreements • Cross-Conditionality • Sometimes this can fail • 1988, Argentina • Pressure from US Government • IMF: Further Austerity • World Bank: Wanted prioritization on its policy reforms • “Letter of Development Policy”
    26. 26. The Future • How can the IFI’s lend in an unbiased manner? • Difficult due to sovereign interests • Is ex-ante conditionality the future of lending? • “Soft” Power may be easier to utilize • Is it possible to create a technocrat based institution that is open to new ideas? • ???
    27. 27. References • Woods, Ngaire. The Globalizers:The IMF, theWorld Bank, andTheir Borrowers. Ithaca, NY: Cornell UP, 2007. Print • http://www.worldbank.org/en/about • http://econ.worldbank.org/ • http://www.imf.org/external/index.htm • http://www.imf.org/external/pubs/ft/fandd/2008/06/people.htm • http://www.systemdynamics.org/conferences/2001/papers/Grcic_1.pdf
    28. 28. Undergraduate Economics Association 28 Student Writers  Simply write an article and send it to uea@bu.edu or jparam@bu.edu, spetitti@bu.edu  All articles are eligible for the BU UEA Article Competition & BU UEA Journal Article Competition  The BU Article Competition takes place twice a semester  Winners are chosen by a formula: 0.28(quantity) + 0.14(quality) + 0.58(traffic) UEA Journal  All student-written articles are eligible for the BU UEA Journal  Articles are chosen based on quality each semester  The Journal is virtually distributed to members, professors, and alumni Writing Committee  Email via uea@bu.edu or jparam@bu.edu, spetitti@bu.edu  Not required to be Student Writers  If you want to present then come to the meetings as well! How You Can Get Involved STATA Workshop  Come to the Writing Committee meetings on Sunday 1-2 pm, CAS 322  No need of prior knowledge of STATA. Experienced users are welcomed as well!
    29. 29. Undergraduate Economics Association 29 Announcements Econ Talk  Sunday, Sept. 29, 12:00pm in GSU Starbucks Writing Committee + STATA Workshop  Sunday, Sept. 29, 1:00-2:00 pm in CAS 322 BU Career Development Office (CDO) CV + Resume Workshop  Tuesday, Oct. 8th, 7:00-8:00 pm in CAS 322
    30. 30. Undergraduate Economics Association 30 UEA Event Résumés, Cover Letters and CVs Tuesday, Oct. 1st, 7-8 p.m. at CAS 211
    31. 31. Undergraduate Economics Association 31 The Social Websites Inform Discuss Debate Network

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