IMF Con 2011

Overview:
An International Organization with 184 Countries. Conceived at the 1944 Bretten Woods Conference. Core mission is to foster Economic Growth and increased International Trade by supporting international monetary cooperation, Exchange Rate stability and temporary financial assistance to countries facing balance of payments difficulties.
Operations and Responsibilities:

Surveillance Monitoring economic and financial developments and extending policy advice to member countries. Lending Providing financial resources under specified conditions to countries in need. Technical Assistance Help on designing and improving the quality and effectiveness of domestic policy-making.
Past Reforms
After the financial crises in Mexico (1994-1995), East Asia
(1997-1998), Russia (1998) and Argentina (2000-2001), The IMF has been challenged to rethink its core mission.
The IMF responded with several reforms. Reforms can be divided into three categories
- Financial Crisis Prevention - Financial Crisis Management - Role in Economic Development and its relationship to World Bank
Latest Reforms
The fast growing emerging market countries will now have
a say
- Combined voting power of the U.S. and European Union will fall below 50%.
- Potential to change the culture of the institution.
The institution has become much more flexible in the way it
lends money
- Lending facilities that are more suitable for countries
with good track records. - The goals of this reform are to improve the Funds ability to avert financial crises and to respond more flexibly to borrowers needs.
The general financial resources of the IMF, are to be
doubled
- The main immediate effect of this reform, therefore, will not be to increase the amount that the IMF can lend, but rather to reduce the need for the Fund to borrow from creditors countries to finance large lending operations.
The IMF has sought to reduce the stigma that can be associated with its programs by addressing concerns that the conditions applied to its loans can be too broad-ranging. It has done this by limiting the structural economic reform required of borrowing countries to that regarded as strictly necessary for economic recovery. The IMF has sought to reassure countries that they would have access to sufficient funding to meet their needs. As part of this package of reforms, normal borrowing limits (expressed as a multiple of a members quota effectively its paid-in capital subscription) were doubled. Moreover, criteria for obtaining access in excess of these limits were broadened.
Common Myths About the IMF

MYTH #1 THE IMF JUST MAKES BIG LOANS TO COUNTRIES THAT ARE IN FINANCIAL CRISIS AND ABOUT TO DEFAULT ON THEIR SOVEREIGN DEBT.
The majority of IMF lending does go to countries facing financial crisis. This lending is called NON-CONCESSIONARY and carries an interest rate close to the market rate depending on circumstances.
The IMF also lends money to impoverished countries to help them develop their economies and improve living standards. This lending is called CONCESSIONARY and generally carries an interest rate between 0% and 0.75%. These aid loans go to countries where per capita income is below $1,095.

CONCESSIONAL VS. NON-CONCESSIONAL IMF LENDING SINCE 1986
$18B
$256B

MYTH #2 THE UNITED STATES OR THE G-5 NATIONS COLLECTIVELY EXERCISE COMPLETE CONTROL OVER IMF LENDING DECISIONS INCLUDING LOAN SIZE AND CONDITIONALITY.
COUNTRY QUOTA / VOTING SHARE
4.11 3.66 5.14 4.79 3.44 2.79 4.45 3.67 3.52 3.44 3.20 3.16 3.02 2.69 2.43 2.43 2.35 1.97 1.35
While some procedural actions like changes to the IMF articles of agreement require a super majority vote of 70% to 85% by the Executive Board, approval of loan packages only requires a simple majority.
COUNTRY
U.S. JAPAN GERMANY FRANCE U.K.
QUOTA / VOTING SHARE

16.77 6.02 5.88 4.86 4.86
G-5 TOTAL
38.39
ITALY CANADA BELGIUM NETHERLANDS SWEDEN SWITZERLAND SPAIN CHINA INDONESIA SOUTH KOREA EGYPT SAUDI ARABIA SIERRA LEONE RUSSIA IRAN BRAZIL INDIA ARGENTINA RWANDA
OTHER TOTAL
61.61

CHECKS & BALANCES
IMF POWER AND DECISION MAKING AUTHORITY IS SPLIT BETWEEN
EXECUTIVE BOARD
COMPOSED OF EXECUTIVE DIRECTORS REPRESENTING INDIVIDUAL OR SMALL GROUPS OF SHAREHOLDER GOVERNMENTS DEFINITELY SUBJECT TO THE POLITICAL INFLUENCES AND LOBBYING OF IMF MEMBER COUNTRIES
IMF STAFF
CONSISTS OF APPROXIMATELY 2400 MEMBERS FROM 143 DIFFERENT COUNTRIES CONSULTS WITH EXECUTIVE BOARD MEMBERS DURING LOAN PACKAGE DEVELOPMENT AND KEEPS BOARD INFORMED OF PROGRESS VIA STAFF REPORTS MUST SUBMIT A FORMAL LENDING ARRANGEMENT PROPOSAL TO THE BOARD FOR APPROVAL HAS AUTHORITY TO NEGOTIATE, DESIGN, AND PROPOSE LENDING ARRANGEMENTS INCLUDING LOAN SIZE AND CONDITIONALITY
HOLDS VOTING RIGHTS FOR IMF LENDING DECISIONS AND PROCEDURAL ACTIONS

MYTH #3 IMF LOANS ONLY BENEFIT THE RICH LENDER COUNTRIES AND DONT REALLY HELP THE NEEDY COUNTRIES RECEIVING THE LOANS.
THE FLOW OF MONEY

G5 COUNTRIES
IMF $$$
$$$
$$
COMMERCIAL BANKS INVESTMENT FIRMS PRIVATE INVESTORS
$$
$$
COUNTRY RECEIVING IMF LOAN & SUBJECT TO IMF CONDITIONALITY
$$$
$$$
THE PURPOSE OF NON-CONCESSIONARY IMF LOANS IS TO PREVENT DEFAULT AND KEEP CREDIT FLOWING TO WITHSTAND A CRISIS AND/OR PROMOTE FUTURE ECONOMIC GROWTH
$$$
IMF LOANS SERVE MUCH OF THE SAME PURPOSE IN INTERNATIONAL CREDIT MARKETS AS FDIC INSURANCE SERVES IN OUR OWN DOMESTIC BANKING SYSTEM

MYTH #4 IMF CONDITIONALITY DOESNT TAKE INTO ACCOUNT POSSIBLE ADVERSE EFFECTS ON THE POPULATION OF A BORROWING COUNTRY.
COMMON IMF CONDITIONS LIKE CUTS IN GOVERNMENT SPENDING, RAISING TAXES, AND DEVALUATION OF CURRENCY CAN HAVE ADVERSE EFFECTS ON THE POPULATION. LOWER INCOME DEVALUATION / LOSS OF SAVINGS
HIGHER UNEMPLOYMENT
FEWER GOVERNMENT SERVICES

ALTHOUGH IMF CONDITIONALITY CAN CAUSE SHORT-TERM HARM TO THE POPULATION IT IS DESIGNED TO PROMOTE A FRAMEWORK FOR LONGTERM SUSTAINABLE GROWTH AND SAFEGUARD A COUNTRY FROM THE FAR WORSE CONSEQUENCES OF . . .
FREEZING OF CREDIT MARKETS
BANKS FAIL FOREIGN INVESTMENT DISAPPEARS UNEMPLOYMENT OF 30%, 40%, 50%
BUSINESSES CLOSE
HYPERINFLATION

MYTH #5 IMF LOANS AND CONDITIONALITY ARE DESIGNED TO FIX THE ECONOMY OF A COUNTRY IN CRISIS ANYTHING SHORT OF MEETING THIS GOAL IS CONSIDERED FAILURE.
DESPITE THE CONSIDERABLE RESOURCES OF THE IMF IT RARELY HAS ENOUGH MONEY TO COMPLETELY FIX THE AILING ECONOMY OF A COUNTRY IN NEED.
EVEN IF THE IMF DID HAVE ENOUGH MONEY TO COMPLETELY FIX AN AILING ECONOMY IT WOULDNT HAVE ENOUGH TO HELP THE NEXT COUNTRY IN NEED.

IMF CONDITIONALITY IS DESIGNED TO STABILIZE MONETARY AND FISCAL POLICY WITHIN A BORROWING COUNTRY
IMF LOANS ARE DESIGNED TO RESTORE INVESTOR CONFIDENCE AND ACT AS A CATALYST FOR PRIVATE INFLOWS OF INVESTMENT AND CREDIT
THE MISSION OF THE IMF IS TO PROVIDE TEMPORARY FINANCIAL ASSISTANCE, PROMOTE EXCHANGE RATE STABILITY, AND CREATE AN ENVIRONMENT FOR SUSTAINABLE, STEADY ECONOMIC GROWTH
Analysis on the Usefulness of the IMF

In order to remain useful the IMF must be able to adapt to changes in lending practices.
International financing has changed dramatically over the last couple decades, from syndicated loans to bond financing.
This has made it more difficult for the IMF to maintain effectiveness in the global financial system.

Other changes faced by the IMF are a more diverse membership group, including more low income members.
The IMF has responded to these changes by developing various loan instruments called facilities.

IMF Facilities Concessional Facilities Low-income countries may borrow through these facilities aimed at poverty reduction and growth. Extended Credit Facility (ECF)-medium-term support to LICs with protracted balance of payments problems. zero interest rate, with a grace period of 5 years, and a final maturity of 10 years. Standby Credit Facility (SCF)- short-term balance of payments needs. zero interest rate, with a grace period of 4 years, and a final maturity of 8 years. Rapid Credit Facility (RCF)- urgent balance of payments need. with limited conditionality zero interest rate, has a grace period of 5 years, and a final maturity of 10 years.

IMF Facilities Non-concessional Facilities All non-concessional facilities are subject to the IMFs market-related interest rate, known as the rate of charge Middle income countries
Stand-By Arrangements (SBA)- short-term balance of payments problems. disbursements are made conditional on achieving these targets to correct balance of payments problems (conditionality). length is typically 1224 months, and repayment is 3-5 years flexibility to either draw on the credit line at the time it is approved or treat it as precautionary.

IMF Facilities Non-concessional Facilities Flexible Credit Line (FCL)- for countries with very strong fundamentals, policies, and track records of policy implementation precautionary basis no preset cap on access disbursements are not conditioned length - one or two year Precautionary Credit Line (PCL)- is for countries with sound fundamentals and policies may be no actual balance of payments need should at the time do not require the same large-scale policy adjustments normally associated with traditional SBAs. up to 500 percent of quota made available on approval and up to a total of 1000 percent of quota after 12 months subject to satisfactory progress in reducing vulnerabilities.

IMF Facilities Non-concessional Facilities
Extended Fund Facility (EFF)- This facility was established in 1974 to help countries address longer-term balance of payments problems requiring fundamental economic reforms. usually 3 years, and payment is due within 410 years

Responding to crisis
Emergency assistancenatural disaster or are emerging from conflict basic interest rate loans must be repaid within 35 years
In April 2009, the Group of Twenty industrialized and emerging market economies agreed to triple the Funds lending capacity to $750 billion. It enabled the IMF to inject extra liquidity into the world economy during this time of crisis.

The IMF cannot be expect to succeed in every country. A failure should not determine that the IMF has outlived its usefulness.
Countries facing payment problems often have complex deeply rooted policy issues that are restrict their ability to reform.
In the case of Russia, after reformation issues policy according to the loan terms during the late 1990s, the IMF stopped disbursements in 2000.
General Resources Account

Year 2005 2004 2003 2002 Purchases Disbursements 0 0 0 0 Repurchases 2,293,770,240 1,117,424,465 1,356,065,590 1,147,587,215 Charges Paid 18,064,962 75,829,729 100,706,947 161,637,500
2001
2000 1999 1998
0
0 471,429,000 4,600,000,000
2,997,937,522
2,189,497,343 3,101,138,750 673,921,875
398,106,279
523,542,056 528,469,919 528,876,040
1997
1996 1995 1994
1,467,252,800
2,587,861,200 3,594,250,000 1,078,275,000
359,500,000
359,500,000 0 0
423,093,268
323,567,770 193,954,079 122,264,400
1993
1992
1,078,275,000
719,000,000
0
0
56,082,833
0

Russian FederationConcluding Statement for the December 2010 Staff Visit Moscow, December 8, 2010 Our assessment of the economic situation and policies is broadly similar to that provided at the time of the Article IV consultation mission in June 2010. In particular, realizing Russias growth potential will require a decisive break with past policies, and failure to tighten fiscal and monetary policies and reinvigorate banking and structural reforms would likely result in continued low growth. This statement provides an update, focusing on (i) exit from crisis-related policies; (ii) the mediumterm government budget; (iii) the central banks response to the recent surge in inflation; and (iv) banking supervision.

Edwin J. Feulner, Jr., "The IMF Needs Real Reforms, Not More Money"http://www.heritage.org/Research/InternationalOrganizations/B G1175.cfm In his April 21, 1998 testimony before Congress, Edwin J. Feulner, Jr., argues that the IMF is serving as a "lender of first resort" and not as a "lender of last resort."

In my opinion, there should be more focus in technical assistance in policy making, rather than focusing on the money.
IMF ought to maintain its position of a lender of last resort. Financial investing should serve every other position of a lender. Otherwise, it could hurt the global investing economy. The lender of last resort position is one that cannot be expected to be filled by private investing, and embodies the usefulness of the IMF to be able to protect global investing confidence.

IMF Con 2011

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IMF Con 2011

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Overview:

Operations and Responsibilities:

The institution has become much more flexible in the way it

The general financial resources of the IMF, are to be

Common Myths About the IMF

Common Myths About the IMF

Common Myths About the IMF

QUOTA / VOTING SHARE

Common Myths About the IMF

Common Myths About the IMF

THE FLOW OF MONEY

COMMERCIAL BANKS INVESTMENT FIRMS PRIVATE INVESTORS

COUNTRY RECEIVING IMF LOAN & SUBJECT TO IMF CONDITIONALITY

Common Myths About the IMF

Common Myths About the IMF

FEWER GOVERNMENT SERVICES

Common Myths About the IMF

FREEZING OF CREDIT MARKETS

BANKS FAIL FOREIGN INVESTMENT DISAPPEARS UNEMPLOYMENT OF 30%, 40%, 50%

Common Myths About the IMF

Common Myths About the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

General Resources Account

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

Analysis on the Usefulness of the IMF

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