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International monetary fund
The IMF and World Bank were both established at the Bretton Woods Conference in 1944 to help stabilize the international monetary system and facilitate postwar reconstruction. The IMF focuses on macroeconomic stability and short-term lending to address balance of payments issues. The World Bank provides long-term loans for development projects and aims to reduce poverty through financing infrastructure, health, education and private sector development. While both institutions work to promote global economic growth, the IMF oversees currency exchange rates and monetary policy while the World Bank focuses on long-term financing of economic and social development programs.
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International monetary fund
- 1. International Monetary Fund VS TheWorld Bank
- 2. IMF • The InternationalMonetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
- 3. Purposes of theIMF and The World Bank • The International Monetary Fund (IMF) maintains international monetary cooperation among its members • The World Bank aids in the development and reconstruction of it members
- 4. IMF Briefing – Exchangerate stability, balance of payments disequilibrium, and growth of international trade – Currently 182 member countries – By sharing economic policies the system of buying and selling currencies would be stable
- 5. World Bank Briefing Madeup of 5 different organizations – International Bank for Reconstruction and Development (IBRD) – International Development Association (IDA) – International Finance Corporation (IFC) – Multilateral Investment Guarantee Agency (MIGA) – International Center for the Settlement of Investment Disputes (ICSID)
- 6. History behind theIMF and World Bank • After the Great Depression in the 1930s there was a need for an organization to create a system for exchange rate stability – Uncertainty of the value of paper money (no longer used the gold standard) – Countries began cheating other countries in trade • Countries’ economies affected by WWII – need for reconstruction in well-developed nations – need for development in the lesser developed nations
- 7. Bretton Woods Conference •1940s proposals for monetary system by Harry Dexter White (U.S.) and John Keynes (UK) – establish the value of each currency – eliminate restrictions and certain practices on trade – assistance for post-war reconstruction • Bretton Woods Conference, New Hampshire, July 1944 with delegates of 44 nations – final negotiations of the IMF and the World Bank took place
- 8. Purposes of theIMF Articles of Agreement of the IMF i) promote international monetary cooperation ii) expansion and balanced growth of international trade iii) promote exchange rate stability
- 9. iv) help establishmultilateral system of payments and eliminate foreign exchange restrictions v) make resources of the Fund available to members vi) Shorten the duration and lessen the degree of disequilibrium in international balances of payments
- 10. Operations and Responsibilities ofIMF • 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.
- 11. Analysis on theUsefulness of the IMF 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 5½ 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 5½ years, and a final maturity of 10 years.
- 12. Analysis on theUsefulness of the IMF IMF Facilities – Non-concessional Facilities All non-concessional facilities are subject to the IMF’s 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 12–24 months, and repayment is 3¼-5 years •flexibility to either draw on the credit line at the time it is approved or treat it as precautionary.
- 13. Analysis on theUsefulness of the IMF 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.
- 14. Analysis on theUsefulness of the IMF 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 4½–10 years
- 15. Where the IMFgets its money • Most comes from the quota subscriptions – the money each member contributes when joining the IMF • General Arrangements to Borrow (1962) – line of credit set up with several governments and banks throughout the world
- 16. Special Drawing Right(SDRs) • SDR is an invented currency – its value is based on the worth of the world’s five major currencies US Dollar, French Franc, Pound Sterling, Japanese Yen • Countries add SDRs to their holdings of foreign currencies – keep available for need of payments that must be made in foreign exchange
- 17. Power among themembers • Size of the quotas determine voting power • IMF decides on the quota for each member – richer countries have larger quota • US having largest economy provides 18% of the total quota (about $35 billion) – US has largest voting power
- 18. A bit moreon quotas • Quotas are reviewed every 5 years by the IMF • Quotas also determine how much each member can borrow from the IMF when in need of aid
- 19. How much moneya member can borrow from the IMF • 25% of the country’s quota may be used • If this is not sufficient, then members can borrow up to 3 times the amount of its quota – present plans for reform to Executive Directors • If these plans are sufficient for the Executive Directors, the IMF grants the member a loan PRESIDENT Jim Yong Kim President, World Bank Group On July 1, 2012, Jim Yong Kim became the 12th president of the World Bank Group.
- 20. PRESIDENT : JimYong Kim President, World Bank Group • On July 1, 2012, Jim Yong Kim became the 12th president of the World Bank Group.
- 21. MISSION OF WORLD BANK •Our work is challenging, but our mission is simple: • Help reduce poverty.
- 22. World Bank Made upof 5 different organizations – International Bank for Reconstruction and Development (IBRD) – International Development Association (IDA) – International Finance Corporation (IFC) – Multilateral Investment Guarantee Agency (MIGA) – International Center for the Settlement of Investment Disputes (ICSID)
- 23. Collectively, the WorldBank Group is: • The world’s largest funder of education • The world’s largest external funder of the fight against HIV/AIDS • A leader in the fight against corruption worldwide • A strong supporter of debt relief • The largest international financier of biodiversity projects • The largest international financier of water supply and sanitation projects
- 24. International Bank for Reconstructionand Development • Founded in 1944 at the Bretton Woods Conference – to finance the reconstruction of countries affected by WWII – help with development of impoverished nations • World Bank’s central institution • 181 member countries
- 25. IBRD continued • Lendsto countries with relatively high per capita incomes • Money is used for: – development projects (i.e. highways, schools) – programs to help governments change the way they manage their economies • Provides technical assistance in projects
- 26. International Development Association • Establishedin 1960 – assist the poorest developing countries • lends to countries with annual per capita incomes of about $800 or less – It’s loans are knows as “credits” • 161 members
- 27. International Finance Corporation •Established in 1956 to reduce poverty and improve people's lives in an environmentally and socially responsible manner (174 members) • finances private sector investments, mobilizes capital in international financial markets, and provides technical assistance and advice to governments and businesses • provides both loan and equity finance for business ventures in developing countries
- 28. Multilateral Investment Guarantee Agency •Established in 1988 • helps developing countries attract foreign investment – provides investment marketing services and legal advisory services to its members • 152 members
- 29. International Center forthe Settlement of Investment Disputes • Established in 1966 to promote increased flow of international investment • Provides facilities for the reconciliation of disputes between governments and foreign investors • 131 members
- 30. Where the IBRDgets its money • through the sale of its bonds in international capital markets • Members’ subscriptions to its capital stock – only 10% of the subscriptions is used by the Bank • “Callable Capital” – portion of the subscriptions that the Bank borrows – the Bank charges a rate of interest rate on its loans to pay this back
- 31. Where the IDAgets its money • Mostly from governments’ voluntary contributions • Replenishments – additional contributions which are needed every few years
- 32. Differences between theIBRD and the IDA • IBRD charges an interest rate on loans – loans must be repaid within 15-20 years with a 5 year grace period • IDA does not charge an interest rate, only a 0.75% service charge – repayment period is 30-45 years with a 10 grace period
- 33. The International MonetaryFund and the World Bank at a Glance International Monetary Fund • oversees the international monetary system • promotes exchange stability and orderly exchange relations among its member countries • assists all members--both industrial and developing countries--that find themselves in temporary balance of payments difficulties by providing World Bank • seeks to promote the economic development of the world's poorer countries • assists developing countries through long-term financing of development projects and programs • provides to the poorest developing countries whose per capita GNP is less than $865 a year special financial assistance through the International Development Association (IDA)
- 34. International Monetary Fund • supplementsthe currency reserves of its members through the allocation of SDRs (special drawing rights); to date SDR 21.4 billion has been issued to member countries in proportion to their quotas • draws its financial resources principally from the quota subscriptions of its member countries • has at its disposal fully paid-in quotas now totaling SDR 145 billion (about $215 billion) • has a staff of 2,300 drawn from 182 member countries World Bank • encourages private enterprises in developing countries through its affiliate, the International Finance Corporation (IFC) • acquires most of its financial resources by borrowing on the international bond market • has an authorized capital of $184 billion, of which members pay in about 10 percent • has a staff of 7,000 drawn from 180 member countries
Editor's Notes
- #12 All carry no interest rate, come with a grace period and a long maturity date since the pre crises levels Access limits have been doubled on these
- #13 Interest rate Conditionality - countries implementing policy reforms to correct balance of payment problems. Precautionary – after a country is approved has the option to take the load
- #14 New loan facilities have been designed for shorter term, that require less reform