UWCCR GloPo Student Presentations (IMF)

UWCCR GloPo Student Presentations (IMF)

• 2.
  History  Created formallyin 1945 by 29 member countries just after WWII; planned in the Bretton Woods System altogether with the World Bank.  Wanted to prevent another great depression as the one lived in the USA from 1929 until 1939.  Headquarters located in Washington DC.  Sought the reconstruction of the international payment system.  Grew stronger after the “Fall of Berlin” (1989) and the disbandment of the Soviet Union (1991). It became an Universal Institution and member countries grew to 172.
• 3.
  Members and leaders 188 countries represented by 24 Directors.  Consists of a management team and 17 departments that carry out its country, policy, analytical, and thecnical work. One of these departments is in charge of the management of its resources.  Said management team has a Managing Director, who is head of the overall staff and Chairperson of the Executive Board. The Managing Director is appointed by the Executive Board for a renewable term of five years and is assisted by a First Deputy Managing Director and three Deputy Managing Directors.  IMF’s managing director is Christine Lagarde (France) since 2011.
• 4.
  Aims and practice Originalaims (as in the end of WWII):  Promote international monetary cooperation.  Facilitate the expansion and balanced growth of international trade.  Promote exchange stability.  Assist in the establishment of a multilateral system of payments.  Make resources available to members experiencing balance of payments difficulties.  Prevent the repetition of the currency chaos which is usually followed in the wake of war. Modern aims:  Promote high employment.  Sustainable economic growth.  Reduce poverty around the world.
• 5.
  Democracy and financein the IMF  Based on a quota system, where members have a fixed and equal amount of basic votes, plus one additional vote for each Special Drawing Right (SDR) of 100,000 of a member’s country quota.  The Special Drawing Right is the unit of account of the IMF and represents a claim to currency.  Each member country has to pay a monetary quota as a “subscription” to the IMF, which guarantees the sustainability of the IMF’s resources. This quota is set specifically for each country depending on its relative position in the world economy.
• 6.
  Effects and globalimpact  Since its foundation during the end of WWII in 1945, the IMF has given a considerable amount of financial aid to countries undergoing financial crises.  Advices many countries around the world on how they should manage their economies in order to overcome a financial crisis. This gives a “second chance” to failed economic systems to reform themselves into more stable and sustainable ones.  Had more weight in international affairs before the gold standard economic system was abandoned by most of the countries around the world, before the existence and usage of fiat money.  Many economists consider the IMF to be slowly making the USD a “new gold standard”, for it now loans USD as in the it used to loan gold.
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  Examples and studiesof past cases Succesful case: Asia  Because of their communist national policies, China was regarded as a weak ground for investors.  They had fixed exchange rates that didn’t relate to the actual supply and demand relationship at the time.  As the IMF gave China strong financial support, private investors saw themselves more attracted to investing opportunities in the country. This financial support required previous changes in their economic – and therefore political - policies.  This has led to the economic growth and private investment not only in China but in other Asian countries as well.
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  Examples and studiesof past cases Unsuccesful case: Venezuela  Because of the sudden fall in oil prices since 1983, Venezuela fell in a deep economic crisis.  The IMF agreed to make a loan to the venezuelan government worth $4.5 billion after 3 years of heavy modifications in the country’s economy -known as “el paquetazo” (the big package).  These compulsory modifications included incresing the price of public services, petroleum derivated products, doubling the price of gasoline and a 30% increase in the fixed price of public transport.  Such sudden and harsh reforms to their economy by a “foreign power”, plus the general discontent generated by scarcity, lead to a series of riots and sackings called “El Caracazo”. This made the loan impossible.
• 9.
  The Gold Standardand the IMF’s validity  The gold standard was a monetary system used through the 19th and 20th century where each unit of a country’s money would have a fixed value in gold. For example, until the abandonment of the gold standard in the United States in 1971, 35 USD could be exchanged by an ounce of solid gold at a bank at any time.  This economic system prevented Central Banks from “overprinting” money.  In 1934 the private ownership of gold (if not jewelry) was made illegal in the USA, forcing every person to sell their gold to the Treasury in exchange for bank notes.  On the early days of the IMF, loans to countries would be made in the form of solid gold, therefore allowing them to print more money.  As of today, every country in the world has abandoned the gold standard and is able to print money at will. The usage of fiat money also allows states to get loans from private investors and sources others than the IMF. This has led economist throughout the world to wonder if the existence of the IMF is still necessary.
• 10.
  How does theIMF affect national sovereignty?  Under their “Surveillance” policy, they prevented a lot of countries from making the economic decisions or reforms they wanted to.  Countries have to change economic policies in order to get aid from the IMF, therefore forcing the state to do things they wouldn’t have done otherwise.  For example, in the Greece case the IMF required them to include notable additional fiscal measures on the tax and expenditure side, legislation on early retirement as well as an extensive set of actions in relation to the financial sector and product markets. This forced the Greek state to start giving a stop to corruption.