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The internationalmonetary fund


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Presented by :

Shadab Khan

Saurabh

Chaturvedi Narayan

Kulkarni

Sachin Garg


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What is IMF?

The International Monetary Fund (IMF) is anorganization of 187 countries, working to fosterglobal monetary cooperation, secure financialstability, facilitate international trade, promote

high employment and sustainable economicgrowth, and reduce poverty around the world.


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Formation

Founded in 1944

Formed in Breton Woods , NewHampshire by the delegation of 44

governments.

Henry Morgenthau was chosen as thePresident.

Its headquarters was established atWashington D.C.


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Formation cont

q It consisted of three internationalorganization.

q International Monetary Fund.

q IBRD

q ITO

q

Dollar served as IMFs core currency.q In 1946, France became the first country

to borrow from IMFs fund.


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Objectives

Consultations on International monetaryproblems

To facilitate the expansion and balanced

growth of international trade.

Exchange rate stability.

Assist in multilateral payments

Elimination of foreign exchangerestriction.

Provide back support to member by

providing availability of funds.


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Mexican crisis

q Investors began liquidating theirinvestments.

q Political instability increased investors

fear.

q Peso devaluated by 15%.

q IMF(18 Bn) with U.S.(20 Bn) and Bank for

International settlement(10 Bn) providedfinancial package.


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Lender of Last Resort

It was now considered as a safety net .

It did have the capacity to make largeloans in situations of crisis and prevent

its spread.

Emergency Financing Mechanism enabledthe fund to act quickly during a crisis.

Its interventions in the past weregenerally successful


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Critics

q IMF could not create money on will, whichmeant that its lending capacity wasinherently limited in a crisis.

q Some think that the fund acted too slowlyand also increased the chances of futurecrisis.

q

It could not punish for getting intotrouble.

q They should be charged penalty interestrates, instead it provided them rescue

packages at lower interest rates.


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Surveillance

In June 2007, IMF replaced the 1977Surveillance decision

New Decision had 4 guiding principles:

I. A member shall avoid manipulating exchangerates or International Monetary System.

II. A member should intervene in the exchange

market if necessary to counter disorderlyconditions.

III. Member should take into account in theirintervention policies the interest of othermembers.


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Eurozone Crisis


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Greeces FinancialProblems

q Since joining the euro, Greece has hadhigher inflation than other Eurozonemembers.

q Greece has also increased debt fasterthan others to finance generous publicsector pay, welfare, and retirementbenefits, while collecting a lower share in

taxes due to widespread tax evasion.

q As a result, Greek goods have becomeincreasingly expensive and

uncompetitive, causing loss of market


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The Greek Debt Crisis

q Greek debt/GDP ratio reached 113% anddeficit/GDP ratio reached 12.7% in 2009.

q Foreign bondholders became doubtful

that Greece could continue to roll over itsincreasing debt, forced interest rateshigher.

q

EU faced choice between Greek defaultand bailout with tough conditions.

q IMF and EU agreed to lend Greece up to$146 billion over three years.

q Greece increased sales taxes reduce

M t P li R


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Monetary Policy Responseby European Central Bank

(ECB) ECB injected liquidity into Europeanbanks unable to obtain short-term fundsin market.

Federal Reserve used Euro-dollar swapsto make dollars available to ECB to lendto banks.

ECB did not lower interest rates untilOctober 2008 because of its focus oninflation.

Euro fell against the dollar.


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Impact of European debtcrisis on:

European Economy

US Economy

Indian Economy


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Impact on EuropeanEconomy

The Greek debt crisis has had a dominoeffect on Europe

It has reduced the confidence in theEuropean countries

Fiscal deficit and public debt have gonebeyond what is prescribed in the Stabilityand Growth pact (SGP)


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Impact on US Economy

Devaluation of Euro has made AmericanExports more expensive

Euro has depreciated as compared to the

US $ by almost 15%.

A big worry remains with the bankingsector

The financial markets across the Atlanticare highly integrated with each other andaffect each other.


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Impact on Indian Economy

A prolonged and wide spread Crisis inEurope has a substantial effect on theIndian Economy

If the debt crisis continue in Europe andits banking systems, European entitiescould start repatriation of funds fromIndian stock market.

This would negatively impact the Indianstock markets and will result in thedecrease in the foreign currency

reserves.


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IMF and Euro ZoneCrisis(conclusion)

The International Monetary Fund opinethat the European Central Bank canafford to wait before putting up interest

rates and urged broad-based action tocombat the euro zone debt crisis.

The IMFs economists believe the eurozone will expand by just 1.6 percent this

year and 1.8 percent in 2012 far weakerthan the US but ahead of earthquake-hit

Japan in 2011.


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Whats Next??


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ITALY

Italys borrowing costs have soared andits stock market has tumbled duringthese past few days on concerns about

its ability o deal with its large debtproblems.

Italy is a country for which the EuropeanOfficials are a lot concerned about

because if its persisting crisis is notstopped it might result in a great threatto Europe.

Italys debt to Gdp ratio only tails Greece


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Activities undertaken byIMF

q IMF Approves 22.5 Billion Loan ForIreland

q International rescue package totaling 85billion

q Program aims to restore banking system

to healthq Fiscal package to reduce deficit and

public debt


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Activities undertaken byIMF(contd..)

IMF Develops Framework to ManageCapital Inflows

IMF looks at country experience with

capital inflows, policy responses Develops conceptual framework to weigh

different measures

Open to use of capital controls inappropriate circumstances

Europe and IMF Agree 110 Billion

Financing Plan With Greece


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Thank You

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