The International Monetary FundHamad, Serdar and Srikant

Agenda IMF History IMF Main Responsibilities Details of how IMF works Examples of positive Impact (India and Czech) Example of negative Impact (Turkey) Conclusion and Recommendations Q and A ???

IMF History

Established at a United Nations conference in Bretton Woods, New Hampshire, in July 1944.

Initially composed of 45 governments with the intention of building an economic cooperation that would help avoid economic disasters such as, the Great Depression of the 1930s. and long term direction

IMF Main Responsibilities Promoting international monetary cooperation Facilitating the expansion and balanced growth of

international trade Promoting exchange stability Assisting in the establishment of a multilateral

system of payments Making its resources available (under adequate

safeguards) to members experiencing balance of payments difficulties

How does the IMF achieve its objectives?

Surveillance: monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention.

Lending to countries with balance of payments difficulties providing temporary financing

Support policies aimed at correcting the underlying problems and reduce poverty.

Providing technical assistance and training in its areas of expertise.

IMF work is supported by its economic research and statistics

IMF Organization Chart

Executive Management Selection Managing Director position is traditionally

European while the Deputy is American. The Developing Countries complain that they have

a stake in the IMF and their voting power is limited. Voting power is proportional to a member’s

contribution ( quota) which was set 50 years ago.

IMF Finances

Quota System: Each member’s quota is based on its relative size in the world economy. Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely accepted foreign currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling) or Special Drawing Rights (SDRs). The remaining three-quarters is paid in the country's own currency.

IMF Finance cont’d

Gold holdings: Valued at current market prices, are worth about $68 billion as of March end 2007, making the Fund one of the largest official holders of gold in the world

Lending capacity: The IMF can only use its quota-funded holdings of currencies of financially strong economies to finance lending. The IMF's Executive Board selects these currencies every three months.

Special Drawing Rights (SDR) potential claim on the freely usable currencies of

International Monetary Fund members. SDRs are defined in terms of a basket of major

currencies used in international trade and finance. They are used as international reserve assets. They are proportional to a member’s quota.

IMF Finance cont’d

When can a country borrow from the IMF? A member country may request IMF financial

assistance if it has a balance of payments need when it cannot find sufficient financing on affordable terms to meet its net international payments. An IMF loan eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.

Current IMF facts and Statistics

Current membership: 185 countries Staff: approximately 2,716 from 165 countries Total Quotas: $317 billion (as of 7/31/06) Loans outstanding: $28 billion to 74 countries, of which

$6 billion to 56 on agreed terms (as of 7/31/06) Technical Assistance provided: 429.2 person years during

FY2006 Surveillance consultations concluded: 128 countries during

FY2006, of which 122 voluntarily published information on their consultation.

India and IMF

Member since December 27, 1945 Lender or borrower? Last loan of 2.5 billion SDRs in 1991 Repayment in 2000

IMF’s Conditions for Loan

1991 loan for 2.5 billion SDRs Sweeping set of reforms Private sector freed from Govt Controls Tighter Expenditure Policy Price Reforms Imports Liberalized Market determined Exchange rate

India: Financial position as of April 30, 2007

IMF and Czech Republic Czechoslovakia - Founding Member

since 1944 Communist rule since 1948 Severed ties in 1955 Officially rejoins in September 1990. On 1 January 1993, Czechoslovakia

ceased to exist and was replaced by the Czech Republic and Slovakia

Czech and IMF cont’d

As a CIT, Czech sought IMFs cooperation immediately

Czech follows economic policies consistent with Market economy.

Gains IMF’s confidence and bags 471 million USD loan.

First post communist country to repay debt in 1995

How did Czech achieve this

Czech National Bank agreed to let the crown float.

Also followed IMF’s suggested privatization

Opened it’s economy to foreign investment

How is IMF’s influence on Czech different from other countries

Czech Republic volunteered for change to Market economy

No pressure from IMF Need to strengthen it’s application to EU

membership Prague became the 20th city to host the Annual

Session of the Council of Governors of the IMF/WB in 2000.

Czech Republic: Financial Position in the Fund as of April 30, 2007

TURKEY AND IMF

STAGFLATION

Stagflation cont’d

Standby arrangement to solve the stagflation and some other issues in Turkey in 1999.

Turkey and IMF cont’d

Crisis in Turkey 2000-2001 CRISIS IN TURKEY 9/11/2001 AND GEOGRAPHICAL-STRATEGIC

IMPORTANCE OF TURKEY ARGUMENTS ABOUT OBJECTIVITY OF THE

IMF

Conclusion and Recommendations

One Size fits all Model does not work. The interests of the G-7 Nations. Forces tighter Monetary policy (Ex Korea Interest

rates > 25%). Should give equal importance to Social and

Political issues.

Q and A ???

Thank you!!!