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TheTheInternationalInternational

MonetaryMonetaryFundFund

Umit AYGUNUmit AYGUN

Masood KHOSROSHAHYMasood KHOSROSHAHY

YijunYijun WUWU

MinminMinmin WANGWANG

JanuaryJanuary 20062006

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The International Monetary FundThe International Monetary Fund

Created in 1944, at the Bretton WoodsCreated in 1944, at the Bretton Woods

cconference to prevent the kinds of chainonference to prevent the kinds of chainreaction in the economic system thatreaction in the economic system that

caused world currencies to collapse like incaused world currencies to collapse like in

the Great Depression of the 1930s.the Great Depression of the 1930s.

Presenter: Umit AYGUN

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Growth in IMF Membership,Growth in IMF Membership,

19451945 20032003(Number of countries )(Number of countries )

In the beginning 29In the beginning 29

member countriesmember countries Today,184 memberToday,184 member

countriecountriess

Staff of about 2680Staff of about 2680

personspersons TTwowo--thirds arethirds are

economists in 139economists in 139countriescountries

Headquarters inHeadquarters inWashington, D.C.Washington, D.C.


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OrganizationOrganization

Administered by a 24Administered by a 24--member Executivemember Executive

Board chaired byBoard chaired by Rodrigo de RatoRodrigo de Rato


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TheThe IMF in shortIMF in short::

IMF is a forum of national economic policies,IMF is a forum of national economic policies,international monetary and financial systems, whichinternational monetary and financial systems, whichinvolves active dialogue with eachinvolves active dialogue with each membermember countrycountry

Total quotas of $312 billionTotal quotas of $312 billion;; outstanding loans ofoutstanding loans of$71 billion to 82 countries$71 billion to 82 countries (A(According to the reportccording to the reportof August 31, 2005of August 31, 2005))

Five largest shareholdersFive largest shareholders::United States, Japan, Germany, France, UnitedUnited States, Japan, Germany, France, UnitedKingdomKingdom

China, Russia, and Saudi Arabia have their ownChina, Russia, and Saudi Arabia have their ownseats on the Board.seats on the Board.

16 other Executive Directors are elected for two16 other Executive Directors are elected for two--

year terms by groups of countries, known asyear terms by groups of countries, known asConstituenciesConstituencies..Presenter: Umit AYGUN

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PurposesPurposes:: Promote international monetary cooperation,Promote international monetary cooperation,

exchange stability, and orderly exchangeexchange stability, and orderly exchangearrangementsarrangements

Foster economic growth and high levels ofFoster economic growth and high levels of

employmentemployment

Temporary financial assistance to countries toTemporary financial assistance to countries to

helphelp thethe balance of payments adjustmentbalance of payments adjustmentss

* Summary of the Article #1 of Articles of Agreement* Summary of the Article #1 of Articles of Agreement


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OperationsOperations:: Monitoring economic and financial developmentsMonitoring economic and financial developments

and policies, in member countries and at theand policies, in member countries and at the

global level, giving policy advice to its membersglobal level, giving policy advice to its membersbased on its more than fifty years of experience.based on its more than fifty years of experience.

Lending to member countries with balance ofLending to member countries with balance of

payments problems, supporting adjustment andpayments problems, supporting adjustment andreform policies aimed at correcting the underlyingreform policies aimed at correcting the underlyingproblems.problems.

Providing the governments and central banks ofProviding the governments and central banks ofits member countries with technical assistanceits member countries with technical assistanceand training in its areas of expertise.and training in its areas of expertise.


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OperationsOperations continuedcontinued ::

IMF looks at the performance of the economy asIMF looks at the performance of the economy asa whole (macroeconomic performance)a whole (macroeconomic performance)

Focuses also on the financial sector policiesFocuses also on the financial sector policiesEx: regulation and supervision of banks and otherEx: regulation and supervision of banks and other

financial institutions.financial institutions.

Pays attention to structural policies that affectPays attention to structural policies that affectmacroeconomic performance.macroeconomic performance.

Ex: labor market policies (affect employment andEx: labor market policies (affect employment andwage behavior)wage behavior)


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Current RoleCurrent Role:: Enormous economic challengesEnormous economic challenges;; in the early 1990sin the early 1990s

PPurposesurposes havehave remainedremained thethe samesame

But, oBut, operationsperations havehave developeddeveloped::

SSurveillance,urveillance,FFinancial assistance,inancial assistance,TTechnical assistanceechnical assistance

ItsIts rolerole hashas bbecome more important because of theecome more important because of the

expansion of its membership. The number ofexpansion of its membership. The number ofmember countries has more than quadrupled frommember countries has more than quadrupled fromthe date it was formed.the date it was formed.


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Current RoleCurrent Role continuedcontinued::In September 2000, the IMFIn September 2000, the IMFs then managings then managing

director Horst Kdirector Horst Khler set out some majorhler set out some majorpriorities for the work of the IMFpriorities for the work of the IMF::

PPromotromotinging sustained nonsustained non--inflationary economicinflationary economic

growthgrowth BeingBeing inin the center of competencethe center of competence

FFocusocusinging on its core macroeconomic and financialon its core macroeconomic and financialareas of responsibilityareas of responsibility

WWorking in a complementary fashion with otherorking in a complementary fashion with otherinstitutions establishedinstitutions established

BeingBeing an open institutionan open institution


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How the polices are determined:How the polices are determined:

in their headquarters in Washington:in their headquarters in Washington:

The Executive Board meets three times a week,The Executive Board meets three times a week,

maybe more.maybe more.

The Board has a voting system:The Board has a voting system:

-- The larger the economy, the more voting powerThe larger the economy, the more voting power

it hasit has

-- But, most decisions are based on consensusBut, most decisions are based on consensus

Presenter: Yijun WU

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QuotasQuotas IMF's main resourcesIMF's main resources:: subscriptions (quotas)subscriptions (quotas)

Countries pay 25 percent of their quota subscriptions inCountries pay 25 percent of their quota subscriptions inSpecial Drawing Rights (SDRs) or major currenciesSpecial Drawing Rights (SDRs) or major currencies

IMF can call on the remainder, payable in the member'sIMF can call on the remainder, payable in the member'sown currency, to be made available for lending asown currency, to be made available for lending asneededneeded

QuotasQuotas,,--DDetermine the amount of financing thatetermine the amount of financing that eacheach countrycountry cancan

receive from the IMFreceive from the IMF

--AAre the main determinant of countries' voting power inre the main determinant of countries' voting power in the IMF.the IMF.--BBroadly reflect members' relative size in the worldroadly reflect members' relative size in the world economyeconomy

The United States of America, the world's largestThe United States of America, the world's largesteconomy, contributes most to the IMF, 17.5 percent ofeconomy, contributes most to the IMF, 17.5 percent oftotal quotastotal quotas

Presenter: Yijun WU

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Members with Ten Largest QuotasMembers with Ten Largest Quotas

Presenter: Yijun WU

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StudyingStudying IMFIMFss policies in terms ofpolicies in terms of

positive and negative, direct andpositive and negative, direct and

indirect effectsindirect effects

Presenter: Yijun WU

Taking a closer look:Taking a closer look:

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Positive effectsPositive effects

The IMF offers financial assistance:The IMF offers financial assistance:

Three implemented facilities:Three implemented facilities: StandStand--by Agreementby Agreement

EFF (Extended Fund Facility)EFF (Extended Fund Facility)

PRGF (Poverty reduction and Growth Facility)PRGF (Poverty reduction and Growth Facility)

Presenter: Yijun WU

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Positive effectsPositive effects continuedcontinuedThe IMF offers technical assistance to transitionalThe IMF offers technical assistance to transitional

economies:economies:

The former Soviet RepublicsThe former Soviet Republics South Korea in the 1997 financial crisisSouth Korea in the 1997 financial crisis

Presenter: Yijun WU

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Negative effectsNegative effects

The structural adjustment is undemocratic andThe structural adjustment is undemocratic andinhumane:inhumane:

Causing social problemsCausing social problems Foreign corporations and investors takeForeign corporations and investors take

advantage of local cheap labor, but have noadvantage of local cheap labor, but have noregard for the environmentregard for the environment

The gap between the rich and the poor is gettingThe gap between the rich and the poor is gettingbigger?bigger?

Example of ArgentinaExample of Argentina

The IMF has become a tool of the USA?The IMF has become a tool of the USA?

Presenter: Minmin WANG

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Direct effects of policiesDirect effects of policies

Helping countries out of poverty; methods:Helping countries out of poverty; methods: Guiding the countries to pGuiding the countries to pursue sound policies and good governanceursue sound policies and good governance

More effective international supportMore effective international support

By providing technical assistance, the IMF helpsBy providing technical assistance, the IMF helpscountries in:countries in:

Strengthening their monetary and financial sectorsStrengthening their monetary and financial sectors

Designing strong fiscal policies and managementDesigning strong fiscal policies and management

Budget formulation, expenditure management, and theBudget formulation, expenditure management, and themanagement of internal and external debtmanagement of internal and external debt

Compiling, managing, and disseminating statistical dataCompiling, managing, and disseminating statistical dataand improving data qualityand improving data quality

Drafting and reviewing economic and financial legislationDrafting and reviewing economic and financial legislationPresenter: Minmin WANG

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Indirect effects of policiesIndirect effects of policies

Strengthening the International Monetary andStrengthening the International Monetary andFinancial SystemFinancial System

Globalization has increased the risk of financialGlobalization has increased the risk of financialcrises. These crises exposed flaws in thecrises. These crises exposed flaws in theinternational financial system.international financial system.

To reduce the risk of future financial crises and toTo reduce the risk of future financial crises and topromote the speedy resolution of those that dopromote the speedy resolution of those that dooccur, the IMF has been working with its memberoccur, the IMF has been working with its member

governments, and with other internationalgovernments, and with other internationalorganizations, regulatory bodies, and the privateorganizations, regulatory bodies, and the privatesector, to strengthen the international monetarysector, to strengthen the international monetaryand financial system.and financial system.

Presenter: Minmin WANG

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Speculations about the IMFSpeculations about the IMF

Debt is an efficient tool. It ensures accessDebt is an efficient tool. It ensures accessto otherto otherpeoplespeoplesraw materials andraw materials and

infrastructure on the cheapest possibleinfrastructure on the cheapest possible

terms.terms.

** Susan George,Susan George, A Fate Worse Than DebtA Fate Worse Than Debt, (New York: Grove, (New York: Grove

Weidenfeld, 1990)Weidenfeld, 1990)


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A Case Study: TurkeyA Case Study: Turkey

Stock market plunged in the crisis of theStock market plunged in the crisis of the

year 2000year 2000

Interest rates increased to more thanInterest rates increased to more than

1,200 percent in that financial crisis1,200 percent in that financial crisis

Analysts feared that the crisis couldAnalysts feared that the crisis could

spread to Russia and other strugglingspread to Russia and other strugglingeconomieseconomies


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A Case Study: TurkeyA Case Study: TurkeyThe first 10 months of the year of the crisisThe first 10 months of the year of the crisis::

Marked one of the most stable economic periods in recentMarked one of the most stable economic periods in recent

Turkish history.Turkish history. TurkeyTurkey hhad won praise from the IMF and internationalad won praise from the IMF and international

financial analysts for its financial policies.financial analysts for its financial policies.

Perfect model of neoliberal economic virtue according to thePerfect model of neoliberal economic virtue according to theIMF;IMF;the last place a crisis should break outthe last place a crisis should break out..

So, due to that fact, following questions have been asked:So, due to that fact, following questions have been asked:

Why declaration of some bad loans triggered a crisis in thisWhy declaration of some bad loans triggered a crisis in thissituation, whereas it usually shouldnsituation, whereas it usually shouldnt have been the case?t have been the case?

Who decided to lower the interest of financing productiveWho decided to lower the interest of financing productiveTurkish investments, which would be brought to a standstillTurkish investments, which would be brought to a standstillby astronomical interest rates, to the interests ofby astronomical interest rates, to the interests ofinternational wealth management?international wealth management?


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A Case Study: TurkeyA Case Study: Turkey

Deploying IMF policies likeDeploying IMF policies like:: RReducing government spendingeducing government spending

PPrivatizing public services,rivatizing public services,

OOpening completely to internationalpening completely to internationalinvestment,investment,

AAccumulating foreign exchange reservesccumulating foreign exchange reserves

to protect your currencyto protect your currency

areare no protection at all from economicno protection at all from economicfailure.failure.


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Suggestions for evolution paths for anSuggestions for evolution paths for anorganization as complex as IMF is extremelyorganization as complex as IMF is extremelydifficultdifficult

Prerequisite is being in a top position in terms ofPrerequisite is being in a top position in terms ofknowledge about:knowledge about:

Economics and sociologyEconomics and sociology Having access to accurate and impartial global statisticsHaving access to accurate and impartial global statistics

The following suggestions project our currentThe following suggestions project our currentknowledge of the world order and socioknowledge of the world order and socio--economiceconomicaspects of theaspects of the IMFIMFss policies.policies.

They can be seen mostly as rolling back the ideasThey can be seen mostly as rolling back the ideasofofFree Market EconomyFree Market Economy

Presenter: Masood KHOSROSHAHY

WhatWhat thethe futurefuture holdsholds forfor thethe IMFIMF andand howhow itit

shouldshould seekseek toto evolveevolve

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For years, the Fund has set severe loanFor years, the Fund has set severe loan

conditions that in many cases have led to theconditions that in many cases have led to thedeepening the crises.deepening the crises.

There is widespread belief regarding the AsianThere is widespread belief regarding the Asian

and Latin American crises that the IMF went tooand Latin American crises that the IMF went toofar on imposing policies such as:far on imposing policies such as: CControl on government spendingontrol on government spending

Higher taxesHigher taxes

Higher interest ratesHigher interest rates Liberalized marketsLiberalized markets

Fewer state controlsFewer state controls


SomeSome ofofthethe criticismscriticisms hightlightshightlights

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Deputy Prime Minister of Thailand:Deputy Prime Minister of Thailand:

Deflationary effect of implementation of theDeflationary effect of implementation of theIMFIMFsspolicies was stronger than predicted.policies was stronger than predicted.

Claims of double standards, in the Asian crisis, asClaims of double standards, in the Asian crisis, as

Korean and Indonesian authorities wereKorean and Indonesian authorities wereprevented by the IMF from bailing out theirprevented by the IMF from bailing out theirtroubled financial institutions and corporationstroubled financial institutions and corporationswhilst international investors benefited from thewhilst international investors benefited from the

IMF'sIMF's packages and were making the most of thepackages and were making the most of theopportunity to buy Asian assets cheaply.opportunity to buy Asian assets cheaply.


andand thethe criticismcriticism continues!continues!

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Having heard the criticisms and considering theHaving heard the criticisms and considering theresponses of the IMF,responses of the IMF,We found that the common accusation that IMF isWe found that the common accusation that IMF is

favoringfavoring big international investorsbig international investors and theand the toptopeconomieseconomies when designing and implementing itswhen designing and implementing itspolicies ispolicies is NOTNOT wellwell--supported in terms ofsupported in terms ofavailable impartial facts and statisticsavailable impartial facts and statistics ..

So, in this front, we have not identified clearSo, in this front, we have not identified clearnegative trends.negative trends.


IsIs therethere aa negativenegative trend intrend in thethe IMFIMFss

policypolicy--makingmaking structure?structure?

YesYes, No,, No, MaybeMaybe

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A more humane approach and less aggressiveA more humane approach and less aggressivepolicies in lending to troubled countries whichpolicies in lending to troubled countries whichensure a sustainable development and prosperityensure a sustainable development and prosperityfor that country.for that country.

The aim of Reduction of Poverty has not hadThe aim of Reduction of Poverty has not had

any tangible success and new approaches mustany tangible success and new approaches mustbe designed and put in place in order to achievebe designed and put in place in order to achievethat.that.

Targeting development in the IT sectorTargeting development in the IT sectorworldwide to narrow down the digital gapworldwide to narrow down the digital gapcurrently apparent between the developingcurrently apparent between the developingcountries and the developed ones.countries and the developed ones.


But,But, wewe do havedo have somesome recommendationsrecommendations

forfor thethe BoardBoard ofofGovernorsGovernors::

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Imposing a cap for exchange rate fluctuations inImposing a cap for exchange rate fluctuations in

the order of, for example, 2% weekly.the order of, for example, 2% weekly.

Implementation mechanism:Implementation mechanism: Intervention likeIntervention like Central BanksCentral Banks

The method used by market makers in majorThe method used by market makers in major

exchanges, like NYSE (Basically similar to the Centralexchanges, like NYSE (Basically similar to the CentralBanks)Banks)


SomeSome outrageousoutrageous recommendationsrecommendations::AreAre wewe underminingundermining thethe principlesprinciples ofof

FreeFree MarketMarket EconomyEconomy??

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If there is a real difference between the currentIf there is a real difference between the currentexchange rate and the fundamental equilibrium level,exchange rate and the fundamental equilibrium level,

this adjustment can take place over time smoothly.this adjustment can take place over time smoothly.

This measure can alleviate the problem of violentThis measure can alleviate the problem of violentand speculative liquidations of assets and investmentand speculative liquidations of assets and investment

transfers.transfers.Is such a measure unprecedented?Is such a measure unprecedented?NoNo

There exists similar mechanism for the bankingThere exists similar mechanism for the banking

industry which ensures the deposits of the customersindustry which ensures the deposits of the customersin case of the default of the financial institution. (FDICin case of the default of the financial institution. (FDICin the USA).in the USA).

So, having such a body, acting in the internationalSo, having such a body, acting in the internationallevel, can calm the marketslevel, can calm the markets


ButBut whywhy intervention inintervention in thethe

internationalinternational marketsmarkets??

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IMF can:IMF can: Issue guidelines for setting the interest rates byIssue guidelines for setting the interest rates bythe central banks, thereby avoiding suchthe central banks, thereby avoiding suchdifferences in the real interest rates betweendifferences in the real interest rates between

countries.countries.[In short: avoiding the build[In short: avoiding the build--up of Carry Trades]up of Carry Trades]

Eliminate highlyEliminate highly--leveraged positions fromleveraged positions from

currency markets which are first to be unwoundcurrency markets which are first to be unwoundat first signs of trouble.at first signs of trouble.


TwoTwo otherother measuresmeasures proposedproposed toto avoidavoid thethe

buildbuild--upup andand thethe consequentconsequent violentviolentunwindingunwinding ofofthethe speculativespeculative positionspositions

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Taking a more active role in persuadingTaking a more active role in persuadingcountries to adoptcountries to adopt reasonable exchange ratereasonable exchange rate

regimesregimes..

Countries have been free to adopt any exchangeCountries have been free to adopt any exchangerate regime they wish after the collapse ofrate regime they wish after the collapse of

BrettonBretton Woods system, but, this has led to someWoods system, but, this has led to somemajor trade problemsmajor trade problems ..

Some countries, by holding the value of theirSome countries, by holding the value of their

currenciescurrencies artificially lowartificially low against the majoragainst the majorcurrencies, have boosted their exports and theircurrencies, have boosted their exports and theircompetitiveness rather unfairly.competitiveness rather unfairly.


OneOne lastlast suggestion tosuggestion to thethe IMFIMF

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You have seen the results of our analyses of currentYou have seen the results of our analyses of currentshortcomings of the IMF and its policies.shortcomings of the IMF and its policies.

We have sought to come up with some concrete andWe have sought to come up with some concrete andreasonable suggestions which could improve thereasonable suggestions which could improve thehealth of the global financial system.health of the global financial system.

We mention that these suggestions are:We mention that these suggestions are:-- open to questionopen to question

-- may even spark some other imbalances and deficienciesmay even spark some other imbalances and deficienciesin other sectors of the economy.in other sectors of the economy.

We do acknowledge the hardship that theWe do acknowledge the hardship that theorganization faces in its dayorganization faces in its day--toto--day business inday business indrafting new viable policies.drafting new viable policies.


FinalFinal remarksremarks

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Thank you for your attentionThank you for your attention

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