The IMF and World Bank

1. The IMF and World Bank By: Daniel Norman and Mark Hogan

2. THE INTERNATIONAL MONETARY FUND

3. What Led to the Creation of the IMF? • International monetary system was based on the gold standard • Fixed exchange rates • Bound monetary authorities • Prevented nations from creating more money than they had in gold

4. What Led to the Creation of the IMF? • Worldwide depression in the 1930s • Failure of Creditanstalt • Protectionism • Leaving the gold standard • Devaluation of currencies • Continued stagnant trade • Prolonged depression

5. Bretton Woods Conference • Officially called the United Nations Monetary and Financial Conference. • Representatives of all 44 allied nations met in Bretton Woods, New Hampshire in July, 1944. • Commission I on the International Monetary Fund was headed by Harry D. White of the United States. • John Maynard Keynes

6. Bretton Woods Conference • Promotion of open markets and destruction of economic nationalism • Secure international monetary cooperation • Stabilize currency exchange rates • Expand international currency liquidity • Promote high employment and economic growth • Officially came into existence in December 1945 when 29 countries signed the agreement

7. Evolution of the IMF • Countries began to gain independence and apply for membership to IMF • Soviet bloc prevented many nations from gaining membership until 1990s. • Par Value or Bretton Woods System

8. Abandonment of Bretton Woods System • Dollar became overvalued • Nixon suspends the dollar’s convertibility into gold in 1971 • By March of 1973 currencies began to float amongst each other, ending the long period of fixed exchange rates • This transition to floating exchanged rates proved to be very beneficial during the oil crisis which began in October of 1973

9. The IMF Today • 187 member countries • Objectives of the fund remain the same • All member countries are also members of the International Bank for Reconstruction and Development (IBRD)

10. Governance • Board of Governors -One governor and one alternative governor from each member country -Meet twice per year -Advised by IMFC and Development Committee • Executive Board - 24 members representing all 187 countries - Handle IMF’s daily business • Managing Director -selected by executive board - 10th and current director is Dominique Strauss- Kahn - head of the staff and chairman of the executive board

11. Lending • All member countries may borrow from the IMF if they have a balance of payments need • However, unlike the World Bank, the IMF does not finance developmental projects • 80% of member countries have borrowed from the IMF • Three main purposes - To aid in adjustments to economic shocks - To help open up other financing avenues - To prevent crisis

12. The Lending Process • Member country approaches the IMF • IMF discusses with the country the economic policies that address the problems most effectively • The IMF and the nation’s government agree upon specific quantified goals of the economic program aimed at bringing the nation out of crisis • The borrowing government outlines the details of its economic program in a "letter of intent" to the Managing Director of the IMF • IMF distributes loans in multiple installments, usually upon the condition that certain goals of the program are met • Programs typically last up to three years

13. Lending • Concessional lending - lending at interest rates below market terms or with a grant element to achieve a certain goal. - typically distributed to low-income countries in desperate need -IMF doubled concessional lending to low-income countries from $1.5 billion in 2008 to $2.9 billion • Noncessional lending - lending at market interest rates without a grant element. - typically distributed to higher income countries.

14. The World Bank Mark Hogan

15. Origins • International financial institution that provides leveraged loans to developing countries for capital programs • Goal: Working for a world free of poverty • Created at the Bretton Woods Conference in 1944 along with the IMF to end economic nationalism • Wanted to eliminate trade blocks and economic spheres of influence while allowing countries to maintain national interest

16. Organization • International Bank for Reconstruction and Development • Originally intended to finance reconstruction of nations devastated by WWII • Fight poverty through financing states – serve middle-income countries • International Development Association • Provides long-term, interest-free loans to world’s 80 poorest countries (39 of which in Africa) • Totaled about $161B in credits and grants since 1960 • Accounts for 40% of WB lending

17. Governance • Board of Governors • Ministers of finance or development from each shareholder country • Executive Directors • US, UK, France, Germany, Japan each appoint one – other 20 represent the other member countries • President chairs biweekly meetings

18. Notable Leaders • Robert McNamara – president 1968-80 • Shifted policy to building schools and hospitals, improving literacy and agricultural reform • Gained capital through global bond market • James Wolfensohn – president 1995-2005 • Visited 120 countries, brought awareness to corruption in development financing • Robert Zoellick – president 2007-current • Former Goldman Sachs banker, advocates the use of gold as an “international reference point of market expectations about inflation, deflation, and future current values.” • Gold = ultimate arbiter of a currency’s value

19. Where does the money come from? • IBRD – 187 member countries • Most powerful: USA, Japan, China, Germany, UK, France • IBRD members must also be IMF members • Funded by: • World Bank bonds issued on the global capital market – issued $34B worth in fiscal year 2010 – rated AAA with typical maturities of four to eight years • Lending out its own capital • IDA – 168 members • Funded replenished every three years by 40 donor countries and from IBRD income and credit repayments • Also, $178B in “callable capital” which can be used to meet IBRD obligations for borrowing or guarantees

20. Controversy

21. Paul Wolfowitz • 10th president of the World Bank 2005-07 • US Deputy Secretary of Defense 2001-05 working with Rumsfeld – helped architect invasion of Iraq • Withheld funds from governments he deemed corrupt – accused of being Bush’s puppet • Alienated staff members and development officials • Math major  • ShahaRiza controversy • Gave her promotion, $60k raise • European countries threatened to withhold funds if he did not resign

22. Joseph Stiglitz Criticism • Former Chief Economist at WB 1997-2000 • Fired for expressing dissent in its policies • Stiglitz believed Russia privatized state companies too rapidly, due to pressure from the West, quickly lined the pockets of oligarchs with immense wealth • Wolfensohn: “that’s not wholly correct.” • Was told to stay silent or resign so he resigned in order to “avoid being muzzled”

23. Criticism and Blackmail • Funds loaned to developing countries have many strings attached • US policy pushed in order to receive funds • e.g. Bolivian President Evo Morales said in 2009 that the WB blackmailed him by forcing free-market reforms in exchange for aid loans • Financed projects can have social and environmental implications • Displacement of indigenous peoples, building coal-fired power plants • China is one of WB’s largest portfolios • $1.45B lent in 2006 despite Beijing’s $1T reserves • Hide behind humanitarian rhetoric but throw poor countries into worse debt

24. Scapegoat • Blamed for any and all alleged problems involving globalization or capitalism

25. Works Cited http://www.washingtonpost.com/wp-dyn/content/article/2007/05/17/AR2007051700216.html http://online.wsj.com/article/BT-CO-20101108-719265.html http://www.reuters.com/article/idUSTRE53L6YX20090422 http://chora.virtualave.net/stiglitz2.htm http://www.usatoday.com/money/world/2007-05-16-wolfowitz-cover-usat_N.htm http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:20147466~menuPK:344189~pagePK:98400~piPK:98424~theSitePK:95474,00.html http://en.wikipedia.org/wiki/Paul_Wolfowitz http://en.wikipedia.org/wiki/World_Bank#cite_note-17 http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22758409~pagePK:64257043~piPK:437376~theSitePK:4607,00.html http://www.npr.org/templates/story/story.php?storyId=9525865&ps=rs http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20040580~menuPK:1696997~pagePK:51123644~piPK:329829~theSitePK:29708,00.html

26. Works Cited • http://en.wikipedia.org/wiki/International_Monetary_Fund • http://www.imf.org/external/about/histcoop.htm • http://external.worldbankimflib.org/Bwf/whatisbw.htm • http://www.britannica.com/EBchecked/topic/78994/Bretton-Woods-Conference • http://www.britannica.com/EBchecked/topic/291108/International-Monetary-Fund • http://en.wikipedia.org/wiki/United_Nations_Monetary_and_Financial_Conference • http://homepage.newschool.edu/het//profiles/keynes.htm • http://insights.unimelb.edu.au/vol6/05_Irwin.html • http://en.wikipedia.org/wiki/Gold_standard • http://www.imf.org/external/about/histend.htm • http://www.imf.org/external/about/lending.htm • http://www.cdc-crdb.gov.kh/cdc/development_coor/annix2.htm