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The IMF and World Bank. By: Daniel Norman and Mark Hogan. THE INTERNATIONAL MONETARY FUND. What Led to the Creation of the IMF?. International monetary system was based on the gold standard Fixed exchange rates Bound monetary authorities
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The IMF and World Bank By: Daniel Norman and Mark Hogan
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
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
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
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
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
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
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)
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
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
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
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.
The World Bank Mark Hogan
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
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
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
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
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
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
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”
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
Scapegoat • Blamed for any and all alleged problems involving globalization or capitalism
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
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