IMF Flashcards
Bretton Woods
A conference was held in 1944- the united nations monetary and financial conference. It popularly came to be known as Bretton woods conference. It lead to:
- IMF: to foster monetary stability at global level
- IBRD: To speed up the post war reconstruction
Started functioning in 1946.
IMF objectives
- To promote monetary cooperation at global level.
- To promote exchange rate stability and to avoid competitive exchange rate revaluation
- To help members at the time of BoP crisis
- To facilitate balanced growth of international trade for the economic growth of all economies.
How IMF achieve its target?
- Surveilänce: Monitoring of economic and financial developments mainly related to exchange rate policies of countries There is also provision of policy advice to prevent crisis.
2 Lending: to be discussed next
3 Technical training and assistance in its area of expertise
Functioning of IMF
Upon joining each member country is assigned a quota The quota guides
- Subscriptions: How much money that country will provide to IMF
2 Voting power
- Access to financing
Quota reflects broadly a country’s economic power
How quota is paid
1) 1/4th in Accepted foreign currency or SDR
2) 3/4th in country’s own currency
SDR
The SDR an international reserve asset, created by the IMF in 1969 to supplement its member countries official reserves.
So far SDR 204.2 billion (equivalent to about US$291 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global
financial crisis
The value of the SDR is based on a basket of five currencies-the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling
SDRi
The SDRi provides the basis for calculating the interest rate charged to members on their non-concessional borrowing from the IMF and paid to members for their remunerated creditor positions in the IMF. It is also the interest paid to members on their SDR holdings and charged on their SDR allocation.
SDR weightage
Refer Acads
IMF borrowing arrangememt
Primary source: Quota subscriptions of member countries
GAB: General arrangement to borrow
Started in 1962
Enable IMF to borrow from 11 industrialized countries at market rate
NAB; New arrangement to borrow
Setup in 1998
Credit arrangement between IMF and 39 member countries
It has corpus of $590 Billion
Recent reforms in NAB
• Increase in membership. 13 new emerging economies are added including India.
• Increase in Corpus
GAB and NAB are arrangements to provide additional resources to cope with international monetary system or with an exceptional situation
India and IMF
Quota:
a. 275%
b. 13000 Million SDR
c. 8th in world
d. It was increased in 2010 reviews of Quota
NAB:
a India is a member of NAB
b. Contributed $2 Billion in 2009
Financial Transactions plan:
Only 47 countries are allowed to lend to IMF. Aims at helping low income countries during BOP crisis
More:
- $40 B during Mexico meet of G-20 for the Eurozone crisis.
- India joined IMF in 1950 as one of the original member.
- Accepted the obligations related to capital account convertibility in 1994,
- Subscribe to IMF’s Special data dissemination standard.
- India borrowed from IMF on two occasions
a. 1981-82
b. 1991
How IMF lends
Refer Acads
IMF conditionalities
- Reduce fiscal deficit
- Less subsidy
- Less priority sector lending
- Follow LPG
- Deregulate economy
- Flexible labour reforms
- Reduce trade barrier (not sure)
IMF criticism
- Anti poor and Anti welfarism
- Too many conditionalities, Danger to sovereignty
- One size fits all.
IMF reforms needed
- Change the one size fits all policy under which it gives the same solution to all problems
- Conditionalities that come with loan are anti-poor
- Need to end the convention that director is invariably from Europe
- Emerging economies like India, china should be recognized.
- Need for better surveillance.
- World should no longer rely in single dominant currency like dollar.
a. Stiglitz: New global system based on SDR
b. Keynes: Global currency Banker - Need to increase its corpus.
a. Step taken: NAM increased to 580 B - 85% of votes are required for major decisions. But US alone has 16% vote share and wields a veto. Need for restructuring quotas
IMF vs WB
Refer Acads
