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Transcript of IMF
21 Nov. 2012 The International Monetary Fund
(IMF) Outline What is the IMF?
Who controls the IMF?
Why is it connected to globalization?
What are some controversies?
What is the historical relationship with the periphery?
Discussion What is the IMF?------History What is the IMF? ------Their Works The IMF and globalization photo credit Nasa / Goddard Space Flight Center / Reto Stöckli Case Study: Jamaica History with Developing Nations Initially planned to aid European countries then moved to providing loans in the developing world
Through structural adjustment loans in the 1990s, the IMF successfully indebted developing nations with loans they were not able to repay, even today
Conditions include: reducing spending on public benefits such as cuts in education and health care, profits through resource extraction, import/ export restrictions, removing price controls and state subsidies (Washington Consensus) Controversy and Criticism Conclusions Discussion References “shackle a country with debt so the country would be forever obligated to the United States and the corporatocracy” (Perkins, 85)
“the loans of foreign aid ensure that today’s children and their grandchildren will be held hostage” (Perkins 56)
“presents easy targets when we need favors, including military bases, UN votes or access to oil and other natural resources” (Perkins, 18) Great depression In July 1944, Bretton Woods, New Hampshire in the United States In 1972, End of Brreton Woods System
In 1974, oil crisis After 1989, a universal institution Surveillance Technical assistance and training Lending
Global Surveillance Exchange rate, monetary and fiscal policies.
Financial sector issues.
Assessment of risks.
Institutional and structural issues. Who controls IMF? The executive board Managing Director, Christine Lagarde Four deputy managing directers Board of governors Relative economy size Financial contributions Quota System Voting power Transnational companies Regional organizations "Global governments" Reform in 2010 IMF and Globalization Temporarily fixing problems that countries face as a whole, short term loans 2-4-7 yrs
New era of globalization emerged in 1990
economies and societies become more integrated through trade, financial flows and the movement of people and technology
Former economically planned economies now join the IMF (1992)
production, distribution, pricing, and investment decisionsopening up economies to the market economy
4. Due to the major role the United States plays in matters such as voting, it is possible the global economic ideology could effectively be transformed to match that of the US's. Do you agree or disagree?
5. The IMF is usually criticized to be unfamiliar with local economic conditions, cultures and environments in the countries they work in (requiring policy reform). What do you think are possible solutions to this problem?
6. In what aspects do you think "global governments" like the IMF enhance globalization?
7. Now with flexible exchange rates and large private capital markets (from which countries can borrow to finance balance of payment deficits) and further debates about the fund, is the IMF still relevant/ does the world still need the IMF today?
8. Ideally how is structural adjustment and IMF conditions supposed to improve and make an economy grow?
9. Trade liberalization, high interest rates, decrease in government involvement and market economies are all aspect of the IMFs plans for growth. How do they work or are there any alternatives?
10. What should be the role of different governments or congress to reform or abolish the IMF? and in turn, what should the IMF do or promote to support sustainable development?
11. "The IMF is, fundamentally, a bank, a development bank... Banks lend clients money under terms and conditions designed to ensure loan repayment, and, the higher the risks, the tougher the conditions." Do you think the IMFs conditions are fair? Are they simply acting as a larger type of internal bank? Why or why not? Conditions Washington consensus:
1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP
2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment
3. Tax reform, broadening the tax base and adopting moderate marginal tax rates
4. Interest rates that are market determined and positive (but moderate) in real terms
5. Competitive exchange rates
6. Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs
7. Liberalization of inward foreign direct investment
8. Privatization of state enterprises
9. Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions
10. Legal security for property rights History with Developing Nations (cont'd) The market economy and private property in the means of production allows companies from the developed world to build factories in impoverished areas
Loans given by the IMF are used to take autonomy from nations
Developing nations not only restructure their economy but also their entire landscape to pay back loans
New colonial institutions work with export induced growth > Uganda and forced cotton agriculture for export; creating dependency relationships on Western Europe and North America
When countries are unable to pay back loans, IMF makes structural adjustments and brings negative implications to people who did not benefit from the loans in the first place The IMF first constructed to aid European nations, now it is much more than that
The IMF should be more flexible regarding loan conditionality and should be held accountable for increasing or perpetuating crisis situations
Reform through many regulatory mechanisms of the IMF should be made but are highly unlikely
Dominant voting power regarding IMF decisions must also be relinquished from developed nations, however, this too is highly unlikely Private banks will not led to Jamaica so they are forced to approach the IMF (2008)
The IMF was focused on short-term plans
Tremendous restrictions posed on loans
Jamaica predicts they will be in the same situation if they take the loans
New loans ordered when conditions were not met, which posed tighter restrictions
The IMF prescribed to cut government spending on social programs which imply education and health systems
Price of imported food, books, fuel and medicine (among other imports) all increased when currency was devalued
Through debt (7 billion), economy is now owned by foreigners
Export to produce is decreasing with increasing debt 1. Perkins, John (2004). Confessions of an Economic Hit Man. Berrett-Koehler Publishers. Ebury Publishing Co.
2. Bob Davis : http://yaleglobal.yale.edu/content/imf-fuels-critics-globalization
3. Vreeland, J. (2007). The International Monetary Fund: politics of conditional lending. MPG Books Ltd, Bodmin: Great Britain.
4. Annen, K (2011). Econ*3790 Economics of Development: course notes. Guelph, ON: University of Guelph.
8. The official website of the IMF : http://www.imf.org/external/about.html
9. Edwin M. Truman. A Strategy for IMF Reform. Institute for International Economy
10. Wikipedia: International Monetary Fund http://en.wikipedia.org/wiki/International_Monetary_Fund More lending by the IMF Globalization g globalized sovereignty?
institutionalized inequality? 188 members correct balance of payments
conditionality 1. After WWII, the Bretton Woods system had been built as the world economic system, and the IMF was one of the key organizations of it. So, according to our presentation and your knowledge, in what aspects did the IMF contribute to construct and maintain this system?
2. The main goal of the IMF is to promote international cooperation and exchange rate stability. So how has the IMF's work (surveillance, technical assistance and lending) help to achieve these goals?
3. Referring to the quota system in voting power, do you support the idea of providing a more effective voice and equal representation for developing countries?