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IMF

IMF. International Monetary Fund (IMF). Founded at Bretton Woods Was supposed to avoid mistakes that led to the Great Depression in 1930s. Key objectives: Promote international monetary cooperation Facilitate expansion and balanced growth of international trade

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IMF

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  1. IMF

  2. International Monetary Fund (IMF) • Founded at Bretton Woods • Was supposed to avoid mistakes that led to the Great Depression in 1930s. • Key objectives: • Promote international monetary cooperation • Facilitate expansion and balanced growth of international trade • Promote high employment and sustainable economic growth • Reduce poverty

  3. In other words… • The IMF lends money to the member states (there are 184). • Has been criticised as has a ‘one size fits all’ approach. • Power lies with the G8 nations (France, Germany, Italy, Japan, Russia, UK, US, Canada and the EU is also represented) • US had stated it will not allow voting power to fall below 15%, which gives it veto power.

  4. Case Study: Bolivia • Background: ‘Revolving door presidency’ • World Collapse in tin prices • Foreign debt was $3 billion in 1980. • Stopped repaying foreign debt and PRINTED MONEY! • Massive inflation (hyperinflation) • IMF & World Bank: limited aid ‘structural adjustment’

  5. Activity from Text - Discussion • What were the aims of the IMF and World Bank in Bolivia? • What methods did the IMF and World Bank pursue to achieve these aims? • To what extent were the aims of the IMF and World Bank achieved in Bolivia? • What weaknesses of the IMF and World Bank does the case-study of Bolivia highlight?

  6. Background: GFC • Global Financial Crisis • Caused by bursting of US housing bubble • High default rates on ‘subprime’ lending • Has been called ‘worst financial crisis since the Great Depression of the 1930s’

  7. Case Study: Iceland • 2008-2009 • Collapse of all three major banks in Iceland • Relative to the size of its economy, Iceland’s banking collapse is the largest suffered by any country in economic history

  8. http://www.youtube.com/watch?v=_96zE8minOg

  9. Case Study: Iceland • Commenting on the need for emergency measures, Prime Minister GeirHaarde said on 6 October, “There was a very real danger that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could have been national bankruptcy”

  10. OMX Iceland 15

  11. Case Study: Iceland • A team of experts arrived in Iceland at the start of October 2008 for talks with the government. • On 24 October, the IMF tentatively agreed to loan €1.58 billion. • Their loans were held up by the UK and the Netherlands as the ‘Icesave’ dispute had not been resolved.

  12. Case Study: Iceland • The IMF-led package of $4.6bn was finally agreed on 19 November. It consisted of: • IMF loaning $2.1bn • $2.5bn of loans and currency swaps from Norway, Sweden, Finland and Denmark. • Poland has offered to lend $200M • Faroe Islands have offered 300M Danish kroner ($50M, about 3% of Faroese GDP) • The Icelandic government also reported that Russia has offered $300M • Germany, the Netherlands and the United Kingdom announced a joint loan of $6.3bn

  13. Questions • How do the actions of the IMF fit with their objectives? • Is it the responsibility of the IMF to ‘bail out’ states the way they have in Iceland? Why or why not?

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