The International Monetary Fund

1. The International Monetary Fund Hamad, Serdar and Srikant

2. Agenda • IMF History • IMF Main Responsibilities • Details of how IMF works • Examples of positive Impact (India and Czech) • Example of negative Impact (Turkey) • Conclusion and Recommendations • Q and A ???

3. IMF History • Established at a United Nations conference in Bretton Woods, New Hampshire, in July 1944. • Initially composed of 45 governments with the intention of building an economic cooperation that would help avoid economic disasters such as, the Great Depression of the 1930s. and long term direction

4. IMF Main Responsibilities • Promoting international monetary cooperation • Facilitating the expansion and balanced growth of international trade • Promoting exchange stability • Assisting in the establishment of a multilateral system of payments • Making its resources available (under adequate safeguards) to members experiencing balance of payments difficulties

5. How does the IMF achieve its objectives? • Surveillance: monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention. • Lending to countries with balance of payments difficulties providing temporary financing • Support policies aimed at correcting the underlying problems and reduce poverty. • Providing technical assistance and training in its areas of expertise. IMF work is supported by its economic research and statistics

6. IMF Organization Chart

7. Executive Management Selection • Managing Director position is traditionally European while the Deputy is American. • The Developing Countries complain that they have a stake in the IMF and their voting power is limited. • Voting power is proportional to a member’s contribution ( quota) which was set 50 years ago.

8. IMF Finances • Quota System: Each member’s quota is based on its relative size in the world economy. Upon joining the IMF, a country normally pays up to one-quarter of its quota in the form of widely accepted foreign currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling) or Special Drawing Rights (SDRs). The remaining three-quarters is paid in the country's own currency.

9. IMF Finance cont’d • Gold holdings: Valued at current market prices, are worth about $68 billion as of March end 2007, making the Fund one of the largest official holders of gold in the world • Lending capacity: The IMF can only use its quota-funded holdings of currencies of financially strong economies to finance lending. The IMF's Executive Board selects these currencies every three months.

10. IMF Finance cont’d • Special Drawing Rights (SDR) potential claim on the freely usable currencies of International Monetary Fund members. • SDRs are defined in terms of a basket of major currencies used in international trade and finance. They are used as international reserve assets. They are proportional to a member’s quota.

11. When can a country borrow from the IMF? • A member country may request IMF financial assistance if it has a balance of payments need when it cannot find sufficient financing on affordable terms to meet its net international payments. An IMF loan eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth.

12. Current IMF facts and Statistics • Current membership: 185 countries • Staff: approximately 2,716 from 165 countries • Total Quotas: $317 billion (as of 7/31/06) • Loans outstanding: $28 billion to 74 countries, of which $6 billion to 56 on agreed terms (as of 7/31/06) • Technical Assistance provided: 429.2 person years during FY2006 • Surveillance consultations concluded: 128 countries during FY2006, of which 122 voluntarily published information on their consultation.

13. India and IMF • Member since December 27, 1945 • Lender or borrower? • Last loan of 2.5 billion SDRs in 1991 • Repayment in 2000

14. IMF’s Conditions for Loan • 1991 loan for 2.5 billion SDRs • Sweeping set of reforms • Private sector freed from Govt Controls • Tighter Expenditure Policy • Price Reforms • Imports Liberalized • Market determined Exchange rate

15. India: Financial position as of April 30, 2007

16. IMF and Czech Republic • Czechoslovakia - Founding Member since 1944 • Communist rule since 1948 • Severed ties in 1955 • Officially rejoins in September 1990. • On 1 January 1993, Czechoslovakia ceased to exist and was replaced by the Czech Republic and Slovakia

17. Czech and IMF cont’d • As a CIT, Czech sought IMFs cooperation immediately • Czech follows economic policies consistent with Market economy. • Gains IMF’s confidence and bags 471 million USD loan. • First post communist country to repay debt in 1995

18. How did Czech achieve this • Czech National Bank agreed to let the crown float. • Also followed IMF’s suggested privatization • Opened it’s economy to foreign investment

19. How is IMF’s influence on Czech different from other countries • Czech Republic volunteered for change to Market economy • No pressure from IMF • Need to strengthen it’s application to EU membership • Prague became the 20th city to host the Annual Session of the Council of Governors of the IMF/WB in 2000.

20. Czech Republic: Financial Position in the Fund as of April 30, 2007

21. TURKEY AND IMF

22. STAGFLATION

23. Stagflation cont’d • Standby arrangement to solve the stagflation and some other issues in Turkey in 1999.

24. Turkey and IMF cont’d

25. Crisis in Turkey • 2000-2001 CRISIS IN TURKEY • 9/11/2001 AND GEOGRAPHICAL-STRATEGIC IMPORTANCE OF TURKEY • ARGUMENTS ABOUT OBJECTIVITY OF THE IMF

26. Conclusion and Recommendations • One Size fits all Model does not work. • The interests of the G-7 Nations. • Forces tighter Monetary policy (Ex Korea Interest rates > 25%). • Should give equal importance to Social and Political issues.

27. Q and A ??? Thank you!!!