INTERNATIONAL MONETARY FUND.   Term Paper ID:21634 Click to get this paper

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Paper Abstract: History, founding, functions, membership requirements, financing facilities, stabilization programs, policy toward developing nations. Table. Paper Introduction: INTERNATIONAL MONETARY FUND Introduction This research provides an overview of the International Monetary Fund (IMF). Covered in this overview is the historical development that prompted the creation of the organization, the founding of the IMF, membership requirements, the role of the IMF in the enhancement of international trade, and current activities of the organization to include some financial statistics. Historical Development The impetus for the creation of the IMF was provided by events which staggered the international economy from 1929 to the beginning of the Second World War (Horsefield, 1992, p. 5). Attempting to maintain domestic economic stability and retain international Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Total reserves.International Financial Statistics, (7), 48-51. 2. By 1986, approximately one-half of the outstanding foreigndebt for the Latin American nations, as an example, consisted of interestcharges which had been deferred or rolled-over into new loans. The debt load of developing countries creates problems associated witheconomic stabilization in the best of times (Bernstein and Boughton, 1994,pp. The International Monetary Fund and thehistory of international monetary cooperation. 7 ). 42-45). Chandavarkar, A. Initially, member countries of the IMF were required to adhere to anagreed exchange rate regime, in which fluctuations in the internationalexchange values of currencies were to be confined within a range of + 1. /75. Washington: InternationalMonetary Fund. 2 1). Doherty, Carroll J. Challenge, 36(3), 53-56. % 68.8/11.3% 83.4/13.7% [Sources: International Monetary Fund, 1994, 1989, 1984, 1976] ))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) Summary This research provided an overview of the IMF. (1992). (1994, July). When Americans are no longer No. Finance and Development, 31(3), 42-45. Founding of the IMF Following international negotiation on such a mechanism during theperiod of the Second World War, the Bretton Woods Agreement of 1944 createdthe IMF (Driscoll, 1994, p. References A first look at financial programming. AfricaReport, 38(3), 1 -11. Membership Requirements The Bretton Woods Agreement actually created two internationalfinancial institutions. /19.6% 1976 257.4 136.4/53. New York Times, (Nationaled.), C13. Finance and Development, 31(3), 38-41. 18-19). Rational pricing, in the jargon of economics,refers to realistic, market value pricing. 1). (1993, 8 June). Driscoll, D. The World Bank. (1993, May). Many analysts view the externaldebt as essential for continued development in these countries; however,all analysts recognize the complexity that these massive international debtlevels have introduced into the IMF's stabilization efforts (Aliber, 1993,p. Augmenting the IMF'sresources. Ukraine, IMF reach accord.Wall Street Journal, A11. 63.9/71. (Rvsd. The implications of American control of the IMF cannot beoveremphasized (Kennedy, 1993, p. Most successful stabilizations have beencharacterized by reduced budget deficits, pegged exchange rates, high moneysupply growth, and very high real interest rates (Looking beyond, 1992, p.81). The central issues involved in economic stabilization programs are thegovernmental budget, exchange rate, money supply growth, and interest rate(Cooper, 1993, pp. Since 1963,several special financing facilities have been established to supplementstand-by authority loans. A supplemental financing facility was established in1979 that permits increased access to IMF resources by member nationsexperiencing relatively (to gross domestic product) high paymentsimbalances. Looking beyond Europe's crisis. The Second Amendmentalso abolished the official price of gold (the United States dollar was nolonger tied to a specified gold price), and the requirement for themandatory settlement in gold of accounts between member nations wasterminated. IMF, Israel are winners inaid bill as action shifts to Senate floor. (1994, September). In recentyears, conditions have also often emphasized the creation, within aborrowing nation's domestic economy, of positive interest rates, and theestablishment of rational pricing for public services (Bernstein andBoughton, 1994, pp. Horsefield, J. Covered in thisoverview was the historical development that prompted the creation of theorganization, the founding of the IMF, membership requirements, the role ofthe IMF in the enhancement of international trade, and current activitiesof the organization to include some financial statistics. The International Monetary Fund: Itsevolution, organization, and activities. External adjustment: The proper rolefor the IMF. R. New York: McGraw-HillBook Company. (1991, 28 October). Adjusting todevelopment: The IMF and the poor. Theweakening value of the United States dollar in the late-196 s, however,resulted in a major revision of the currency exchange regime at theSmithsonian Conference in 1971 (Heller, 1993, p. 1 -11). 41-43). In the mid-197 s, two temporary oil financingfacilities were established. Finance &Development, 3 (1), 41-43. Kennedy, Paul. Heller, H. Lewis, Paul. % 65.2/25.3% 55.8/21.7% 1979 384. More often than not, conditions established emphasizemeasures which affect balance of payments through the level and compositionof demand within the borrowing nation's domestic economy (Doroodian, 1993,pp. A perspective on the external debt of LatinAmerica. 51). (1994, 26 September). The nature of the conditions imposed vary from case to case (Holman,1994, p. Holman, Richard L. 42-45. Always, however, the policies ofconditionality tend to support ever larger loans at ever more flexibleinterest rates. The decline since that time hasbeen dramatic, and this decline have harmed the organization's capabilityto control international events. (1993, May). Business America, 113, 18-19. Using the power of the conditionality concept the IMF has forceddeveloping nations to adopt economic policies that were designed more toprotect the interests of lenders than they were to create long-termbenefits in the developing countries (Bernstein and Boughton, 1994, pp. % 2 .9/11.4% 36. 2). The extended financing facility was created in 1974,to provide for loans larger than tranche quota loans, and to provide forlonger repayment periods than those associated with tranche loans. The second institution created was TheInternational Bank for Reconstruction and Development, more commonly knownas The World Bank (Katz, 199 , p. Moi rejects "unrealistic dictatorial" IMF reforms. (1994, 3 September).I.M.F. The World Bank's mandate is toencourage capital investment for development within member countries, andis to be accomplished by either channeling the required funds from privatesources, or by making direct loans from its own resources (Oliver, 1989, p.24). As usual, it is the non-OPEC developing countries that havesuffered most of all. (1984, July). Eachcountry's position in the IMF is determined by its quota for financing thefund (Chandavarkar, 1993, p. In times of unusual and unexpected shocks (commodity pricechanges--exports and imports, natural disasters, and so forth), the debtload may become unsustainable within original conditionality frameworks.If lenders, particularly the IMF, are not sensitive to such changingconditions, stabilization programs imposed by the IMF may be wrecked. % 6.2/ 6.9% 19.9/22.1% 1973 183.7 126.8/69. % 89.2/25. The International Monetary Fund. Lewis, Paul. For purposes of this research, the levels of internationalreserves are stated in United States dollars. 8 ). Higonnet. The compensatory financing facility established in1963 provides temporary loans to cover unexpected and temporary shortfallsin export receipts. percentin gold, and 75. By contrast, the share of internationalreserves held by the developed countries is at its highest level since197 , which provides the countries with enormous leverage in their dealingswith OPEC. These special facilities are as follows: 1. percent in the nation's own currency. Oliver, R. U.S. Thesupplemental financing facility, as was true of the oil facilities, was(and continues to be) funded through borrowed resources. The first was the IMF, an organization chargedwith responsibilities to encourage international monetary cooperation andthe removal of foreign exchange restrictions, stabilize of currencyexchange rates, and facilitate multilateral payments between membercountries (Heller, 1993, p. Many concepts and criteria have been established to governthe extension of balance of payments and development loans designed tofoster economic stability. The two institutions are expected to complement one another in theiractivities. (3rd ed.). (1976, July). When thefortunes of OPEC began to wane, Saudi Arabia was in a better position thanwere most of its fellow OPEC members to weather the storm. The parvalues of currencies were stated in terms of the United States dollar,which, in turn, was linked to a specified gold value. Guitian, Manuel. 26-29). (1993). Washington:International Monetary Fund. Although most stabilization programs address each of the four factors--budget, exchange rate, money supply growth, and interest rates, therelative emphasis placed on each of them tends to vary, depending upon thetheoretical orientation of the program developed and implemented for aspecific nation. The IMF as a monetary institution:The challenge ahead. NewYork: McGraw-Hill Book Company. Current Activities and Financial Statistics Complicating the stabilization problem in most developing countries inthe contemporary period is the massive external debt owed by these nations(Bernstein and Boughton, 1994, pp. International Monetary Fund. The ability of the United States tocontrol the IMF does not appear to be in imminent danger. K. Table Levels and Shares of International Reserves: 197 -1993 (US$ billions) ))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) Year Total Reserves Industrialized Oil Exporters Developing Countries Countries ---- -------------- -------------- ------------- ---------- 197 9 . More than 5 percent of the international reserves that weretransferred from the industrialized countries to the oil exportingcountries went to a single country--the Kingdom of Saudi Arabia. The United States routinely blocksIMF actions that run counter to American foreign and financial policies andgoals (Roncesvalles and Tweedie, 1991, pp. A Saudi Arabia in our own backyard?Forbes, 148, 169-17 , 172. (1993). Attempting to maintaindomestic economic stability and retain international market positionsduring this time period, most countries engaged in competitivedevaluations, foreign exchange controls, and import restrictions (Driscoll,1994, p. INTERNATIONAL MONETARY FUND Introduction This research provides an overview of the International Monetary Fund(IMF). Finance & Development, 28(1 ), 26-29. All of the special financing facilities described above, together withthe tranche quota loans, provide the balance of payments loan frameworkwithin which the IMF conducts its primary activities in the 199 s (Lewis,1994, p. 56-88. As the data presented in the table indicate, OPEC's share of theinternational reserves peaked in 1976. exports are doing well as oil-richeconomy grows. Resources for the Trust Fund arederived from sales of IMF gold holdings. ed.). (4rd ed.). Bernstein, Boris, and James Boughton. (1992, 19 May). The levels of internationalreserves for the 197 -1993 time period are presented in the Table, whichmay be found on the following page. International Monetary Fund. Doroodian, Khosrow. A Trust Fund was established in 1976, to both makedirect distributions and to make loans to low-income developing nationswhich are also members of the IMF. (1991, December). Theextended facility loans were intended for nations where balance of paymentsproblems were attributable to structural weakness in the internal economyor weak external positions that precluded the implementation of aneffective development program. 53-56). ed.). International Monetary Fund. (1993, March). 849-864). (Eds.), New York:Pergamon Press, pp. Total reserves.International Financial Statistics, (7), 44-47. In 1981, a separate financing facility, but one whichis fully integrated with the compensatory financing facility, wasestablished to provide assistance to member nations experiencing temporaryproblems with payments for cereal imports. 42-45). Lindow, H. Roncesvalles, O., & Tweedie, A. Cooper, Richard N. (1993). A11). (1994). 3. (2nd rvsd. International Monetary Fund. Perhaps the most controversial of all of theconcepts and criteria is the concept of conditionality, which refers topolicies that nations are expected to agree to implement and observe, as arequirement, before a balance of payments loan or development loan isextended from any of the special financing facilities (A first look, 1993,pp. Total reserves.International Financial Statistics, (7), 35-38. (1993, July). The International Monetary Fund: Itsfinancial organization and activities. Macroeconomic performance andadjustment under policies commonly supported by the International MonetaryFund. Add to thissituation the war involving two of the financially stronger remaining OPECmembers--Iran and Iraq, and the strength of the Saudi position within OPECbecomes even more apparent. 169-17 ;Lindow, 1992, p. Faini, Riccardo, Jaime DeMelo, Abdelhak Senhadji, & Julie Stanton.(1991, August). S. C13). Washington: InternationalMonetary Fund. Total reserves.International Financial Statistics, (7), 41-44. Contemporary Role Initially, the currency exchange regulating activities of the IMF weresupplemented by limited loans to member nation's for balance of paymentssupport (Chandavarkar, 1993, p. International reserves are considered to be the total of the holdingsof monetary authorities in gold, IMF special drawing rights (SDRs), reservepositions in the International Monetary Fund, and foreign exchange reservesfor all countries except the centrally planned economies of the formerSoviet Union, the eastern European countries, the People's Republic ofChina, North Korea, and Cuba (Faini, DeMelo, Senhadji, and Stanton, 1991,pp. chief's message to industrial nations. (1994, September). 38-41). With implementation of the Second Amendment, member nations were freeto adopt exchange rate arrangements of their own choice (Heller, 1993, p.151). Historical Development The impetus for the creation of the IMF was provided by events whichstaggered the international economy from 1929 to the beginning of theSecond World War (Horsefield, 1992, p. % 71.3/2 . 42-45). World Development, 19(8), 957-967. A16). In 1981, access through the supplemental fund was furtherexpanded to provide even larger loans in relation to quotas. Conclusions may be drawn, thus, to the effect that IMF involvement inthe context of conditionality is not a positive factor in the addressing ofstabilization problems in developing nations, and non-monetaristinitiatives will likely produce more satisfactory long-term results indeveloping nations than will monetarist interventions (Guitian, 1994, pp.38-41). % 1988 532.1 387.2/72.8% 64.3/12.1% 8 .6/15.1% 1991 498.7 374. Both fund positionand voting power within the IMF are determined by a nation's quota.Throughout the existence of the IMF, the United States has exercisedvirtual dictatorial power over the institution's policies and actions as aconsequence of the voting power accruing to the United States through itsquota (Doherty, 1992, pp. Katz, B. (1992, 26 September). Conditions may also emphasize supply factors. P. The Bretton Woods Agreement. 2962-2963). Foreign debtand Latin American economic development revisited. The oil facilities were (and continue to be) fundedthrough borrowed resources. Quotas are agreed upon internationally. Z. Over the years, the organization'sloan activities, together with those of The World Bank, have assumed anever greater role within the IMF/World Bank activity matrix, and since 1978have become the prime activity of the two institutions. The primary objectivessought by the United States through the IMF appear to be the creation ofopportunities for American business organizations (Cook, 1991, pp. Economist, 81. percent, and increasing the fluctuation rangefor foreign exchange to + 2.5 percent. NewYork: McGraw-Hill Book Company. 1.New York Times, (National ed.), A16. (1993). 2). 4. (2nd ed.). Congressional Quarterly WeeklyReport, 5 (38), 2962-2963. Aliber, R. These facilities provided temporary loans,without respect to quota, to assist member nations meet the increased costsof oil imports. 134).The Second Amendment, the protocol under which the IMF functions in the199 s, effectively ended the organization's role in currency exchange ratecontrol. The crude oil price and supply shocks of the mid-197 s and othereconomic difficulties experienced by many of the developed countries soonmade it apparent that the new regime would be unworkable. The deemphasis of gold as a payment and reserve medium wasaccompanied by an increased role for IMF special drawing rights (SDRs) forthese purposes. Growth-oriented adjustment programs: A statisticalanalysis. 1 1). % 57.4/11.5% 67.3/13.5% 1993 6 8.7 456.5/75. Economic Development & Cultural Change, 41(4), 849-864. D., (Ed.). The SDR is an international reserve asset created by theIMF, which is allocated to member countries in proportion to their positionin the organization's total assets (Chandavarkar, 1993, p. 38). The quota must be paid to the IMF by each nation as follows: 25. Covered in this overview is the historical development thatprompted the creation of the organization, the founding of the IMF,membership requirements, the role of the IMF in the enhancement ofinternational trade, and current activities of the organization to includesome financial statistics. (1994, 3 September). The disastrous consequences of these actions resulted in anear universal recognition of a need to establish some sort of mechanismthrough which international economic stability could be both created andmaintained (Heller, 1993, p. The institution became a reality inDecember 1945, when the thirtieth nation signed the Agreement. 65). Salazar-Carrillo, & R. (1989, July). (1992, 23 March). To most developing nation's,however, rational pricing is a euphemistic phrase meaning higher prices.Conditions also often support exchange rate adjustments, where overvaluation prevails (Moi rejects, 1993, pp. percent of the par value of the currencies (Heller, 1993, p. The orientation of the conditions imposed bythe IMF tend to change over time as the orientation of politicaladministrations in Washington change. The system worked relatively well for about two decades. While the IMF cannot be blamed entirely for the predicaments in whichthe developing nations find themselves, the organization certainly may becited as a prime contributor to the problems experienced by these nations(Guitian, 1994, pp. 8 ). IMF chief's message to industrialnations. In Jorge, A., J. 5. Cook, J. 214.8/55.9% 67.9/17.7% 1 1.3/26.4% 1982 4 5.8 215.1/53. At this meeting,new par values were established, which had the effect of devaluing theUnited States dollar by 1 . A second subsidyaccount was established to assist low-income developing nations meet thehigher charges associated with loans made through the supplementalfinancing facility. 5). % 81.9/2 .2% 1 8.8/26.8% 1985 356.7 196.2/55. Actualfinancial operations were commenced by the IMF in early-1947 (Heller, 1993,p. All loans are distributed in increments so the IMF may monitorthe borrowing nation's adherence to the conditions established. 957-967). 38-41).Additionally, the experiences of the Latin American countries during thistime period have demonstrated that heavy foreign debt loads cause almostany stabilization program to become unworkable in the presence ofsignificant shocks. G. New York Times, C13. A subsidy account was also established toassist those member nations most seriously affected by oil price increasesin meeting the interest payments on oil facility loans. 125). W. Consequently,the Second Amendment of the Articles of Agreement was accepted by membernations of the IMF and became effective in 1978 (Heller, 1993, p. The conditions based on the monetarist model imposed by the IMF onborrowing nations in stabilization programs as often as not induce extremehardships on the populations of the countries involved without in all toomany cases, achieving stabilization goals (Guitian, 1994, pp. The result has generally been a situation characterized by a marketdetermination of exchange rates for most currencies. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.