The imf part 2 governance at the international monetary fund
Download
1 / 35

The IMF Part 2: Governance at The International Monetary Fund - PowerPoint PPT Presentation


  • 106 Views
  • Uploaded on

The IMF Part 2: Governance at The International Monetary Fund. James Raymond Vreeland Georgetown University. The Plan. Review: Why did we build an IMF? Trilemma Fixed Exchange Rates IMF to the Rescue? What is the IMF? Conditionality Who is the IMF? Where to IMF resources come from?.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about ' The IMF Part 2: Governance at The International Monetary Fund' - thornton-cedric


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
The imf part 2 governance at the international monetary fund

The IMF Part 2:Governance atThe International Monetary Fund

James Raymond Vreeland

Georgetown University


The plan
The Plan

  • Review: Why did we build an IMF?

    • Trilemma

    • Fixed Exchange Rates

  • IMF to the Rescue?

  • What is the IMF?

  • Conditionality

  • Who is the IMF?

  • Where to IMF resources come from?



Fixed Exchange Rate

The Trilemma

Open Capital Flows

Sovereign Monetary Policy


Growing #’s of democracies

Few democracies

Fixed exchange rates

+

Open capital flows

Degree of global capital mobility

Fixed exchange rates

+

Capital controls

Floating exchange rates

+

Open capital flows

1870

Interwar period

1971-3

1944


GLOBAL FINANCIAL INTEGRATION exchange rates with high capital mobility.

(World external assets as % of GDP)

Source: WEO 9/02, 4/05 and 10/07


Hazard rate over time for democracies solid line dictatorships dotted line time in years
Hazard Rate over Time for exchange rates with high capital mobility. Democracies (Solid Line) & Dictatorships (Dotted Line) – Time in years


People don t eat

Under authoritarianism: exchange rates with high capital mobility.

Let them eat cake

Under democracy:

Incumbents lose elections

People don’t eat


Http www youtube com watch v 3 ex0stsb i
http://www.youtube.com/watch?v=3_ex0sTsb_I exchange rates with high capital mobility.


The international collective action problem
The international collective action problem: exchange rates with high capital mobility.

  • How can we allow for the free flow of goods, service, and capital without:

    • Imbalances leading to beggar-thy-neighbor policies?


Https www youtube com watch v gvytotfpze8
https://www.youtube.com/watch?v=GVytOtfPZe8 exchange rates with high capital mobility.


One solution
One solution: exchange rates with high capital mobility.

  • IMF to the rescue?

  • THE WHOLE POINT OF THE IMF:

    • Soften the blow of adjustment

  • A form of insurance…

  • Problem?

  • Moral hazard?

  • Conditionality?

  • “Bretton Woods” falls apart…

  • The IMF never really worked as intended


What is the imf solution to moral hazard
What is the IMF solution to Moral Hazard? exchange rates with high capital mobility.

  • CONDITIONALITY!

    • Quid pro quo

    • Loans in return for policy change

  • How does it work?

    • Letter of Intent – describes policy changes

    • Loan comes in disbursements (“tranches”)

    • If policies have not been changed, no new “tranche” (maybe)


Policy conditions have traditionally entailed
Policy conditions have traditionally entailed: exchange rates with high capital mobility.

  • Fiscal austerity

    • cutting government services and increasing taxes

  • Tight monetary policy

    • raising interest rates and reducing credit creation

  • Currency devaluation

  • What are the goals of IMF programs?

    • Economic stability 

    • Economic growth


Why did the west stop using the imf
Why did the West stop using the IMF? exchange rates with high capital mobility.

  • Bretton Woods fixed XR system constraining

    • IMF loan: Softens the blow of adjustment

    • Conditionality: Still enforces adjustment

    • Impinges on NATIONAL SOVEREIGNTY

  • Eventually, the West abandoned fixed exchange rates!


The trade off
The trade-off: exchange rates with high capital mobility.

Stability of INTERNATIONAL prices

VS

Stability of DOMESTIC prices

For large-economies, DOMESTIC price stability is more important to most voters

Democracyfloating XR


Nixon ends bretton woods

Nixon ends Bretton Woods exchange rates with high capital mobility.

http://www.youtube.com/watch?v=iRzr1QU6K1o

http://www.popmodal.com/video/8803/Nixon-Ends-Bretton-Woods-International-Monetary-System


Under democracy
Under democracy, exchange rates with high capital mobility.

  • The “pocketbook voter model”

    • people vote according to changes in their income

    • http://www.youtube.com/watch?v=loBe0WXtts8

    • http://www.popmodal.com/video/13134/Michael-Reagan-talkes-with-Meygn-Kelly-about-his-dads-question-Are-You-Better-Off-Now-than-You-Were-4-Years-Ago


Stylized history
Stylized history exchange rates with high capital mobility.

  • Late 19th century:

    • Mobile capital, authoritarian governments

  • Interwar years:

    • Mobile capital + democracy  beggar-thy-neighbor

    • http://www.youtube.com/watch?v=3_ex0sTsb_I&feature=channel

  • Bretton Woods (1944-1971/3):

    • Capital controls + democracy

    • http://www.youtube.com/watch?v=GVytOtfPZe8

  • Post Bretton Woods:

    • Floating exchange rates

    • http://www.youtube.com/watch?v=iRzr1QU6K1o

    • http://www.youtube.com/watch?v=loBe0WXtts8


Stepping back a moment
Stepping back a moment… exchange rates with high capital mobility.

  • Who is the IMF?

  • Where do the resources for “loans” come from?


Who is the imf
Who is the IMF? exchange rates with high capital mobility.

  • Currently 188 members

    • https://www.imf.org/external/np/sec/memdir/memdate.htm

  • Who’s not a member?

    • Andorra, Liechtenstein, Nauru, Cuba, and North Korea

    • Special case: Taiwan

  • Members have “votes” according to the size of their subscription to the IMF…


Where do the resources for loans come from
Where do the resources for “loans” come from? exchange rates with high capital mobility.

  • Members provide a contribution called the member’s quota (held on reserve)

  • The size of the quota is supposed to be a function of the country’s economy:

    • GDP

    • current account transactions

    • official reserves

  • Largest: USA, Smallest: Palau

  • Actually a political process

    • Changes require an 85% majority of current vote shares!

    • CHECK UPDATE: http://www.imf.org/external/np/sec/memdir/members.aspx

  • LARGEST:

    SMALLEST:


    Quotas the executive board
    Quotas & the Executive Board exchange rates with high capital mobility.

    • Determine vote shares

      • @ the Board of Governors

    • Board of Governors elects

      • The Executive Board

    • Top 5 vote-holders get an APPOINTED director

    • Rest of the world: elects the remaining seats (19)

    • 24 total seats

    • Great powers + rest of the world


    Great powers have changed over time
    Great Powers have changed over time exchange rates with high capital mobility.

    • The IMF

      • Allocates votes according to economic importance

      • Great variation over its history…

    • 1946-1960:

    • 1961-1970:

    • 1971 onwards:

    • Otherwise the same top 5 for over 30 years

    • Change is coming? #3:

      • Will US ratify the change?


    For the flag challenged great powers have changed over time
    For the flag-challenged: exchange rates with high capital mobility. Great Powers have changed over time

    • The IMF

      • Allocates votes according to economic importance

      • Great variation over its history…

    • 1946-1960: US, UK, China, France and India

    • 1961-1970: US, UK, France, Germany, and India

    • 1971 onwards: US, Japan, Germany, France, and UK

    • Otherwise the same top 5 for over 30 years

    • Change is coming? (China #3!)

      • Will US ratify the change?


    How are decisions made or who controls the imf
    How are decisions made? exchange rates with high capital mobility. Or: Who controls the IMF?

    • Other important members:

      • 3.81%

      • 2.8%

      • 2.39%

      • 1.93% ???

      • 2.67% ??

      • 1.79% ??!!??

      • 2.44% ?

      • 1.41% ?

    • Top 5 members:

      • 16.75%

      • 6.23%

      • 5.81%

      • 4.29%

      • 4.29%

      • (% of total votes)


    For the flag challenged how are decisions made or who controls the imf
    For the flag-challenged: exchange rates with high capital mobility. How are decisions made?Or: Who controls the IMF?

    • Top 5 members:

      • United States (16.75%)

      • Japan (6.23%)

      • Germany (5.81%)

      • France (4.29%)

      • UK (4.29%)

      • (% of total votes)

    • Other important members:

      • China (3.81%)

      • Saudi Arabia (2.8%)

      • Russia (2.39%)

      • Belgium? (1.93%)

      • Canada? (2.67%)

      • Brazil? (1.79%)

      • India? (2.44%)

      • Korea? (1.41%)


    Http www imf org external np sec memdir members aspx accessed 2 may 2012
    http://www.imf.org/external/np/sec/memdir/members.aspx exchange rates with high capital mobility. accessed 2 May 2012


    New vote shares for 2012 has not happened yet
    New vote-shares (for 2012)?? exchange rates with high capital mobility. Has not happened yet!

    • United States: 16.48

    • Japan: 6.14

    • China: 6.07

    • Germany: 5.31

    • France: 4.02

    • United Kingdom: 4.02

    • Italy: 3.02

    • India: 2.63

    • Russia: 2.59

    • Brazil: 2.22

    • Canada: 2.21

    • Saudi Arabia: 2.01

    • Spain: 1.92

    • Mexico: 1.80

    • Netherlands: 1.76

    • Korea: 1.73

    • Australia: 1.33

    • Belgium: 1.30


    Why the delay
    Why the delay? exchange rates with high capital mobility.


    What is the imf in one slide
    What is the IMF? exchange rates with high capital mobility. (in one slide)

    • Like an international “credit union”

    • Almost all the countries in the world are members (188)

    • All hold currency on reserve

    • The IMF can use these reserves to loan to countries in “crisis”

    • Moral Hazard?  Conditionality!

    • IMF programs = loans + conditions

    • Decisions at the IMF are by majority rule

    • Influence over decisions pegged to “economic size”

      • MAJOR SHAREHOLDERS

      • Votes are determined by contributions (“quota”), Quota set by an 85% majority rule

      • Most other decisions by simple majority rule (CONSENSUS)


    Take aways
    Take-aways exchange rates with high capital mobility.

    • TRILEMMA

    • Economic growth  re-election

    • Power at the IMF: The Executive Board (18824)

    • Governance is changing bc the world is changing!


    Some concepts facts to study
    Some concepts/facts to study: exchange rates with high capital mobility.

    • Moral Hazard

    • Conditionality

    • IMF programs = loans + conditions

    • Most decisions at the IMF are by majority rule

    • Influence over decisions pegged to “economic size”

    • Votes are determined by contributions (“quota”), Quota set by an 85% majority rule

    • (US has veto power to changes in governance! >15% of votes)

    • What is special about the top 5 members of the IMF?

      • Have they always been the same countries?

    • Elected v. appointed directors


    Thank you exchange rates with high capital mobility. WE ARE GLOBAL GEORGETOWN!


    ad