Bretton Woods Intentional Interdependence. Bretton Woods New Hampshire. I.M.F.

Transcription

1 Bretton Woods Intentional Interdependence Bretton Woods New Hampshire. U.S. and U.K. established funds and rules with U.S. dollar to be the reserve currency. I.M.F. Created to facilitate a return to liberal trading relationships as prior to WW1 Rapid growth thought key to stability to reducing Soviet threat.

2 IMF U.S. dollar fixed to gold at $35 to the ounce- convertible. Severely limited U.S. Monetary policy options. Other currencies fixed at equilibrium rates relative to trade partners and required to defend currency within 2% of target. Dedicated to surveillance of national currency policy and reserve levels Permitted continuance of European capital controls in support of fixed, high exchange rates first loss of IMF to states in two-level scenario Members supposed to be able to adjust to chaning BoP conditions, Tuesday, November 72 hour 30, 2010 notification befor devaluation required.

3

4 Currency Convertibility:

5 Currency Convertibility: Every country was required to:

6 Currency Convertibility: Every country was required to:» Declare the par value (PARITY) of its currency in terms of gold or $US.

7 Currency Convertibility: Every country was required to:» Declare the par value (PARITY) of its currency in terms of gold or $US.» Stand by to defend the declared parity in the foreign exchange market b buying and selling dollars, at least in the short run.

8 Currency Convertibility: Every country was required to:» Declare the par value (PARITY) of its currency in terms of gold or $US.» Stand by to defend the declared parity in the foreign exchange market b buying and selling dollars, at least in the short run.» Currency fluctuations permitted within +/- percentage of declared paritie daily.

9 Currency Convertibility: Every country was required to:» Declare the par value (PARITY) of its currency in terms of gold or $US.» Stand by to defend the declared parity in the foreign exchange market b buying and selling dollars, at least in the short run.» Currency fluctuations permitted within +/- percentage of declared paritie daily. The United States was the only country prohibited to alter eith the central role of the dollar or the value of its gold reserves, which at the time amounted to three quarters of all central ban gold in the world.

10 IMF cont d IMF in part ignored by Europe and U.S., adapted to coordinate rise of new states during de-colonialization. IMF reserve fund extended to ameliorate short-term BoP problems. During de-colonializations IMF also served to stabilize economies wracked by terms of trade shocks in commodities crisis. IMF requires quotas of reserves from members states according to economy size. Each state can withdraw quota w/o penalty or conditions

11 Changing Institutions-IMF U.S. balance of payments grew unsustainable due to growth of European and Japanese economies, and U.S. military and aid obligations abroad. Dollars went out without other states buying U.S. goods. England and France asked for Gold- U.S. defected and IMF changed to Special Drawing Rights as reserve currency (SDRs had been created in 1969 to cope with lack of gold and dollars.) SDRs are basket (weighted average) of major hard exchangeable currencies.

12 IMF-Goals Roles Exchange Rates Permanent Forum for Coordination Poverty Reduction/ Growth Research and Technical assistance Surveillance Stabilization bi-lateral & Systemic Terms of Trade/BoP crisis

13 IMF Policy Broad Principles Belief that imperfect markets require intervention, but privatesector activities key to sustained growth Market-systems with high competition more efficient in allocating resources and addressing needs Trade & Investment and information key to economic progress. Exchange rates should reflect international competitiveness. Inflationary policies undermine growth Price stability requires anticipatory monetary policy Public sector provides public goods such as rules for markets, education, health infrastructure and overcoming market failures. Public expenditure needs to be financed with equitable and enforceable taxes. Fiscal deficits can be desirably counter-cyclical ; but PBR needs to be kept manageable lest it foreclose future policy flexibility.

14 IMF lending mechanisms Extended fund facility -Medium term lending -Roll-over of other loans to enable structural adjustments -Repayment periods longer than 3 years -at SDR rates (weighted average) Non-concessional Supplemen tal Reserve Fund Created in 1997 after global meltdown. Provides near concessional extraordinary funding over 300% limit SBA s -For loans greater than 25% of Quota -typically months - repayment up to 4 years -at SDR rates (weighted average), plus or minus basis points Concessional lending facilities Exogenous Shock Facility -less than 1095 per cap GDP -.5% interest -subject to streamlined conditionality process Poverty Reduction and Growth Facility -less than 1095 per cap GDP -.5% interest -subject to developing Strategy- Papers

15 IMF Conditionality Process Any borrowing beyond 1st tranche of reserves subject to conditionality SBA, PRSP etc Inception: country notifies IMF Blue Print developed by country and IMF staff IMF Management Reviews Blueprint returns with changes Accepted Letter of Intent= SBA Summary of agreed plan= Letter of Intent Country and IMF country staff bargain changes First tranche released: monitoring Evaluation and Adjustment of Benchmarks: more tranches released Repayment

16 IMF: Former Orthodoxy IMF conditionality: A challenge to state sovereignty. Raising interest rates Improved reporting of financial data Stand-by agreements include requirements on inflation targets. Used to recommend ex-rate driven stabilization Often recommend financial liberalization. Privatization as way of reducing government debt exposure. Removal of subsidies Removal of tariffs, liberalization of traded goods sector Raising taxes Improved regulatory oversight Very controversial as 80s-90s driven by strange combo of market fundamentalism and fixed exchange rates the goal was to increase trade and investment. Benchmarks are flexible to IMF, not so to other investors.

17 IMF: Record and reforms Mixed results in economic recovery. Argentina collapse, recovery IMF paid off return to fragility. Turkey 1999 program collapsed, 2001 program has been good so far 5-8% growth rate. Korea, Indonesia, Thailand overshot tightening Malaysia refused IMF conditionality, tightened capital controls and recovered faster than others hit in Asian finance crisis. Demanding better information from governments for surveillance. More development, less contractionary policies Forgiveness for HIPC countries Slower liberalization, retention of capital controls More flexibility for benchmarks and progress indicators More transparent negotiations process

18 Current Governance Executive Board 24 members. U.S. France, Japan, U.K., Russia, China, Saudi Arabia all have permanent seats Other seats rotate Board of Governors 184 members + alternates IMF professionals answer to organization not member states. Votes allocated by quotas. Quotas adjusted 5 year intervals, sort of based on economic changes. Reserves have grown 1/3 rate of global economy poses challenges to lender of last resort function

19 IMF: Quotas Quotas total $342 billion, with IMF resources at $606 bil. Of resources only $217 billion are available near-term. Borrowing arrangements from wealthier members is most of the IMF Resources rest. SDR holdings 1% Gold holdings 1% Other assets 2% Members' currencies 56% /Quotas Other borrowing arrangements 1/ 40%

20 uotas and Reform Reform Double size of deposits at IMF to 730 billion SDR. ($1,095 bil) Change structure to reflect changes in growth rates. Chart below in percent share India Russian Saudi Arabia China UK France Germany Japan United states 10 0 GDP Share Current Round Proposed Shares