Академический Документы
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Objectives
Introduction to IMF Case Studies Thailand South Korea Philippines Indonesia Malaysia Conclusion
Introduction to IMF
Established on Dec 27, 1945 as one of the two Bretton Woods System Original goal was to eliminate exchange rate restrictions and promote economic stability
Decades after WW II, the world experienced tremendous growth in real incomes The role of IMF has thus evolved to suit the changes promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment
Role of IMF
Very controversial, causing the locals to call the crisis the IMF crisis Criticized for encouraging the developing economies of Asia down the path of "fast track capitalism" Offered to step in the case of each nation and offer it a multi-billion dollar "rescue package" to enable these nations to avoid default
Exchange rate Banks borrowed in foreign exchange and lent in local currencies => exposure to losses in the event of a depreciation Mismatch of Maturities Banks borrowed in short-term maturities and lent with longer payback periods => exposure to the risk of a run (creditors refusal to roll over loans)
2.
Float of the currency Medium-term loans in the amount of 17.2 billion US$ to shore up the foreign reserve position, and maintain gross international reserves of $23 billion in 1997, and $24 billion in 1998. Spending Cut Increase in the VAT rate from 7-10%, effective August 16, 1997, expecting to yield nearly 1 percent of GDP in additional revenues on a full-year basis. Banking system reform
Critiques
"These countries didn't get into trouble because of profligate monetary policy, The IMF probably made the problems worse."
Alan Blinder Some important imbalances in fact existed but they would have required a more modest adjustment
Panic in the financial sector partially explained and definitely amplified by institutional weaknesses and bad (incoherent) policies, including non-domestic ones (IMF, lack of accurate international surveillance)
Why demand balanced budgets from countries that are already in recession due to lack of demand?
Thailand after IMF intervention ended with insufficient demand, high interest rates, when the need was of increase in investments, in education and/or infrastructure, both essential to economic growth. The lack of demand worsened the recession deepening the economic slowdown.
What about rising interest rate? Thailand firms at that time presented high levels of indebtedness, thus imposing a high interest rates helped to the collapse of many firms.
Tighten
Monetary and Fiscal Policies Cancel trade barrier Reform the bank system
Critiques
is no fundamental reason for Asians financial calamity except financial panic itself. banks and international banks are in the different criterion
Critiques
IMF policies were contractionary in nature Philippines deviated from the IMF goal, sought more aggressive reform
Philippines Strategy
Large amount of short-term foreign debt owed by the private corporate sector Attack on the Indonesian rupiah
Role of IMF
Financial support of up to about US$10 billion, equivalent to 490% of Indonesias quota, over the next 3 years
Initial programs: Financial sector restructuring Structural reforms Fiscal measures
Critiques
Forced government of Indonesia to guarantee private debts owed to foreign creditors Severe fiscal austerity caused millions of Indonesians lost their job
Attack of the Malaysian ringgit Sell off on the stock and currency markets
Moved the ringgit from a free float to a fixed exchange rate regime Imposed capital control Formed various agencies
Result
Growth at a slower but more sustainable pace In 2005 - US$14.06 billion surplus
Without IMF, Malaysia suffered less severe economic problems
Conclusion
The financial crisis in Asia was not a consequence of economic downturn Martin Wolf: Partial integration into a world financial system unable to evaluate risk either intelligently or consistently." IMF should not be given so much power IMF should build the confidence in the country