Funds international currency

Birth of the IMF

The IMF was born in July 1944 at the time of the Conférence from Bretton Woods in order to try to guarantee the stability of the Système international currency of after Second world war. This system, suggested by the American representative Harry Dexter White, rested on three rules:

Each State was to define its currency compared to the Or, or with the American dollar itself convertible out of gold. It resulted from this for each currency an official parity out of gold or dollar (system known as of “gold exchange standard” or “ gold exchange standard ”).
the value of the currencies on the foreign exchange market was to fluctuate only in one margin of 1 % compared to their official parity.
each State was charged to defend this parity while taking care to balance its Balance of the payments.

The role of the system international currency is thus to promote the monetary Orthodoxie in order to maintain a context favorable to the rise of the world commerce, while granting loans to certain countries in difficulties in the context of the rebuilding according to war. The IMF is more or less complementary to other great economic institutions created at the time: BIRD (international Bank for the development and the rebuilding, also called the World Bank) which was created at the same time as the IMF, and GATT ( General Agreement one Tariffs and Trade ) signed little time afterwards.

During the negotiations of Bretton Woods, the British representative, the economist John Maynard Keynes, the creation of an institution much more important wished, a true world Central bank intended to emit an international currency, the “Bancor”. This proposal was disallowed. It would have meant for the United States a loss of sovereignty with respect to an international institution and would have prevented them from benefitting from the dominant position of the American dollar at the time.

The IMF within the framework of the system of Bretton Woods

Its operation

The role of the IMF was to try to guarantee the good performance of the monetary system of Bretton Woods. When certain countries appeared unable to maintain the value of their currency in the margin of the 1 % envisaged by the agreements of 1944, they could resort to Dévaluation S or Réévaluation S according to the cases. If their monetary readjustments were higher than 10 %, they were to then obtain the prior agreement of the organization.

To try to avoid this kind of situation, the IMF plays a part of financial intermediary between Member States. Thus each State must pay with the organization a certain sum, named “ quota ” and whose amount is determined by its economic power, itself measured by its GNP and the importance of sound Foreign trade. 25 % of this quota must be paid in Or, the remainder in national currency. In the event of imbalance of its balance of payments being likely to threaten monetary balance on the foreign exchange market, each Member State can obtain 25 automatically; % of its quota (“ drawing right ”), allowing him to support, by the purchase, its national currency. If the IMF the judge necessary, it can lend to this country until 125 % of its quota. Its loans are supposed to make it possible the central banks to defend their currency on the foreign exchange market.

The granting of these appropriations is subjected to conditions and the petitioning country must engage in a political of adjustment advised by the organization in order to cure the causes of the depreciation of its currency.

The IMF functions in addition on a voting system, where the voices are balanced by the amount of the “quota”. Thus with its creation, the United States alone holds 25 % of the voices. The United States is in addition the only ones to have a right to veto within this organization.

One notices that in such a system, only the the United States do not need to worry, a priori , of the course of their currency considering which it makes office of standard. Thus the United States could know important deficits without being subjected to the remarks of the IMF.

First reform proposals

Within the framework of the system of Bretton Woods, each national central bank must be able to exchange out of gold or dollar, any sum of its national currency which would be presented to him by a foreign holder (principle of external convertibility). I.e. if having German of the francs asks it, the Banque de France must exchange them to him against American dollars or gold. In such a system, the dollar initially proved too rare to provide this function, but as from the years 1950, the US deficits made it possible to make dollar an abundant currency. In 1959, certain countries ask for the United States the conversion of their dollars into gold, which causes a first crisis of the system. Vis-a-vis this crisis, the American economist Robert Triffin ( the gold and the dollar crisis , 1960) proposes a reform of the IMF. According to him the monetary system of Bretton Woods is confronted with a dilemma (the “dilemma paradox of Triffin”):

the the United States must provide to the rest of the world significant amounts of dollars in order to allow the rise of the world commerce whose payments are carried out thanks to this currency.
At the same time, they must maintain the value of the dollar compared to gold, which amounts on the contrary limiting the monetary emission.

For R. Triffin, the loans conceded by the IMF are insufficient to allow the Central banks in difficulty in maintaining the parity official of their currency on the foreign exchange market. It thus wishes a reinforcement of the role of the organization by allowing more important loans which would be granted, not in national currency, but in a Unit of Account common and suitable for the IMF. In such a system all the countries should deposit a uniform proportion their monetary reserves. Its deposits would be entered in a common unit which would not be the dollar but which would be also convertible out of gold. This news Unit of Account under the control of the IMF would allow the stability of the system international currency, and would solve the contradiction which rises from the paramount role of the American dollar. This proposal celebrates will not be adopted, although the diagnosis of R. Triffin will appear exact.

Creation of the Drawing right special

A crisis similar to that of end of the year 1950 occurs at the end of the following decade. Again the speculators play against the dollar. The holders of the American dollar ask for his conversion into gold, which causes in March 1968 the suspension of the external convertibility of the dollar, measures aiming at limiting the gold exit of the American trunks. In 1969, vis-a-vis the incapacity of the dollar to play its old part, the IMF will create of any coin a new currency, always existing, the SDR (special drawing right).

The SDR is then a currency defined by a gold parity; it was on several occasions granted the various Member States, according to their quota, in order to create new international liquidities (in 1970,1978 and 1981 then recently with certain countries not being members of the organization at the preceding dates, and this in a concern for “equity”). Today definite compared to a basket of currencies (5 more important), the SDR is especially used by the central banks (and with very specific uses: it is used for example as money of account to the telephone operators for the payment of the taxes of international interconnections).

End of the system of Bretton Woods

In January 1976, the members of the IMF sign the Accords of Jamaica which allow the undulation of the currencies. The principal initial role of the IMF, to guarantee the stability of foreign exchange rates in a margin of 1 %, disappeared.

The IMF, of 1976 to our days

Objectives of the IMF today

Since 1976, the role of the IMF initially consists in supporting the knowing countries of the financial problems. When a country is confronted with a financial crisis, the IMF grants loans to him in order to guarantee its Solvabilité and to prevent the bursting of a financial crisis similar to that which struck the United States in 1929.

Article I of the statutes of the IMF into fixed the goals: “To encourage the international monetary co-operation; to facilitate the harmonious expansion and increase in world commerce; to promote the stability of the exchanges; to help to establish a multilateral system of payments; to put temporarily, realizing adequate guarantees, its general resources at the disposal of the Member States which face difficulties of balance of payments. More generally, and in accordance with its other goals, the IMF has as a responsibility to ensure the stability of the international financial system. ” the IMF is in this direction, the person in charge of last spring of the liquidity of the international financial system, to avoid the blocking of the exchanges and the contagion with all the system (systemic risk) of temporary problems of solvency of a given country or a Central bank. It is a kind of “central bank of the central banks and Treasuries”.

Within the framework of the loans which it grants, the IMF must guarantee near its contributors the good use of the funds allocated with such or such country. Only it is not a question to delay the crisis by the granting of a temporary monetary help, but to benefit from the respite granted by the loan to correct the causes structural of the economic difficulties. Thus the IMF requires borrowers whom they set up the economic policies that he recommends: “political of structural adjustment”. Finally the three great missions of the IMF are:

to grant loans to the countries in financial problems
advising the Member States as for their economic policy
to bring an technical assistance and offers of formation to the Member States in the need.

Operation and resources

The IMF is controlled by its 185 Member States, each one having a voice balanced by its financial participation with the organization (its “quota”). It makes many decisions in dialog with the the World Bank within the “Committee of development”. Its current management is entrusted to a 24 administrator and board of directors made up of the president of the organization representing each one a nation. 8 of them have an permanent representative (the United States, the United Kingdom, France, Germany, Japan, China, Russia and Saudi Arabia), the 16 others are elected by the Member States.

The majority of the decisions are taken in the facts unanimously. However, taking into account the methods of decision making within the IMF, which suppose a qualified majority correspondent with 85% of the rights to vote, the United States, or the European Union as a whole, have fact of a right to veto on the decisions of the IMF since they lay out each one of more than 15% of the rights to vote. However, the countries of the EU are not always coordinated.

The resources of the IMF related to the quotas are approximately 210 billion SDR (that is to say 300 billion American dollars), to which the possibility for the IMF is added of resorting to loans towards the economic great powers (these appropriations are about 50 billion dollars).

The IMF counts approximately: 2700 employees.

Policies recommended by the IMF

Where it intervenes, the IMF, with the granting assistance of other international organizations of the loans (like the World Bank), thus negotiates plans known as of “adjustment structural”. They generally consist in improving the conditions of production and offer via the promotion of the mechanisms of the market. Among the concrete measures often required one finds, the opening of the country to the foreign assets and the international business, the liberalization of the job market and the reduction of the weight of the State, i.e. the privatization of many companies. The American economist John Williamson gathered the whole of these ideas under the term of “consensus of Washington”, by stressing that they are divided by the majority of the large international organizations (Fund international currency, the World Bank, World Trade organization…) whose majority have their seat in Washington.

These plans do not envisage falls of taxes, but in general of the falls of expenditure combined with rises of taxes in order to restore the balance in the budget of the states with problem. For example, in Cameroun, the plan of adjustment resulted in rises in the taxation so much so that the employers' grouping had to ask a “tax pause” two years to be able to face the new taxes.

The interventions of the IMF multiplied in the developing countries starting from the years 1980 which transfer to burst the crisis of the debt of the Third world, in particular as from 1982 and the suspension of payment of the Mexico. However the IMF also sometimes intervened in developed countries, as in South Korea at the end of the years 1990.

The encouragement with the deregulation of the job market

The deregulation of the job market is an idea frequently proposed by the IMF to support the economic growth. The IMF thus uses the “index of protection of employment” (created by the economic Cooperation organization and of development (OECD)), country by country, and encourages with its reduction.

For example, the IMF studied the case of France, and encourages the government to fight against rigidities on the job market. He encourages the government to avoid new revalorizations of SMIC, and to limit the phenomena of “Stowaway” for the payment of the returned of inactivity.

The IMF since the years 1980

As regards the developing country, the analysis of the experts of the IMF is simple. Since the end of the Second world war, the countries having chosen to choose an introverted growth, like a long time the China and the India, did not know an economic success, while others, like the “Asian dragons”, knew to benefit from their advantages, an abundant labor in particular, to open with the international business and to thrive. The IMF thus seeks generally to force the developing countries to open with the foreign trade.

At the time of the years 1980, the IMF takes a new role vis-a-vis the bursting of the crisis of the debt of the third world and imposes these economic policies of structural adjustments and fight against poverty on many countries of Africa and Latin America.

The beginning of the year 1990 is marked by the bursting of the Soviet block and the need for the IMF for organizing the monetary system of the countries of Europe of the East and the Russia for an integration in the world financial system and of better a transition from these economies directed towards the market economy.

With the beginning of the year 1990, the financial international ones had started again their loans in Mexico in a context of reform of market which aimed at liberalizing the economy. However at the end of 1994, the financial markets changed their appreciation of the Mexican situation suddenly, fearing to have lent more than the country could not refund. The financial crisis which rose from this sudden change of mood of the markets involved an immediate reinflation of the investors by the IMF and the Federal fund of the United States (EDF). The crisis was quickly overcome. For certain analysts, the fast rectification of Mexico is not ascribable in the IMF but with the role of the American commercial appropriations and the integration of the country in the any news ALENA (Agreement of North-American free trade).

The Asian Financial crisis touches initially the Indonesia in 1997 when the IMF imposes a monetary strict budgetary policy and austerity policy, in spite of the social and ethnic instability of the country. Several banks were closed, which caused according to certain analysts aggravement of the crisis. Vis-a-vis the expansion of the crisis, the countries of Asia adopted different positions with respect to the policies recommended by the Funds international currency. Certain countries as China avoided the crisis by adopting expansion policies economic (opposite of the recommendations of the IMF). The Malaysia it did either not take the advice of the institution and took measures such as the control of the movements of capital what caused reproaches of the IMF. However other countries knew a fast raising by partially adopting the measures recommended by the IMF. It is the case of the South Korea, which however took care not to adopt all the proposed measures. During the Asian crisis certain countries were in addition shown extremely critical with respect to the management of the latter by the IMF. The Japan, by keeping criticisms open with respect to the institution, however proposed the creation of Funds Asian monetarist to which he declared himself ready to contribute to height of 100 billion dollars.

According to Joseph Stiglitz ( When capitalism loses the head ), the assistances granted by the American Treasury and the IMF contributed to meet the conditions of a crisis in Argentina. According to him, the loans conceded with this country made it possible to the creditors to grant loans without worrying about the real economic condition of the borrowers: they thought that they would be reinflated in any case by the IMF. On their side the borrowers carried out a similar reasoning what with final destabilized the financial position of the country and fed the speculation. The United States, via the IMF, had also imposed a liberalization of flows of capital and a Déréglementation of the banking system. Certain countries of Latin America, in particular the Argentinian and the Chile were shown like examples of the good application of the principles of the “Consensus of Washington”. If the two countries knew a certain success indeed, Argentina ended up seeing its economy collapsing in 2001. Then, it is on the contrary by not applying the recommendations of the IMF that the economy of the country was rectified. Chile continues as for him its development on a very good growth rate.

Since the year 2005, the appropriations granted by the IMF were reduced drastiquement, because of economic good health of the world and the countries of Latin America in particular.

Principal interventions

1997 : Asia (Asian Economic crisis)
1998: Russia and Mexico (Russian Financial crisis, Mexican Economic crisis)
1998: Brazil (41,5 billion dollar S)
2000: Turkey (11 billion dollars)
2001: Argentinian (21,6 billion dollars) (Argentinian Economic crisis)

Critical of the IMF

Vote censitaire and partiality

The United States is the principal contributor of the IMF, and thus has 16.8% of the rights to vote. The European Union has 32.1% of the rights to vote. This rule is also criticized by the Russian Minister for Finances, Alexeï Koudrine, which estimates that this system of selection is also unjust towards the other large countries of the world the such Brésil, the India or the China.

The distribution of the rights to vote raises for some the question of the equity of the IMF: in Great Disillusion , the American economist Joseph Stiglitz makes for example of the IMF an institution to the service of its principal shareholder, the United States. Its criticism regularly clarifies the partiality of the IMF which is likely to involve the decline of this institution: “if the analysis of world imbalances by the IMF is not equitable, if the Funds does not identify the United States as being the principal culprit, if it does not turn its attention on the need for reducing the American budget deficit by higher taxes for the richest citizens and of weaker expenditure as regards defense, the relevance of the IMF high risk to decline during the 21e century”.

Policy considered harmful for the developing countries

Criticisms have as a source the majority of the organizations altermondialists and also come from economists considered liberal (cf Friedman…) or of the the World Bank. They consider that the interventions of the IMF, even if they allow a temporary breakdown service of the countries of the Tiers-monde which accept them, worsen poverty and the debts by removing or decreasing the capacity of intervention of these State S, which would prevent them from better regulating their problems. The principal argument is based on the fact that the IMF recommends the same economic recommendations and overall the same plans of Structural adjustment (primarily of privatizations and the openings of the interior market) to any petitioning country of assistance, without analyzing in-depth the structure of each one. On the basis of Consensus of Washington , he would generally recommend a larger opening to the Capitaux, with the services and world goods, the privatization of the state enterprises as well as the budgetary austerity. One can take as example the Argentine, which was regarded as a model country by the IMF (to have followed to the letter its recommendations), but which underwent an economic serious attack in 2001, involving chaos (with five presidents in ten days in 2001).

On this subject, American Joseph E. Stiglitz developed these criticisms, in particular over the period 1990 - 2000, in his book Great Disillusion (2002). About the intervention of the IMF in the Asian countries, in particular the Indonesia, the liberal economist Milton Friedman, even declared that without the IMF, there would not be the problem of Asia. There would be perhaps isolated cases, like the Thailand, but there would not be a so great crisis through Asia . The direction of the the World Bank was also distant compared to the position of the IMF and reinforced the impression that the two institutions do not speak systematically any more about the same voice. Mr. James Wolfensohn ninth president of the World Bank, in his speech of October 6th 1998, declared that it would wish that the programs of financial rescue attach more importance to the social concerns (like unemployment) and that the IMF insisted too much on the other hand on the stabilization of the currencies .

In his book The Globalisation off Poverty , Michel Chussodovsky charges to the IMF the bursting of the Yugoslav federation, which “is directly connected to the macro-economic program of reorganization imposed on the government of Belgrade by its creditors of outside. Adopted in several stages since 1980, this program contributed to start the collapse of the nation's economy which led to the disintegration of the industrial sector and the gradual dismantling of the Welfare state. The separatist tendencies supplied with social and ethnic divisions precisely took their dash for one period of brutal impoverishment of the Yugoslav population. ”

The populations can be very critical vis-a-vis the Politiques of structural adjustment (NOT). For example, the population Senegal ease does not include/understand why this country owed privatiser so much its railroads, which led to the removal of the line, that its veterinary National office, measures leading to the rise in the prices of the veterinary products, involving a development of the epidemics and parasites and succeed to decimate herds, to lower the medical quality of the animals, and preventing exports of the cattle. The situation in Guinea and with the Ghana is appreciably the same one. In Mauritania, the suppression of the traditional collective ownership of the ground involved a concentration of the land and buildings in the transnational hands agro-alimentary ones.

The problem can be dependant at the same time on a bad knowledge of the ground by the IMF, and on a bad communication of its share.

Lastly, the IMF underwent a second reverse in Latin America, in particular in Argentine, whose president Nestor Kirchner unilaterally re-spread the debt with the private creditors, while retracting 75 % of this one. After having found as of 2003 of important growth rates (around 9 %), it finally decided in 2005 the total refunding of its debt in a way anticipated envisaged normally in 2007, in order to avoid the throttling of its economy by the interests, which had led to the financial crisis according to Nestor Kirchner. With the refunding of its debt of 9,6 billion dollars in the IMF, Argentina starts to build its independence , Mr. Kirchner said. The IMF was pleased with the full repayment of the debt of Argentina.

Withdrawal of Venezuela

May 1st, 2007, the president of the Venezuela, Hugo Chavez announced her intention of withdrawal of its country of the the World Bank and the Funds international currency with these words: “It is better that we leave there before us were plundered” and this after having refunded its debt at the IMF in 2006. At August 21st, 2007, this withdrawal is not effective.

Critical of the conditionalities known as of structural adjustment

The critics think that the conditions negotiated with the IMF, a supranational entity, in the form of plane of Structural adjustment limit the Souveraineté nation's economies by framing certain aspects of the policy of the State.

They criticize also the impact of these plans on the economy. From their point of view, the action on the wages decreases by as much the Purchasing power nominal, the privatization of the state enterprises reduces the capacity of the State to intervene. Moreover the increase of the Importation S would often put at evil the local economies traditional systems of production.

According to them, some of these plans, by blocking the reform of the arable lands all in incentive to increase the trade of the agricultural food products, would be among the causes of the Migratory flux S towards the cities, of the extension of the Bidonville S and poverty and the emigration towards the countries of North.

These plans are also held for persons in charge of the economic Stagnation which struck some of the countries which applied them. For example, the removal or the reduction of the government aid for the education would have in certain handicapped countries the formation and harms the growth. In the same way, of the suppressions of programs of health would have let the AIDS devastate populations, as well as the economy by decimating labor.

Leaders

Since 1946, the general position of director of the IMF was successively occupied by:

1946 with 1951 - Camille Gutt (Belgium),
1951 with 1956 - Ivar Rooth (Sweden),
1956 with 1963 - Per Jacobsson (Sweden),
1963 with 1973 - Pierre-Paul Schweitzer (France),
1973 with 1978 - H. Johannes Witteveen (Netherlands),
1978 with 1987 - Jacques de Larosière (France),
January 16th, 1987 at February 14th, 2000 - Michel Camdessus (France),
May 1st, 2000 at March 4th, 2004 - Horst Köhler (Germany),
March 4th, 2004 at May 4th, 2004 - Anne Krueger (the United States),
May 4th, 2004 at November 1st, 2007 - Rodrigo Rato (Spain)
Since November 1st, 2007 - Dominique Strauss-Kahn (France)

A gentlemen' S agreement passed between Americans and Europeans wants that the director of the IMF is an European and that of the the World Bank, an American. In 2007, the wages at this station were fixed at: 495000$ Net per annum.

References

Random links: