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Premium member Presentation Transcript International Financial institutions and third World Debt: International Financial institutions and third World Debt Vinod Vyasulu Mysore 17 October 2006International Financial institutions and third World Debt: International Financial institutions and third World Debt What are the IFIs? The Bretton Woods Institutions— International Bank for Reconstruction and Development International Monetary Fund Both based in Washington DCInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Both created after World War 2 IBRD to help in the reconstruction of war devastated Europe IMF to prevent the kind of trade distortions that led to the Great Depression by giving time;y loans to settle balance of payments crises International Financial institutions and third World Debt: International Financial institutions and third World Debt IBRD is headed by an American nominated by the US president The IMF is headed by a European chosen from among themselves by the EuropeansInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Each is run by a Board of Directors vote weight on the basis of contributions to the institution India, Bangladesh, Sri Lanka together have one DirectorInternational Financial institutions and third World Debt: International Financial institutions and third World Debt After the rise of Europe and Japan the IBRD had completed its job Under Macnamara, it changed its focus to third world issues Finance large projects, encourage private sector investment promote transfer of technologyInternational Financial institutions and third World Debt: International Financial institutions and third World Debt In recent years, shifted focus to poverty alleviation and then improvements in governanceInternational Financial institutions and third World Debt: International Financial institutions and third World Debt With the collapse of the dollar-gold link in 1971 the IMF began to take a more active part in international financial crises Each country is entitled to short term loans without any strings being attached many countries exhausted this, [oil shocks etc.] and asked for more This led to the introduction of 'conditionalities'International Financial institutions and third World Debt: International Financial institutions and third World Debt These conditionalities are meant to deal with the underlying causes of the balance of payments problem The IMF believes in a simple macroeconomics In a free economy, the balance of payments will be in equilibrium if the 'prices are right' Imbalances occur because of price distortions Or because governments fail to observe budgetary discipline and create deficitsInternational Financial institutions and third World Debt: International Financial institutions and third World Debt The solution is simple Reduce budgetary deficits Get the prices right The price here is the exchange rate of the currency To get it right often means devaluation Expenditure compression is the conditionalityInternational Financial institutions and third World Debt: International Financial institutions and third World Debt This is a unique 'one-size;fits-all' solution from the IMF For country after country recommends expenditure cuts to reduce budget deficit Devaluation to restore balance of payments equilibrium has never recommended increase in taxes to raise revenue and protect expenditureInternational Financial institutions and third World Debt: International Financial institutions and third World Debt The power of the IMF comes from the fact that private agencies treat its recommendations as a 'good conduct certificate' Once the IMF gives a loan, all sorts of financing becomes available this led to several economy collapses in Latin America Mexico, Argentina, Brasil to name only a fewInternational Financial institutions and third World Debt: International Financial institutions and third World Debt In the 1980s, the IBRD and IMF began to work together First, the IMF would sort out the short term mess in a country Then the IBRD would come in with loans for big projects Countries accepted this as leaderships had a short term vision many were military dictatorships—Argentina BrasilInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Keeping up with the IMF, the IBRD came up with the Washington Consensus Governments should stick to governing Private sector should be in business People should pay for what they use LPG—Liberalisation,Privatisation,Globalisation International Financial institutions and third World Debt: International Financial institutions and third World Debt In the 1997 financial crisis in East Asia, the IMF applied the same conditionalities But these countries had a budget surplus It made the problems worse and delayed recoveryInternational Financial institutions and third World Debt: International Financial institutions and third World Debt The IBRD has moved to budgetary support this enables it to make conditions for the entire economy, not just the project being financed Karnataka in 2000-2004 a case in pointInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Why do countries accept such conditionalities?International Financial institutions and third World Debt: International Financial institutions and third World Debt Thank You for your Attention You do not have the permission to view this presentation. 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ifi thirdworld debt mysore2006 Stefanie Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINTLite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: Embed: Flash iPad Copy Does not support media & animations WordPress Embed Customize Embed URL: Copy Thumbnail: Copy The presentation is successfully added In Your Favorites. Views: 157 Category: Education License: All Rights Reserved Like it (1) Dislike it (0) Added: February 20, 2008 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... Premium member Presentation Transcript International Financial institutions and third World Debt: International Financial institutions and third World Debt Vinod Vyasulu Mysore 17 October 2006International Financial institutions and third World Debt: International Financial institutions and third World Debt What are the IFIs? The Bretton Woods Institutions— International Bank for Reconstruction and Development International Monetary Fund Both based in Washington DCInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Both created after World War 2 IBRD to help in the reconstruction of war devastated Europe IMF to prevent the kind of trade distortions that led to the Great Depression by giving time;y loans to settle balance of payments crises International Financial institutions and third World Debt: International Financial institutions and third World Debt IBRD is headed by an American nominated by the US president The IMF is headed by a European chosen from among themselves by the EuropeansInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Each is run by a Board of Directors vote weight on the basis of contributions to the institution India, Bangladesh, Sri Lanka together have one DirectorInternational Financial institutions and third World Debt: International Financial institutions and third World Debt After the rise of Europe and Japan the IBRD had completed its job Under Macnamara, it changed its focus to third world issues Finance large projects, encourage private sector investment promote transfer of technologyInternational Financial institutions and third World Debt: International Financial institutions and third World Debt In recent years, shifted focus to poverty alleviation and then improvements in governanceInternational Financial institutions and third World Debt: International Financial institutions and third World Debt With the collapse of the dollar-gold link in 1971 the IMF began to take a more active part in international financial crises Each country is entitled to short term loans without any strings being attached many countries exhausted this, [oil shocks etc.] and asked for more This led to the introduction of 'conditionalities'International Financial institutions and third World Debt: International Financial institutions and third World Debt These conditionalities are meant to deal with the underlying causes of the balance of payments problem The IMF believes in a simple macroeconomics In a free economy, the balance of payments will be in equilibrium if the 'prices are right' Imbalances occur because of price distortions Or because governments fail to observe budgetary discipline and create deficitsInternational Financial institutions and third World Debt: International Financial institutions and third World Debt The solution is simple Reduce budgetary deficits Get the prices right The price here is the exchange rate of the currency To get it right often means devaluation Expenditure compression is the conditionalityInternational Financial institutions and third World Debt: International Financial institutions and third World Debt This is a unique 'one-size;fits-all' solution from the IMF For country after country recommends expenditure cuts to reduce budget deficit Devaluation to restore balance of payments equilibrium has never recommended increase in taxes to raise revenue and protect expenditureInternational Financial institutions and third World Debt: International Financial institutions and third World Debt The power of the IMF comes from the fact that private agencies treat its recommendations as a 'good conduct certificate' Once the IMF gives a loan, all sorts of financing becomes available this led to several economy collapses in Latin America Mexico, Argentina, Brasil to name only a fewInternational Financial institutions and third World Debt: International Financial institutions and third World Debt In the 1980s, the IBRD and IMF began to work together First, the IMF would sort out the short term mess in a country Then the IBRD would come in with loans for big projects Countries accepted this as leaderships had a short term vision many were military dictatorships—Argentina BrasilInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Keeping up with the IMF, the IBRD came up with the Washington Consensus Governments should stick to governing Private sector should be in business People should pay for what they use LPG—Liberalisation,Privatisation,Globalisation International Financial institutions and third World Debt: International Financial institutions and third World Debt In the 1997 financial crisis in East Asia, the IMF applied the same conditionalities But these countries had a budget surplus It made the problems worse and delayed recoveryInternational Financial institutions and third World Debt: International Financial institutions and third World Debt The IBRD has moved to budgetary support this enables it to make conditions for the entire economy, not just the project being financed Karnataka in 2000-2004 a case in pointInternational Financial institutions and third World Debt: International Financial institutions and third World Debt Why do countries accept such conditionalities?International Financial institutions and third World Debt: International Financial institutions and third World Debt Thank You for your Attention