104-780: The Enhanced Structural Adjustment Facility (ESAF) was a program of financial assistance given to poor countries from December 1987 through 1999 through the International Monetary Fund . It replaced the Structural Adjustment Facility (SAF) and was itself replaced by the Poverty Reduction and Growth Facility (PRGF). During the program's tenure, approximately 10.1 billion dollars were disbursed, through low interest (.5 % annual) loans payable after 5½ years, and due in 10 years. International Monetary Fund The International Monetary Fund ( IMF )
208-525: A ripple effect through the financial system and the economy (as well as any connected economies) as a whole. The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies . Malaysian Prime Minister Mahathir Mohamad accused George Soros and other currency traders of ruining Malaysia's economy with currency speculation . Soros claims to have been
312-434: A January 2014 report entitled "Fiscal Policy and Income Inequality" that stated that "Some taxes levied on wealth, especially on immovable property, are also an option for economies seeking more progressive taxation ... Property taxes are equitable and efficient, but underutilized in many economies ... There is considerable scope to exploit this tax more fully, both as a revenue source and as a redistributive instrument." At
416-480: A broader focus of promoting market-liberalizing reforms through structural adjustment programs. This shift occurred without a formal renegotiation of the organization's charter or operational guidelines. The Ronald Reagan administration , in particular Treasury Secretary James Baker , his assistant secretary David Mulford and deputy assistant secretary Charles Dallara , pressured the IMF to attach market-liberal reforms to
520-479: A buyer of the ringgit during its fall, having sold it short in 1997. At the 30th ASEAN Ministerial Meeting held in Subang Jaya , Malaysia , the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard. Coincidentally, on that same day, the central bankers of most of
624-532: A central role in the management of balance of payments difficulties and international financial crises. Through a quota system, countries contribute funds to a pool from which countries can borrow if they experience balance of payments problems. The IMF works to stabilize and foster the economies of its member countries by its use of the fund, as well as other activities such as gathering and analyzing economic statistics and surveillance of its members' economies. The current managing director (MD) and chairperson of
728-519: A further decline in South Korean shares since stock markets were already bearish in November. The Seoul stock exchange fell by 4% on 7 November 1997. On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24 November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms. In 1998, Hyundai Motor Company took over Kia Motors. Samsung Motors ' $ 5 billion venture
832-424: A general loss of demand and confidence throughout the region. Although most of the governments of Asia had seemingly sound fiscal policies , the International Monetary Fund (IMF) stepped in to initiate a $ 40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. However, the efforts to stem a global economic crisis did little to stabilize
936-504: A greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so many companies in these countries have, stood to suffer far more from… currency (depreciation) than from
1040-425: A high rate of return . As a result, the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore and South Korea experienced high growth rates, of 8–12% GDP, in the late 1980s and early 1990s. This achievement was widely acclaimed by financial institutions including IMF and World Bank , and
1144-511: A highly leveraged economic climate, and pushed up asset prices to an unsustainable level, particularly those in non-productive sectors of the economy such as real-estate. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money,
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#17328561461111248-407: A large number of Indonesian corporations had been borrowing in U.S. dollars. This practice had worked well for these corporations during the preceding years, as the rupiah had strengthened respective to the dollar; their effective levels of debt and financing costs had decreased as the local currency's value rose. In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened
1352-462: A largely uncontrolled manner to certain people only – not necessarily the best suited or most efficient, but those closest to the centers of power. Weak corporate governance also led to inefficient investment and declining profitability. Until 1999, Asia attracted almost half of the total capital inflow into developing countries . The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for
1456-487: A position of oversight of only exchange rates, their function became one of surveillance of the overall macroeconomic performance of member countries. Their role became a lot more active because the IMF now manages economic policy rather than just exchange rates. In addition, the IMF negotiates conditions on lending and loans under their policy of conditionality , which was established in the 1950s. Low-income countries can borrow on concessional terms , which means there
1560-473: A result of the crisis. Following the 1997 Asian financial crisis, income in the northeast, the poorest part of the country, rose by 46 percent from 1998 to 2006. Nationwide poverty fell from 21.3 to 11.3 percent. Thailand's Gini coefficient , a measure of income inequality , fell from .525 in 2000 to .499 in 2004 (it had risen from 1996 to 2000) versus 1997 Asian financial crisis. By 2001, Thailand's economy had recovered. The increasing tax revenues allowed
1664-542: A result of the crisis. In May 1997, the Bangko Sentral ng Pilipinas , the country's central bank, raised interest rates by 1.75 percentage points and again by 2 points on 19 June. Thailand triggered the crisis on 2 July and on 3 July, the Bangko Sentral intervened to defend the peso , raising the overnight rate from 15% to 32% at the onset of the Asian crisis in mid-July 1997. The peso dropped from 26 pesos per dollar at
1768-473: A series of bailouts ("rescue packages") for the most-affected economies to enable them to avoid default , tying the packages to currency, banking and financial system reforms. Due to IMF's involvement in the financial crisis, the term IMF Crisis became a way to refer to the Asian Financial Crisis in countries that were affected. The IMF's support was conditional on a series of economic reforms,
1872-494: A temporary rise in domestic interest rates…. Thus, on macroeconomics… monetary policy has to be kept tight to restore confidence in the currency.... From the then IMF managing director Michel Camdessus : To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations. From 1985 to 1996, Thailand's economy grew at an average of over 9% per year,
1976-498: A year and is responsible for electing or appointing an executive director to the executive board. While the board of governors is officially responsible for approving quota increases, special drawing right allocations, the admittance of new members, compulsory withdrawal of members, and amendments to the Articles of Agreement and By-Laws, in practice it has delegated most of its powers to the IMF's executive board. The board of governors
2080-628: Is a major financial agency of the United Nations , and an international financial institution funded by 190 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of last resort to national governments, and a leading supporter of exchange-rate stability . Its stated mission is "working to foster global monetary cooperation, secure financial stability, facilitate international trade , promote high employment and sustainable economic growth, and reduce poverty around
2184-869: Is a period of time with no interest rates, through the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit Facility (RCF). Non-concessional loans, which include interest rates, are provided mainly through the Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance via
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#17328561461112288-644: Is advised by the International Monetary and Financial Committee and the Development Committee. The International Monetary and Financial Committee has 24 members and monitors developments in global liquidity and the transfer of resources to developing countries . The Development Committee has 25 members and advises on critical development issues and on financial resources required to promote economic development in developing countries. 1997 Asian financial crisis The 1997 Asian financial crisis
2392-441: Is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance-of-payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse economic consequences. The IMF provides alternate sources of financing such as
2496-512: The COVID-19 pandemic . This was in addition to the $ 50 billion fund it had announced two weeks earlier, of which $ 5 billion had already been requested by Iran . One day earlier on 11 March, the UK called to pledge £150 million to the IMF catastrophe relief fund. It came to light on 27 March that "more than 80 poor and middle-income countries" had sought a bailout due to the coronavirus. On 13 April 2020,
2600-764: The Cold War limited the Fund's membership, with most countries in the Soviet sphere of influence not joining until 1970s and 1980s. The Bretton Woods exchange rate system prevailed until 1971 when the United States government suspended the convertibility of the US$ (and dollar reserves held by other governments) into gold. This is known as the Nixon Shock . The changes to the IMF articles of agreement reflecting these changes were ratified in 1976 by
2704-673: The Great Depression , countries sharply raised barriers to trade in an attempt to improve their failing economies. This led to the devaluation of national currencies and a decline in world trade. This breakdown in international monetary cooperation created a need for oversight. The representatives of 45 governments met at the Bretton Woods Conference in the Mount Washington Hotel in Bretton Woods, New Hampshire , in
2808-565: The Jakarta Stock Exchange touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to " junk bond ". Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by
2912-487: The Jamaica Accords . Later in the 1970s, large commercial banks began lending to states because they were awash in cash deposited by oil exporters. The lending of the so-called money center banks led to the IMF changing its role in the 1980s after a world recession provoked a crisis that brought the IMF back into global financial governance. In the mid-1980s, the IMF shifted its narrow focus from currency stabilization to
3016-604: The Latin American debt crisis . The effects of the SAPs were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a recession , the traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates. The reasoning was that by stimulating the economy and staving off recession , governments could restore confidence while preventing economic loss . They pointed out that
3120-495: The Poverty Reduction and Growth Facility . Upon the founding of the IMF, its three primary functions were: The IMF's role was fundamentally altered by the floating exchange rates after 1971. It shifted to examining the economic policies of countries with IMF loan agreements to determine whether a shortage of capital was due to economic fluctuations or economic policy. The IMF also researched what types of government policy would ensure economic recovery. A particular concern of
3224-784: The Special Data Dissemination Standard (SDDS). The executive board approved the SDDS and GDDS in 1996 and 1997, respectively, and subsequent amendments were published in a revised Guide to the General Data Dissemination System . The system is aimed primarily at statisticians and aims to improve many aspects of statistical systems in a country. It is also part of the World Bank Millennium Development Goals (MDG) and Poverty Reduction Strategic Papers (PRSPs) . The primary objective of
Enhanced structural adjustment facility - Misplaced Pages Continue
3328-428: The exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and intervened in the exchange market, buying up any excess domestic currency at
3432-454: The first Greek bailout that totaled €110 billion, to address the great accumulation of public debt, caused by continuing large public sector deficits. As part of the bailout, the Greek government agreed to adopt austerity measures that would reduce the deficit from 11% in 2009 to "well below 3%" in 2014. The bailout did not include debt restructuring measures such as a haircut , to the chagrin of
3536-455: The fixed exchange rate with foreign reserves . Neither of these policy responses could be sustained for long, as several countries had insufficient levels of foreign exchange reserves. Very high interest rates, which can be extremely damaging to a healthy economy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that
3640-472: The " structural adjustment package" (SAP). The SAPs called on crisis-struck nations to reduce government spending and deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal solvency , penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in
3744-432: The "General Agreement to Borrow" and the "Emergency Finance Mechanism". The scope and the severity of the collapses led to an urgent need for outside intervention. Since the countries melting down were among the richest in their region, and in the world, and since hundreds of billions of dollars were at stake, any response to the crisis was likely to be cooperative and international. The International Monetary Fund created
3848-415: The 1930s . The IMF formally came into existence on 27 December 1945, when the first 29 countries ratified its Articles of Agreement. By the end of 1946 the IMF had grown to 39 members. On 1 March 1947, the IMF began its financial operations, and on 8 May France became the first country to borrow from it. The IMF was one of the key organizations of the international economic system; its design allowed
3952-428: The 1940s and 1950s, and the recruitment of staff exposed to new thinking in economics. The IMF provided two major lending packages in the early 2000s to Argentina (during the 1998–2002 Argentine great depression ) and Uruguay (after the 2002 Uruguay banking crisis ). However, by the mid-2000s, IMF lending was at its lowest share of world GDP since the 1970s. In May 2010, the IMF participated, in 3:11 proportion, in
4056-472: The 1990s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s. Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated
4160-491: The 1990s, hot money flew into the Southeast Asia region through financial hubs , especially Hong Kong. The investors were often ignorant of the actual fundamentals or risk profiles of the respective economies, and once the crisis gripped the region, the political uncertainty regarding the future of Hong Kong as an Asian financial centre led some investors to withdraw from Asia altogether. This shrink in investments only worsened
4264-514: The Code of Conduct in the IMF Articles of Agreement, and to provide national economic information. However, stricter rules were imposed on governments that applied to the IMF for funding. The countries that joined the IMF between 1945 and 1971 agreed to keep their exchange rates secured at rates that could be adjusted only to correct a "fundamental disequilibrium" in the balance of payments, and only with
Enhanced structural adjustment facility - Misplaced Pages Continue
4368-463: The GDDS is to encourage member countries to build a framework to improve data quality and statistical capacity building to evaluate statistical needs, set priorities in improving timeliness, transparency , reliability, and accessibility of financial and economic data. Some countries initially used the GDDS, but later upgraded to SDDS. Some entities that are not IMF members also contribute statistical data to
4472-513: The IMF in 1980 after losing the support of the then United States President Jimmy Carter and was replaced by the People's Republic of China . However, "Taiwan Province of China" is still listed in the official IMF indices. Poland withdrew in 1950—allegedly pressured by the Soviet Union —but returned in 1986. The former Czechoslovakia was expelled in 1954 for "failing to provide required data" and
4576-609: The IMF is Bulgarian economist Kristalina Georgieva , who has held the post since 1 October 2019. Indian-American economist Gita Gopinath , previously the chief economist, was appointed as first deputy managing director, effective 21 January 2022. Pierre-Olivier Gourinchas was appointed chief economist on 24 January 2022. According to the IMF itself, it works to foster global growth and economic stability by providing policy advice and financing to its members. It also works with developing countries to help them achieve macroeconomic stability and reduce poverty. The rationale for this
4680-425: The IMF is part, are joint managers of this programme, which was approved by the executive directors of the IMF on 15 March 2012 for XDR 23.8 billion and saw private bondholders take a haircut of upwards of 50%. In the interval between May 2010 and February 2012 the private banks of Holland, France, and Germany reduced exposure to Greek debt from €122 billion to €66 billion. As of January 2012 ,
4784-554: The IMF said that it "would provide immediate debt relief to 25 member countries under its Catastrophe Containment and Relief Trust (CCRT)" programme. Not all member countries of the IMF are sovereign states, and therefore not all "member countries" of the IMF are members of the United Nations. Amidst "member countries" of the IMF that are not member states of the UN are non-sovereign areas with special jurisdictions that are officially under
4888-533: The IMF was to prevent financial crises, such as those in Mexico in 1982, Brazil in 1987, the 1997 Asian financial crisis , and the 1998 Russian financial crisis , from spreading and threatening the entire global financial and currency system. The challenge was to promote and implement a policy that reduced the frequency of crises among emerging market countries, especially the middle-income countries which are vulnerable to massive capital outflows. Rather than maintaining
4992-551: The IMF's agreement. Member countries of the IMF have access to information on the economic policies of all member countries, the opportunity to influence other members' economic policies, technical assistance in banking, fiscal affairs, and exchange matters, financial support in times of payment difficulties, and increased opportunities for trade and investment. The board of governors consists of one governor and one alternate governor for each member country. Each member country appoints its two governors. The Board normally meets once
5096-549: The IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore confidence in the currency. To achieve this, countries have to make it more attractive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations... Why not operate with lower interest rates and
5200-604: The Philippines dropped to virtually zero. Only Singapore proved relatively insulated from the shock, but nevertheless suffered serious hits in passing, mainly due to its status as a major financial hub and its geographical proximity to Malaysia and Indonesia. By 1999, however, analysts saw signs that the economies of Asia were beginning to recover. After the crisis, economies in East and Southeast Asia worked together toward financial stability and better financial supervision. The causes of
5304-478: The Rapid Financing Instrument (RFI) to members facing urgent balance-of-payments needs. The IMF is mandated to oversee the international monetary and financial system and monitor the economic and financial policies of its member countries. Accurate estimations require a degree of participatory surveillance. Market sizes and economic facts are estimated using member-state data, shared and verifiable by
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#17328561461115408-482: The Swiss, Brazilian, Indian, Russian, and Argentinian Directors of the IMF, with the Greek authorities themselves (at the time, PM George Papandreou and Finance Minister Giorgos Papakonstantinou ) ruling out a haircut. A second bailout package of more than €100 billion was agreed upon over the course of a few months from October 2011, during which time Papandreou was forced from office. The so-called Troika , of which
5512-408: The U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2008–2009 Global Financial Crisis. Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down
5616-587: The USD–Baht currency peg, and the Thai government was eventually forced to float the Baht, on 2 July 1997, allowing the value of the Baht to be set by the currency market. This caused a chain reaction of events, eventually culminating into a region-wide crisis. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in
5720-467: The United States a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At
5824-405: The United States, to discuss a framework for postwar international economic cooperation and how to rebuild Europe. There were two views on the role the IMF should assume as a global economic institution. American delegate Harry Dexter White foresaw an IMF that functioned more like a bank, making sure that borrowing states could repay their debts on time. Most of White's plan was incorporated into
5928-570: The affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the "New Arrangement to Borrow" operational. A year earlier, the finance ministers of these same countries had attended the 3rd APEC finance ministers meeting in Kyoto , Japan, on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under
6032-401: The chain objectives of tightened money supply , discouraged currency speculation , stabilized exchange rate, curbed currency depreciation, and ultimately contained inflation . In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows: From then IMF First Deputy managing director, Stanley Fischer in 1998: When their governments "approached
6136-420: The consequences of these policies for other countries and for the global economy . For instance, The IMF played a significant role in individual countries, such as Armenia and Belarus, in providing financial support to achieve stabilization financing from 2009 to 2019. The maximum sustainable debt level of a polity, which is watched closely by the IMF, was defined in 2011 by IMF economists to be 120%. Indeed, it
6240-472: The country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the U.S. dollar in October 2010. In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $ 900 million, huge foreign exchange reserves of more than $ 20 billion, and a good banking sector. However,
6344-452: The country will be able to rectify its macroeconomic and structural imbalances. In the judgment of the IMF, the adoption by the member of certain corrective measures or policies will allow it to repay the IMF, thereby ensuring that the resources will be available to support other members. As of 2004 , borrowing countries have had a good track record for repaying credit extended under the IMF's regular lending facilities with full interest over
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#17328561461116448-611: The country, many factors arising from all aspects, including sports broadcasting on Indonesian television, including: Additionally, the Indonesian motorcycle Grand Prix , which was held at Sentul , was dropped from the 1998 Superbike and MotoGP calendars. World Rally Championship also dropped the Rally Indonesia from their 1998 calendar . The banking sector was burdened with non-performing loans as its large corporations were funding aggressive expansions. During that time, there
6552-853: The countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the U.S. dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $ 17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $ 2.9 billion. Poverty and inequality increased while employment, wages and social welfare all declined as
6656-412: The crisis spread, other Southeast Asian countries and later Japan and South Korea saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt . Foreign debt-to-GDP ratios rose from 100% to 167% in the four large Association of Southeast Asian Nations (ASEAN) economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea,
6760-477: The debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money . More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia and Indonesia, which had the added complication of what was called " crony capitalism ". The short-term capital flow was expensive and often highly conditioned for quick profit . Development money went in
6864-418: The detriment of others because they do not bear the full consequences of their actions—is mitigated through conditions rather than providing collateral; countries in need of IMF loans do not generally possess internationally valuable collateral anyway. Conditionality also reassures the IMF that the funds lent to them will be used for the purposes defined by the Articles of Agreement and provides safeguards that
6968-682: The domestic situation in Indonesia. After 30 years in power, Indonesian President Suharto was forced to step down on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by a drastic devaluation of the rupiah . The effects of the crisis lingered through 1998, where many important stocks fell in Wall Street as a result of a dip in the values of the currencies of Russia and Latin American countries that weakened those countries' "demand for U.S. exports." In 1998, growth in
7072-438: The duration of the loan. This indicates that IMF lending does not impose a burden on creditor countries, as lending countries receive market-rate interest on most of their quota subscription, plus any of their own-currency subscriptions that are loaned out by the IMF, plus all of the reserve assets that they provide the IMF. The IMF was originally laid out as a part of the Bretton Woods system exchange agreement in 1944. During
7176-675: The economic environment. The devaluation of the Chinese renminbi and the Japanese yen , subsequent to the latter's strengthening due to the Plaza Accord of 1985, the raising of U.S. interest rates which led to a strong U.S. dollar, and the sharp decline in semiconductor prices, all adversely affected their growth. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation . This made
7280-503: The end of March 2014, the IMF secured an $ 18 billion bailout fund for the provisional government of Ukraine in the aftermath of the Revolution of Dignity . In late 2019, the IMF estimated global growth in 2020 to reach 3.4%, but due to the coronavirus, in November 2020, it expected the global economy to shrink by 4.4%. In March 2020, Kristalina Georgieva announced that the IMF stood ready to mobilize $ 1 trillion as its response to
7384-450: The final acts adopted at Bretton Woods. British economist John Maynard Keynes , on the other hand, imagined that the IMF would be a cooperative fund upon which member states could draw to maintain economic activity and employment through periodic crises. This view suggested an IMF that helped governments and act as the United States government had during the New Deal to the great depression of
7488-496: The financial conditions in Asia (subsequently leading to the depreciation of the Thai baht on 2 July 1997). Several case studies on the topic of the application of network analysis of a financial system help to explain the interconnectivity of financial markets , as well as the significance of the robustness of hubs (or main nodes). Any negative externalities in the hubs creates
7592-422: The form of policy reform. If the conditions are not met, the funds are withheld. The concept of conditionality was introduced in a 1952 executive board decision and later incorporated into the Articles of Agreement. Conditionality is associated with economic theory as well as an enforcement mechanism for repayment. Stemming primarily from the work of Jacques Polak , the theoretical underpinning of conditionality
7696-497: The future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced. There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In addition, financial systems were to become "transparent", that is, provide
7800-404: The highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7%. The baht was pegged at 25 to the U.S. dollar. On 14 and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. However, Thailand lacked the foreign reserves to support
7904-467: The international financial community. Later that year, in July, South Korea's third-largest car maker, Kia Motors , asked for emergency loans. The domino effect of collapsing large South Korean companies drove the interest rates up and international investors away. In the wake of the Asian market downturn, Moody's lowered the credit rating of South Korea from A1 to A3, on 28 November 1997, and downgraded again to B2 on 11 December. That contributed to
8008-492: The kind of financial information used in the West to make financial decisions. As countries fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were similar to that of
8112-535: The largest borrowers from the IMF in order were Greece, Portugal, Ireland, Romania, and Ukraine. On 25 March 2013, a €10 billion international bailout of Cyprus was agreed by the Troika , at the cost to the Cypriots of its agreement: to close the country's second-largest bank ; to impose a one-time bank deposit levy on Bank of Cyprus uninsured deposits. No insured deposit of €100k or less were to be affected under
8216-428: The organization's conditional loans. During the 20th century, the IMF shifted its position on capital controls. Whereas the IMF permitted capital controls at its founding and throughout the 1970s, IMF staff increasingly favored free capital movement from 1980s onwards. This shift happened in the aftermath of an emerging consensus in economics on the desirability of free capital movement, retirement of IMF staff hired in
8320-491: The organization's other member-states. This transparency is intended to facilitate international co-operation and trade. Since the demise of the Bretton Woods system of fixed exchange rates in the early 1970s, surveillance has evolved largely by way of changes in procedures rather than through the adoption of new obligations. The Fund typically analyses the appropriateness of each member country's economic and financial policies for achieving orderly economic growth, and assesses
8424-443: The path of "fast-track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows), maintenance of high domestic interest rates to attract portfolio investment and bank capital, and pegging of the national currency to the dollar to reassure foreign investors against currency risk. The conventional high-interest-rate economic strategy is normally employed by monetary authorities to attain
8528-537: The program, 787 insolvent financial institutions were closed or merged by June 2003. The number of financial institutions in which foreign investors invested has increased rapidly. Examples include New Bridge Capital's takeover of Korea First Bank. The South Korean won , meanwhile, weakened to more than 1,700 per U.S. dollar from around 800, but later managed to recover. However, like the chaebol, South Korea's government did not escape unscathed. Its national debt -to-GDP ratio more than doubled (approximately 13% to 30%) as
8632-461: The rate was almost exactly 8,000 to 1 U.S. dollar. Indonesia lost 13.5% of its GDP that year. In February 1998, President Suharto sacked the incumbent Bank Indonesia governor, J. Soedradjad Djiwandono , but this proved insufficient. Amidst widespread rioting in May 1998 , Suharto resigned under public pressure and Vice President B. J. Habibie replaced him. As a result of the financial crisis that hit
8736-608: The ratios rose from 13% to 21% and then as high as 40%, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise. South Korea , Indonesia and Thailand were the countries most affected by the crisis. Hong Kong , Laos , Malaysia and the Philippines were also hurt by the slump. Brunei , mainland China , Japan , Singapore , Taiwan , and Vietnam were less affected, although all suffered from
8840-405: The role of asymmetric information in the financial markets that led to a " herd mentality " among investors that magnified a small risk in the real economy. The crisis has thus attracted attention from behavioral economists interested in market psychology . Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997 . During
8944-408: The role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractionary fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to
9048-546: The rupiah currency trading band from 8% to 12%. As a result, the rupiah suddenly came under severe attack in August. Therefore, on the 14th of the month, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further due to the shift. The IMF came forward with a rescue package of $ 23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and
9152-458: The rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 U.S. dollar. The rate plunged to over 11,000 rupiah to 1 U.S. dollar on 9 January 1998, with spot rates over 14,000 during 23–26 January and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998,
9256-448: The same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Some economists have advanced the growing exports of China as a factor contributing to ASEAN nations' export growth slowdown, though these economists maintain the main cause of their crises was excessive real estate speculation. China had begun to compete effectively with other Asian exporters particularly in
9360-409: The sovereignty of full UN member states, such as Aruba , Curaçao , Hong Kong , and Macao , as well as Kosovo . The corporate members appoint ex-officio voting members, who are listed below . All members of the IMF are also International Bank for Reconstruction and Development (IBRD) members and vice versa. Former members are Cuba (which left in 1964), and Taiwan , which was ejected from
9464-416: The system to balance the rebuilding of international capitalism with the maximization of national economic sovereignty and human welfare, also known as embedded liberalism . The IMF's influence in the global economy steadily increased as it accumulated more members. Its membership began to expand in the late 1950s and during the 1960s as many African countries became independent and applied for membership. But
9568-455: The systems: A 2021 study found that the IMF's surveillance activities have "a substantial impact on sovereign debt with much greater impacts in emerging than high-income economies". IMF conditionality is a set of policies or conditions that the IMF requires in exchange for financial resources. The IMF does require collateral from countries for loans but also requires the government seeking assistance to correct its macroeconomic imbalances in
9672-589: The terms of a novel bail-in scheme. The topic of sovereign debt restructuring was taken up by the IMF in April 2013, for the first time since 2005, in a report entitled "Sovereign Debt Restructuring: Recent Developments and Implications for the Fund's Legal and Policy Framework". The paper, which was discussed by the board on 20 May, summarised the recent experiences in Greece, St Kitts and Nevis, Belize, and Jamaica. An explanatory interview with deputy director Hugh Bredenkamp
9776-466: The tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float . The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis. Other economists, including Joseph Stiglitz and Jeffrey Sachs , have downplayed
9880-413: The world." Established in July of 1944 at the Bretton Woods Conference , primarily according to the ideas of Harry Dexter White and John Maynard Keynes , it started with 29 member countries and the goal of reconstructing the international monetary system after World War II . In its early years, the IMF primarily focused on facilitating fixed exchange rates across the developed world. It now plays
9984-574: Was a haste to build great conglomerates to compete on the world stage. Many businesses ultimately failed to ensure returns and profitability. The chaebol , South Korean conglomerates, simply absorbed more and more capital investment. Eventually, excess debt led to major failures and takeovers. Amongst other stimuli, the crisis resulted in the bankruptcy of major Korean companies, provoking not only corporations, but also government officials towards corruption. The Hanbo scandal of early 1997 exposed South Korea's economic weaknesses and corruption problems to
10088-470: Was a period of financial crisis that gripped much of East and Southeast Asia during the late 1990s. The crisis began in Thailand in July 1997 before spreading to several other countries with a ripple effect, raising fears of a worldwide economic meltdown due to financial contagion . However, the recovery in 1998–1999 was rapid, and worries of a meltdown quickly subsided. Originating in Thailand, where it
10192-593: Was at this number that the Greek government-debt crisis started in 2010. In 1995, the International Monetary Fund began to work on data dissemination standards with the view of guiding IMF member countries to disseminate their economic and financial data to the public. The International Monetary and Financial Committee (IMFC) endorsed the guidelines for the dissemination standards and they were split into two tiers: The General Data Dissemination System (GDDS) and
10296-501: Was dissolved due to the crisis, and eventually Daewoo Motors was sold to the American company General Motors (GM). The International Monetary Fund (IMF) provided US$ 58.4 billion as a bailout package. In return, Korea was required to take restructuring measures. The ceiling on foreign investment in Korean companies was raised from 26 percent to 100 percent. In addition, the Korean government started financial sector reform program. Under
10400-402: Was known as part of the " Asian economic miracle ". In the mid-1990s, Thailand , Indonesia and South Korea had large private current account deficits, and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, a series of external shocks began to change
10504-482: Was known as the Tom Yum Kung crisis ( Thai : วิกฤตต้มยำกุ้ง ) on 2 July, it followed the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar . Capital flight ensued almost immediately, beginning an international chain reaction. At the time, Thailand had acquired a burden of foreign debt . As
10608-433: Was published a few days later, as was a deconstruction by Matina Stevis of The Wall Street Journal . In the October 2013, Fiscal Monitor publication, the IMF suggested that a capital levy capable of reducing Euro-area government debt ratios to "end-2007 levels" would require a very high tax rate of about 10%. The Fiscal Affairs department of the IMF, headed at the time by Acting Director Sanjeev Gupta, produced
10712-582: Was readmitted in 1990, after the Velvet Revolution . Apart from Cuba, the other UN states that do not belong to the IMF are Monaco and North Korea . Liechtenstein became the 191st member on 21 October 2024. Any country may apply to be a part of the IMF. Post-IMF formation, in the early postwar period, rules for IMF membership were left relatively loose. Members needed to make periodic membership payments towards their quota, to refrain from currency restrictions unless granted IMF permission, to abide by
10816-575: Was the "monetary approach to the balance of payments". Some of the conditions for structural adjustment can include: These conditions are known as the Washington Consensus . These loan conditions ensure that the borrowing country will be able to repay the IMF and that the country will not attempt to solve their balance-of-payment problems in a way that would negatively impact the international economy . The incentive problem of moral hazard —when economic agents maximise their own utility to
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