16581293 international financial institutions

8/14/2019 16581293 International Financial Institutions

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InternationalFinancial

InstitutionsConstance L. Danner


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MariaMaria 0505

MaryamMaryam 2222

HinaHina 2626

NadaNada 3636

ZohraZohra 4848


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Financial System

Money

Financial Instruments

Financial Markets

Financial Institutions

Central Banks


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Financial Institutions

A financial institution is an institution that

provides financial services for its clients or

members.

Act as financial intermediaries.


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International Financial

Institutions

International Financial Institutions

(IFIs) Refers to financial institutions

that have been established (or

chartered) by more than one country

and hence are subject to internationallaw

~Definition~


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Types Of IFIs

Bretton Woods institutions

Regional development banks

Bilateral development banks Other regional financial institutions


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Examples Of IFIs

International Monetary Fund

World Bank Group

Asian Development Bank African Development Bank

Inter-American Development Bank

Islamic Development Bank


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History Of IFIs

After the Great Depression inthe 1930s there was a need foran organization to create asystem for exchange ratestability

The World Bank and theInternational Monetary Fundwere created in the aftermathof World War II

Countries economies affected

by WWII need for reconstruction in well-

developed nations need for development in the

lesser developed nations


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Bretton Woods (Contd)

The meeting wasborn out of thedetermination byUS PresidentFranklin DRoosevelt and UKPrime MinisterWinston Churchill

to ensure post-warprosperity through

Churchill & Roosevelt at their first meeting~Bretton Woods~


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Bretton-Woods


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1944 Bretton Woods

President

Roosevelt told theconference: "The

economic health ofevery country is aproper matter of

concern to all itsneighbours, near

and distant


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IFIs: that Well discuss

International Monetary Fund

World Bank

Asian Development Bank


* ADB & IsDB will be explained briefly


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International Monetary

Fund(The IMF)


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International MonetaryFund

TheThe International Monetary FundInternational Monetary Fund ((IMFIMF))is an international organization thatis an international organization that

oversees the global financial system byoversees the global financial system by

following the macroeconomic policies of itsfollowing the macroeconomic policies of itsmember countries, in particular those withmember countries, in particular those with

an impact on exchange rates and thean impact on exchange rates and the

balance of payments. It is an organizationbalance of payments. It is an organizationformed to stabilize international exchangeformed to stabilize international exchange


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International Monetary Fund(contd)

Established in (1944)

Formally organized on (Dec 27th 1945)

Member states (185)

Headquarters (Washington USA)

Currency (SDR) *SDR = just a unit of accountnot a real currency

*Background Image = IMF Headquarters


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IMF: Managing Director

Dominique Strauss-Kahn

Nationality: French

10th Managing Director ofthe International MonetaryFund

Assumed this position onNov 1st ,2007.
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IMF: Purposes

Articles of Agreement of the IMF

i) promote international monetary cooperation

ii) expansion and balanced growth ofinternational trade

iii) promote exchange rate stability


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iv) help establish multilateral system of

payments and eliminate foreignexchange restrictions

v) make resources of the Fund available to

members

vi) Shorten the duration and lessen thedegree of disequilibrium in international

balances of payments
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Where does the IMF get itsmoney?

The quotasubscriptions

Gold holdings

Borrowingarrangements (eg.GABs)

Interest charges andFees


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What IMF Does?

The work of the IMF is of three

main types:

Surveillance

Lending

Technical Assistance


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EconomicSurveillance

The IMF oversees the international

monetary system and monitors thefinancial and economic policies of itsmembers. It keeps track of economicdevelopments on a national, regional, and

global basis


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Technical Assistance

To assist mainly low- andmiddle-income countriesin effectively managingtheir economies, the IMF

provides practicalguidance and training onhow to upgradeinstitutions, and designappropriatemacroeconomic, financial,and structural policies.


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Lending

The IMF providesloans to countries thathave trouble meeting

their internationalpayments and cannototherwise find

sufficient financing onaffordable terms


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Special Drawing Rights (SDRs)

The SDR is an international reserve asset,

created by the IMF in 1969 to supplement

the existing official reserves of membercountries.


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Unit of account

Need of SDR


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The SDR is neither a currency, nor a claim

on the IMF. Rather, it is a potential claim on

the freely usable currencies of IMFmembers.


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SDR valuation criterion

the value of the exports of goods and

services

the amount of reserves denominated in therespective currencies which were held by

other members of the IMF


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SDR valuation

SDR was initially equivalent to 0.888671

grams of fine gold

today consisting of the euro, Japanese yen,pound sterling, and U.S. dollar.

Values revised after five years


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How to calculate SDR

Friday, May 22, 2009

CurrencyWeigh

tsCurrency amountunder Rule O-1

Exchangerate

U.S. dollarequivalent

Euro44%

0.4100 1.35910 0.557231Japaneseyen

34%18.4000 97.89000 0.187966

Poundsterling

11%0.0903 1.51090 0.136434

U.S. dollar 11% 0.6320 1.00000 0.632000

1.513631

U.S.$1.00 = SDR 0.660663

SDR1 = US$ 1.51363


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How to Calculate *Interest Rate* (Interest thats charged on SDR)

For the week of May 18, 2009 to May 24, 2009

Currency

Currency

amount

under Rule O-1

(A)

Exchange rate

against the

SDR 1

(B)

Interest rate 2

(C)

Product

(A) x (B) x (C)

Euro 0.4100 0.893571 0.7330 0.2685

Japanese Yen 18.4000 0.00670294 0.1950 0.0241

U.K. Pound

Sterling0.0903 1.0012 0.5500 0.0497

U.S. Dollar 0.6320 0.665602 0.1800 0.0757

Total 0.4180

SDR Interest Rate 0.42


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Potential pitfalls as a reserve

currency

The SDR does not containChinese Yuan,

Indian Rupee, Australian Dollar or Canadian Dollar,

(which are important benchmark or secondaryglobal reserve currencies.)

The current SDR is a relatively small basketof currencies.


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QUOTAS


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QuotasDefinition

Each member country of the IMF is

assigned a quota, based broadly on itsrelative size in the world economy andcharacteristics .


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Size of the quotas determine votingpower

IMF decides on the quota for eachmember

richer countries have larger quota

IMF Members' Quotas and Voting


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IMF Members' Quotas and VotingPower

Member

QUOTA Governor VOTES

Millionsof SDRs

Percent ofTotal

Number Percent of Total

United States 37,149.3 17.09 Timothy F. Geithner 371,743 16.77

United

Kingdom

10,738.5 4.94 Alistair Darling 107,635 4.86

Japan 13,312.8 6.13 Kaoru Yosano 133,378 6.02

Germany 13,008.2 5.99 Axel A. Weber 130,332 5.88

France 10,738.5 4.94 Christine Lagarde 107,635 4.86

Italy 7,055.5 3.25 Giulio Tremonti 70,805 3.19

China 8,090.1 3.72 ZHOU Xiaochuan 81,151 3.66

India 4,158.2 1.91 P. Chidambaram 41,832 1.89

PakistanPakistan 1,033.71,033.7 0.480.48 Salim RazaSalim Raza 10,58710,587 0.480.48

*Source IMF site May 2009
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The Multifaceted Role of Quotas

(1) The amount of financial resources

(2) The member's voting power ininstitutional decision making (along withbasic votes);

(3) The level of access of the member toIMF financing;

(4) The members' share of general SDRallocations.


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More on quotas

Quotas are reviewed every 5 years by theIMF

Formula calculation

Quotas also determine how much eachmember can borrow from the IMF when inneed of aid


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When is a country in need ?

A country that had not taken in enoughforeign currency to pay the other countriesfor what they have bought

spends more money than it takes in

So IMF will lend foreign exchange to thatmember


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How much money a member canborrow from the IMF

25% of the countrys quota may be used

If this is not sufficient, then members canborrow up to 3 times the amount of its

quota present plans for reform to Executive

Directors

If these plans are sufficient for theExecutive Directors, the IMF grants themember a loan


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IMF&

Pakistan

Wh d P ki t


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Why does Pakistanneed IMF?

As Pakistan is a developing country andhas a struggling economy we often have toturn to IMF for help.

Pakistan gets loans from IMF for the followingmain purposes:

Balance of payment deficits.

Stabilization of currency. Rebuilding international reserves

Managing liquidity problems.


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IMF Attit d t d


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IMFs Attitude towardsPakistan

IMF attitude towardsdeveloping nationshas always been

humiliating so same isthe case withPakistan

The conditionsimposed for lendinghave a crushing effecton the economy

Th L t t L


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Pakistan has accepted 11 tough conditions fromthe International Monetary Fund (IMF) toovercome its pending balance of payment crisissome of them are as follow:

Pakistan government has agreed to graduallyimpose the central excise duty (CED) onservices and agriculture sectors at the rate ofeight to 18 percent in place of the general sales

tax (GST) The Pakistani currency was devalued after slight

changes in the discount rate and exchange ratedecreased officially by 6-7%

The Latest LoanNovember 24th 2008


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The WORLD BANK


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The World Bank is an internationalfinancial institution that provides financial

and technical assistance to developingcountries for development programs (e.g.

bridges, roads, schools, etc.) with thestated goal of reducing poverty.


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: Facts &Figures

History: Similar to IMF(result of Bretton Woods Conference,1944)

Formation: 27 December 1945

Purpose/ Focus : Poverty elimination by

debt creation Membership: 185 countries

President: Robert B. Zoellick

Main Organ: Board of Directors Parent Organization: World Bank Group First loan: $ 250m to France (for post-war reconstruction)

W ld B k


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World Bank:Headquarters

*Location: Washington, D.C.


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World Bank: President

Robert Bruce Zoellick

Nationality: American

Current (11th)

President of World

Bank

Since: July 1st, 2007

Nominated by: George

W. Bush
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World Bank: a Bank?

The World Bank is not a bank in thecommon sense of the word.

A single person cannot open anaccount or ask for a loan.


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World Bank Group

International Bank for Reconstruction andDevelopment (IBRD)

International Development Association

(IDA) International Finance Corporation (IFC)

Multilateral Investment Guarantee Agency

(MIGA) International Centre for Settlement of

Investment Disputes (ICSID)


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The World Bank Group


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World Bank

The World Bank differs from the WorldBank Group, in that the World Bankcomprises only two institutions:

International Bank for Reconstruction andDevelopment (IBRD)

International Development Association

(IDA)


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IBRD: Function

To assist in process of reconstruction, development andrestoration of countries destroyed by war.

To promote long term balanced growth all around theworld.

To encourage international investments for developmentof the member countries.

To encourage private foreign investments by means ofgurantees.

To help member countries in maintenances ofequilibrium of BOP.

To play a role so that smooth transition may take placefrom war time to peace time economies.


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IBRD

Mode of funding

Loans

Membership


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IDA

OrignIn 1959, the US made the resolution for the articles ofagreement for IDA and in September 1960 the IDA wasestablished.

Objectives and functions To promote economic development

increase productivity

raise standard of living It was established to provide confessional (no interest or

"soft") loans to the world's poorest governments.

Loans

World Bank Background and


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World Bank Background and

Objectives

Natural disasters

Needs affecting developing economies

Post conflict rehabilitation

Needs affecting a transitioning economy

WB Areas of operation


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WB: Areas of operationThe World Bank is active in the

following areas: Agricultural and Rural

Development Conflict and Development Development Operations and

Activities Economic Policy Education

Energy Environment Financial Sector Gender Governance Health, Nutrition and Population

Industry Information and Communication

Technologies Information, Computing and

Telecommunications International Economics and

Trade

International Economics andTrade

International Economics andTrade

Labor and social protection Law and Justice Macroeconomic and Economic

Growth Mining

Poverty Reduction Poverty Private Sector Public Sector Governance Rural Development Social Development

Social Protection Trade Transport Urban Development Water Resources Water Supply and Sanitation

Globalization and the role of


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Globalization and the role of

World Bank

The World Bank serves to eradicate theevils of globalization.

The first step of the World Bank towards

the accomplishment of the task is debtrelief.

The World Bank has also drawn plans tohelp the middle income countries in thedevelopment of their infrastructure anddevelop their trade


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Millennium Development Goals

Goal 1: Eradicate extreme poverty and hunger Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower

women

Goal 4: Reduce child mortality Goal 5: Improve maternal health Goal 6: Combat HIV/AIDS, malaria, and other

diseases

Goal 7: Ensure environmental sustainability Goal 8: Develop a global partnership for

development


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Diff b t IMF d WB


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Difference between IMF and WBInternational Monetary Fund World Bank

1 Purposesoversees the international monetary

system

seeks to promote the economicdevelopment of the world's poorer countries

2 Functions

promotes exchange stability and orderly

exchange relations among its member

countries

assists developing countries through long-

term financing of development projects and

programs

3 Recipients of Funding

assists all members--both industrial and

developing countries--that find themselves

in temporary balance of payments

difficulties by providing short- to

medium-term credits

provides to the poorest developing

countries whose per capita GNP is less than

$865 a year special financial assistance

through the International Development

Association (IDA)

4 Operations

supplements the currency reserves of its

members through the allocation of SDRs

(special drawing rights); to date SDR 21.4

billion has been issued to member

countries in proportion to their quotas

encourages private enterprises in

developing countries through its affiliate,

the International Finance Corporation (IFC)

Difference between IMF and WB


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Difference between IMF and WB

[contd]International Monetary Fund World Bank

5 Source of Funding

draws its financial resources principally

from the quota subscriptions of its

member countries

acquires most of its financial resources by

borrowing on the international bond market

6 Capital

has at its disposal fully paid-in quotas nowtotaling SDR 145 billion (about $215

billion)

has an authorized capital of $184 billion, ofwhich members pay in about 10 percent

7 Size and Structure

has a staff of 2,300 drawn from 182

member countries

has no affiliates or subsidiaries

has a staff of 7,000 drawn from 180

member countries (World Bank Group is

about three times as large as the IMF)

Has a more complex structureWB itself comprises of 2 major

organizations


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Asian Development Bank

(The ADB)

The Asian Development Bank
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The Asian Development Bank(ADB)

is a regional development bank established in1966 to promote economic and socialdevelopment in Asian and Pacific countriesthrough loans and technical assistance.

It is a multilateral development financialinstitution owned by 67 members (48 from theregion and 19 from other parts of the globe)

ADB's vision is a region free of poverty.

Its mission is to help its developing membercountries reduce poverty and improve the qualityof life of their citizens.

ADB:


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ADB:Headquarters

*Location:Location:

Manila, PhilippinesManila, Philippines


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(The IsDB)


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IsDB: Fact & Figures

Founded in: 18 December 1973(officially began its activities on 20 October, 1975 [15 Shawwal 1395H])

Headquarter: Jeddah, Saudi Arabia

Members: 56 Countries Financial year: lunar Hijri Year

Unit of Account: Islamic Dinar

Official Language: Arabic (English &French are also used)


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IsDB: Funtions

to provide equity participation and grantloans for productive projects andenterprises.

It also gives financial assistance tomember states in other forms for theireconomic and social development and to

foster foreign trade among membercountries.


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IsDB: Purpose

To foster the economicdevelopment and social progress of

Member States and Muslim

Communities individually as well ascollectively in accordance with the

principles of the Shariah


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IsDB: Main Shareholders

Saudi Arabia Sudan

Kuwait

Libya

Turkey

UAE Iran

Egypt

Indonesia

Pakistan

*IsDB: Bulding in Dhaka


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IsDB: Capital

The authorised capital of the Bank is six billionIslamic Dinars,

divided into 600,000 shares

The value of the Islamic Dinar is equivalent toone Special Drawing Right of the IMF (SDR).

The subscribed capital of the Bank is 4 billionIslamic Dinars. One Islamic Dinar =1.3 US

Dollar. `


77/98

Criticis

mon

IMFand

WorldB

ank

Criticism of


78/98

the IMF &

World Bankoften takesthe form of

protesting

* A demonstrator waves a red and black flag during an intersectionoccupation outside the World Bank. (october Rebellion 19-20 Oct,

2007)`


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* video


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1.Conditionalities (so called SAPs)

On giving loans to countries, the IMF makesthe loan conditional on the implementation ofcertain economic policies.

These policies tend to involve:

Reducing government borrowing - Higher taxesand lower spending

Higher interest rates to stabilize the currency. Allowfailing firms to go bankrupt.

Structural adjustment. Privatization, deregulation,reducing corruption and bureaucracy.

The problem is that these policies ofstructural adjustment and macro economicintervention make the situation worse.(Argentina -2001 Example)

[contd] Conditionalities (so called
http://en.wikipedia.org/wiki/Argentina


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[cont d] Conditionalities (so calledSAPs)

Slows down socialstability

Leads to an increase

in poverty

Strict programs,"increasing taxes to

balance budget deficit

What if the debtor countries


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dont fulfill IMFs conditions?

The alternative isfor debtor

countries to suffer

the same kind of

economic

sanctions as Iran,

Cuba and pre-invasion Iraq.

2 I t P bli H lth


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2.Impact on Public Health

strict conditionson theinternational loansby the IMFresulted inthousands ofdeaths as publichealth care had tobe weakened.

In the 21 countrieswhich the IMF had

given loans,tuberculosisdeaths rose by16.6 %

WB: AIDS

controversy

In 2008, A study by Cambridge and Yale concluded:

3 D l ti


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3.Devaluations

IMF is also criticized for allowing

inflationary devaluations How ??

3.Devaluations

4.Crititsm from free-market


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4.Crititsm from free marketadvocates

Believers in free markets argue that: it is better to let capital markets operate

without attempts at intervention.

And attempts to influence exchange rates onlymake things worse

5.IMF/World Bank support of


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5.IMF/World Bank support ofmilitary dictatorships

Arguments in favor of the IMF Economic stability is a precursor todemocracy

However, The role of the Bretton Woods institutions hasbeen controversial since the late Cold War period, as theIMF policy makers supported military dictatorships

friendly to American and European corporations. there are various examples in

which democratized countries fellafter receiving IMF loans.

E.g World Banks support to aBrazilian Dictator

In Pakistan, the IMF used themilitary government to impose the

General Sales Tax (GST)

6. IMF & WB : secretive
http://en.wikipedia.org/wiki/Brazil


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institutions with no accountability

The IMF is funded withtaxpayer money, yet itoperates behind a veil ofsecrecy.

Members of affectedcommunities do notparticipate in designingloan packages.

The IMF works with aselect group of centralbankers and financeministers to make polices.

7.Democracy is being torn apart by


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7.Democracy is being torn apart bya financial oligarchy (Might is right)

Undemocratic SystemWhile the WB represents 185 countries, it isrun by a small number of economicallypowerful countries

a. Past Managing DirectorsHistorically

the IMF's managing director = European

president of the World Bank = from United States

b. Americanization IMF & World Bank: an instrument for the promotion of US orWestern interests in certain regions of the world

The United States has an exclusive veto power in major IMFdecisions

WBs president :always an American

8 Vi l ti f I l i P i i l


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8.Violation of Islamic Principles

In Islam distribution ofincome is the vital element

Interest is un-Islamic

IMF has disregarded allthese Islamic Norms byonly nurturing the rich.

*The world divided intorich & poor

9.Other Criticisms


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9.Other Criticisms

IMF Hurts the

environment[eg. Ivroy Coastscoca production]

Human rights andLabor rights-violated

Some of the most Ironic Facts:

IMF itself is exempt from all taxes, along

with its sister institutions, eg. the WorldBank)

HQs of IMF & WB both in WashingtonDC.

IMFs Dominique Strauss Kahn is no

stranger to controversies either

C iti i b F P l


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Criticism: by some Famous People

They [WB] focused on growth-based development andthus invest in energy sectors, setting up ports andinfrastructure.instead of this they must focus on poor.~PROF MUHAMMAD YUNUS~[Nobel laureate, Bangladeshi banker andeconomist, founder of Grameen Bank]

the IMF is not serving a useful role in low-incomecountries, and that low-income national governmentsneed more policy space and less IMF interventions.~JACK JONES ZULU~[Southern African Regional Poverty Network]

American diplomats wanted to lock foreign countriesinto further dependency on paper dollars.~MICHAEL HUDSON~ [a Wall street analyst, economist and Historian]

Why do countries sign agreements


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y g gwith the IFIs if the consequences

are ultimately negative? Most countries that

accept the loans do sobecause they have no

other way of avoidingtotal financial collapse.

there often areinternational pressures

on such countries toget Aids from the IMFand World Bank

IMF and the 3rd World


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IMF and the 3rd World

The 3rd Worldtreated step-

motherly

*(A Clip fromJohn Piglerss

documentary

New rulers ofthe World)

* IMF: Lender of last resort !!

Response to Criticism by IMF


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Response to Criticism by IMF

Crisis always leads to some Difficulties.

IMF has had Some Successes.

Confidence

Countries are not obliged to take anIMF loan

IMF Easy target.
http://images.google.com/imgres?imgurl=http://4.bp.blogspot.com/_8mQPzVZ6YxE/Se04VSxbLtI/AAAAAAAAABw/IcQs7ovk0V0/s320/CARTOON%2BELEPHANT!.png&imgrefurl=http://senegal321.blogspot.com/&usg=__SRTajQIIiaQs-NJKGx9x2n5A6fA=&h=258&w=270&sz=32&hl=en&start=8&um=1&tbnid=gKzXyXmNRidpzM:&tbnh=108&tbnw=113&prev=/images%3Fq%3Dcartoon%2Belephant%26hl%3Den%26rlz%3D1T4GGLJ_enPK315PK320%26sa%3DN%26um%3D1


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16581293 international financial institutions

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