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GLOBAL CLASSROOMS
IMF AND ECONOMY IN: ARGENTINA DENMARK SOMALIA
ISRAEL DOMINICAN REPUBLIC
Let’s Review!
• The International Monetary Fund • What is it?
• What does it do?
• Created after WWII
• 188 member states
• Money, money, money
Subtopics
• Debt Forgiveness and Loan Reform • When developing countries have trouble paying back their
loans, what do we do then?
• Conditionality • Developed Countries tell Developing Countries what to do
with the money they lend them • Should we keep it or get rid of it?
• IMF Voting Reform • Donor countries have all the voting power • Do we make the system more fair/equal?
ARGENTINA
Current Status:
• Founding member of UN
• Classified as “high-income economy” by WorldBank • Developed country
• Very high rating in Human Development Index
• Joined IMF in 1956
• Quota: 2117 million SDR
• Currency: peso
Economy
• Current status in IMF: no outstanding debts!
• Strengths: lots of natural resources, developing industry
• In 2001 Argentina had its worse economic collapse in history and the president declared a default on all foreign debt
• How have they recovered: • Increased state intervention in economy • Nationalization of Spain’s Repsol (oil) • Reducing imports (registration and approval process) • Agreement with China on currency exchange • Agreement with IMF on how to repay debt to US • Still ongoing, has caused continued high inflation
Debate
• What can Argentina contribute to the debate?
! Argentina has gone into severe debt in the past, but they have successfully recovered and paid back their loans by working with the IMF and their donor countries.
! They may have a lot to gain by avoiding reform with the hopes of growing into a more influential country with more power now that they are recovering.
DENMARK
Current Status:
• Classified as “high-income economy” by WorldBank • Developed country
• Very high rating in Human Development Index
• One of the highest GDP in the world
• Joined IMF in 1946
• Quota: 1891 million SDR
• Currency: Danish krone
Economy
• Current status in IMF: no outstanding debts!
• Strengths: great income equality, effective taxation system, successfully transitioned from agriculture to industry
• Balance of payments surplus
• Depends on imports of raw materials
• Long term problem might be increased ratio of retirees to workers
Debate
• Does Denmark stand anything to gain from reform?
! It is true that Denmark is currently a very powerful country in the IMF with little economic distress
! But, their economy has grown a lot in recent years which means they are due for recession
! They also are not on the euro…potential problems?
SOMALIA
Current Status:
• Due to civil unrest, it has been difficult to measure the status of the economy
• Low rating in Human Development Index
• Joined IMF in 1962
• Quota: 44 million SDR
• Currency: Somali shilling
Economy
• Current status in IMF: outstanding debts!
• Strengths: agriculture based economy (and livestock) which is exported and a large portion of their economy
• Has had a hard time gaining domestic revenue
• Inability to pay back loans to the IMF is an increasing problem because Somalia’s banking sector is really underdeveloped
• They are currently ineligible for assistance from the IMF because their debt is too large
Debate
• Why does Somalia need reforms in the IMF to pass?
! They need debt forgiveness!!!!
! But they also have options for repayment because they have a well developed telecommunications sector and strong agricultural exports
! Keep in mind, if Somalia could arrange for another loan to develop their banking sector, this could help them recover from debt on a long term scale
Some Help?
• Given how complex Somalia’s current situation is, take a look at this article that breaks down reasons for economic difficulty:
http://mgafrica.com/article/2015-08-01-15-things-you-didnt-know-about-somalias-cash-situation-1
ISRAEL
Current Status:
• Considered the most advanced country in the Middle East
• Very high rating in Human Development Index
• Joined IMF in 1954
• Quote: 1061 million SDR
• Currency: new shekel
Economy
• Current status in IMF: no outstanding debts!
• Strengths: strong education system system has lead to a well developed technology sector and a strong central bank system
• Though Israel has a strong economy, they have very high levels of poverty and income inequality
• Internal unrest is a constant problem and threatens tourism rates which bring in a lot of revenue
Debate
• Where does Israel stand in comparison to other countries?
! Be careful! Israel may seem like a strong contender, but they still have several potentially damaging issues to consider, meaning in the long run, we don’t really know how stable the country is
! Being on board with some reform now might help them later on just in case
DOMINICAN REPUBLIC
Current Status:
• Classified as “middle-income economy” by WorldBank • Developing country
• High rating in Human Development Index
• Joined IMF in 1945
• Quote: 218 million SDR
• Currency: peso
Economy
• Current status in IMF: outstanding debts!
• Strengths: strong exports in sugar, coffee, tobacco
• Demand is highly dependent on the US
• Has struggled with debt because internal turmoil and economic collapse (banks failing) • The IMF has had to visit because of growing debt • Tax reforms • Reduced government spending • Selling government bonds • Economy is growing which is helping them pay off their debt
Debate
• How can DR fight for reform on behalf of developing countries?
! DR is in somewhat of a curious place: ! While they struggle with paying loans, they are still
managing to do so while improving their economy
! For this reason, DR is in a good position to defend reform on behalf of developing countries because they still hold relatively stable economic standing
! They have a lot to gain and not a lot to lose!
At the end of the day…
• What kind of voting power do these countries have? • Argentina = .87% (22nd most powerful country) • Denmark = .78% (25th most powerful country) • Somalia = .05% • Israel = .45% • Dominican Republic = .12%
***Percentages show the amount of voting power that country has out of the entire IMF committee
• For Comparison • USA = 16.74% • Equal voting rights = .53%