The International monetary fund

When? Founded in 1944 during the Bretton Woods Conference

Why? to prevent economic crises, to help rebuild war-torn countries, and to correct economical policies (which had led to the Great Depression)

Who? To date, it has 184 member countries

How? Accomplishes goals by monitoring, assisting, and stabilizing global economy and with a budget of 331 billion dollars contributed by member countries

The Situation: It is the year 1997, and your nation has plummeted into a catastrophic economical crisis. For the previous 20 years, your national economy has seen much success, with an annual growth of 8% GDP; the highest in all developing nations. The causes of this economical crisis were heavy dependence on foreign investment, the collapse of a number of conglomerates (large corporations) in the banking system, and the drawback that the Thailand currency drop had done to trade effectiveness.

IMF Intervention: At this time, the IMF offered to intervene to

relieve the economic crises that are occurring in not only your nation but also in your neighbouring countries across Southeast Asia. The fund promised to issue a bailout of $57 billion, the largest amount ever, if you and your country are willing to undergo total economic restructure for their nation. The requirements are:

Adopt a macroeconomic policy for higher taxes; Reduce spending; Higher interest rates Neo-liberal policies

The Actual After-effects of the IMF Intervention:1. Lose economic sovereignty: All policies are going to

be made by the IMF. Government will lose their control of their economy.

2. Massive layoffs: In 1997, the unemployment rate was at 2.5%. By 1998, the unemployment rate had reached 8%. Thirty percent of individuals in the banking sector were laid off, and another 20% from various sectors.

3. Currency crisis continues: The value of the “Won” continues to decrease. Decreased from 1000 per US Dollar to 1700 per US dollar.

4. Unparallel rises to poverty5. Decrease in social programs

Please Consider These Facts: In 2000, three years after the turmoil of the

economic crisis, the South Korean Union sues the IMF for the policies that they have imposed during the crisis. These policies, which directly led to mass layoffs in South Korea, resulted in worsening conditions for those who were luckily enough not to be fired, less job security, and increase poverty in many families. With the sole income of a family gone, the social implications were devastating. Also, the cut in government spending also resulted in loss of many social programs, ultimately worsening the living conditions for the poor.

Due to the crisis, there has been rising school dropouts, rising suicide rates, and rising divorce rates. Think of these factors, when making your decision. To what extent, do the crisis affect these rates?

Do you believe the IMF will become a moral hazard? If governments know that they will be bailed out, will this increase reckless behaviour in economical and financial situations? Who benefits the most when receiving the loans from the IMF?

The Dilemma: Knowing the possible repercussions, will

you be willing to accept the IMF bailout and follow its policies? Justify your decision.

Sources: http://www.hofstra.edu/pdf/biz_MLC_Lee1.p

df http://www.50years.org/cms/ejn/story/214 http://prsco.agbi.tsukuba.ac.jp/Meetings/m

exico_6th/pdf_files/Seong_Woo_Lee.pdf

The Situation: In 1989, Bulgaria underwent a transition

from a Communist state to a democracy. As a result, the nation required financial assistance to help in its transition. During this time, the nation suffered hyperinflation (when inflation goes out of control as a result of plummeting currency values). In 1997, inflation went up 500%, and by 2001, it was at 2000%.

The IMF Intervention: Excessively high interest rates on

government loans Central bank lending Less social programs

Raising pensionable age Change from public to private health

Advantages: More growth in economy with 4.5%* Stable economy Opportunity to enter the European Union

*Please note that this growth in economy is largely due to the heavy foreign investments by large corporations, the “real income” of regular Bulgarians remain low.

Disadvantages: Loss of economic sovereignty: IMF does not allow

Bulgarian government to improve the social programs for their citizens. IMF refused the nation’s proposal to raise minimum salary of $75 a month, and to increase pension pay.

Corruption: Due to IMF’s intense time pressure, many corporations resorted to bribery and/or bankruptcy, leaving thousands jobless.

Raised taxes: The government raised taxes to lessen the national deficits, taking MORE money away from the poor, and middle-low incomers.

Dilemma: Do you think the advantages of the IMF

policies outweigh the disadvantages? Will you accept the IMF policies on behalf of your nation?

If accept, what will you do about the raising taxes and the jobless? Do you think it is fair that the poor has to pay the highest price?

If refuse, how will you stable the economy?

The Situation: As a developing nation, the IMF offers you

a chance to strengthen your economies by lending your nation money used to relieve debt problems. In general, the loans given by the IMF are designed to promote economic growth, generate employment and income, and help repay debts.

However, the IMF insists on imposing Structural Adjustment Programs.

IMF Intervention: The programs require countries to:

Devalue their currencies against the US dollar, Lift import and export restrictions, Balance budgets, not overspend, and Remove price controls and state subsidies.

Advantage: You get the loan.

Disadvantage: Devaluing currency = Price escalation for

goods and services for citizens Encouraged to export cash crops and raw

materials = Helps economy grow only minimally

Cut Government spending = Less social programs

Cut subsidies = no price control of food = starvation

Dilemma: Is it worthwhile to accept the loan knowing

the negative implications it brings to your nation?

SAP programs will affect the poor most. Should national economical growth take precedence over the well-being of the poor?

What alternative methods to improve and develop your economy, if you do not accept the loan?

The Situation: As of 1997, your nation has already

contributed more than $47 billion dollars to the International Monetary Fund. There has been numerous reports on the effectiveness of the IMF. You want to please your regular citizens, many of which are against supporting this fund further. You also want to take into account the economical benefits the IMF and its policies bring into your nation.

Advantages: When developing countries are asked to open

markets, large corporations, for example NIKE, can enter their country and make goods at a cheaper price.

The lift of import/export in developing countries will help you. When countries export a lot of raw materials, they will have competition amongst each other, hence lowering the cost of the goods. Also, large increases in exporting goods will lead to drop in prices for cash crops, like coffee.

Disadvantages: IMF does not reach any of its goals. IMF does not help the third-world country. It costs a lot of money to support this fund.

Dilemma: Do you continue funding for the IMF,

despite its controversial effectiveness? Should you open door for your country’s corporations, increasing their profits? Should you take advantage of developing countries to strengthen your economy? What is the most important?

To encourage cooperation of countries on international monetary policies and provide required resources to consult and establish such policies so that effects of international financial crises can be minimized;

To assist in liberalizing international trade so that countries can promote and maintain high levels of employment and real income;

To stabilize exchange rates and to maintain orderly exchange policies; To establish a complex system of payments for current transactions

between members so that foreign exchange restrictions, which hamper the growth of world trade, can be eliminated;

To temporarily provide to IMF members the general resources of the IMF under adequate safeguards, allowing them the opportunity to correct maladjustments in their balance of payments without hindering national and/or international prosperity;

To lessen the degree of disequilibrium in the international balances of payments of members

YES

NO

The IMF is ineffective because it creates long term dependency rather than short-term assistance, fails to help less developed countries improve economically, and is unsuccessful in economic crisis managements.