The Role of the IMF The Role of the IMF in the Financial Crisisin the Financial Crisis

Age BakkerAge BakkerExecutive Director, IMFExecutive Director, IMF

National Bank of Romania, BucharestNational Bank of Romania, BucharestDecember 17, 2009December 17, 2009

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OutlineOutline

The IMF: functions and governanceThe IMF: functions and governance

The financial crisis: where are we now?The financial crisis: where are we now?

Challenges for Central and Eastern Challenges for Central and Eastern EuropeEurope

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How is the IMF run?How is the IMF run?

Board of GovernorsBoard of Governors: One governor from each : One governor from each of 186 member countries (meets once a year).of 186 member countries (meets once a year).

International Monetary and Financial International Monetary and Financial CommitteeCommittee (IMFC): 24 Governors (meets twice (IMFC): 24 Governors (meets twice a year).a year).

Executive BoardExecutive Board: 24 Executive Directors : 24 Executive Directors (meets three times a week).(meets three times a week).

Crucial aspect Crucial aspect of the IMF’s governance: nearly all decisions are made by consensus.

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The IMFThe IMF’’s Executive Boards Executive Board

Countries with own Executive Director: China, France, Germany, Japan, Russia, Saudi Arabia, United Kingdom, United States. The other 178 members are represented by 16 Executive Directors.

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The role of quotasThe role of quotas

Subscriptions:Subscriptions: resources which the member provides resources which the member provides to the Fund.to the Fund.

Voting power:Voting power: voice to influence the IMFvoice to influence the IMF’’s decision s decision making.making.

Access to financing:Access to financing: up to 200 % of quota annually up to 200 % of quota annually and 600 % cumulatively (higher in exceptional and 600 % cumulatively (higher in exceptional circumstances).circumstances).

A member's quota is broadly determined by its economic position relative to other members.

The quota determines:

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Examples of Voting PowerExamples of Voting Power

United StatesUnited States 16.77%16.77%

JapanJapan 6.02%6.02%

GermanyGermany 5.88%5.88%

United KingdomUnited Kingdom 4.86%4.86%

FranceFrance 4.86%4.86%

ChinaChina 3.66%3.66%

Saudi ArabiaSaudi Arabia 3.16%3.16%

Russia Russia 2.69%2.69%

NetherlandsNetherlands 2.34%2.34%

IndiaIndia 1.89%1.89%

AustraliaAustralia 1.47%1.47%

MexicoMexico 1.43%1.43%

SpainSpain 1.39%1.39%

RomaniaRomania 0.48%0.48%

Netherlands Constituency 4.78%Netherlands Constituency 4.78%

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The Netherlands ConstituencyThe Netherlands Constituency

ArmeniaArmenia Fund programFund program $ 900 mln$ 900 mln (running)(running)Bosnia Bosnia Fund programFund program $ 1600 mln$ 1600 mln (running)(running)BulgariaBulgariaCroatiaCroatiaCyprusCyprusGeorgiaGeorgia Fund programFund program $ 1200 mln$ 1200 mln (running)(running)IsraelIsraelMacedoniaMacedoniaMoldovaMoldova Fund programFund program (being negotiated)(being negotiated)MontenegroMontenegro Fund program Fund program (being negotiated)(being negotiated)NetherlandsNetherlandsRomaniaRomania Fund programFund program $ 18300 mln$ 18300 mlnUkraineUkraine Fund program Fund program $ 17600 mln$ 17600 mln (suspended)(suspended)

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The IMF and the World BankThe IMF and the World Bank

IMF and World Bank IMF and World Bank complementcomplement each each otherother’’s work.s work.

IMFIMF’’s main focus: s main focus: shortshort--termterm macromacro--economic stability, balanceeconomic stability, balance--ofof--payments payments support.support.

World BankWorld Bank’’s main focus: s main focus: longlong--termtermdevelopment, structural reform and poverty development, structural reform and poverty reduction. reduction.

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The IMFThe IMF’’s roles in the global crisiss roles in the global crisis

Firefighter: Firefighter: providing financial assistance to providing financial assistance to countries that need it.countries that need it.

Coach:Coach: providing advice on how to get providing advice on how to get individual countries and the global financial individual countries and the global financial system back to health.system back to health.

Architect:Architect: providing recommendations on how providing recommendations on how to overhaul the global financial system.to overhaul the global financial system.

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Firefighter for emerging economies...Firefighter for emerging economies...

Ukraine $ 17.6 blnHungary $ 17.0 blnPakistan $ 11.6 blnIceland $ 2.2 blnLatvia $ 2.4 blnBelarus $ 3.6 blnMexico (Flexible Credit Line) $ 50.8 blnRomania $ 18.3 blnPoland (Flexible Credit Line) $ 22.1 blnColombia (Flexible Credit Line) $ 11.2 blnSerbia $ 4.2 blnAngola $ 1.4 bln

The IMF has provided loans and credit lines worth $174 billion to 23 emerging market countries

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... and for low... and for low--income countriesincome countries

Liberia $ 315 mlnKyrgyz Republic $ 152 mlnMoldova $ 150 mlnHaiti $ 134 mlnMalawi $ 119 mlnNicaragua $ 106 mlnMadagascar $ 94 mlnZambia $ 91 mlnAfghanistan $ 85 mlnCote d’Ivoire $ 600 mlnGhana $ 620 mln

Concessional lending by the IMF is helping 29 low-income countries weather the crisis

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What is an IMF loan for?What is an IMF loan for?

An IMF loan helps countries resolve balance An IMF loan helps countries resolve balance of payments problems and restore longof payments problems and restore long--term term economic growth.economic growth.

The economic policies that underpin a loan The economic policies that underpin a loan are formulated by the country in consultation are formulated by the country in consultation with the IMF.with the IMF.

It is crucial that the government and the It is crucial that the government and the public support the program: ownership.public support the program: ownership.

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How the IMF is adapting lendingHow the IMF is adapting lending

Introducing more flexibility in its loans.Introducing more flexibility in its loans.

Slimming down the number and scope of Slimming down the number and scope of conditions.conditions.

Seeking to protect the most vulnerable people Seeking to protect the most vulnerable people from the effects of the crisis.from the effects of the crisis.

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How much is available to lend?How much is available to lend?

IMF resources for lending are provided by IMF resources for lending are provided by members through quota payments. members through quota payments.

GG--20 Summit (April, 2009) increased IMF 20 Summit (April, 2009) increased IMF resources to $750 billion. resources to $750 billion.

The IMF also agreed to an SDR allocation of The IMF also agreed to an SDR allocation of $ 250 billion.$ 250 billion.

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Coach and advisorCoach and advisor

The IMFThe IMF’’s surveillance role at 3 levels:s surveillance role at 3 levels:

Global:Global: World Economic Outlook and Global World Economic Outlook and Global Financial Stability Report.Financial Stability Report.

Regional:Regional: Regional Economic Outlooks.Regional Economic Outlooks.

Bilateral:Bilateral: regular checkups of countries, known regular checkups of countries, known as Article IV consultations. as Article IV consultations.

Financial Sector AssessmentsFinancial Sector Assessments

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Advice to deal with financial crisis

Fiscal stimulus by G20 countries up to 2% Fiscal stimulus by G20 countries up to 2% GDP.GDP.

Repair financial systems by recapitalizing Repair financial systems by recapitalizing banks and isolating bad assets.banks and isolating bad assets.

Strengthen financial regulationStrengthen financial regulation

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ArchitectArchitect

Improve surveillance of global economic Improve surveillance of global economic developments and policies.developments and policies.

Strengthen economic policy coordination.Strengthen economic policy coordination.

Improve regulation and supervision of Improve regulation and supervision of internationally active financial institutions.internationally active financial institutions.

Enhance financing arrangements.Enhance financing arrangements.

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New InitiativesNew Initiatives

Early Warning ExerciseEarly Warning Exercise

G20 mutual assessment frameworkG20 mutual assessment framework

Financial Stability Board Action PlanFinancial Stability Board Action Plan

Quota and governance reform IMFQuota and governance reform IMF

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Impact Crisis on Central and Impact Crisis on Central and Eastern EuropeEastern Europe

Countries vulnerable because of:Countries vulnerable because of:

Large current account deficitsLarge current account deficitsDependency on capital inflows and FDIDependency on capital inflows and FDIDependency on remittancesDependency on remittancesForeign currency mismatchesForeign currency mismatches

Issue: role of foreign banks (Vienna initiative)Issue: role of foreign banks (Vienna initiative)

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Sharp Contraction of GDPSharp Contraction of GDP

Country 2008 2009 2010Country 2008 2009 2010Armenia 6.8 Armenia 6.8 --15.615.6 1.21.2BulgariaBulgaria 6.0 6.0 -- 7.0 7.0 --2.52.5MacedoniaMacedonia 5.0 5.0 -- 3.0 1.03.0 1.0MoldovaMoldova 7.2 7.2 -- 9.0 0.09.0 0.0RomaniaRomania 7.1 7.1 -- 7.07.0 1.31.3UkraineUkraine 2.1 2.1 --14.0 2.714.0 2.7

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Correction of Current AccountCorrection of Current Account

CountryCountry 2008 2009 20102008 2009 2010ArmeniaArmenia --11.5 11.5 --13.7 13.7 --13.013.0BulgariaBulgaria --25.5 25.5 --11.3 11.3 -- 7.57.5MacedoniaMacedonia --13.1 13.1 --12.9 12.9 -- 9.49.4MoldovaMoldova --17.7 17.7 --11.6 11.6 --12.312.3RomaniaRomania --12.4 12.4 -- 5.5 5.5 -- 5.65.6UkraineUkraine -- 7.2 0.4 0.27.2 0.4 0.2

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Challenges for Central and Eastern Challenges for Central and Eastern EuropeEurope

Restore macroeconomic stabilityRestore macroeconomic stabilityRegain investor confidenceRegain investor confidenceImprove business climateImprove business climate

Prepare for EU membership (Croatia, Prepare for EU membership (Croatia, Macedonia, Montenegro)Macedonia, Montenegro)Prepare for euro adoptionPrepare for euro adoption

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Thank youThank you