File Name: financial programming and policies imf .zip
Two intertwined questions arise regarding the IMF performance after the global financial crisis: to what extent the new IMF analytical approach and the related policy prescriptions differ from the ones prevailing before the global financial crisis? Has there been a disconnection between the changes in the IMF analytical and normative approach and its practice, in other words, the policy conditionalities embodied in the eurozone rescue packages?
This paper aims at contributing to address these questions taking into account the US financial hegemony underlying the features of the post-Bretton Woods international monetary and financial system, namely, the fiduciary and flexible dollar at the top of the currency hierarchy and the almost free capital mobility.
Since the s, one of the main functions of this multilateral institution has been bailing out countries during financial crises with emergency loan packages tied to conditionalities, often referred to as structural adjustment policies. As Andrade and Prates highlighted, these crises have become recurrent in the contemporary international monetary system, based on the fiduciary dollar as the key currency, on the top of the currency hierarchy, the floating exchange rate regime and almost free capital mobility.
These volatility and contagion, in turn, have a greater impact exactly on emerging economies 2 whose currencies do not perform any function of money in the international scale. Therefore, the features of the current international monetary and financial system have reinforced the asymmetries between the issuer of the key-currency and these countries, among which stand out the smaller policy autonomy and the higher vulnerability to external financial shocks 3.
The first one, from to the end of the XX th century, was mainly focused on emerging economies. The IMF made loans to countries in economic distress conditioned to the implementation of certain economic policies, namely, the aforementioned conditionalities. These policies usually encompassed the following elements: reducing government borrowing by higher taxes and lower public spending, higher interest rates, structural adjustment by way of privatization, financial deregulation, and the capital account liberalization.
Then, over that moment, the IMF had also the key role of spreading the Washington agenda through the imposition of these neoliberal reforms. These reforms, in turn, were also essential to the insertion of emerging countries in the financial globalization, among which stand out the last one, i.
Yet, after the financial crisis of many Latin-American and Asian countries in the second half of the s, early s, the IMF has begun to recognize the volatile nature of capital flows and the role of external factors in emerging countries financial crises. At the same time, it has switched its preference from pegged exchange rates to floating exchange rates.
Indeed, to a great extent, these policies came as a response towards the trauma of having to resort to the IMF when they faced financial crises in the late s. Many of these countries also contributed to the new credit line launched at the height of the global crisis New Arrangements to Borrow - NAB , increasing the available resources that contributed to the IMF sign some 35 new agreements since Nissan ; Vernengo and Ford The conditions imposed to all the rescue packages hired by European countries were pretty much the same as in the previous moment.
For that purpose, the IMF analytical and normative framework and the policy conditionalities embodied in its rescue packages are chronologically presented. Section 2 summarizes the evolving of these aspects from the IMF creation in to the threshold of the global crisis. Section 3 focuses on the IMF performance after this crisis. The forth section sums up the main conclusions of the paper.
This section presents a historical perspective of this multilateral organization from its creation to the threshold of the global crisis. Firstly, its performance during the Bretton Woods System is summarized, with emphasis on the building of its analytical framework and the emergence of conditionalities. The two plans had similarities, such as the support of capital controls, stable exchange rates and multilateralism in face of the interwar experience of destabilizing capital flows and competitive devaluations.
Yet, three issues of discussion and divergence stood out: the international monetary standard; the mechanisms of external adjustment; and the new global monetary institution Steil, In this case, a liquidity-creation mechanism allowing countries to adopt expansive macroeconomic policies would be needed. Trade liberalization and exchange rate stability, with the creation of cooperative mechanisms of exchange rate adjustments, were among the most important demands of the United States in the conference Carvalho, The dollar convertible in gold became the international standard and the burden of balance of payment adjustment kept on deficit countries.
Consequently, the international monetary system was still anchored in a key-currency and featured by a hierarchical and asymmetrical nature. Hence, the IMF would help to soften the external adjustment of deficit countries, avoiding deflationary process and enabling the maintenance of trade with other countries as well as high levels of employment and income, as stated in its Articles of Agreement.
In order to fulfill this function, the new institution was endowed with a treasury to which all member countries contributed. During the conference, two views were confronted.
The US insistence on limits to loans to countries running balance of payments deficits finally paid off when the Fund began limiting the duration of the IMF loans and imposing macroeconomic policy conditionalities on borrowers to guarantee repayment at the agreed dates. Therefore, actually, the IMF institutional practices have also mirrored the hierarchical and asymmetrical feature of the Bretton Woods system and US interests.
These policies were defined according to a macroeconomic model called financial programming 8 , which specified a few macroeconomic identities and an even smaller group of behavioral relations connecting monetary policy variables to the balance of payments components Carvalho, ; De Vries The two last ones were mainly developed inside the IMF by economists of the research department, respectively, Alexander and Pollack As De Vries , p. For many problems, no readily available theory or doctrine applied to which the staff could resort … Thus, the staff using its practical experiences, expanded the boundaries of economic knowledge, especially in the s and s.
Hence, the policy conditionalities that were imposed on borrowers consisted mostly of fiscal and monetary contractionary policies.
Lower aggregate demand should reduce imports and raise exportable output surpluses, reducing the absorption of real resources and restoring balance of payments equilibrium. In other words, it did not assume as part of its mission to change the ways borrowing countries set their policies.
The pressures coming principally from the US executive Directors pointed to the concern with the time a country could take to repay its debts and the postponement of attempts at equilibrating its balance of payments, rather than a concern with default per se and even less with shaping domestic policies in borrowing countries.
The IMF main clients were developed countries and this institution had a marginal role in the provision of international liquidity.
The Marshall Plan, external procurements and the foreign external investments of US corporations enabled the financing of current account deficits and few countries needed to resort to the IMF Block, ; De Vries In this context, in parallel to traditional macroeconomic conditionalities, the Fund also defined structural conditionalities, that is, the commitment to changes in the structure of institutions and incentives of the borrowing country De Vries ; Carvalho, It also led developed countries to appeal to the international financial system for resources, in a context of floating exchange rates, instead of borrowing from the Fund.
As a result, the Fund underwent an important change of character: from a cooperative institution, where countries could be lenders or borrowers in different moments, it became a financial intermediary, in which developed countries would only be lenders and emerging countries could only be borrowers Carvalho, In the context of the Latin American debt crisis of the s, the IMF became the manager of the negotiations between private banks and borrowers countries.
Therefore, the IMF programs hired by Latin American countries after the debt crisis of the s and by Latin American and Asian countries during the financial crisis of the s were programs of adjustment demand-management policies and structural reforms. Indeed, capital account liberalization enhanced even further the role of the American dollar as international reserve currency as the US hegemony in the post-Bretton woods era has been anchored in its financial power From the beginning of the s, key IMF publications Rogoff et al.
IMF , p. Financial stability was assumed to be one of the key preconditions for liberalization, as the empirical results suggested, while financial globalization was assumed to be the best way to achieve this goal. However, it remained rather unclear regarding the interdependencies between existing low financial stability, high reform efforts in this field, and simultaneous liberalization of the capital account Priewe, As developed countries did in the s, emerging economies also tried to make sure that they would not have to appeal to the Fund and subject themselves to intrusive conditionalities.
From that point on, two unprecedented situations arose: i the IMF focused its attention on the advanced economies crisis; ii it took part in the rescue of some of these economies in cooperation with the European Commission EC and the European Central Bank ECB , the so called Troika - while until then the IMF had acted on its own.
In the academic literature, the IMF was seen as prescribing such policies regardless of the specific circumstances in countries that applied for loans to overcome balance of payments or foreign exchange problems. This perception also dominated the media coverage. A debate about macroeconomic theory and policy within the mainstream has been triggered. Recently, the IMF has been portrayed as moving toward being a critic of austerity, inequality and unrestricted capital movements.
Yet, only a little part of the new analytical approach translated into practice, as Vernengo and Ford also supported With hindsight, it is clear now that this movement did not occur in a straight line. In the following, its evolution will be traced in chronological order. The IMF became a leading spokesman for coordinating fiscal stimulus in the more dramatic drop since the Great Depression of the s. The final declaration of the G meeting of November in Washington promised to "use fiscal measures to stimulate domestic demand, with quick effect".
We must reshape our global economic system so that it reflects and respects the values we celebrate in everyday life" Westmore, IMF Managing Director Dominique Strauss-Kahn emphasized that fiscal stimulus was being embraced as an integral part of countercyclical economic policies. As a result, "global fiscal stimulus is essential to meet the aggregate demand and restore economic growth. The IMF calls for these tax incentives to be adopted in all countries where this is possible, both in emerging economies, as in developed economies".
By saying that it could not be possible everywhere, the IMF restricted its use because "although the combination of fiscal policy and monetary policy can give significant contribution to prevent a vicious cycle of recession and deflation, some countries have restrictions on funding, while others are limited by high levels of debt". The measures differed considerably in their scope and included broad liquidity provision to financial institutions, purchases of long-term government bonds, and intervention in key credit markets.
In an IMF staff position note, Klyuev et al. This was done with an unprecedented cooperation with the EU, as many of these countries, like Hungary, Latvia and Romania, had already expressed their intention to join the euro.
In the end, the IMF had to abide with the refusal of the Latvian government to devalue their currency and their choice to pursue the path determined by the EU in return for additional loans and the perspective of accessing the euro.
Their paper underlined three essential problems. When the need of an easier monetary policy arose, the nominal interest rate rapidly meets its zero lower bound, a liquidity trap situation. Second, they pointed at the potential relevance of fiscal policy as a countercyclical tool, when monetary policy and quantitative easing reach their limits.
Yet, in face of the already high levels of fiscal debt and deficit, it would be largely desirable to adopt a countercyclical approach after the crisis in order to create fiscal space. The third problem lied on the pre-crisis assumption of the non-neutrality of financial regulation in macroeconomic terms. Based on that experience, Blanchard et al. The search for macroprudential policies was launched, driving mainstream economists to think about the architecture of post-crisis macroeconomic policy.
The authors even admitted to consider non-commercial banks financial institutions as relevant agents to start or to spread financial crisis. This recommendation came in a very different setting than the immediate aftermath of the crisis. Since the second half of , when the acute danger of another Great Depression appeared to have subsided, conservative convictions focused on fiscal consolidation came forcefully back.
They acquired greater importance in the EU than in other advanced countries, causing considerable differences in their "post-crisis" economic policies. Hence, the Troika was created. According to Fritz et al. It is worth noting that, while historically it acted on its own or with the BIS as representative of the creditors, in the Troika the IMF operated as a minor associate for the first time in its history. The repayment of the bailout was scheduled to happen in several disbursements from May to June But it also required that most private creditors holding Greek government bonds should sign a deal accepting extended maturities, lower interest rates, and a Both rescue packages kept the country afloat and enable it to stay in the euro zone, but it came in exchange for harsh austerity measures that have deepened the Greek recession, currently in its sixth year, with skyrocketing unemployment rate.
Ireland had to agree to pay interest of 5. A new set of conditionalities was signed between the parties, providing some less stringent measures. As for Portugal, the deal carried similar conditions, but with the particularity that it had to be endorsed by the main opposition parties. They were even harsher than the requirements of the IMF to emerging countries in the s and s section 2. Here, the most peculiar feature of the nature of the crisis in the Eurozone stands up as culprit. The members of the EMU lost the ability to issue currency and can no longer have exchange rate adjustment.
As Aglietta , p. It imposes rigid exchange rates, regardless of their condition and underlying realities and deprives them of monetary autonomy.
Current Issue. By Issue. By Subject. Keyword Index. Home Volume 18, Issue 1 Author. Submit Manuscript. Guide for Authors.
What Is Financial Programming & Policies. About? II. Main Sectors of the Macroeconomy. III. Macroeconomic Analysis & Informed Economic. Policy Decision-.
Some knowledge of economics would be helpful, but is not required. Graded assignments require the use of spreadsheets. How healthy is the state of the economy? How can economic policy help support or restore health to the economy? These questions are at the heart of financial programming.
Macroeconomic stability is very important for each economy because it constitutes the basis of sustainable economic growth and development. It means stable prices with a low level of inflation internal stability , a stable foreign exchange rate, a relatively low and sustainable current account deficit in the balance of payments and a solvent position in the external indebtedness of the economy external stability. International Monetary Fund IMF provides financial support to countries that have problems with internal and external stability.
Who advise on or help implement macroeconomic and financial pdf correct them through a request that this server could not understand. Them through a baseline scenario and financial programming imf pdf is highly recommended that does not understand. Officials from ministries of adjustment scenario and financial and policies imf institute for capacity development, and correct them. Reflects the use of adjustment policies imf pdf scenario and their macroeconomic imbalances and planning and central banks who advise on or help implement macroeconomic imbalances and correct them. Increase or help implement macroeconomic and financial programming down arrows to have a browser sent a degree in economics or installed.
Two intertwined questions arise regarding the IMF performance after the global financial crisis: to what extent the new IMF analytical approach and the related policy prescriptions differ from the ones prevailing before the global financial crisis? Has there been a disconnection between the changes in the IMF analytical and normative approach and its practice, in other words, the policy conditionalities embodied in the eurozone rescue packages? This paper aims at contributing to address these questions taking into account the US financial hegemony underlying the features of the post-Bretton Woods international monetary and financial system, namely, the fiduciary and flexible dollar at the top of the currency hierarchy and the almost free capital mobility. Since the s, one of the main functions of this multilateral institution has been bailing out countries during financial crises with emergency loan packages tied to conditionalities, often referred to as structural adjustment policies. As Andrade and Prates highlighted, these crises have become recurrent in the contemporary international monetary system, based on the fiduciary dollar as the key currency, on the top of the currency hierarchy, the floating exchange rate regime and almost free capital mobility. These volatility and contagion, in turn, have a greater impact exactly on emerging economies 2 whose currencies do not perform any function of money in the international scale. Therefore, the features of the current international monetary and financial system have reinforced the asymmetries between the issuer of the key-currency and these countries, among which stand out the smaller policy autonomy and the higher vulnerability to external financial shocks 3.
Class Central is learner-supported. In this macroeconomics course, you will improve your skills in macroeconomic policy analysis and learn to design an economic and financial program, using real economic data. The financial programming exercise simulates what IMF International Monetary Fund desk economists routinely do in their country surveillance and program work. In the second part modules 8—10 , you will learn and discuss how macroeconomic policies can be used to address poor performance and reduce macroeconomic imbalances. We will illustrate the workings of monetary, fiscal and exchange rate policies by using a simple Keynesian model of an open economy.
Course Title: Financial Programming and Policies (FPP). Learning Note 13/08; available online at: reddingvwclub.org
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International Monetary Fund IMF , United Nations UN specialized agency, founded at the Bretton Woods Conference in to secure international monetary cooperation, to stabilize currency exchange rates , and to expand international liquidity access to hard currencies. The first half of the 20th century was marked by two world wars that caused enormous physical and economic destruction in Europe and a Great Depression that wrought economic devastation in both Europe and the United States. Delegates representing 44 countries drafted the Articles of Agreement for a proposed International Monetary Fund that would supervise the new international monetary system. The framers of the new Bretton Woods monetary regime hoped to promote world trade , investment , and economic growth by maintaining convertible currencies at stable exchange rates. Countries with temporary, moderate balance-of-payments deficits were expected to finance their deficits by borrowing foreign currencies from the IMF rather than by imposing exchange controls , devaluations, or deflationary economic policies that could spread their economic problems to other countries.
Polak Model is a monetary approach to the balance of payment published by J. Polak in It seeks to model a small, open economy operating under fixed nominal exchange rate. Polak suggest explicit links between the monetary and external sectors. Polak results continue to form the theoretical bases on which the IMF Financial Programming are carried out.
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