KTFA Samson: He restructured the global financial system and is accused of promoting “dependency.” What is the International Monetary Fund and how is it different from the World Bank?
20th July, 2022
After World War II, members of the delegations of 44 countries met in Bretton Woods, New Hampshire, USA, specifically in July 1944, to establish two institutions that govern international economic relations in the aftermath of World War II, the International Monetary Fund and the World Bank. Establishing a new global financial system, which contributes to avoiding a repetition of what happened after the end of the First World War.
What is the International Monetary Fund? What are its goals and activities? How is it different from the World Bank?
What is the IMF?
The International Monetary Fund is an international financial institution headquartered in Washington, D.C. It operates under the United Nations system and employs about 2,600 employees. The members of the International Monetary Fund are made up of 190 countries.
The Fund was established “to foster international monetary cooperation, maintain financial stability, facilitate international trade, encourage higher employment rates and sustainable economic growth, and reduce poverty in various parts of the world.” These are the stated goals of this international institution.
The International Monetary Fund was established in 1944, and began its work on December 27, 1945 at the Bretton Woods conference, based on the ideas of economists Harry Dexter White (Director of the US Treasury) and John Maynard Keynes (the famous English economist). Then the official presence of the International Monetary Fund began in 1956, when 29 countries participated in its establishment with the aim of “restructuring the international financial system”.
What is the importance of the IMF and how does it work?
The IMF plays a central role today in managing balance of payments problems and global financial crises; Countries contribute to financing the fund’s reserves through the quota system, which allows countries to borrow money when they face balance-of-payments problems.
Countries pay 25% of their quota contributions in special drawing rights (paper gold), and 75% in national currency, for lending purposes as needed. Quotas determine not only the contribution payments required of a member country, but also the number of its votes, the amount of funding available to it from the Fund and its share of the SDR allocation.
The purpose of quotas in general is to serve as a mirror of a member’s relative size in the global economy. The greater the size of the member’s economy in terms of output, and the greater the breadth and diversity of its trade, the greater will be its share in the fund.
According to the Fund’s official website, one of the Fund’s loans is to give member countries a chance to take a breather, until they finish implementing orderly corrective policies, in order to restore the conditions for a stable economy and sustainable growth. These policies differ according to the circumstances in each country.
A country facing a sudden drop in the prices of its main exports may need financial assistance to finish implementing measures to strengthen its economy and expand its export base. A country experiencing a sharp outflow of capital may need to address the problems that have led to a loss of investor confidence. It could be that interest rates are too low, the budget deficit and the debt stock is growing too fast, or the banking system is inefficient or poorly regulated.
What is the decision-making mechanism within the IMF?
The Fund’s organizational structure includes a Board of Governors, comprising representatives of all member countries, and is the supreme authority in managing the Fund, and it usually meets once a year during the annual meetings of the International Monetary Fund and the World Bank. Each member country appoints a governor (usually the minister of finance or the governor of that country’s central bank) and an alternate governor.
Although the Board of Governors decides on major policy issues, it delegates the Executive Board to make decisions about the Fund’s day-to-day business. Fundamental policy issues relating to the international monetary system are considered twice a year by a committee of governors, called the International Monetary and Financial Committee (which was known as the Interim Committee until September 1999).
The Development Committee, a joint committee of the Board of Governors of the International Monetary Fund and the World Bank, advises and reports to governors on development policies and other issues of interest to developing countries.
The Executive Board consists of 24 directors, and is chaired by the General Manager of the Fund. The Executive Board usually meets three times a week in sessions lasting one day each, and additional meetings may be held if necessary, at the Fund’s headquarters in Washington, DC.
Independent seats on the Executive Board are allocated to the five largest contributors: the United States, Japan, Germany, France and the United Kingdom, along with China, Russia and Saudi Arabia. The other sixteen directors are elected by groups of countries known as constituencies for two-year terms.
What countries have the right of veto in the IMF?
The United States of America, the largest economy in the world, contributes the largest share to the International Monetary Fund, with its share of 17.6% of the total shares. It is the only country in the world that has the right to block the decisions of the International Monetary Fund or the right of veto.
What is the difference between the International Monetary Fund and the World Bank?
As mentioned earlier, the World Bank Group (WBG) and the International Monetary Fund (IMF) were founded at the Bretton Woods Conference in 1944, and their missions complement each other, according to the World Bank website.
The main difference between the International Monetary Fund and the World Bank is in their respective objectives and tasks, as the International Monetary Fund aims to stabilize the global monetary system, while the World Bank aims to combat poverty by providing assistance to middle- and low-income countries.
While the World Bank Group works with developing countries to reduce poverty and boost shared prosperity, the International Monetary Fund works to stabilize the international monetary system and monitor the movement of currencies in the world.
The World Bank Group provides financing, policy advice, and technical assistance to governments, and focuses on strengthening the private sector in developing countries. The IMF tracks the economy globally and in member countries, provides loans to countries facing balance of payments problems, and provides practical assistance to member countries. Countries must first join the Fund to qualify for the Bank Group; Today, they each have 189 member countries.
The World Bank Group is known to be among the largest sources of financing and knowledge for developing countries in the world. The five institutions that make up the Bank Group share a commitment to reducing poverty, promoting shared prosperity, and promoting sustainable development.
The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), which together make up the World Bank, provide financing, policy advice, and technical assistance to developing country governments. IDA’s focus is on the world’s poorest countries, and the International Bank for Reconstruction and Development assists middle-income and creditworthy poorer countries.
The International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Center for Settlement of Investment Disputes (ICSID) focus on strengthening the private sector in developing countries. Through these institutions, the World Bank Group provides financing, technical assistance, political risk insurance, and dispute resolution to private companies, including financial institutions.
What are the main criticisms leveled at the International Monetary Fund?
The International Monetary Fund is accused of being a “tool to strengthen the dependence of developing and poor countries on developed countries” with as much order as possible and to correct imbalances as quickly as possible. But it is one of the institutions created by the new superpower to impose not only its military hegemony, but also its economic hegemony on the world.”
The Fund’s roles in its various stages have witnessed widespread controversy about their efficacy on the one hand, and about the extent to which they are linked to political agendas that direct them on the other. “The IMF program can sometimes leave the country as poor as it once was, but with greater indebtedness and a richer ruling elite,” says Canadian economist Michel Chossudovsky.
For his part, the American economist, Joseph Stiglitz, a Nobel Prize winner in economics and chief economist at the World Bank, and one of the most important aides to former US President Bill Clinton, says that in one of his research, he concluded that “loans provided by the IMF to countries are harmful in severe cases.” Many are directed to developing countries and third world countries.
One of the criticisms directed at the Fund is to talk about the power and control of the United States of America and its ability to give a loan or not to any country, as it is the only country that has the right of veto among the member states.
The International Monetary Fund is also under criticism; Because it adopts purely capitalist policies that encourage free market rules and rejects any restrictions from the borrowing countries on foreign exchange, and against exchange control, and against any interference from governments in monetary policies, and also directly encourages the private sector and the free market economy, and provides the same recommendations and advice to all countries, Which does not give any space to countries whose economic and social situation may be significantly different with their counterparts from other borrowing countries.
Although the International Monetary Fund of the United Nations, its role is to support the global economy, and trade transactions between different countries, it is usually accused of being one of the tools of global companies to build an empire that controls the world economy, defeats countries, and “loots and destroys the economy of developing countries,” according to John Perkins, author of Confessions of an Economic Killer, which has been translated into 30 languages, including Arabic, in which it was published under the title: “The Economic Assassination of Nations.” LINK
Samson: What is the Paris Club? 5 points explain the story of the group that intervenes to save countries from bankruptcy and relieve their debt burden
19th July, 2022
With Sri Lanka recently declaring bankruptcy, and the International Monetary Fund and other international financial organizations warning that other countries – some of them Arab – will meet the same fate, and will not be able to pay their debts soon, there is much talk about the “Paris Club” and its role in finding solutions to the debt problem of these countries. or restructured. What is the Paris Club, who are its members, and what is its role in resolving debt crises and what are its objectives?
What is the Paris Club?
The Paris Club defines itself as an informal group of creditor countries whose goal is to find practical solutions to the payment and payment problems faced by debtor countries. It is a group that provides financial services such as debt rescheduling for debtor countries instead of declaring them bankrupt, or debt relief by reducing interest on them, and debt cancellation between highly indebted countries and their creditors. And debtor countries are often recommended or registered in the club by the International Monetary Fund, after the alternative solutions to pay the debts of those countries have failed.
The Paris-based club, where the meetings are held at the French Treasury, which provides a small secretariat to organize the meetings and a senior official to chair them, says it seeks “sustainable and coordinated solutions” to the payment problems faced by debtor countries. As countries with large debts undertake reforms to restore their financial and macroeconomic stability, the Paris Club creditors offer a debt treatment that is commensurate with the situation of these countries.
Paris Club creditors may facilitate debt rescheduling of debtor countries (rescheduling means renegotiating the terms of the loan), which may include deferred payments. Some countries are offered soft rescheduling, reducing debt service obligations over a specified period.
Where did the idea of the Paris Club come from?
The club says that the aim of its formation is to avoid debt crises and the resulting international tensions that in the past have led to conflicts and even invasions of debtor countries. Dealing with Paris Club debt was the best option for developing countries to manage their debts and obtain forgiveness, especially during the twentieth century.
The idea for the club was born out of talks held in Paris in 1956 to discuss the crisis between Argentina and its various creditors, and since the Paris Club is an informal group, there is no founding date.
Later, the Paris Club codified its principles and procedures in the seventies of the last century, in the context of the dialogue between the North and the South. Since 1956, the creditor countries that are members of the club have concluded more than 478 agreements relating to 102 debtor countries. Since then, the total debt covered in these agreements has reached 612 billion dollars, according to the official website of the Paris Club.
As an informal group, the club does not have any statutory laws, which gives creditor member states flexibility in facing the special situations of each debtor country facing difficulties in repaying its debts.
Who are the members of the Paris Club?
The permanent members of the Paris Club are 22 countries, which are countries that agree on the main principles and rules of the Paris Club, consistently apply the terms specified in the minutes agreed to in the Club to their bilateral claims, and must have settled any bilateral disputes or arrears with the Paris Club countries, If any.
The member countries of the Paris Club are: France, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, Germany, Ireland, Israel, Italy, Japan, South Korea, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, United Kingdom, United States of America.
The club also has observers who can attend, but cannot participate in, the Paris Club’s negotiating sessions. Here are three categories of observers:
1 – Representatives of international institutions and organizations, namely:
2- The members without claims: These are the representatives of the permanent members of the Paris Club, who have no claims in respect of the treatment of debts, for example creditors whose lending includes a minimum clause, or who do not owe the money of the debtor state, but nevertheless wish to attend the meeting.
3- Representatives of countries that are not members of the Paris Club: These are countries that have claims on the debtor country, but are not in a position to sign the Paris Club Agreement as temporary participants, provided that the permanent members and the debtor country agree to attend.
What are the principles of the Paris Club and the mechanism by which it operates?
The members of the Paris Club meet every month, with the exception of February and August, in the French capital, Paris. These monthly meetings may also include negotiations with one or more debtor countries that have fulfilled the club’s preconditions for debt negotiation.
The main conditions that the debtor country must meet are that it should have a clear need for debt relief and be committed to implementing economic reform. In effect, this means that the country must already have a program with the International Monetary Fund (IMF), backed by a conditional arrangement.
The Paris Club treats debts owed by debtor country governments and some private sector entities as publicly guaranteed by members of the Paris Club. The club offers a standard set of tiered terms for debt handling, from rescheduling payments at market rates to canceling up to 90% of certain debts. The specific set of terms offered to each debtor country is on a case-by-case basis, based on its position, characteristics and payment history.
With regard to the club’s working mechanism, the creditor countries meet 10 times a year in Paris for public business, and to negotiate with representatives of the debtor countries. At these meetings, representatives of debtor countries present their case for debt relief to the members of the Paris Club, who then decide in closed session what treatment the debtor should provide.
This process can then be repeated with additional sessions and requests for information until a deal is reached. The resulting agreements are not legally binding per se, but must be used as the basis for legally binding bilateral arrangements between the debtor and creditor countries of the Paris Club.
What are the most prominent examples of countries entering the Paris Club to save them from the debt crisis?
In the 1990s, the club began treating heavily indebted poor countries in a different way, granting greater privileges to heavily indebted countries. While he followed the policies of granting financial bonds and recourse to non-governmental creditors with other countries.
The club entered into an agreement in 2003 with Indonesia to reschedule $5.4 billion in debt, and rescheduled $12.5 billion in debt with Pakistan in 2001 over a period of 38 years.
Also in 2001, the debts of Yugoslavia (which disintegrated in 2006) were scheduled at three billion dollars, and the repayment schedule is determined according to the extent of that country’s capabilities and economic potential, based on the recommendations of the International Monetary Fund.
In 2004 the club decided to write off Iraq’s debts in full. Also, after the earthquake in the Indian Ocean in the same year, the Paris Club decided to give great facilities to the affected countries in paying their obligations. LINK