Anthony De Lannoy, Executive Director Bucharest, Romania 15 March - PowerPoint PPT Presentation

Anthony De Lannoy, Executive Director Bucharest, Romania 15 March 2018

Introduction I. IMF governance II. III. The Dutch-Belgian Constituency IV. European representation V. Tasks VI. The IMF in Romania VII. The IMF in a changing world VIII. Challenges for the future

I. Introd roduc uctio tion Established in Bretton Woods, New Hampshire, in 1944 ▪ Members: from 44 44 member states in 1945 to 189 189 member states ▪ in 2018; only the UN has more member states (193): ⁻ Andorra, Cuba, Liechtenstein, Monaco, and North Korea are not a member of the IMF ⁻ Kosovo is a member of the IMF, but not of the UN IMF World Bank International monetary cooperation LT economic development and poverty reduction Provides loans and helps countries Projects, sector reforms (health, design policy programs to solve balance education…) of payments problems ST/MT loans funded through quota LT loans funded through member contributions/bilateral loans country contributions/bond issuance

II. . IMF F governa vernanc nce e - quota ta A country’s quota (capital contribution) is based on the country’s relative ▪ position in the world economy The current quota formula is a weighted average of GDP (50%), openn nness ss (30%), ▪ econom omic c vari riab abil ility ity (15%), and internat rnation ional al reserv rves (5%). GDP is measured through a blend of GDP, based on market exchange rates (60%) and on PPP exchange rates (40%). The formula also includes a compression factor which somewhat improves the position of small(er) countries A country’s quota determines: ▪ The maximum amount of financial resources the member is obliged to ⁻ provide to the IMF (25% reserve currency, 75% own currency) The voting power and thus the relative power of the member within the ⁻ institution Access to financing; a distinction is made between normal access and ⁻ exceptional access

II. . IMF governa vernanc nce e - overview rview IMFC Board of Gover ernors ors International Monetary and Financial Committee advise ises One Governor from ▪ 24 Governors ▪ each member state Spring and Annual ▪ Annual Meetings ▪ Meetings Executive tive Board Managem ement ent 24 Executive Directors & ▪ Conducts day-to-day business Staff ▪ Meets several times a week ▪ +/-2700 Crucial aspect of the IMF’s governance : nearly all decisions are taken by consens nsus us (legally: simple or special 70 % /85 % majority)

II. . IMF F governa vernanc nce e – Execut cutive ive Board 24 Executive Directors 8 single country Chairs 16 Constituencies Japan USA 6.16% 16.53% China Germany 6.09% 5.32% UK France 4.04% 4.04% Russia 2.59% Saudi Arabia 2.02%

III II. . The Dutch ch-Be Belgia lgian n Constit tituency uency 0.05% 1.30% 0.08% 0.21% 0.17% 0.09% 0.07% 0.41% 0.29% 0.06% 0.06% 0.04% 1.77% 0.39% 0.43%

III II. . The Dutch ch-Be Belgia lgian n Constit tituency uency Until October 31, 2012, Belgium and the Netherlands led two ▪ separate constituencies. On November 1, 2012, Belgium and Luxembourg moved to the Dutch Constituency to establish the Dutch-Belgian Constituency The establishment of the Dutch-Belgian Constituency in 2012 was ▪ the result of the 2010 quota and governance reforms Goal: reduce the number of European seats in the Executive Board ▪

IV. Europe opean an representation esentation IMF members freely choose a constituency: ▪ ⁻ 28 EU member states are spread across 9 chairs ⁻ 18 Euro Area member states are spread across 8 chairs Nor the EU, nor the Euro Area are members of the IMF. The ECB ▪ has an observer on the Executive Board and the IMFC. The European Commission only has observer status at the IMFC The European Commission’s long term aim is a single Euro Area ▪ chair in the IMF, and thus to have a more unified and coherent external representation of the Euro Area

V. Tasks - survei veilla llanc nce e Surveillance covers macroeconomic policies, financial sector ▪ stability, risks and vulnerabilities, as well as institutional and structural issues Global Regi giona onal l Bilatera ral

V. Tasks – ca capacity city deve velopm lopmen ent t Capacity development consists of technical assistance and training ▪

V. Tasks - lending ing The IMF provides loans to countries that have trouble meeting ▪ their international payments and cannot otherwise find sufficient financing on affordable terms Balance ce of pa payments nts problem: international payments require ▪ reserve currency (USD, EUR, JPY, GBP…). Countries run out of reserves e.g. because of a sharp drop in export receipts (fall in commodity prices), speculative attacks against a fixed exchange rate, loss of access to capital markets because of high debt levels… Stabiliza zati tion on: IMF financial assistance is designed to help countries ▪ restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies, and staying current on international payments

V. Tasks - lending ing Condit ditiona ionali lity ty: conditions linked to an IMF loan are focused and ▪ country-specific in order to address the underlying causes of the crisis that forced the member to request an IMF loan Disbu burs rsem ement ent of resources urces: once an IMF program is approved, the ▪ loan is released in phased installments as the program is effectively carried out Precau aution tionar ary y credit it lines ines: : to members with strong fundamentals and a ▪ strong track record of policy implementation (e.g. Flexible Credit Line, Precautionary and Liquidity Line) Non-fin financial cial: the IMF can help countries design an economic ▪ program that delivers clear signals to donors and/or the markets on the basis of the IMF’s endorsement of the strength of the country’s policies

V. Tasks - lending ing Concess cession onal l financing ncing: an IMF loan can be either on non- ▪ concessional terms or on concessional terms. Low-income countries can obtain concessional financing under the Poverty Reduction and Growth Trust (PRGT), which allows them to lend at substantially reduced interest rates. To help low-income countries cope with the global crisis, zero interest are currently charged on all concessional lending Debt relief ief: the IMF has provided substantial debt relief to low- ▪ income countries under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI); to date, 36 countries, of which 30 in Africa, have benefited from US$76 billion in debt-service relief over time

V. Tasks - lending ing Reac accu cumul ulation tion of debt in low-in inco come me count ntri ries es: ▪ Evolution of Public Debt (simple averages, percent of GDP) 90 Fuel exporters 80 Other commodity exporters Diversified exporters 70 Post-HIPCs countries 60 Post-HIPCs countries in difficulty 1/ 50 40 30 20 2010 2011 2012 2013 2014 2015 2016 Source: IMF WEO database. 1/ Post-HIPC countries downgraded to debt distress or high risk of debt distress in past 3 years, including those expected to be downgraded based on IMF staff assessment. 15

V. Tasks - lending ing Non-co conce ncessiona onal Conce cessiona onal Stand-By By Arrangem ement ent (SBA) A) Standby by Credit t Facility (SCF) Typically 1-2yrs Short-term/potential BoP needs Extend ended ed Fund Facility (EFF) Extend ended ed Credit t Facility (ECF) Medium/longer term BoP problems Main tool for medium-term support Flexible Credit t Line (FCL) Precautionary, very strong fundamentals/policies Precauti tion onary ry and Liquidi dity ty Line (PLL) L) Precautionary, sound fundamentals/policies Rapid Financing g Instrum rument ent (RFI) Rapid Credit t Facility (RCF) Emergency assistance, limited Emergency assistance, limited access/conditionality access/conditionality Policy Coordi dinati tion on Instrum rumen ent Policy Support ort Instru trument ent (PSI) Non-financial, for signaling purposes Non-financial, for signaling purposes

V. Tasks - lending ing Lend nding ing during ng the crisis: spectacular increase in lending compared ▪ to the period <2009 173 336 mSDR In miljarden SDR FCC 246 200 mSDR 112 850 mSDR FCC 209 400 mSDR

V. Tasks - lending ing Largest t borrowers: the regional composition of the members with ▪ the largest non-concessional programs changed substantially during the global financial crisis 02/200 008 05/201 011 10/201 017 Turkey ey Greece Ukraine 6 662 mSDR 26 432 mSDR 12 348 mSDR Iraq Portu tuga gal Egypt 475 mSDR 23 742 mSDR 8 597 mSDR Peru Ireland Iraq 172 mSDR 19 466 mSDR 3 831 mSDR Gabon Ukraine Tunisi sia 77 mSDR 10 000 mSDR 2 046 mSDR FYR Macedon onia Pakist stan Jamaica 52 mSDR 7 236 mSDR 1 195 mSDR