GROUP 17  What is the ‘International Monetary Fund – IMF’?

 What is the ‘International Monetary Fund – IMF’?

[As defined in Investopidia]

The International Monetary Fund (IMF) is an international organization created for the purpose of standardizing global financial relations and exchange rates. The IMF generally monitors the global economy, and its core goal is to economically strengthen its member countries. Specifically, the IMF was created with the intention of:

  1. Promoting global monetary and exchange stability.
  2. Facilitating the expansion and balanced growth of international trade.
  3. Assisting in the establishment of a multilateral system of payments for current transactions.

[ we put the following video here http://www.investopedia.com/terms/i/imf.asp ]
The IMF is officially charged with managing the global regime of exchange rates and international payments that allows nations to do business with one another.

 

I.             IMF Management

The IMF is financed by member countries who contribute funds on joining. They can also increase this throughout their membership. The IMF can also ask its member countries for more money. IMF financial resources have risen from about $50 billion in 1950 to nearly $300 billion last year, sourced from contributions from its 183 members. This initial amount depends on the size of the countries economy. E.g. the US deposited the largest amount with the IMF. The US currently has 16% of voting rights at the IMF, a reflection of its quotas deposited with IMF. The UK has 4% of IMF Voting rights. Loans are also available to developing countries to ‘deal with poverty reduction.

Source: http://www.economicshelp.org/blog/glossary/imf/

II.           IMF Missions:

1) Surveillance. A formal system of review that monitors the financial and economic policies of member countries to ensure they are living within their means—tracking developments on a national, regional, and global level. In this process, IMF officials consult regularly with member countries and offer macroeconomic and financial policy advice.

2) Technical Assistance. Practical support and training directed mainly at low- and middle-income countries to help manage their economies (e.g., providing advice on tax policy, expenditure management, monetary and exchange rate policy, financial system regulation, privatization, trade liberalization, etc.).

3) Lending. Giving short- to mid-term loans to member nations that are struggling to meet their international obligations. Loans (or bailouts) are provided in return for implementing specific IMF conditions designed to help restore the macroeconomic dynamics conducive to sustainable growth.

 

Source: http://www.cfr.org/europe/international-monetary-fund/p25303

 

III.         Function of IMF

  • International monetary cooperation
  • Promote exchange rate stability
  • To help deal with balance of payments adjustment
  • Help deal with economic crisis by providing international coordination

IMF and Europe

According to the International Monetary Fund official website, there is no doubt that the IMF have always been an active contributor and fully engaged in Europe, and especially playing different roles such as a provider of policy advice, financing, and technical assistance. Actually, they work independently and in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB).

 The IMF’s work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the euro area crisis.

Assessing individual countries and the euro area

The IMF provides economic analysis and policy advice as part of its standard surveillance process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC. The bilateral surveillance staff reports for these consultations include assessments of the economic outlook, and economic and financial stability.

In addition to its policy discussions with the 19 individual members of the euro area, IMF staff also holds consultations annually for the euro area as a whole, similar to those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in a number of areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies. The final staff report includes an overall assessment of the economic outlook, external and fiscal position, and financial stability of the euro area as a whole. As part of the euro area consultation, the IMF’s views on the economic outlook and policies of the euro area are presented to the Eurogroup, comprising the 19 finance ministers of the euro area.

Global and regional analysis, spillovers and cross-cutting themes

The outlook and risks, spillovers, and policy recommendations for individual European countries and the euro area are assessed in a global context in the World Economic Outlook, the Global Financial Stability Report, Fiscal Monitorand the External Sector Report—the IMF’s flagship publications published twice a year. These assessments are integral to the IMF’s surveillance of its member countries.

The IMF also undertakes cross-country analysis to draw policy lessons for common challenges facing member countries. Since 2013, it has examined cross-cutting issues via a new approach—analyzing clusters of economies with strong interlinkages or common concerns—as a complement to the Fund’s bilateral surveillance, e.g., the Nordic Regional Report, the German-Central European Supply Chain Report, the Baltic Cluster Report, the Housing Cluster Report and the New Member States Policy Forum Cluster Report. The Fund has also published analyses to address several issues of broad policy concern in Europe: achieving external and internal balance; high youth unemployment; large non-performing loans in the banking system; inflation; the refugee surge and the impact of emigration 1 ; minimum wages 2, female labor force participation and the impact of the U.K. referendum to leave the EU. 3

For Central, Eastern and Southeastern Europe (CESEE), the IMF publishes CESEE Regional Economic Issues; a semi-annual publication that discusses analytical issues of broader interest to the region. Recent issues have looked at the challenges to post-crisis potential growth, growth-friendliness of fiscal consolidation, credit cycle and external funding patterns in the region.

Euro area integration

The IMF pays considerable attention to progress in fostering integration within the euro area to ensure the effective operation of the monetary union. The first-ever EU wide Financial Sector Assessment Program (FSAP), in March 2013, argued for a Single Supervisory Mechanism (SSM). In addition, the IMF published papers making the case for a Banking Union to strengthen the EU financial oversight and sever bank-sovereign linkages; a Fiscal Union to address gaps in the euro area’s architecture; and a more effective Economic Governance framework to betterincentivize structural reforms.

Providing financing

Since the start of the global financial crisis, a number of emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances. Access to IMF resources for Europe was provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF).

Most of the first wave of IMF-supported programs in 2008-09 was for countries in emerging Europe. The IMF also provided financing to Iceland when its banking system collapsed in late 2008. Starting in 2010, credit was also provided to euro area members – Greece, Ireland, Portugal and Cyprus. Credit outstanding to these members peaked in July 2014 at SDR 66.3 billion, but has declined to about SDR 29.7 billion as of September 16, 2016, due in part to early repayments by Portugal and Ireland. Ireland’s and Portugal’s EFFs concluded in December 2013 and June 2014, respectively, and they then entered into Post-Program Monitoring (PPM). The arrangement with Greece was cancelled in January 2016. Cyprus’s EFF was cancelled in March 2016—shortly before its expiration—and it has entered PPM.

As of September 16, 2016, the IMF had active arrangements with 6 emerging market countries in Europe (see table) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

In most EU countries—including in Hungary, Latvia, and Romania—Fund financing was provided in conjunction with the EU, while Poland has a FCL arrangement with the Fund. The experience developed with the joint programs in Central and Eastern Europe proved useful when euro area countries requested IMF support. At that stage, the collaboration was further extended to include another partner—the ECB. Cooperation between the three institutions is aimed at ensuring maximum coherence and efficiency in staff-level program discussions with governments on the policies that are needed to put their economies back on the path of sustainable economic growth. While the IMF coordinates closely with the other two institutions, Fund decisions on financing and policy advice are ultimately taken by the IMF’s 24-member Executive Board.

The Vienna Initiative was launched at the height of the financial crisis in 2008/09 to help avoid a rush-to-the-exit of Western European cross-border banking groups whose subsidiaries dominate the banking systems of CESEE. Banks entered into explicit exposure maintenance agreements in the case of five program countries. This Initiative brings together key International Financial Institutions (EBRD, WB, and IMF), the European Commission and relevant EU institutions, the main cross-border banking groups, and home and host country authorities.

The initiative was re-launched as Vienna 2 in January 2012 in response to a second wave of deleveraging and supervisory ring-fencing. The focus is on improving cooperation between home and host authorities, while monitoring the pace of deleveraging with a view to keeping it orderly and following credit developments. It publishes quarterly CESEE Deleveraging and Credit Monitor, makes recommendations to relevant European institutions for improvements in supervisory coordination and cross-border bank resolution, and organizes “Host Country Cross-Border Banking Forums.” These forums provide an opportunity for dialogue between the banks that are systemically important in a country and major interlocutors of those banks: the monetary authority and regulator, the parent international banking groups, and the latter’s regulators. So far, these forums have been held in Albania, Bosnia, Croatia, Hungary, Serbia, Slovenia, Montenegro, and Ukraine.

 

 

Providing technical expertise

The IMF’s technical assistance helps countries improve the capacity of their institutions and the effectiveness of their policymaking. As such, it contributes to the overall effectiveness of the Fund’s surveillance and lending programs.

Emerging market economies in Europe—such as Albania, Bosnia and Herzegovina, Belarus, Romania, Serbia and Ukraine—are the main recipients of such assistance in a broad range of areas. However, in the wake of the global financial crisis, there have also been demands for IMF technical assistance in advanced economies. For instance, the IMF provided assistance to monitor progress on Spain’s financial sector reforms, as well as on tax policy and revenue administration issues to Denmark, Finland, Italy, Portugal, Greece, Estonia, and Slovakia.

The IMF delivers technical assistance in various ways. Support is often provided through staff missions of limited duration sent from headquarters, or the placement of experts and/or resident advisors for periods ranging from a few weeks to a few years. Assistance might also be provided in the form of technical and diagnostic studies, training courses, seminars, workshops, and “on-line” advice and support.

The IMF has increasingly adopted a regional approach to the delivery of technical assistance and training. The IMF Institute organizes courses for officials from new EU member countries and other economies in transition in Europe and Asia at the Joint Vienna Institute in Austria.

1 https://www.imf.org/external/pubs/cat/longres.aspx?sk=42896.0

2 https://www.imf.org/external/pubs/cat/longres.aspx?sk=43961.0

3 http://www.imf.org/external/pubs/cat/longres.aspx?sk=43980.0

 

 Interventions of IMF  in Iceland:

  • The credit crunch of 2008 caused Icelandic banks to lose money and default.
  • Collapse in Icelandic banks led to loss of confidence in Icelandic economy
  • Withdrawal of money caused depreciation in currency.
  • This depreciation caused inflation and necessity of higher interest rates

Rescue package to Iceland:

  • $2.1billion loan to Iceland. This represents 1,190 percent of Iceland’s quota. The loan is part of a package aiming at:
  • restoring confidence in financial sector.
  • Stabilizing Icelandic krona.
  • Stabilizing Icelandic fiscal position

Source: http://www.economicshelp.org/blog/glossary/imf-iceland/

GROUP 20 : IMF: Responsibilities and intervention in Europe

Let start by a video defining what is the IMF ! 

The Role of the IMF in Europe and Beyond : (Responsibilities) 

Is the role of the IMF in the Greek crisis and elsewhere in Europe consistent with the IMF’s mission? My answer is yes for four reasons.

First, the IMF is a cooperative international organization with near-universal membership. Its mission is to promote sustainable global growth and financial stability.

Second, all members of the Fund should be eligible to borrow from the institution under appropriate conditions. The availability of IMF financial assistance along with advice on reform or adjustment programs is in the interests of all countries because all countries benefit from sustained, balanced growth and global financial stability.

Third, the Fund carries out its mission through its surveillance, policy advice, and lending programs. Those three mechanisms are, and should be, available to all members even if the wealthiest IMF members have not availed themselves of IMF lending facilities since the 1970s.

Fourth, IMF lending operations have not been limited to developing countries in recent years. In November 2008, Iceland embarked on an IMF-supported economic reform program. Its estimated per capita GDP on a purchasing power parity basis in 2010 is estimated still to be 25 percent more than Korea’s, which borrowed from the IMF in 1997 and was the world’s 11th largest economy at that time.5 Moreover, the IMF, in cooperation with the European Union, is already supporting economic reform programs in Hungary, Latvia, and Romania. The wealthiest of those countries, Hungary, has an estimated GDP per capita that is less than half the GDP per capita of Korea. True, these countries are members of the European Union but are not part of the euro area. In retrospect, the euro area versus non-euro area distinction diverted the Europeans from acting promptly in Greece. The distinction primarily reflects the pride of the political elite in the countries using the euro as their currency. For reference, within the euro area, Greece’s per capita GDP is approximately the same as Korea’s, as is Spain’s, but Portugal’s is 25 percent lower.

IMF threatens to pull out of Greek rescue : (Intervention) 

Hopes of an end to the impasse between Greece and its creditors have appeared to evaporate after asurprise intervention from the International Monetary Fund.

In a letter – leaked three days before eurozone finance ministers are scheduled to discuss how best to put the crisis-plagued country back on its feet – IMF chief Christine Lagarde issued her most explicit warning yet: either foreign lenders agree to restructure Greece’s runaway debt or the Washington-based organisation will pull out of rescue plans altogether.

“For us to support Greece with a new IMF arrangement, it is essential that the financing and debt relief from Greece’s European partners are based on fiscal targets that are realistic because they are supported by credible measures to reachthem,” she wrote, lamenting the lack of structural reforms underlying Athens’ abortive adjustment programme so far.

Six years have elapsed since Greece, revealing a deficit that was four times higher than previously thought, received its first loans from a bailout programme that has since exceeded more than €240bn (£190bn) in emergency funding. Since a third €86bn bailout last summer, talks have been largely deadlocked.

Laying bare the differences of view prevailing among those consigned to keep the insolvent nation afloat, Lagarde said it was imperative that a lower primary surplus goal was achieved.

“We do not believe it will be possible to reach a 3.5% of GDP primary surplus [in 2018] by relying on hiking already high taxes levied on a narrow base, cutting excessively discretionary spending and counting on one-off measures as has been proposed in recent weeks.”

The IMF managing director’s intervention came after the surprise decision of the leftist-led government in Athens to put unpopular pension and tax changes to a vote on Sunday.

The prospect of such controversial measures being passed so urgently unleashed a wave of civil unrest with a 48-hour general strike by private and public sector unions bringing Greece to a standstill. Unionists said the measures were a “barbaric” eradication of hard-won rights and would be “the last nail in the coffin” for workers whose salaries have already been savaged by relentless rounds of gruelling austerity.

“They are the worst so far,” said Odysseus Trivalas, president of the public sector union ADEDY. “At some point, Greeks won’t be able to take anymore and there will be a social explosion.”

Rallies are planned to protest against measures that include instituting a national pension of €384 a month, raising social security contributions and increasing income tax for high earners. The overhaul of the pension system is among the most contentious reforms to date.

In a repeat of the drama that dominated the eurozone last year, Athens faces the spectre of default if its fails to honour maturing European Central Bank bonds and IMF loans in July.

Long overdue rescue loans worth €5bn are at stake. Receipt of the funds depends on completion of a first progress report, or evaluation, of the economy that has been drawn out for the past nine months and has stalled over lender disagreement. With discord over Athens’ ability to achieve fiscal targets, creditors recently upped the ante, demanding an additional contingency package of €3.6bn, the equivalent of 2% of GDP.

“While creditors fight this out, the political and social situation in Athens will deteriorate,” said Mujtaba Rahman, head of European analysis at risk consultancy Eurasia Group. “Time is running out for creditors to come to an agreement.”

The Greek prime minister, Alexis Tsipras, unexpectedly called Sunday’s vote before the conclusion of the negotiations in order to placate creditors and increase his bargaining power at Monday’s meeting of eurozone finance ministers.

In a first, the ministers are to discuss Greece’s debt load – which at more than 180% of GDP by far the highest in Europe – in addition to fiscal adjustment measures that could amount to 5% of GDP if contingency reforms are taken. The extra policies, as yet unspecified, will only be enacted if targets are not reached but, with its narrow three-seat majority, the Greek government has argued they will never get through parliament.

“Tsipras is looking to demonstrate to Greek voters that he and his government have done their part, and that the ball, namely that of debt relief, now lies squarely with the Europeans,” said Rahman.

“The subliminal message to creditors [in Sunday’s ballot] is therefore this: if you insist on contingency measures, you will end up with the collapse of my government and early elections.”

Along with Britain’s 23 June referendum on EU membership, that could end up being a “big headache” for Europe, he added.

Group 16 : The IMF and Europe

 

The International Monetary Fund (IMF) is an international institution responsible for promoting international monetary cooperation, ensuring financial stability, facilitating international trade and contributing to the economic stability.

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. They work with European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB).

What are the IMF’s responsibilities in Europe ?

It’s important to say that the IMF’s work in Europe has intensified since the start of the global financial crisis in 2008. Because the main role of the IMF is to ensure the stability of the international monetary system. Since the start of the global financial crisis, a number of emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances.

For example, the IMF participated in the financial assistance and economic adjustment programs for Greece, Ireland and Portugal by contributing around one third to the emergency funds. In a “Troika”, together with the European Commission (EC) and the European Central Bank (ECB), the IMF elaborated the economic adjustment programs for these economies and closely monitored their progress through quarterly reviews based on economic missions.

IMF provide technical expertise 

The IMF delivers technical assistance in various ways. Support is often provided through staff missions of limited duration sent from headquarters, or the placement of experts and resident advisors for periods ranging from a few weeks to a few years. Assistance might also be provided in the form of technical and diagnostic studies, training courses, seminars, workshops, and online advice and support.

IMF provide financing 

Most of the first wave of IMF-supported programs in 2008-09 was for countries in emerging Europe. The IMF also provided financing to Iceland when its banking system collapsed in late 2008.

As of September 2016, the IMF had active arrangements with 6 emerging market countries in Europe (see table) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

IMF need the Europe to be strong

The IMF published papers making the case for a Banking Union to strengthen the EU financial oversight and sever bank-sovereign linkages; a Fiscal Union to address gaps in the euro area’s architecture; and a more effective Economic Governance framework to better incentivize structural reforms.

References

https://www.econstor.eu/bitstream/10419/56452/1/689266685.pdf

http://www.imf.org/external/np/exr/facts/europe.htm

https://piie.com/commentary/testimonies/role-international-monetary-fund-and-federal-reserve-stabilization-europe

 

Group 13 : International Monetary Fund : responsibilities and intervention in Europe

I. The role of the International Monetary fund

The work of the IMF is in three main types:

  1. Surveillance

The IMF oversees the international monetary system and monitors the financial and economic policies of its members. It keeps track of economic developments on a national, regional, and global basis, consulting regularly with member countries and providing them with macroeconomic and financial policy advice aimed especially at crisis-prevention.

 

  1. Technical Assistance

To assist mainly low- and middle-income countries in effectively managing their economies, the IMF provides practical guidance and training on how to upgrade institutions, and design appropriate macroeconomic, financial, and structural policies.

  1. Lending

The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms. This financial assistance is designed to help countries restore macroeconomic stability by rebuilding their international reserves, stabilizing their currencies, and paying for imports—all necessary conditions for relaunching growth. The IMF also provides concessional loans to low-income countries to help them develop their economies and reduce poverty.

 

 

  • Good to know

 

“Effective anti-money laundering and combating the financing of terrorism regimes are essential to protect the integrity of markets and of the global financial framework as they help mitigate the factors that facilitate financial abuse.”

Min Zhu, Deputy Managing Director of the IMF

In recent years, as part of its efforts to strengthen the international financial system, and to enhance its effectiveness at preventing and resolving crises, the IMF has applied both its surveillance and technical assistance work to the development of standards and codes of good practice in its areas of responsibility, and to the strengthening of financial sectors. The IMF also plays an important role in the fight against money-laundering and terrorism

II.  Intervention in Europe

 

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. They work independently in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF’s work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 because of the euro area crisis.

  1.  Assessing individual countries and the euro area

The IMF provides economic analysis and policy advice as part of its standard surrveillance ard process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC.

In addition, IMF staff also holds consultations annually for the euro area like those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in several areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies

2. Euro area integration

The IMF pays considerable attention to progress in fostering integration within the euro area to ensure the effective operation of the monetary union. The first-ever EU wide Financial Sector Assessment Program (FSAP), in March 2013, argued for a Single Supervisory Mechanism (SSM). In addition, the IMF published papers making the case for a Banking Union to strengthen the EU financial oversight and sever bank-sovereign linkages; a Fiscal Union to address gaps in the euro area’s architecture; and a more effective Economic Governance framework to better incentivize structural reforms.

3.   Providing financing

Since the start of the global financial crisis, several emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances. Access to IMF resources for Europe was provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF).

The main financial interventions for these past 10 years are:

  • 2008-2009: financial support to emerging Europe’s countries and to Iceland when its banking system collapsed in late 2008
  • 2010: credit provided to the Euro Area Members – Greece, Ireland, Portugal and Cyprus. Credit outstanding to these members peaked in July 2014 at SDR 66.3 billion.
  • 2016: As of September 16, the IMF had active arrangements with 6 emerging market countries in Europe (Kosovo, Serbia, Bosnia Herzegovina, Albania, Ukraine, Poland) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

In most EU countries—including in Hungary, Latvia, and Romania—Fund financing was provided in conjunction with the EU, while Poland has a FCL arrangement with the Fund.

 

  1. Providing technical expertise

The IMF’s technical assistance helps countries improve the capacity of their institutions and the effectiveness of their policymaking. As such, it contributes to the overall effectiveness of the Fund’s surveillance and lending programs.

Emerging market economies in Europe—such as Albania, Bosnia and Herzegovina, Belarus, Romania, Serbia and Ukraine—are the main recipients of such assistance in a broad range of areas. However, in the wake of the global financial crisis, there have also been demands for IMF technical assistance in advanced economies. For instance, the IMF aided monitor progress on Spain’s financial sector reforms, as well as on tax policy and revenue administration issues to Denmark, Finland, Italy, Portugal, Greece, Estonia, and Slovakia.

 

 

References

http://www.investopedia.com/video/play/international-monetary-fund-imf/

https://www.imf.org/external/about/ourwork.htm

https://www.imf.org/external/work.htm

Group 14: International Monetary Fund: responsibilities and intervention in Europe

Role of IMF:

The International Monetary Fund is a global organisation founded in 1944. It aims was to help stabilise exchange rates and provide loans to countries in need. Nearly all members of the United Nations are members of the IMF with a few exceptions such as Cuba, Lichtenstein and Andorra.

  • The IMF is independent of the World Bank although both are United Nations agencies and both are aiming to increase living standards. The World Bank concentrates on long term loans to developing countries.

Functions of IMF

  1. International Monetary Cooperation

  2. Promote exchange Rate stability

  3. To help deal with Balance of Payments adjustment

  4. Help Deal With Economic Crisis by providing international coordination

What The IMF does

  1. Economic Surveillance. IMF produces reports on member countries economies and suggest areas of weakness / possible danger. The idea is to work on crisis prevention by highlighting areas of economic imbalance. A list of IMF reports on member countries are available at: IMF Countries

  2. Loans to Country’s with financial crisis. The IMF has $300 billion of loanable funds. This comes from member countries who deposit a certain amount on joining. In times of financial / economic crisis, the IMF may be willing to make available loans as part of a financial readjustment.

  • the IMF has arranged more than $180 billion in bailout packages since 1997.
  1. Technical assistance and economic training. The IMF produce many reports and publications. They can also offer support for local economies. More on technical assistance.

 

The IMF and Europe

 

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. We work independently and, in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF’s work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the euro area crisis.

Assessing individual countries and the euro area

The IMF provides economic analysis and policy advice as part of its standard surveillance process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC. The bilateral surveillance staff reports for these consultations include assessments of the economic outlook, and economic and financial stability.

In addition to its policy discussions with the 19 individual members of the euro area, IMF staff also holds consultations annually for the euro area as a whole, similar to those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in a number of areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies. The final staff report includes an overall assessment of the economic outlook, external and fiscal position, and financial stability of the euro area as a whole. As part of the euro area consultation, the IMF’s views on the economic outlook and policies of the euro area are presented to the Eurogroup, comprising the 19 finance ministers of the euro area.

Global and regional analysis, spillovers and cross-cutting themes

The outlook and risks, spillovers, and policy recommendations for individual European countries and the euro area are assessed in a global context in the World Economic Outlook, the Global Financial Stability Report, Fiscal Monitorand the External Sector Report—the IMF’s flagship publications published twice a year. These assessments are integral to the IMF’s surveillance of its member countries.

The IMF also undertakes cross-country analysis to draw policy lessons for common challenges facing member countries. Since 2013, it has examined cross-cutting issues via a new approach—analyzing clusters of economies with strong interlinkages or common concerns—as a complement to the Fund’s bilateral surveillance, e.g., the Nordic Regional Report, the German-Central European Supply Chain Report, the Baltic Cluster Report, the Housing Cluster Report and the New Member States Policy Forum Cluster Report. The Fund has also published analyses to address several issues of broad policy concern in Europe: achieving external and internal balance; high youth unemployment; large non-performing loans in the banking system; inflation; the refugee surge and the impact of emigration 1 ; minimum wages 2, female labor force participation and the impact of the U.K. referendum to leave the EU. 3

For Central, Eastern and Southeastern Europe (CESEE), the IMF publishes CESEE Regional Economic Issues; a semi-annual publication that discusses analytical issues of broader interest to the region. Recent issues have looked at the challenges to post-crisis potential growth, growth-friendliness of fiscal consolidation, credit cycle and external funding patterns in the region.

Euro area integration

The IMF pays considerable attention to progress in fostering integration within the euro area to ensure the effective operation of the monetary union. The first-ever EU wide Financial Sector Assessment Program (FSAP), in March 2013, argued for a Single Supervisory Mechanism (SSM). In addition, the IMF published papers making the case for a Banking Union to strengthen the EU financial oversight and sever bank-sovereign linkages; a Fiscal Union to address gaps in the euro area’s architecture; and a more effective Economic Governance framework to betterincentivize structural reforms.

Providing financing

Since the start of the global financial crisis, a number of emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances. Access to IMF resources for Europe was provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF).

Most of the first wave of IMF-supported programs in 2008-09 was for countries in emerging Europe. The IMF also provided financing to Iceland when its banking system collapsed in late 2008. Starting in 2010, credit was also provided to euro area members – Greece, Ireland, Portugal and Cyprus. Credit outstanding to these members peaked in July 2014 at SDR 66.3 billion, but has declined to about SDR 29.7 billion as of September 16, 2016, due in part to early repayments by Portugal and Ireland. Ireland’s and Portugal’s EFFs concluded in December 2013 and June 2014, respectively, and they then entered into Post-Program Monitoring (PPM). The arrangement with Greece was cancelled in January 2016. Cyprus’s EFF was cancelled in March 2016—shortly before its expiration—and it has entered PPM.

As of September 16, 2016, the IMF had active arrangements with 6 emerging market countries in Europe (see table) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

In most EU countries—including in Hungary, Latvia, and Romania—Fund financing was provided in conjunction with the EU, while Poland has a FCL arrangement with the Fund. The experience developed with the joint programs in Central and Eastern Europe proved useful when euro area countries requested IMF support. At that stage, the collaboration was further extended to include another partner—the ECB. Cooperation between the three institutions is aimed at ensuring maximum coherence and efficiency in staff-level program discussions with governments on the policies that are needed to put their economies back on the path of sustainable economic growth. While the IMF coordinates closely with the other two institutions, Fund decisions on financing and policy advice are ultimately taken by the IMF’s 24-member Executive Board.

Where the money comes from

Most of the IMF resources allocated to credit activities are provided by member countries, primarily through their payment of quotas. In addition, starting in early 2009, the IMF signed a number of bilateral loan and note purchase agreements to bolster its capacity to support member countries during the global economic crisis. In early 2011, the amended and expanded New Arrangements to Borrow (NAB) became effective and were activated. At that point, the bilateral agreements of NAB participants were folded into the NAB.

In December 2011, euro area countries committed to providing additional resources to the IMF of up to 150 billion euro (about $200 billion). Following the request of our membership and general support by the G-20 leaders at the Cannes Summit, the IMF Executive Board discussed the adequacy of the Fund’s resources in January and March 2012. Subsequently, in mid-2012, numerous member countries pledged additional bilateral commitments to further augment the IMF’s resources, of which about $390 billion is currently effective. In early 2016, the general conditions for the effectiveness of the 14th Review quota increases–which would double quotas from SDR 238 billion to SDR 477 billion–were met and most members have paid their quota increases. As agreed by the Executive Board in 2010, the payments of quota increases triggered a rollback of the NAB from SDR 370 to SDR 182 billion. The Fund’s current overall lending capacity is about SDR 690 billion.

IMF-Supported Programs in Europe

As of September 16, 2016, the IMF had arrangements with 6 countries in Europe, totaling about € 33.9 billion or $ 38 billion.

Amount Agreed (billions) Undrawn Balance (billions)
Member Effective Date Expiration Date Euros

(billions1)

Dollars

(billions1)

As percent

of Quota2

Euros

(billions1)

Dollars

(billions1)

Stand-By Arrangements
Kosovo 7/29/15 5/28/17 0.18 0.21 179 0.11 0.13
Serbia 2/23/15 2/22/18 1.17 1.31 143 1.17 1.31
Extended Fund Facility
Albania 2/28/14 2/27/17 0.37 0.41 212 0.07 0.08
Bosnia and Herzegovina 9/7/16 9/6/19 0.55 0.62 167 0.47 0.53
Ukraine 3/11/15 3/10/19 15.40 17.29 614 8.61 9.66
Flexible Credit Line
Poland 1/14/15 1/13/17 16.21 18.20 317 16.21 18.20
Total 33.9 38.0 26.6 29.9
Source: IMF Staff calculations.
1 Calculated using the prevailing exchange rate on September 16, 2016.
2 At the time of approval.

The European Bank Coordination Initiative

The Vienna Initiative was launched at the height of the financial crisis in 2008/09 to help avoid a rush-to-the-exit of Western European cross-border banking groups whose subsidiaries dominate the banking systems of CESEE. Banks entered into explicit exposure maintenance agreements in the case of five program countries. This Initiative brings together key International Financial Institutions (EBRD, WB, and IMF), the European Commission and relevant EU institutions, the main cross-border banking groups, and home and host country authorities.

The initiative was re-launched as Vienna 2 in January 2012 in response to a second wave of deleveraging and supervisory ring-fencing. The focus is on improving cooperation between home and host authorities, while monitoring the pace of deleveraging with a view to keeping it orderly and following credit developments. It publishes quarterly CESEE Deleveraging and Credit Monitor, makes recommendations to relevant European institutions for improvements in supervisory coordination and cross-border bank resolution, and organizes “Host Country Cross-Border Banking Forums.” These forums provide an opportunity for dialogue between the banks that are systemically important in a country and major interlocutors of those banks: the monetary authority and regulator, the parent international banking groups, and the latter’s regulators. So far, these forums have been held in Albania, Bosnia, Croatia, Hungary, Serbia, Slovenia, Montenegro, and Ukraine.

Providing technical expertise

The IMF’s technical assistance helps countries improve the capacity of their institutions and the effectiveness of their policymaking. As such, it contributes to the overall effectiveness of the Fund’s surveillance and lending programs.

Emerging market economies in Europe—such as Albania, Bosnia and Herzegovina, Belarus, Romania, Serbia and Ukraine—are the main recipients of such assistance in a broad range of areas. However, in the wake of the global financial crisis, there have also been demands for IMF technical assistance in advanced economies. For instance, the IMF provided assistance to monitor progress on Spain’s financial sector reforms, as well as on tax policy and revenue administration issues to Denmark, Finland, Italy, Portugal, Greece, Estonia, and Slovakia.

The IMF delivers technical assistance in various ways. Support is often provided through staff missions of limited duration sent from headquarters, or the placement of experts and/or resident advisors for periods ranging from a few weeks to a few years. Assistance might also be provided in the form of technical and diagnostic studies, training courses, seminars, workshops, and “on-line” advice and support.

The IMF has increasingly adopted a regional approach to the delivery of technical assistance and training. The IMF Institute organizes courses for officials from new EU member countries and other economies in transition in Europe and Asia at the Joint Vienna Institute in Austria.

 

The Crisis Management Role

The IMF is often referred to as the world’s « financial crisis firefighter, » called upon by member countries to help fight crippling sovereign debt and prevent contagion from spreading through the global financial system. Historically, much of the Fund’s work has been done in developing countries. However, the 2008 global financial meltdown has required major interventions in advanced European economies such as Iceland, Ireland, Greece, and Portugal.

 

What are the advantages and disadvantages of the International Monetary Fund?

 

IMF advantages

The IMF assists member nations in several different capacities. If a country has a balance of payments deficit, the IMF can step in to fill the gap. It serves as a council and adviser to countries attempting a new economic policy. It also publishes papers on new economic topics.

Its most important function is its ability to provide loans to member nations in need of a bailout. The IMF can attach conditions to these loans, including prescribed economic policies with which borrowing governments must comply.

 

IMF disadvantages

Despite its lofty status and commendable objectives, the IMF is attempting to pull off a nearly impossible economic feat: perfectly timing and sizing economic intervention on an international scale.

The IMF has been criticized for not doing much and for overreaching. It has been criticized for being too slow or too eager to assist failing national policies. Since the United States, Japan and Great Britain feature prominently in IMF policies, it has been accused of being a tool for free-market countries only. Simultaneously, free-market supporters roundly criticize the IMF for being too interventionist.

Some member nations, such as Italy and Greece, have been accused of pursuing unsustainable budgets because they believed the world community, led by the IMF, would come to their rescue. This is no different than the moral hazard created by government bailouts of major banks.

 

 

source:

http://www.investopedia.com/ask/answers/061115/what-are-advantages-and-disadvantages-international-monetary-fund.asp

http://www.economicshelp.org/blog/glossary/imf/

http://www.imf.org/external/np/exr/facts/europe.htm

http://www.imf.org/en/About/Factsheets/Europe-and-the-IMF

http://www.cfr.org/europe/international-monetary-fund/p25303

 

Group 12 – International Monetary Fund

What is the ‘International Monetary Fund – IMF’

The International Monetary Fund (IMF) is an international organization created for the purpose of standardizing global financial relations and exchange rates. The IMF generally monitors the global economy, and its core goal is to economically strengthen its member countries.

http://www.investopedia.com/terms/i/imf.asp

What the IMF Does

The work of the IMF is of three main types:

Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention.

The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction.

Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics.

https://www.imf.org/external/work.htm

The IMF and the Europe financial crisis

The financial crisis has transformed the relationship between the International Monetary Fund (IMF) and Europe. In 2006, the IMF was a struggling institution, facing a budget shortfall and shedding staff. Since 1976, the IMF had no active program in the old member states of the European Union (EU). Its influence even in new EU member states had subsided after their transition to a market economy. Hence, prior to the crisis, the IMF’s role in Europe had been confined to technical consultancy and being an interlocutor during regular but unimportant Article-IV surveillance missions.

The crisis has returned the IMF to the center of international crisis management and economic policy- making. The G20 tripled the Fund’s resources, and the IMF was able to expand its lending framework and enhance its surveillance mandate. With more than 40% of the current IMF crisis financing flowing to EU member states, the Fund’s role in Europe has changed dramatically. Initially, the IMF was called upon to intervene in individual European economies, such as Iceland, Latvia, Romania, or Hungary. As the crisis spread across Europe, the IMF has become central for the stabilization of the entire Eurozone: EU member states decided to channel hundreds of billions of Euro to Greece, Ireland, and Portugal through new joint IMF-EU programs. Moreover, the IMF became financially and politically involved in European reform initiatives, such as the European Financial Stability Fund, the European Stability Mechanism or the re-regulation of European cross-border banking.

https://ecpr.eu/Filestore/WorkshopOutline/53.pdf

GROUP 7 International Monetary Fund: Responsibilities and Interventions in Europe

WHAT IS THE INTERNATIONAL MONETARY FUND ?

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership.

WHY WAS IT CREATED ?

The IMF, also known as the Fund, was conceived at a UN conference in Bretton Woods, New Hampshire, United States, in July 1944. The 44 countries at that conference sought to build a framework for economic cooperation to avoid a repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s. They expected that this new global entity would ensure exchange rate stability and encourage its member countries to eliminate the exchange restrictions that hindered trade.

WHAT ARE THE MISSIONS AND THE RESPONSIBILITIES OF THE IMF ?

The IMF’s primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other. The Fund’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.

The following points list some of the responsibilities of the International Monetary Fund:

  1. To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
  2. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
  3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
  4. To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
  5. To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
  6. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.“Articles of Agreement: Article I—Purposes,” International Monetary Fund, accessed May 23, 2011.                                                                                                                            

THE IMF AND EUROPE

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. We work independently and, in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF’s work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the euro area crisis.

Assessing Individual countries and the euro area

The IMF provides economic analysis and policy advice as part of its standard surveillance process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC. The bilateral surveillance staff reports for these consultations include assessments of the economic outlook, and economic and financial stability.

In addition to its policy discussions with the 19 individual members of the euro area, IMF staff also holds consultations annually for the euro area as a whole, similar to those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in a number of areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies. The final staff report includes an overall assessment of the economic outlook, external and fiscal position, and financial stability of the euro area as a whole. As part of the euro area consultation, the IMF’s views on the economic outlook and policies of the euro area are presented to the Eurogroup, comprising the 19 finance ministers of the euro area.

Providing financing

Since the start of the global financial crisis, a number of emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances. Access to IMF resources for Europe was provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF)

Most of the first wave of IMF-supported programs in 2008-09 was for countries in emerging Europe. The IMF also provided financing to Iceland when its banking system collapsed in late 2008. Starting in 2010, credit was also provided to euro area members – Greece, Ireland, Portugal and Cyprus. Credit outstanding to these members peaked in July 2014 at SDR 66.3 billion, but has declined to about SDR 29.7 billion as of September 16, 2016, due in part to early repayments by Portugal and Ireland

 As of September 16, 2016, the IMF had active arrangements with 6 emerging market countries in Europe (see table) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

EXAMPLE OF IMF’S INTERVENTION IN EUROPE: EURO CRISIS

 

References

Retrieved from http://www.imf.org/external/about.htm

Retrieved from http://2012books.lardbucket.org/books/challenges-and-opportunities-in-international-business/s10-02-what-is-the-role-of-the-imf-an.html

Retrieved from http://www.imf.org/external/np/exr/facts/europe.htm

Retrieved from www.youtube.com/watch?v=mNhLotX8ss8

Group5 – IMF in Europe

IMF in Euro Area

 

IMF’s responsibilities in Europe

The IMF provides policy advice and economic analysis as part of its surveillance process for individual economies. In addition to its policy discussions with the 18 individual members of the Euro Area, the IMF also holds consultations annually for the euro area as a whole.

 

IMF and Crisis Programs in the Euro Area

The IMF—facing unprecedented challenges in the Euro Zone and against the backdrop of the Lehman crisis—recognized early in its EU engagement that the high odds of spillovers to other vulnerable members of the currency union posed potentially severe regional and global systemic risks.

 

The world economy will not recover without a reasonably healthy European recovery. The US economy will not enjoy the sustained recovery without global recovery. That was the key lesson of the global crisis of 2007-09. Crises that initially affect large parts of the global economy and financial system have adverse impacts in all parts of the globe.

 

The major policy instrument available to the United States to contain the European crisis aftermath is the International Monetary Fund. The United States should continue to provide maximum, constructive support for the IMF in carrying out its responsibilities for the promotion of global growth and financial stability.

 

IMF’s activities during crisis in Europe

  1. The program of Greek economic and financial stabilization and reform approved by the IMF Executive Board;

 

  1. The IMF positively respond to cooperate with the ESM, using the Greek program as a template to deal with the Fund’s core mission;

 

  1. The IMF is not only lending to emerging market and developing countries. Each IMF member may call upon its financial resources;

 

  1. It is needed to restore and maintain economic growth in Europe, a key area of needed IMF policy advice for Europe is on strengthening their banks that now face the high probability of another round of substantially impaired assets and the risk of sovereign defaults;

 

  1. All IMF-supported reform programs involve a balance between painful policy adjustments that adversely affect economic growth in the short run and necessary, temporary financial support;

 

  1. The contribution of IMF lending to perpetuation of moral hazard is greatly exaggerated under current, and most, circumstances;

 

  1. The IMF will be called upon to lend more to European countries, will run out of resources to lend, or will leave non-European members of the IMF in the financial lurch.

 

IMF’s protections to Europe

IMF chief economist and economic counsellor, Maurice Obstfeld, said in the global lender’s outlook. « Turning back the clock on trade can only deepen and prolong the world economy’s current doldrums. »

 

In current situation, Euro area growth is expected to reach only 1.7 percent this year and continue slowing to 1.5 percent next year, after growing at a 2.0 percent pace last year.

To combat slowing growth, the IMF called for advanced economies to « maintain easy monetary policies, » including potential expansion of asset purchases in Europe, and increase government spending on education, technology and infrastructure. Many countries also need reforms to increase participation in labor markets, improve the match between skills and jobs, and a reduction in barriers to market entry, the IMF said.

 

IMF’s expectations in Europe

International Monetary Fund Managing Director Christine Lagarde said on Sunday that she was worried about the result of looming elections in Europe, though she insisted the euro zone was making progress in resolving its economic problems.

 

 

 

 

References

http://www.imf.org/external/np/exr/facts/europe.htm

http://www.imf.org/external/themes/crisisprog/euroarea/index.htm

https://piie.com/commentary/testimonies/role-international-monetary-fund-and-federal-reserve-stabilization-europe

http://www.cnbc.com/2016/10/04/imf-to-us-and-europe-protect-trade-and-keep-the-easy-money-flowing.html

http://www.reuters.com/article/us-imf-europe-idUSKBN15R0FP?feedType=RSS&feedName=topNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FtopNews+%28News+%2F+US+%2F+Top+News%29

 

Group 19 : The IMF and Europe

The IMF and Europe

 

The IMF is actively engaged in Europe as a provider of policy advice, financing, and technical assistance. We work independently and, in European Union (EU) countries, in cooperation with European institutions, such as the European Commission (EC) and the European Central Bank (ECB). The IMF’s work in Europe has intensified since the start of the global financial crisis in 2008, and has been further stepped up since mid-2010 as a result of the euro area crisis

Assessing individual countries and the euro area

The IMF provides economic analysis and policy advice as part of its standard surveillance process for individual advanced and emerging European economies that culminates in regular (usually annual) consultations with individual member countries and, if relevant, EU institutions such as the ECB and EC. The bilateral surveillance staff reports for these consultations include assessments of the economic outlook, and economic and financial stability.

In addition to its policy discussions with the 19 individual members of the euro area, IMF staff also holds consultations annually for the euro area as a whole, similar to those held for other currency unions. Here, IMF staff exchange views with counterparts from the ECB, the EC and other European institutions in a number of areas, including monetary and exchange rate policies and regional fiscal policies, financial sector supervision and stability, trade and cross-border capital flows, as well as structural policies. The final staff report includes an overall assessment of the economic outlook, external and fiscal position, and financial stability of the euro area as a whole. As part of the euro area consultation, the IMF’s views on the economic outlook and policies of the euro area are presented to the Eurogroup, comprising the 19 finance ministers of the euro area.

Global and regional analysis, spillovers and cross-cutting themes

The outlook and risks, spillovers, and policy recommendations for individual European countries and the euro area are assessed in a global context in the World Economic Outlook, the Global Financial Stability ReportFiscal Monitorand the External Sector Report—the IMF’s flagship publications published twice a year. These assessments are integral to the IMF’s surveillance of its member countries.

The IMF also undertakes cross-country analysis to draw policy lessons for common challenges facing member countries. Since 2013, it has examined cross-cutting issues via a new approach—analyzing clusters of economies with strong interlinkages or common concerns—as a complement to the Fund’s bilateral surveillance, e.g., the Nordic Regional Report, the German-Central European Supply Chain Report, the Baltic Cluster Report, the Housing Cluster Report and the New Member States Policy Forum Cluster Report. The Fund has also published analyses to address several issues of broad policy concern in Europe: achieving external and internal balance; high youth unemployment; large non-performing loans in the banking system; inflation; the refugee surge and the impact of emigration 1 ; minimum wages 2female labor force participation and the impact of the U.K. referendum to leave the EU. 3

For Central, Eastern and Southeastern Europe (CESEE), the IMF publishes CESEE Regional Economic Issues; a semi-annual publication that discusses analytical issues of broader interest to the region. Recent issues have looked at the challenges to post-crisis potential growth, growth-friendliness of fiscal consolidation, credit cycle and external funding patterns in the region.

Euro area integration

The IMF pays considerable attention to progress in fostering integration within the euro area to ensure the effective operation of the monetary union. The first-ever EU wide Financial Sector Assessment Program (FSAP), in March 2013, argued for a Single Supervisory Mechanism (SSM). In addition, the IMF published papers making the case for a Banking Union to strengthen the EU financial oversight and sever bank-sovereign linkages; a Fiscal Union to address gaps in the euro area’s architecture; and a more effective Economic Governance framework to betterincentivize structural reforms.

Providing financing

Since the start of the global financial crisis, a number of emerging and advanced European countries have requested financial support from the IMF to help them overcome their fiscal and external imbalances. Access to IMF resources for Europe was provided through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and Liquidity Line (PLL), and the Extended Fund Facility (EFF).

Most of the first wave of IMF-supported programs in 2008-09 was for countries in emerging Europe. The IMF also provided financing to Iceland when its banking system collapsed in late 2008. Starting in 2010, credit was also provided to euro area members – Greece, Ireland, Portugal and Cyprus. Credit outstanding to these members peaked in July 2014 at SDR 66.3 billion, but has declined to about SDR 29.7 billion as of September 16, 2016, due in part to early repayments by Portugal and Ireland. Ireland’s and Portugal’s EFFs concluded in December 2013 and June 2014, respectively, and they then entered into Post-Program Monitoring (PPM). The arrangement with Greece was cancelled in January 2016. Cyprus’s EFF was cancelled in March 2016—shortly before its expiration—and it has entered PPM.

As of September 16, 2016, the IMF had active arrangements with 6 emerging market countries in Europe (see table) with commitments totaling about EUR 33.9 billion or $38 billion. Total credit outstanding to European members was around EUR 49.4 billion or around US$ 55.4 billion.

In most EU countries—including in Hungary, Latvia, and Romania—Fund financing was provided in conjunction with the EU, while Poland has a FCL arrangement with the Fund. The experience developed with the joint programs in Central and Eastern Europe proved useful when euro area countries requested IMF support. At that stage, the collaboration was further extended to include another partner—the ECB. Cooperation between the three institutions is aimed at ensuring maximum coherence and efficiency in staff-level program discussions with governments on the policies that are needed to put their economies back on the path of sustainable economic growth. While the IMF coordinates closely with the other two institutions, Fund decisions on financing and policy advice are ultimately taken by the IMF’s 24-member Executive Board.

IMF-Supported Programs in Europe

As of September 16, 2016, the IMF had arrangements with 6 countries in Europe, totaling about € 33.9 billion or $ 38 billion.

The European Bank Coordination Initiative

The Vienna Initiative was launched at the height of the financial crisis in 2008/09 to help avoid a rush-to-the-exit of Western European cross-border banking groups whose subsidiaries dominate the banking systems of CESEE. Banks entered into explicit exposure maintenance agreements in the case of five program countries. This Initiative brings together key International Financial Institutions (EBRD, WB, and IMF), the European Commission and relevant EU institutions, the main cross-border banking groups, and home and host country authorities.

The initiative was re-launched as Vienna 2 in January 2012 in response to a second wave of deleveraging and supervisory ring-fencing. The focus is on improving cooperation between home and host authorities, while monitoring the pace of deleveraging with a view to keeping it orderly and following credit developments. It publishes quarterly CESEE Deleveraging and Credit Monitor, makes recommendations to relevant European institutions for improvements in supervisory coordination and cross-border bank resolution, and organizes “Host Country Cross-Border Banking Forums.” These forums provide an opportunity for dialogue between the banks that are systemically important in a country and major interlocutors of those banks: the monetary authority and regulator, the parent international banking groups, and the latter’s regulators. So far, these forums have been held in Albania, Bosnia, Croatia, Hungary, Serbia, Slovenia, Montenegro, and Ukraine.

Providing technical expertise

The IMF’s technical assistance helps countries improve the capacity of their institutions and the effectiveness of their policymaking. As such, it contributes to the overall effectiveness of the Fund’s surveillance and lending programs.

Emerging market economies in Europe—such as Albania, Bosnia and Herzegovina, Belarus, Romania, Serbia and Ukraine—are the main recipients of such assistance in a broad range of areas. However, in the wake of the global financial crisis, there have also been demands for IMF technical assistance in advanced economies. For instance, the IMF provided assistance to monitor progress on Spain’s financial sector reforms, as well as on tax policy and revenue administration issues to Denmark, Finland, Italy, Portugal, Greece, Estonia, and Slovakia.

The IMF delivers technical assistance in various ways. Support is often provided through staff missions of limited duration sent from headquarters, or the placement of experts and/or resident advisors for periods ranging from a few weeks to a few years. Assistance might also be provided in the form of technical and diagnostic studies, training courses, seminars, workshops, and “on-line” advice and support.

The IMF has increasingly adopted a regional approach to the delivery of technical assistance and training. The IMF Institute organizes courses for officials from new EU member countries and other economies in transition in Europe and Asia at the Joint Vienna Institute in Austria.

Reference: http://www.imf.org/en/About/Factsheets/Europe-and-the-IMF

FMI BLOG 3

group 10 Analysis of the FED’s federal discount rates over the last 10 years

The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility–the discount window.
These last few years, policymakers noted the improvement in business and consumer confidence and the rise in consumer prices. Moreover, Interest Rate in the United States averaged 5.81 percent from 1971 until 2017, reaching an all time high of 20 percent in March of 1980 and a record low of 0.25 percent in December of 2008.
Over the last ten years, the refinance rates averages was 3,05%. It is a bit higher than the actual one, at 3,03%.
Nowadays, the Federal discount rate is about 1,25%. It is a relevant increase compared to the 1,00% of last year.
These discount rate are used by the Fed to control the supply of available funds, which will influence the inflation. The higher the amount of money available is, the higher the inflation will be. It means that borrowing money from the Fed will be more expensive. This will decrease the supply of available money and by the same way increase the short-term interest rate.
If there is a decrease in the rate, there will be an opposite effect; reducing the short-term interest rate.

Following the financial crisis of 2007, in 2010, the Fed announced an increase in its discount rate, an interest rate allowing the refinancing of banks, from 0.25% to 0.75%. The Fed explained that its key rate was maintained between 0 and 0.25%.
The increase in the discount rate is a measure of « normalization » of its loan facilities, the FED said. And she felt that this measure should not « lead to tighter financial conditions for households and businesses », pointing out « no change in the outlook for the economy or monetary policy ».
The discount window is a traditional way for the Federal Reserve to provide credit to US banks when the interbank market is not enough.
More recently, in 2016, nine of the regional branches of the US Federal Reserve wanted an increase in the discount rate, which the central bank applies to very short-term loans to commercial banks.
In July and August, eight of the 12 regional Fed were in favor of raising the discount rate, compared with only six in June.
This is further evidence that the Fed is preparing to tighten its monetary policy.
The discount rate is currently set at 1% and some regional branches of the FED vote in favor of a quarter point increase.

Supporters of this increase pointed out that the « strengthening of economic activity » and the increase in employment, should favor a return of inflation to 2% in the medium term.

Last year in December, the Fed raised the discount rate as well as the target for the federal funds rate, for the first time in almost a decade. Two months before, nine of its regional branches had spoken for a rise in the discount rate.

Here, a graph that show you the federal rate throught the past 10 years with the two important crisis at the end of 20th century and in 2008.

References :

http://www.bankrate.com/rates/interest-rates/federal-discount-rate.aspx

https://www.federalreserve.gov/monetarypolicy/discountrate.htm

https://www.thebalance.com/fed-funds-rate-definition-impact-and-how-it-works-3306122

https://www.federalreserve.gov/pf/pdf/pf_3.pdf