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

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