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EMEs and international financial institutions

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Economie des marchés émergents et en transition

Université nationale de recherche, École des hautes études en sciences économiques

4.3 (90 notes) | 7.9K étudiants inscrits

The course analyzes challenges faced by transition and emerging-market economies, i.e., those middle- and low-income countries, which have conducted market-oriented economic reforms and become integrated into the global economy since 1990s. It starts from a brief history of communist economic system based on central planning in the former Soviet Union and Central and Eastern Europe, its evolution and collapse at the end of 1980s/ early 1990s and subsequent transition to a market system in 1990s and 2000s. Then it analyzes experience of market reforms in China, India, other Asian countries, Middle East and North Africa, Sub-Saharan Africa and Latin America at the same period. Finally, it discusses the problems of contemporary global economy and global and regional economic governance with the special focus given to emerging-market economies and their role. By the end of the course you will be able to analyse emerging-market economies and economies in transition, taking into account their crucial characteristics and historical experience. Participation in the course does not require any preconditions, however, basic economic knowledge would be an advantage. In order to pass successfully this course you must score not less than 80% for each of six after module quizzes and complete the peer-assessed essay at the end of the course.

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4.3 (90 notes)

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EMEs, globalization and international trade

Dear students, In this module we will discuss consequences of globalization, changes in international financial institutions, emerging-market economies and global and regional trade systems.There will be 5 parts of video-lectures of 12-20 minutes length. You can use recommended literature to go deeper in learning this module. After you watch the video-lectures you are to complete the sixth quiz. We look forward to seeing you in class! Best wishes,Your course team.

EMEs and unrestricted capital movement17:06

EMEs and international financial institutions18:41

EMEs and global trade12:37

Global and regional trade systems19:26

Trade cooperation between advanced economies and EMEs17:42

Enseigné par

Marek Dabrowski
Professor

Transcription

[SOUND].

[MUSIC]

In the previous part we spoke about uneasy task of managing balance of payment

and monetary policy, and the worth on unrestricted capital movement.

And now we'll look at the institutional safeguards,

which have been created quite long time ago after the second war.

But they subsequent revolve, and I mean, international financial institutions.

In first instance, institutions, which are called Bretton Woods institutions,

which are, three of them,

International Monetary Fund, IMF, the World Bank, and

the World Trade Organization, but as we later, in the next part,

will discuss, World Trade Organization had long way to go.

Originally it was to be International Trade Organization, but

it was not created after the second war,

it was got by, and said, got evolved into World Trade Organization.

Let's now concentrate on the IMF, which is

probably the most important institution from the point of view of coordinating and

surveilling and advising market economic policy.

Origins of the IMF went to the time of the second war

second world war and memory of the Great Depression.

In particular of the individual countries,

reaction to the Great Depression of 1929-1933,

when some countries tried to defend gold standard,

while others naturally devolved in putting this way bothered on others.

So the basic idea of the new institution was to try and

avoid this kind of competitive devaluation and uncoordinated policy response

in the event of any kind of shocks or unexpected crisis.

And the idea started to be implemented from the conference in Bretton Woods,

small city in New Hampshire United States, where 45 countries attended.

It was July 1944.

But more than a year after, when the Article of Agreement were ready,

only 29 funding members signed those Articles, and

some countries decided to not participate.

It was most other countries of the Communist Bloc, countries of Soviet Bloc.

And after some preparatory periods in March 1947

the IMF became operational.

In the first period covering quite long time,

actually more than 20 years until 1971,

it focused mostly on managing the Bretton Woods system of fixed but

adjustable exchange rates.

Let's me explain shortly how it works.

US dollar was still fixed to gold's standard.

But other currencies were fixed to US dollar.

Sort of the system.

And the role of IMF was

monitoring this system and avoiding unilateral devaluation.

Obviously country, which experiences some shocks or

problems could devaluate or revaluate these currencies, but

it had to be done in agreement with others through the IMF system.

But finally, in 1971, United States abandoned its fixed

rate to gold, and the new period of quite big turbulence started.

Most of major currency moved to Flexible exchange rates only in Europe.

And the future members of the EU, the time Europe on economic community

tried to design something, some substitute, Europe had monetary system.

But other currencies, especially dollar,

you have Japanese yen, British pound and German mark.

They floated against each other.

So the Articles of Agreement had to be changed and

mode of operation of IMF had also to be changed.

A part from exit from the Bretton Woods system.

This next period also was marked by two old crisis and

necessary to help poor countries to adjust to new condition.

The big difference in is in comparison to the early years was

that after the colonization, the number of IMF members grew rapidly and

most of those members came from developing world.

And then 1982 year came I mean,

Mexican debt crisis and then service of debt crisis in other Latin American

countries and Arab countries, and some other part of developing world.

And IMF took the leading role in designing

adjustment program and monitoring this adjustment, and also advising

quite painful reforms in countries affected by those crisis.

And then since end of 1989, the new period.

Quite challenging period in the history of this organization started.

This was market transition, Central and Eastern Europe, and former Soviet Union,

but then also similar processes in other countries,

which we discussed in detail in the previous part of our site.

And this also included studies of emerging market crisis in 1990 to early 2000.

But then emerging markets emerging market crisis ended for a while.

So this allowed IMF to move to other problems like consequences

of globalization and finally since 2008 consequences of global financial crisis.

What are the major tasks of the IMF in its major activities, today?

It's starting from the global tasks.

It's forum for

cooperation on international monetary macroeconomic problems.

And also, to some extent, on financial sector problems.

Even if that were another organization dealing with financial sector,

bank of international settlements in Basel, which is among other,

in charged of design so

called Basil town style standards of micro prudential regulation.

And for of financial study, financial study board,

which is in charge of coordinating financial sector reforms.

Second major task is promote open system of international payments.

And this is why IMF is in charge

of monitoring both current and capital account convertabilities of

member countries, so called Article 8 commitments.

Then there is surveillance based on article 4 consultation process.

And this is regular surveillance of macroeconomic policies of

individual member countries.

But also it's reporting standards, financial sector situation et cetera.

Then countries which IMF perhaps can can rely on IMF lending.

We'll come back soon to this question.

Then IMF also provides technical assistance to its member countries.

And they do a lot of important research which a kind of global public goods,

which help increasing understanding of how global economy works.

Now a few words about IMF lending.

Basically, it can be divided into two forms,

non-concessionary, from countries other than low-income countries.

And then we have standard form, which is the longest tradition, so-called standby

arrangement, this is for relatively short period, one year to 18 months.

Then it's longer term funding, up to three years extended fund facility.

There are a few new instruments.

Flexible credit line, this is a kind of precautionary guarantee facilities for

country which doesn't experience problems, but

is interested to, to insure itself against some external turbulence.

And a bit similar or played by precautionary liquidity line.

And then it's also a new, very new instrument of rapid financing instrument.

In case of some unexpected shocks,

liquidity shocks which require fast track assistance.

And the second stream of lending, there is

concessionary lending, to low income income countries.

And this involves similar set of instruments, but

provided on subsidized interest rate,

and are more concessionary conditions.

Standby credit short-term then extended credit, facility, then extended credit

facility, extended fund facility up to three years and the rapid credit facility,

meaning, immediate assistant in case of unexpected problems.

And how IMF is governed?

It has for now 188 members.

It's quite a large number.

But unlike the UN it's not based on one country one vote system,

it's based on quota system.

And quota is quite complicated exercise.

It's a weighted average of GDP which weights 50% of quota degree of country

openness 30% then economic variability and

international amount of international reserves.

Quota system is subject of periodic review every five years, and

review serves two fold purpose.

One purpose is political increase of quarter.

Which also means contributes to increasing the total lending facility of the IMF.

And another equally important purpose of

a review is changing proportions of the quotas between member states,

along with changes in the economic weight in the global economy.

And this elite to gradual increase of the vota voting power

of countries like China, like India and the other large emerging market economies.

But still United States has the biggest quota,

which is 17.69% of the total quota.

And in terms of what in powers are slightly less.

But still, it has controlling, let's say package,

because every changes in the IMF articles of agreement

require require agreement of 85% of quota holders.

So still United States have blocking power in changes of the IMF governance.

The World Bank Group is a sister institution to the IMF.

It was created also in Bretton Woods.

It's it actually follows very,

very similar governance rule.

And it's composed of several affiliates.

The World Bank itself, then International Development Association,

IDA, which serve the purpose of low income countries.

International Finance Corporatio, IFC, which serves eh, mostly

support to private sector, in private sector operation of the World Bank.

Multilateral Guarantee Agency, or MIGA, which is a kind

of guarantee international fund and helps facilitate some investment projects.

And finally, International Center for

the Settlements of Investment Disputes is kind of Arbitrage body.

The World Bank provides development lending to its members.

This concerns member, only members which are below certain GDP per capita level.

And this lending can have various forms.

So called balance of payments support actually is

very often also budget support of the individual countries.

Then it's sectoral lending, which is also balance of pay payments types lending but

it usually involves agenda of reforming specific sectors.

And that investment project lending focusing on some individual or

local projects.

Apart from lending, the World Bank is involved in knowledge sharing.

Like technical assistance, research, and monitoring activities.

I mean here things like various rankings,

doing business with various bank indicators,

logistic performers, and similiar.

And governance systems similar to that of the IMF is based on quarter systems,

the same quarters as the the essence of IMF.

Apart from this global financial institution, we have

a number of regional, intergovernmental regional development banks.

And in partic rather it's worse to mention forum.

I would say continental banks.

One is African development bank, another is Asian development bank.

The European Bank for Reconstruction and Development, and

the Inter-American Development Bank.

And all of them have had agendas similar to agenda of the World Bank.

So they are involved in a development lending, but

also apart from development lending, also private sector operation like,

like Ecuador, this is in particular the one

of the forms of EBRD, European Bank of Reconstruction and Development, and

they are also involved in research and in monitoring and technical assistance.

And then we have also development banks, also of multinational

international character, but they are rather associated with some

either integration block or international organization block.

And I will mention just three of them, European Investment Bank, which is

investment lending and finance were the wing of the European Union.

Islamic Development Bank, which is closely associated with

the or, mm, Islamic Country Conference.

And Eurasian Development Bank, which is very closely associated with

the Eurasian community, a group of countries of the former Soviet Union.

In the next part we'll move to a discussion of the world trade system.

[MUSIC]

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