INTERNATIONAL MONETARY FUND (IMF) ICELAND FINANCIAL CRISIS Group Members Historical Background of the IMF Policies & Activities History The End of the BWA
Manzo, John, General Manager has reference to this Academic Journal, PHwiki organized this Journal INTERNATIONAL MONETARY FUND (IMF) ICELAND FINANCIAL CRISIS Professor Castillo ECON 490 Global Economics Group Members David Vera- Historical Background of IMF Policies & Activities Karen Urbina- Icel in addition to s Position & IMF Assessment Maria Ayala- Outcomes of the Bailout Historical Background of the IMF Policies & Activities
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History Great Depression of the 1930s Breakdown in International Monetary Cooperation The Bretton Woods Agreement (BWA) IMF was as long as med through the BWA: BWA was conceived in July 1944 International Monetary Fund (IMF) as long as mal existence was in December 1945 Par value system The End of the BWA End of Bretton Woods system (197281) : The system dissolved between 1968-1973. Since the collapse of the Bretton Woods system, IMF members have been free to choose any as long as m of exchange arrangement they wish
IMF Becoming a Universal Institution: The fall of the Berlin wall in 1989 Expansion to fulfill responsibilities Soviet Block Transition Debt relief as long as poor countries IMF Organization MF is an organization of 185 countries Their primary purpose is to preserve the stability of the international monetary system Helps the governments of these countries manage economic difficulties in addition to benefit from opportunities of globalization IMFs Current General Arrangements to Borrow (GAB ) The GAB enables the IMF to borrow specified amounts of currencies from 11 industrial countries at market-related rates of interest. The potential amount of credit available to IMF under the GAB totals $25.7 billion in Special Drawing Rights (SDR) in addition to an additional SDR 1.5 billion from Saudi Arabia.
Current Challenges as long as the IMF Continued Globalization (2005-present): The current financial crisis in addition to the food in addition to oil price shock A sharp rise in private international capital flows Speed of capital account crises Icel in addition to ic Financial Crisis Icel in addition to s Position Executive Board of IMF Assessment Icel in addition to s Fast Growing Economy The long economic expansion: initiated by aluminum sector investments sustained by a boom in private consumption fueled by ready access to external financing Negative Contributions: macroeconomic imbalance in addition to financial vulnerabilities
Icel in addition to Economic Activities In 2001, banks were deregulated Households took on a large amount of debt Investors overestimating the true value of the króna. Icel in addition to s GDP in 2007 What Caused the Crisis the country built up a massive current account deficit by borrowing beyond its means banking sector was eight times the size of the overall economy Icel in addition to ic banks found it increasingly difficult or impossible to roll over their loans in the interbank market Collapse of L in addition to sbanki, Glitnir & Kaupthing Insufficient reserves to repay banks debt
Currency Exchange Rate Steps to Shore up Confidence The Central Bank of Icel in addition to (CBI) tightened the policy rate Enhanced liquidity provision to reduce pressures in as long as eign exchange in addition to domestic markets improved its as long as eign exchange liquidity access by entering into currency swap agreements with other Nordic central banks. Icel in addition to Bailout $2.1 Billion Loan Plan St in addition to -By Arrangement $827 million immediately available $155 million remainder in eight equal installments
Icel in addition to Bailout Agreement Terms Icel in addition to Bailout Objectives 3 Main Objectives: To stabilize the exchange rate Restructure the Banking System To Create a mid-term fiscal sustainability Outcomes of the Bailout
Positive Bailout Results Objective 1: Stabilizing the Exchange Rate as long as Icel in addition to : Restoring the interbank as long as eign exchange market. Appreciating currency by lifting capital controls in addition to reducing interest rates Restoring confidence The key near-term objective of stabilizing the króna is being met as it continues to strengthen Positive Bailout Results (cont.) Objective 2: Bank Restructuring Assist in fair valuation of new in addition to old assets maximize asset recovery in the old banks strengthen supervisory practices Strengthen the bankruptcy framework Fair treatment of depositors in addition to creditors Positive Bailout Results (cont.) Objective 3: Mid-term Fiscal Sustainability IMF will ensure that Icel in addition to can continue to pay its as long as eign creditors ; short term debt. A strong plan as long as 2010 to cut expenditures in addition to /or to raise taxes. IMF loan will fill about 42 percent of the country’s 2008-10 financing gap, the remainder by official bilateral creditors.
Negative Results from the Bailout Out migration of Icel in addition to ers may be an issue in the short-term possible impacting future growth. Additional request as long as bailouts bailout programs have already been announced as long as Hungary, Ukraine, Serbia in addition to Pakistan IMF has created a credit line of as much as $100 billion as long as healthy countries with liquidity shortages Icel in addition to ‘s Future Icel in addition to ‘s Bright Future The countries endowment: dynamic, technology driven society with a young in addition to well educated work as long as ce Abundant natural resources such as rich fishing grounds, vast renewable energy sources, clean water a natural environment in addition to culture that draws tourists Other major strengths of the economy include: diverse export industries flexible labor market strong fiscal position High anticipation of exports
Future of IMF IMF was headed down hill after five years of inactivity, accusations of issuing poor advice, questioning of its relevance in addition to usefulness, Facing a deficit of its own & Inability to sell its gold reserves IMF is gaining relevance once again : being considered to take on a sovereign wealth fund role to avoid a repeat of a global credit crisis Increased regulation & surveillance of the financial system Conclusion With the IMF, Icel in addition to can continue to pay its as long as eign creditors in the near term in addition to avoid national bankruptcy the economy is expected to enter into a recession in 2009-10 although expected to rebound by 2011 Recommendations as long as IMF & Icel in addition to Icel in addition to : Icel in addition to must focus on allowing the Financial Supervisory Authority to assist them in assessing their financial stability so that preemptive measures can be put in place. Strengthen their ties with Britain, Sweden in addition to Denmark. IMF: IMF needs to put in place preventive measures as long as economic crisis They will have to adapt at a much faster pace than ever be as long as e because of economic integration & the effects of globalization
Questions Resources http://www.telegraph.co.uk/finance/comment/edmundconway/2787581/Fear-of-Icel in addition to -bail-out-could-signal-new-future- as long as -the-IMF.html http://www.iht.com/articles/2008/11/20/business/imf.php http://www.imf.org/external/pubs/ft/survey/so/2008/new101608a.htm http://www.imf.org/external/pubs/ft/survey/so/2009/INT022409A.htm http://www.vi.is/files/The%20Icel in addition to ic%20Economic%20Turmoil-925879388.pdf http://www.imf.org/external/pubs/ft/survey/so/2008/car102408a.htm http://www.imf.org/external/np/sec/pr/2008/pr08296.htm http://www.imf.org/external/np/loi/2008/isl/111508.pdf http://www.statice.is/PageID=444&newsid=2950&highlight=gross%20domestic%20product
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