NationStates Jolt Archive

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMdLVmsn22jM&refer=home
IMF, Ukraine Reach Agreement on $16.5 Billion Loan (Update2)

Oct. 26 (Bloomberg) -- The International Monetary Fund reached agreement with Ukraine on a $16.5 billion loan to help support the nation's financial system as turmoil in global credit markets and recession concerns sweep eastern Europe.

The 24-month loan is conditional on parliamentary approval of legislation to support the country's banks, the Washington- based lender said today in a statement. Ukraine also will need to balance its budget by reining in social spending and narrow the current-account deficit, the Kiev-based central bank said in a separate statement.

Eastern Europe is being buffeted by the global credit crunch as investors stung by losses in developed nations sell riskier emerging-markets stocks, bonds and currencies. Ukraine is the first nation in the region to receive IMF help during the crisis. Belarus this past week joined Iceland, Pakistan, Hungary and Ukraine in requesting at least $20 billion of emergency loans from the IMF to help repay debt.

``The money is only half of the issue, conditionality is key,'' Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, said in a telephone interview. ``We hope the Fund is maintaining its push for a more flexible exchange rate, far-reaching reforms in the banking sector and more privatization.''

-continues-

Developing countries across the globe are finding that they're struggling (http://www.economist.com/finance/displayStory.cfm?source=hptextfeature&story_id=12481004). Some just go all-out and steal their pensioners' money to make sure they don't have to default, others find that they have to approach the IMF. At the same time, some difficult domestic policies are being taken, such as a sudden 3% central bank rate hike in Hungary to stop the outflow of foreign money (most of the banking system in Hungary is made up of foreign banks which are shutting down their operations there to a significant extent).

As usual, the IMF's loans will come with conditions aimed at making sure that the actual problem gets fixed, instead of there just being a band aid. Since the problem usually consists of money leaving the country fast, these conditions aim at creating more stability by aligning currency fundamentals, such as government debt creation, current account balances, the functioning of banking systems and so on with the actual value of the currency the government would like to maintain. That way this fundamental mismatch that drives people to move their money out gets fixed and hopefully the emergency ends, so the pieces can be picked up afterwards. That's the same basic idea that the IMF has been applying for some time (Latin American crises, Asian Financial crisis, etc), though they're the first to admit that they've made mistakes in the timing of interventions in particular.

So far, so good. But unfortunately, cutting government deficits and some of the microeconomic policies aimed at producing a more predictable market environment also comes at the expense of government programs which help some people. Social spending is usually a big factor that suffers, and hurried privatisations in countries in which government and business elite are well-connected often simply end in a Russia-style oligarchy. So IMF interventions, while they've always managed to end the immediate crises (though it took a tad too long in some cases, thanks to aforementioned bad timing), often there were big side effects.

It's likely that we'll see a repeat once again. So where do you stand? Given that many will probably say that the IMF is wrong in what it does, what would you suggest instead?

The IMF is getting involved

http://www.boomspeed.com/looonatic/mission.wav

:D

http://www.boomspeed.com/looonatic/mission.wav

:D

I was going to do that.

I was going to do that.

You gotta be quick! ...or prepared. :D

The good old IMF paket reformasi shows it's pretty face once again. I remember the fall out the last time our glorious financiers fucked up (In Jakarta). Once again, Unemployment is spiking, basic essentials are getting more expensive. Solution? Axe the social programs and restore economic growth but not spending anything on anything.... Which barrel bottom do they scrape to come up with these ideas?

If money is leaving the country then impose forex controls. The Malaysians did it before and they didn't starve, but the Indonesians did when the IMF told them not to act. The IMF doesn't care about the countries, it's more concerned with justifying it's own rather bizarre ideology.

Gods protect any country that has to get an IMF loan... they are well are and truly fucked. I wouldn't wish it on my worst enemy.

You gotta be quick! ...or prepared. :D

Do you have a listing of appropriate songs filed somewhere?

Do you have a listing of appropriate songs filed somewhere?

Don't you?

If money is leaving the country then impose forex controls.
Tried during the Latin American crisis, didn't work. And you're essentially stealing foreigner's money, which would leave as soon as the controls are relaxed unless the underlying structural issues are addressed, so you need to do the things the IMF suggests anyway.

The reason Malaysia did okay was primarily that it was more sound structurally than the other countries. Still, the capital controls and the fixed exchange rate bought some time to wait until the contagion was weakened, but also ended up destroying the (better-run) smaller banks in the system and creating an oligopoly of well-connected large banks in process.

Debt to the IMF the first step to territorial status of the US.

While it is undoubtedly true that the IMF have fucked up royally way too often, (and bear in mind I am getting most of this from some award winning documentary about Jamaica which was so anti-IMF it was radioactive) I can't help but feel that it COULD work. If the IMF would get it's act together, NOT try to push a political or social agenda, and work with the leaders of the country to ensure that any loan and preconditions attatched to it suit the people as a whole, it could have a strong positive impact.

Unfortunately, at the moment, it just seems to create more long term problems. So, while I think it's a good idea in theory, I pity Iceland terribly.

IMF exist to expand American ideas nothing else. the money is just the bait it uses.

IMF exist to expand American ideas nothing else. the money is just the bait it uses.
That's silly. Especially since it doesn't force itself on anyone, countries come to it and ask for help.

That's silly. Especially since it doesn't force itself on anyone, countries come to it and ask for help.

That's what they want you to think. *nod*

Anytime you borrow money from anyone, be it a bank or your parents, there tends to be conditions. If you don't like the terms required to get the money then you don;t have to borrow it. In cases like this you can't really be too picky, given a choice between borrowing on restricted terms or going bankrupt I know what I'd choose.

Anytime you borrow money from anyone, be it a bank or your parents, there tends to be conditions. If you don't like the terms required to get the money then you don;t have to borrow it. In cases like this you can't really be too picky, given a choice between borrowing on restricted terms or going bankrupt I know what I'd choose.

but the conditions the IMF imposes are more then a normal lender borrow relationship. rather then solely focusing on repayment terms they insist on free trade agreements and free market reforms even if the country might not benefit from said reforms.

but the conditions the IMF imposes are more then a normal lender borrow relationship. rather then solely focusing on repayment terms they insist on free trade agreements and free market reforms even if the country might not benefit from said reforms.

Generally, since when the IMF lends money when states are in deep, deep financial trouble, the comparison to an average private bank loan is not easily made, as if an individual were in similar financial trouble as many of these states are, then they would likely not get a private bank loan.

Not to mention the fact that private bank loans usually don't top a million dollars, but IMF loans regularly class in the billions. There's a lot more at stake than if I get a mortgage to buy a home. The IMF definitely wants to get its money back.

Generally, since when the IMF lends money when states are in deep, deep financial trouble, the comparison to an average private bank loan is not easily made, as if an individual were in similar financial trouble as many of these states are, then they would likely not get a private bank loan.

Not to mention the fact that private bank loans usually don't top a million dollars, but IMF loans regularly class in the billions. There's a lot more at stake than if I get a mortgage to buy a home. The IMF definitely wants to get its money back.

I understand but a lot of the argument against the IMF is they go farther then they should and often times they make it harder for countries to pay them back. The free trade agreement often strips countries of revenue from tariffs (many 3rd world countries use tariffs for revenues because they don't have the facilities to apply income tax)

I understand but a lot of the argument against the IMF is they go farther then they should and often times they make it harder for countries to pay them back. The free trade agreement often strips countries of revenue from tariffs (many 3rd world countries use tariffs for revenues because they don't have the facilities to apply income tax)

Tariffs, though, are an extremely tricky mechanism by which to raise revenue, and in developing countries, where the market for many imports is already limited and the indigenous capability to produce substitutes is even more so, they tend to cause drastic shortages, especially of mid-level imports, and doubly increases domestic prices on what does come through and is sold.

Tariffs, though, are an extremely tricky mechanism by which to raise revenue, and in developing countries, where the market for many imports is already limited and the indigenous capability to produce substitutes is even more so, they tend to cause drastic shortages, especially of mid-level imports, and doubly increases domestic prices on what does come through and is sold.

That's provided the country involved knows/observes the difference between a protectionist and income based import. besides I doubt the IMF is concerned whether the people in a developing country are getting everything they need/want.

The free trade agreement often strips countries of revenue from tariffs (many 3rd world countries use tariffs for revenues because they don't have the facilities to apply income tax)
Can you actually confirm that they ever required an FTA as part of the conditions?

Can you actually confirm that they ever required an FTA as part of the conditions?

there is this http://www.hartford-hwp.com/archives/55a/217.html not on free trade. but the IMF forced a growth slow down and interest rate Hike.
as for net sources cant find it online. seems that's considered too boring for news
however, Hancock, G. (1991). Lords of Poverty describes well maybe not FTAs but mandatory tariff reductions.
anyways u am tired off to bed with me.

there is this http://www.hartford-hwp.com/archives/55a/217.html not on free trade. but the IMF forced a growth slow down and interest rate Hike.
Well, the interest hike is obviously to stop the currency outflow, which should stop the depreciation and thus the explosion of debt denominated in foreign currencies. Hungary is doing the same thing right now.

The point is that the IMF imposes particular conditions aimed to address particular problems which are causing the crisis. While I'm the first to applaud an FTA, there is little point in the IMF making one part of any conditions. The economic logic just isn't there.

The IMF often imposes free-market changes to local economies, regardless of what the locals tell them.

This has resulted in plague:
http://news.bbc.co.uk/2/hi/health/7514467.stm

It has resulted in famine:
linky (http://query.nytimes.com/gst/fullpage.html?res=9A07E5D91631F932A35755C0A9629C8B63)
when the IMF forced Haiti to enact economic policies that ended in Haiti purchasing most of its rice. Linky (http://www.hartford-hwp.com/archives/43a/217.html)

The IMF is not evil, but history has shown that the IMF often imposes economic reforms that make matters worse, mostly due to ignoring local economists.

The IMF often imposes free-market changes to local economies, regardless of what the locals tell them.

This has resulted in plague:
http://news.bbc.co.uk/2/hi/health/7514467.stm
First things first, I'm pretty sure the IMF doesn't pick and choose particular programs to cut. It just provides some guidelines as to where they'd like the government budget deficit to be, and perhaps suggestions where to cut first (and I really can't imagine they'd suggest healthcare there).

After the fall of communism, these countries were bankrupt. You can blame the IMF for having told them to cut spending, but realistically, they would have had to do it without the IMF too. When economies implode, government budgets generally do too.

It has resulted in famine:
linky (http://query.nytimes.com/gst/fullpage.html?res=9A07E5D91631F932A35755C0A9629C8B63)
when the IMF forced Haiti to enact economic policies that ended in Haiti purchasing most of its rice. Linky (http://www.hartford-hwp.com/archives/43a/217.html)
I think Haiti is an interesting case that's come up in another topic before as well. It's actually a very bad place to grow rice, apparently that was started as an order from their colonial rulers. There are much better crops to grow there, but the transition is obviously a problem.

Normally you'd expect imported rice to be cheaper (and it was, for a while, hence why domestic farmers were driven out of the business), but then the Haitian currency collapsed and world prices exploded, which caused the famine.

All in all, a mismanaged affair, but not one local economists would have been able to handle any better.

EDIT: http://www.economist.com/daily/news/displaystory.cfm?story_id=12498151&fsrc=nwl
Into the breach

The IMF helps eastern Europe's two most vulnerable economies. Will it stop the rot?

[...]

The central feature of the plan is reform of public finances. But the room for manoeuvre is limited. Hungary’s growth is already feeble—likely to be only 2% this year. The government had already reined in spending and lifted taxes, and became highly unpopular as a result. More of the same risks plunging the country into recession. But without tough measures, international lenders may just walk away.

The early verdict from the market was sceptical: shares plunged by a further 10% when the market opened on Monday. That adds urgency to the need to finalise the deal. Those involved hope to have it ready by Wednesday. Politics is playing a big role. America sees Hungary as a strictly European problem, but has been pushing the IMF to provide more generous and immediate help for the other stricken economy, Ukraine.

Riven by political disputes, Ukraine is vulnerable in a crisis to its cash-rich neighbour, Russia. The Fund said on Sunday that it had agreed a $16.5 billion two-year loan to Ukraine, although it is unclear how the country, which lacks a government and is facing its third parliamentary election in three years, is in any position to adopt the tough economic policies needed to restore confidence.

A statement by the Fund said that it was moving “expeditiously” and that the programme would focus on “essential upfront measures”. It did not stipulate what these might be. A joint central bank and finance ministry statement mentioned a balanced budget and legislative moves to support the banking system. Parliament, normally fractious and deadlocked, is due to meet on Tuesday. Outsiders will be watching closely.

Tried during the Latin American crisis, didn't work. And you're essentially stealing foreigner's money, which would leave as soon as the controls are relaxed unless the underlying structural issues are addressed, so you need to do the things the IMF suggests anyway.

This is making the assumption that the only way to address the issue is by doing exactly what the IMF would require. Since the IMFs record is extremely patchy at best, that's a questionable assumption.

The reason Malaysia did okay was primarily that it was more sound structurally than the other countries. Still, the capital controls and the fixed exchange rate bought some time to wait until the contagion was weakened, but also ended up destroying the (better-run) smaller banks in the system and creating an oligopoly of well-connected large banks in process.

That's the point, it forced everyone to wait until the situation had calmed.Letting people have free reign in the markets a time of panic and group-think is unwise. Forex controls force them to wait it out and let the government plan and sane course of action rather than panicked reaction.

IMF exist to expand the IMF's ideas nothing else. the money is just the bait it uses.

Fixed. Same as any political institution giving out baubles.

That's silly. Especially since it doesn't force itself on anyone, countries come to it and ask for help.

It doesn't use force, but it's hardly a free relationship, since most (though not all) it's loans are to countries who would have difficult obtaining credit at those times otherwise. Essentially it's a loan-shark, only motivated by ideology rather than return.

This is making the assumption that the only way to address the issue is by doing exactly what the IMF would require. Since the IMFs record is extremely patchy at best, that's a questionable assumption.
The IMF's record in fixing the things it is supposed to fix is excellent. It's not supposed to deal with social inequality or healthcare for the poor, it's supposed to stop financial crises and prevent future ones by restoring confidence in economies and banking systems. Slapping forex controls on stuff doesn't do that.

That's the point, it forced everyone to wait until the situation had calmed.Letting people have free reign in the markets a time of panic and group-think is unwise. Forex controls force them to wait it out and let the government plan and sane course of action rather than panicked reaction.
Malaysia was in a better position to start with, so its main problem was the contagion. That's when forex controls work, if they are used properly.

Indonesia for example had deeper structural issues, as did Thailand and South Korea, among others. The market may have been wrong in not realising them sooner, but once they were acknowledged, the capital flight isn't unjustified. Stopping it at that point does nothing but destroy the wealth of those who want to move their money out (which in the case of the Asian crisis included a huge number of domestic citizens).

So what sort of sane course of action could the government take? Interest rates are much too low, fuelling a speculative boom. Current account deficits are too big, thanks to too expensive a domestic currency. Banks are heavily leveraged with loans that are denominated in another currency, meaning that whenever the domestic one falls, the debts blow out. And the government budget is stretched already thanks to subsidies, social programs and fiscal expansion - and then add the extra pressure of running down reserves to defend a currency.

There is no way around the requirement for a government in that situation to bring the figures in line with a sustainable future determined by economic fundamentals. If the dislocations are reasonably small, such as in Malaysia, removing them inflicts relatively little pain at home, and it can all be done quickly enough to use capital controls. If the dislocations are large, then the domestic pain will be too, and capital controls won't help, as the Latin American experience has shown.

It doesn't use force, but it's hardly a free relationship, since most (though not all) it's loans are to countries who would have difficult obtaining credit at those times otherwise.
Yes, it's a lender of last resort. Much as the government has shown itself to be when banks ended up having to come to them. For the IMF to hand over these loans without the conditions they impose would be the same as bailing out banks right now with taxpayer money but no conditions. The conditions have to be there to ensure that a) the money is paid back and b) the situation doesn't repeat itself.

Essentially it's a loan-shark, only motivated by ideology rather than return.
You can use the i-word, but you can't provide an alternative course of action. And if there isn't one, then the IMF choosing the conditions it imposes is not motivated by ideology.