Macroeconomics - IMF

Question 1

What is the IMF

Answer 1

• IMF helps countries that face macroeconomic problems - help them but comes with prescriptions
• provides financial assistance and policy advice to help countries with BOP issues so they can stabilise their economies

Question 2

what is the IMF model

Answer 2

• DC expansion is offset by fall in reserves
• so DC expansion gas no lasting effect on GDP - just depletes r

Question 3

what are the core IMF prescriptions

Answer 3

1. devaluation
2. restrict expansion of DC = especially if this is the main cause of imbalance in balance of payments

Question 4

for fixed ER what does IMF model reduce to

Answer 4

change in R = - change in DC

Question 5

what does the IMF do i there is an external imbalance
M > X
- source of problem is an exogenous shock = world price falls - reduces X

Answer 5

• prescription based on restricting DC expansion or devaluation may be inappropriate
• only option is to ask donors for aid to replenish reserves
• because devaluation will have no immediate effect on X/forex

Question 6

what does the IMF do i there is an external imbalance
M > X
- source of problem is higher price for imports

Answer 6

• devaluation will increase X, but increases import prices further
• reducing tariffs - way to reduce import prices
• IMF = replenish reserves

Question 7

does IMF programmes have any success?
results from studies

Answer 7

• half of programmes meet their BoP and inflation targets (IMF too optimistic)
• do see imporved performance after programme - could just be relative to the crisis struggle
• repeat and prolonged programmes = few sustainable gains
• devaluation shows improvement in current account (increases X)
• programme does not reduce inflation (devaluation increases prices)
• GDP growth targets consistently under achieved

Question 8

does IMF programs improve growth of countries

Answer 8

• meta regression analysis
• average growth improvement of 0.26 percentage points in growth following programme for developing countries

Question 9

what are the 3 criticisms of IMF

Answer 9

1. acts too late
   - fails to quickly replenish reserves - time taken to agree on policy conditions
2. policy prescriptions are too generic - not tailored to countries needs
   * if cause is exogenous shock - then devaluation is not good
3. programmes based on over-optimistic projections - so targets are not met

Question 10

what are the strengths of IMF

Answer 10

1. has better info about the performance of each country - could influence market sentiment
2. can disburse funds quickly
3. can facilitate negotiations on debt restructuring
4. promote international standards
5. greater transparency by providing surveillance of regulation

Question 11

why do Developing countries experience debt crisis

Answer 11

1. growth is too low to service debt
2. hit by external shocks

Question 12

what is the difference between private lenders (China) and official lenders (IMF, WB)

Answer 12

private lenders
* higher IR

Question 13

how did covid create a crisis

Answer 13

cost of borrowing for African countries doubled
- for countries that were due to repay in 2020 didnt have the funds to repay
- spiralling BD
* IMF provided emergency funding

Question 14

what could the primary cause of imbalance in BoP be

Answer 14

DC expansion
- more likely to rise under fixed ER