1. No category

OXFORD INTERNATIONAL
MODEL UNITED NATIONS
12TH ANNUAL CONFERENCE
7TH – 9TH NOVEMBER 2014
INTERNATIONAL MONETARY FUND
CONTENTS
Contents ......................................................................................................................................3
International Monetary Fund .......................................................................................................3
A Message from your Directors:............................................................................................................ 3
Topic A:................................................................................................................................................ 1
Introduction ......................................................................................................................................... 1
History of the topic............................................................................................................................... 3
Discussion of the Problem .................................................................................................................... 5
bloc positions ....................................................................................................................................... 9
Points a Resolution Must address ......................................................................................................... 2
Further Reading ................................................................................................................................... 3
Bibliography......................................................................................................................................... 3
Topic B ................................................................................................................................................. 6
Introduction ......................................................................................................................................... 6
History of the Topic .............................................................................................................................. 2
Discussion of the Problem: ................................................................................................................... 2
The Future: .......................................................................................................................................... 3
Points Resolutions Should Address: ...................................................................................................... 3
Bloc Positions: ...................................................................................................................................... 3
Further Reading: .................................................................................................................................. 4
Bibliography......................................................................................................................................... 4
Committee Director:
Christopher Siakkas
[email protected]
Assistant Directors:
Dharrnesha Inbah Rajah
[email protected]
Jaikishan Agarwal
[email protected]
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Page 3
INTERNATIONAL MONETARY FUND
Topic A: Discussion of reforms in the instigation of the Poverty Reduction and Growth Trust
(PRGT) programmes.
Topic B: The BRICS initiative to create the Contingent Reserve Arrangement (CRA), and the
potential of a future collaboration.
A MESSAGE FROM YOUR DIRECTORS:
Dear Delegates,
We are truly delighted to form part of this outstanding conference, and more importantly to chair such a
committee. I am personally confident about each and every one‘s research and debating skills –hence
you are now delegates in one of the globe‘s well-esteemed Model UN conferences; what I expect to see
is what I call ‗RDP‘, that is Research, do not expect the Study Guide to be your sole pillar during the
session, because it will not be; Debate, debate and debate, do not be afraid to raise your voice, these are
real-world issues and each representative is carrying particular aims; and pragmatism, from the moment
the topic contemplation commences, you become the real players of the game. Feel free to contact us in
our committee‘s email or our personal emails (designated above) with any queries. For those of you who
have read up to this point: Well done guys! That was a perfect beginning! For those who have not…
well, there is no point in elaborating here; we shall meet them in the committee.
Till then, good luck people and really looking forward to meeting you all!
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Page 3
Director
Hello and welcome to the IMF council of the Oxford MUN! No different to you, I am excitedly looking
forward to meeting each and everyone one of you and can't wait to hear your intellectual debates and
witness diplomatic engagements being formed - all in the name of a fast-paced and erudite weekend. It is
with much joy and pleasure than I join a commendable (and handsome!) board of directors to provide
any form of support and guidance that you may need. Till then, save up your wits and all the best with
your research!
Assistant Director 1
Assistant Director 2
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Page 4
TOPIC A:
Discussion of reforms in the instigation of the
Poverty Reduction and Growth Trust (PRGT)
programmes.
INTRODUCTION
History of the Fund
whereas the World Bank is mostly occupied with
‗structural adjustment‘ and ‗development‘.3 But in
many cases their fields become naturally collinear,
whereby they are assigned ‗concessional financing‘ to
low-income countries. ‗Concessional‘ is the lending
at a rate (0.5%, or as it has been recently decided
upon with IMF‘s exceptional forgiveness, zero
interest rates until the end of 20144) below market
interest rate intended to poor countries.
The Second World War triggered a sequence of
developments that shaped the post-war cosmos in a
way that no historical event had done so in the past.
One of these developments was the establishment of
a modern international financial world. The first
stage toward this new ordre établi was through the
Bretton Woods Agreement, even before the de facto
end of the war, in 1944. The Bretton Woods system,
as henceforth functional, set the ‗development of the
productive resources of all members‘1 as one of the
principal objectives of the Bretton Woods
Institutions (BWI: IMF and International Bank for
Reconstruction and Development or World Bank
nowadays). Thus the new organs of the global
economy would aim for an equitable level of
development across their members.
The term of economic development has always
been a difficult one to define; it entails numerous
parameters, and its frequent linguistic misuse or
intentional misapplication for political reasons has
contributed to this perplexity. The two organs were
founded to maintain the equilibrium in the global
economy and lead the way to ‗development‘ and
alleviation of poverty. Since their establishment, a
rule of thumb dictates their according fields, and
although throughout the years their trajectories seem
to converge, their main difference is that the Fund is
concerned with ‗stabilisation‘ and maintenance of an
‗orderly system of payments‘2 amongst countries,
1
2
"Articles of Agreement of the International
Monetary Fund -- 2011 Edition." Articles of
Agreement of the International Monetary
Fund -- 2011 Edition. N.p., n.d. Web. 31
Aug. 2014
The IMF and the World Bank: How Do They
Differ?" The IMF and the World Bank: How
3
4
Do They Differ? N.p., n.d. Web. 31 Aug.
2014.
Ibid.
"Factsheet -- IMF Lending." Factsheet -- IMF
Lending. N.p., n.d. Web. 31 Aug. 2014.
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Principal lending facilities
IMF lending is classified to various lending
instruments, or ‗facilities‘. Some of the Fund‘s
most important facilities are the Stand-By
Arrangements (SBAs), the Extended Fund
Facility (EFF), both concerning short-term nonconcessional credit to countries facing financing
problems; the newly established Flexible Credit
Line (FCL) (designed in 2009 as pre-emptive
facility to prevent financial contagion5); as well
as a long-established lending facility: Poverty
Reduction and Growth Facility (hereby PRGF).
The PRGF differs from the rest lending
instruments: it traces funding from a separate
‗trust fund‘ (PRGF Fund) and not the Fund‘s
conventional quota system, which borrows or
receives grants from nations or international
institutions and lends eligible countries on a
‗pass-through‘6 fashion. The Poverty Reduction
and Growth Trust (PRGT) replaced the PRGF
and the ESF (which remained effective for
another three months to be absorbed by PRGT
5
6
M. Copelovitz, The IMF in the Global Economy,
p. 13
Ibid.
Instruments) in January 20107. Currently, the
PRGT Facilities can be summarized in Diagram
1:
Diagram 1: PRGT Facilities
7
“A New Architecture of Facilities for LowIncome Countries and Reform of the Fund’s
Concessional Financing Framework 14354(09/79)." A New Architecture of Facilities for
Low-Income Countries and Reform of the
Fund’s Concessional Financing Framework
14354-(09/79). N.p., n.d. Web. 31 Aug.
2014.
<https://www.imf.org/external/pubs/ft/sd
/index.asp?decision=14354(09/79)#P2050_383764>.
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Rapid Credit
Facility
Standby Credit
Facility
(RCF)
Staff-Monitored
Program
(SMP)
(SCF)
Poverty Reduction and
Growth Trust
(PRGT)
Poilcy Support
Instrument
(PSI)
The Extended Credit Facility (ECF) is
intended to medium-term financial assistance,
and is the most common form of concessional
lending nowadays. The Standby Credit Facility
covers the ‗short-term and precautionary needs‘
of a country8 that faces periodically financial
difficulties, other than balance of payments.
Both ECF and SCF require adjustment
programmes and commit the authorities to UCT
Conditionality (Upper-Credit Tranche), that is
they are obliged to implement a set of
designated policies to correct any external
imbalances and repay the Fund9 Lastly, the
Rapid Credit Facility (RCF) provides an upfront assistance to LICs, especially following a
severe internal shock that destabilizes and
disturbs the normal business cycle. Examples of
8
9
"Factsheet -- IMF Support for Low-Income
Countries." Factsheet -- IMF Support for LowIncome Countries. N.p., n.d. Web. 30 Aug.
2014.
<http://www.imf.org/external/np/exr/facts
/poor.htm>.
International Monetary Fund. Handbook of
IMF Facilities for Low-Income Countries. The
IMF, 21 Mar. 2012. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/pp/eng/
2012/032112.pdf>.
Extended Credit
Facility
(ECF)
countries resorting RCF are the cancellations by
Cote d‘Ivoire and Central African Republic in
July 2011 and Jun 2014 respectively of their
ECF running programs and their request to
enter RCF program. RCF assistance is provided
without any explicit ex-post conditionality, but
rather economic policies are proposed that are
streamlined with the nation‘s ‗poverty reduction
and growth objectives‘.10
The Policy Support Instrument is available to
all PRGT-eligible countries that do not currently
have and do not prospectively need borrowing
arrangements with the Fund, but rather want
guidance and support by the Fund in terms of
their policies. Being a non-financial instrument,
PSI gives the markets a signal that the country‘s
policies are run efficiently under its auspices and
standards; currently the Fund has enacted 16
PSIs in 7 country members.11 Another non10
11
"Factsheet -- IMF Rapid Credit Facility."
Factsheet -- IMF Rapid Credit Facility. N.p.,
19 Mar. 2014. Web. 31 Aug. 2014.
<https://www.imf.org/external/np/exr/fact
s/rcf.htm>.
"Factsheet -- The Policy Support
Instrument." Factsheet -- The Policy Support
2
financial facility for LICs is the Staff-Monitored
Program (SMP), which operates parallel to the
PSI, to be utilized by countries with fragile
economies but not eligible for PSI.12 Examples
of countries operating under SMPs are
Zimbabwe and Sudan.
disbursed under 90 ESAFs with 52 countries. 13
The key innovations the PRGF brought were
the following14:
1
HISTORY OF THE TOPIC
This type of concessional lending of HeavilyIndebted Poor Countries (HIPCs) was initially
instituted by the World Bank in 1979 through
the Structural Adjustment Programmes. In Nov.
1986 the Fund followed the World Bank‘s
initiative with the instigation of Structural
Adjustment Facility (SAF). In December 1987,
the Fund established the Enhanced Structural
Adjustment Facility (ESAF), which set two
eligibility criteria for poor countries to receive
the Fund‘s loans: firstly the per capita income to
be below the World Bank‘s GDP/capita lending
ceiling, and secondly to comply with the
eligibility criteria of International Development
Association. In the context of the review
process of the Fund‘s facilities, after a decade of
operations, a program enlargement in 1993 and
the transformation from temporary facility to a
permanent one in September 1996, the ESAF
was replaced by the Poverty Reduction and
Growth Facility in November 1999. Until that
point more than $10.7 billion had been
12
Instrument. N.p., 03 Apr. 2014. Web. 31
Aug. 2014.
<https://www.imf.org/external/np/exr/fact
s/psi.htm>.
"The IMF's Framework for Low-income
Countries - Bretton Woods Project." Bretton
Woods Project. N.p., 17 June 2010. Web. 31
Aug. 2014.
<http://www.brettonwoodsproject.org/2010
/06/art-566378/>.
2
3
4
5
• PRSP (Poverty Reduction Strategy Paper) and
Interim-PRSP: country-owned/government-led:
extensive discussions with stakeholders for the
determination of policy proposals
• Poverty as an explicit aim of the instrument;
emphasis that was not given under ESAF
•PRSPs go public: more transparent process; as
contasted with the Policy Framework Papers
(PFPs)
•Limited Conditionality; restricted to areas of the
Fund's reponsibility
•Greater cross-institutional co-operation with
the World Bank; Joint Staff Assessment
Although the PRGF introduced several
innovative features in the field of concessional
financing to HIPCs, the instrument does not
come without criticism and concerns. A report
conducted by IEO (Independent Evaluation
13
14
"Factsheet - IMF Concessional Financing
through the Enhanced Structural
Adjustment Facility (ESAF)." Factsheet - IMF
Concessional Financing through the
Enhanced Structural Adjustment Facility
(ESAF). N.p., n.d. Web. 31 Aug. 2014.
<https://www.imf.org/external/np/exr/fact
s/esaf.htm>.
“IMF Lending to Poor Countries - How Does
the PRGF Differ from the ESAF? -- An IMF
Issues Brief." IMF Lending to Poor Countries How Does the PRGF Differ from the ESAF? -An IMF Issues Brief. N.p., n.d. Web. 31 Aug.
2014.
<https://www.imf.org/external/np/exr/ib/
2001/043001.htm>.
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Page 3
Office) chartered certain areas of weakness in
the instigation and running of PRGF:
-Role of Bretton Woods Institutions: primary
role in setting the agenda and selecting the
actual policies after the I-PRSPs were submitted;
-Nature of domestic participation: flawed
process with final report reflecting very different
aspects and sometimes in a different language
style than in consultations. There are
furthermore concerns over the asymmetric
participation of the respective stakeholders in
the deliberations phase of the PRSPs; for
instance ‗insufficient weight to MPs and private
sector‘;
-Need for independent monitoring mechanism:
According to the report the lack of an
independent credible monitor that supervises
the entire process of discussions and evaluates
the trustworthiness of the data arguments is a
hindrance for the efficient running of the
PRGF.
Since January 2010, the Fund has put into force
a holistic transformation of the concessional
lending architecture; indeed under the Decision
No. 14354-(09/79)15 the Trust was renamed
Poverty Reduction and Growth Trust (PRGT)
from its predecessor PRGF-ESF, but always
pursuant to the same goals, as established by
ESAF. Pursuing further innovative reforms, in
2012 the Executive Board approved a strategy
rendering the PRGT ‗self-sustaining‘16 organ,
15
16
"A New Architecture of Facilities for LowIncome Countries and Reform of the Fund’s
Concessional Financing Framework 14354(09/79)." A New Architecture of Facilities for
Low-Income Countries and Reform of the
Fund’s Concessional Financing Framework
14354-(09/79). N.p., n.d. Web. 31 Aug.
2014.
<https://www.imf.org/external/pubs/ft/sd
/index.asp?decision=14354(09/79)#P2050_383764>.
"Factsheet -- Financing the Fund's
Concessional Lending to Low-Income
strategy that includes: a) average annual lending
capacity of SDR 1¼ billion; b) provisional
course of action in case the financing demands
exceed this annual average; c) future
concessional financing shall also be selfsustaining.17
The IMF is renowned for the dynamic
development of its programs, which are adjusted
to the demands of the contemporary politicoeconomic period. A concrete example of this is
the frequent modification of its lending
instruments, such as in 2009 when the Fund
replaced the Short-term Liquidity Facility (SLF)
along with the SRF with the Flexible Credit Line
to better serve the demands of the global
recession. The current status of PRGF programs
is benumbed, and there is little evidence that the
review process has been thorough and
consistent throughout the time. Evidently, the
Great Recession shook the economic state of
affairs and rebalanced the priorities of some
developed nations; accordingly the interest of
third-party and donor nations shifted away from
concessional lending of HIPC. Indicative of this
trend is the out-of-date list of countries eligible
for the PRGF18 as it enlists the eligibility ―as of
August 2008‖. This might result from the
synchronised movement of low-income
countries into the ―middle-income‖ category in
recent years19, nonetheless an assessment of the
Countries." Factsheet -- Financing the Fund's
Concessional Lending to Low-Income
Countries. N.p., n.d. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/exr/facts
/concesslending.htm>.
17 Ibid.
18 "Factsheet -- The Poverty Reduction and
Growth Facility (PRGF)." Factsheet -- The
Poverty Reduction and Growth Facility
(PRGF). N.p., 31 July 2009. Web. 31 Aug.
2014.
<http://www.imf.org/external/np/exr/facts
/prgf.htm>.
19"What Are Middle-income Countries?" Middle
Income Countries. N.p., n.d. Web. 31 Aug.
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Page 4
PRGF mechanism conducted by the IMF
Executive Board demonstrated the paradox of
well-performing macroeconomic indicators in
many instances coupled with a very low per
capita income20.
DISCUSSION
PROBLEM
OF
THE
PRGT Eligibility for Small Countries
Access to the Fund‘s scarce concessional
resources is preserved for members with low
income and related vulnerabilities, while keeping
PRGT eligibility closely aligned with
International Development Association (IDA)
practices. Under the framework, countries enter
the list if their annual GNI per capita income is
below the IDA operational cut-off (currently at
US$1,175 for FY2012) and they do not have
capacity to access international financial markets
on a durable basis. For these countries, the
concessionality of Fund financing is considered
to be important for providing effective balance
of payments support, while limiting risks of debt
distress.
20
2014.
<http://web.worldbank.org/WBSITE/EXTE
RNAL/EXTOED/EXTMIDINCCOUN/0%2C%
2CcontentMDK%3A21453301~menuPK%3A
5006209~pagePK%3A64829573~piPK%3A6
4829550~theSitePK%3A4434098%2C00.ht
ml>.
"Public Information Notice: IMF Executive
Board Discusses PRGF Program Design."
Public Information Notice (PIN) No. 05/127.
N.p., 16 Sept. 2005. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/sec/pn/
2005/pn05127.htm>.
There is generally no accepted definition of a
small country. In the 2010 PRGT-eligibility
review, small states were defined as having a
population below 1 million which is inconsistent
with the World Bank‘s which uses a threshold of
1.5 million people. On average, compared with
other countries at the same stage of
development, GDP growth and per capita
income are higher in small countries. At the
same time, they are exposed to significantly
higher economic volatility.21
The discrepancies in the definition of a small
country often blurs the line of measuring its
economic position and therefore restricts PRGT
eligibility to countries that share the key
vulnerabilities of small states such as but not
limited to limited diversification, openness,
insularity, and susceptibility to natural disasters.
Swaziland, which is not currently PRGT-eligible,
has per capita GNI that is relatively close to the
entry criteria for small states and can possibly
qualify for entry onto the PRGT-eligibility list in
the near future, depending on the level of its
income per capita if the Fund‘s threshold were
to be modified.22
21
Kose and Pasad (2002)
22
Selm, Bert van, et. Al (2012)
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Page 5
Poverty Reduction and Growth in LICs
A report by Martin and Watts23 for the
Development Finance International, found that
there is only very limited evidence of an
enhanced focus on growth and poverty
reduction compared to the previous PRGF
facilities programmes, it can be considered as
only formalising these impactful changes that
have been occurring since 2000. There have
been steps forward showing increased flexibility
by the Fund, but most were introduced before
the PRGT and those relating to macroeconomic
policy are shaping up to look increasingly fragile.
One major criticism of the Fund‘s past
programmes was that they neither monitored
systematically nor aimed to protect the level of
anti-poverty and pro-MDG spending in each
country. As such, the main changes to the
PRGT programs after the financial crisis was
that the Fund under its conditionality reform
stated that they programmes would include a
poverty related or social expenditure floor,
which would help protect the vulnerable in
society. But, it is important to realise that these
types of targets are not a result of the new
facilities, rather from decisions taken in the past
to track and protect social spending more
clearly, which was piloted in PRGF and passed
over on to PRGT.
Minimum social spending ‗floors‘ have been
much more extensively used under the PRGT,
in 70% of the programmes as compared to prePRGT programmes. However, in 16% of
member countries, floors have been revised
23
Martin and Watts, (2012)
downwards in PRGT reviews, and it is not clear
why this is happening or how it is compatible
with the MDGs. Besides, the spending covered
by the floors and by structural benchmarks in a
few countries varies widely, in some countries all
the spending is on the health sector and in
others, virtually no spending in the aforesaid
sector. There are no flexible enough
recommendations or guidelines that countries
can adopt but would maintain some form of
stability in spending proportions.
It should also be of significant concern that
there is little or no discussion in the Fund‘s
review of why countries have or have not met
their floors, and what is being done to ensure
that this changes and anti-poverty spending
increases in future. This seems to indicate that
the issue was not a major subject of policy
discussion during review missions or on the
Fund‘s Board.
Loan Conditionality
“When a country borrows from the IMF, its government
agrees to adjust its economic policies to overcome the
problems that led it to seek financial aid from the
international community.” IMF Conditionality, 31st
March 2014.
Conditionality covers both the design of IMFsupported programs — that is, the
macroeconomic and structural policies and the
specific tools used to monitor progress toward
the goals outlined by the country in cooperation
with the Fund. Conditionality helps countries
solve balance of payments problems without
resorting to measures that are harmful to
national or international prosperity. At the same
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Page 6
time, the measures are meant to safeguard the
Fund‘s resources by ensuring that the country‘s
balance of payments will be strong enough to
permit it to repay the loan.
particularly flagrant example of donourship,
involving an ex post conditionality, that is; funds
were suspended as the result of an action which
had not been specified as unacceptable.
The key difference between SCF/ECF and RCF
is the use of structural benchmarks. Due to the
short period of RCF loan agreements; there are
no structural benchmarks though there are prior
actions in the Kyrgyz Republic. Therefore,
whilst both SCF countries had wage
management benchmarks, neither RCF country
did. This leads to questions of loan security and
the impact on wage ceilings – would it still be
under full government autonomy as promised or
would it just serve as the Fund‘s façade?
National Sovereignty
Participation
Four PRGT programmes, namely Côte
d‘Ivoire, Honduras, Moldova and Nicaragua still
contain ceilings on government wage bills, and
10 countries including Côte d‘Ivoire and
Honduras who also have wage bill ceilings, have
structural benchmarks specifically relating to
wage bill management. In addition, early PRGT
evidence is that the fiscal framework contains
forecasts of reduced wage bills in most
programmes whether or not there is a structural
benchmark for a ceiling24.
An extreme case of modification conditionality
arises when, in the funder‘s view, the recipient
government takes an action that violates some
fundamental principle of the assistance
agreement. An example of this is when the
Department for International Development of
the United Kingdom suspended the release of
funds in response to the decision by the
Tanzanian government to purchase a particular
air traffic control system. This represents a
24
and
Domestic
Participation was meant to ensure deeper
understanding of poverty facets and to include
local differences, whilst commitment was
expected to be higher in an attempt to reaffirm
and tackle the issue of challenging LICs‘
national sovereignty. Domestic participation is
not significant especially in LICs due to limited
technical capacities that may lead to a flawed
input feed resulting in ineffective policy
formulations. In Bangladesh, for instance,
participation was little and in spite of the theory,
a top-down bureaucratic process was
implemented where only 21 consultation
meetings were held on average. This gap in goals
and content reality would need to be realised to
avoid substantial divergences between the
ambitions and disposable resources.
Besides, while the participatory process initially
raises expectations on the policy formulations,
the final version of the PRGT programmes does
not always reflect conclusions of the domestic
society based consultation process. In the case
of Grenada is 2013, in efforts to overcome its
competitiveness challenges, the Fund has
predisposed the government to create a
conducive environment such as fiscal
consolidation and tight income policies for the
private sector to take over as the main driver of
economic
growth,
including
potential
privatisation of the energy sector while
formulating a new loan package under the ECF
Martin and Watts (2012)
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Page 7
mechanism25. Moreover, the participatory
process still gives insufficient weight to the
views of different domestic stakeholders such as
parliamentarians, unions, workers‘ organisations,
farmer and fisher groups, women‘s groups,
indigenous peoples, medical associations and
academics with adverse costs of the policy
debate comprehensiveness, although the PRGT
was formulated to be more flexible and
accommodative of the each countries‘ needs.
Mali and Mongolia are positive examples of
strong line ministry involvement. However
some line ministries are typically less involved,
for example ministries of transport and rural
development. The inability of the participatory
process, as implemented, to address policy
trade-offs means that it inevitably has a limited
impact at the execution stage. Such problems
may be greatest for macro-economic policy
formulation where the Fund has primary
responsibility.
Environmental Impact
The mechanisms under the PRGT programme
does not fully address the negative impacts that
may come with rapid growth; problems related
to urban congestion, rural migration, the overall
limits to the carrying capacity of the earth‘s
natural and human resources. It also fails to
consider the major environmental impacts.
Some of the macroeconomic reforms have
positive environmental impacts, for example, by
intensifying commercial agricultural production,
promoting less-erosive crop mixes, and reducing
subsidies for agricultural inputs. Others have
negative outcomes, as exemplified by
widespread extension of substance farming,
acceleration of deforestation, and overtaxing of
soil productivity. Downward pressures on living
25
IMF Country Reports (2014)
standards and informalisation of the economy
have obliged many urban and rural poor to
increase their reliance and pressures on natural
resources and environmental services just to
survive.
A principle response of economies heavily
reliant on its primary sector was to expand and
intensify extraction of natural resources to be
traded on international markets. This is
consistent with the type of policy changes
applied, including removing barriers to capital
flows, encouraging expansion of the export
sector, and reducing the state‘s regulatory
capacity
as
regards
natural
resource
management.
Subsistence farmers extend production in
response to deteriorating economic and social
conditions, leading to major environmental
damage. The environmental degradation in
broad areas of some countries indicates that
environmental problems will worsen in coming
years.
THE FUTURE
Under a plan initially launched in 2009 aimed
at raising concessional lending capacity to
US$17 billion over the period 2009-2014, the
Fund decided to distribute to the membership in
proportion to their quota shares of about
US$1.1 billion26 in reserves attributed to a part
of the profits from its 2009-2010 gold sales
programme. As of 25th August 2014, 143
countries representing 94.25% of the proposed
distribution had pledged to use their portion of
the distribution to subsidize lending to low26
IMF (2014)
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Page 8
income countries, which may currently borrow
at zero interest from PRGT. The Fund is
actively encouraging more countries to not just
adopt the pledge, culminating to a 5.6% increase
in resources but also but also planning a new
financial commitment towards the PRGT for
the post-2014 period in order to maintain valued
input over the Fund‘s policy in this area by the
next PRGT review in 2015.
The Fund is also vigorously targeting for an
increase in funding for individual countries with
focus on the Middle Eastern region, by keeping
the access limits of the ECF, SCF, and especially
the RCF at current levels in the context of the
doubling of quotas, so as to double the Fund‘s
lending ceilings for individual LICs.
In the most recent PRGT review, the Fund has
identified a greater emphasis to ensure analysis
of distributional impact through the Poverty and
Social Impact Analysis is included in all
programmes with significant distributional
impact. This should be a vital part of the
analysis underlying all the Fund‘s programmes
and national development strategies, to ensure
accelerated and equitable growth.
The Fund‘s Executive Board also reviewed the
framework for determining eligibility to use its
concessional resources, including the criteria for
determining PRGT eligibility and the list of
PRGT-eligible countries in April 2013. Applying
the revised framework, the Board endorsed the
proposed entry to the PRGT eligibility list of
three microstates: Marshall Islands, Micronesia,
and Tuvalu and the graduation of Armenia and
Georgia27. They reaffirmed the objectives of
improving the tailoring and flexibility of the
Fund‘s toolkit to meet the financing needs of its
low-income members while preserving the selfsustainability of the Poverty Reduction and
Growth Trust (PRGT). The Board broadly
supported the proposal to include transitional
arrangements in line with the objectives of the
PRGT and the practices of the International
Development Association28.
Considering the nature and scarcity of the
Fund‘s resources, once the quota increases
under the Fourteenth General Review of Quota
becomes effective, access norms and limits as a
percentage of quota and the quota levels that
determine the application of the procedural
should be reduced by half. This would be
followed by a proposed increase in the
cumulative access limit under the Rapid Credit
Facility (RCF). The Standby Credit Facility will
also see relaxation of rules for to encourage its
use as precautionary, including permitting
greater front-loading of support and easing time
limitations on repeated use of arrangements
treated as precautionary. This would better
enhance the attractiveness of the Policy Support
Instruments29.
BLOC POSITIONS
Donors are willing to replace the IMF‘s
signalling role with a joint donor and
government agreement on the conditions
27
28
29
IMF (2013a)
IMF (2013b)
International Monetary Fund Annual Report
(2013)
www.oximun.org
Page 9
governing reduction, suspension or increase in
aid so that donor views are given weightage as
opposed to being dominated by the Fund.
Donors are also willing to provide impartial
support for independent analysis on growth
strategies and related policy choices as identified
by country governments, post 2012 external
review of the PRGT.
Transparency, openness and the prioritisation of
poverty reduction are already in action or are
prepared to actively get acted upon by
governments of borrowing countries, among
others such as corruption issues in most African
countries. These governments are also ready to
show leadership and vision in bringing the
actors in the development of the country
together to frame coherent strategic planning
frameworks, for those with the capacity to do so
and those that do not, are willing to learn to do
as such, given the support.
PRGT are to indicate how the program
advances poverty reduction and growth;
Greater concessionality: PRGT loan
agreements have zero per cent interest rates on
outstanding loans and a minimal 0.25% for the
Standby Credit Facility;
2.
3. More flexible and streamlined conditionality:
At the same time as restructuring the facilities,
the Fund announced that it would abolish
structural performance criteria in PRGT
facilities, replacing them with structural
benchmarks30.
The IMF is continuing to provide short-term
support when shocks occur, but enhancing
research for effective medium to long-term
recovery methods for an enhanced and more
efficient use of the Standby Credit Facility and
the Extended Credit Facility.
The civil societies welcome the idea of nationallevel based policy monitoring and analysis with
support from donor countries in terms of
knowledge transfers.
The Fund is actively working to improve the
PRGT programmes, such as being open to
constructive
discussions
for
improved
transparency policies, including visiting the
possibility of releasing draft PRGT programmes,
to better serve the three main differences from
the PRGF-ESAF programmes to the new
PRGT programmes, as listed below:
1. Enhanced focus on poverty reduction: All
countries seeking any financial assistance under
30
Martin and Watts (2012)
www.oximun.org
Page 10
POINTS A RESOLUTION MUST
ADDRESS
 A more holistic emphasis in employing
effective guidelines and processes that
would generate growth and tackle
deepening poverty concerns equally,
rather than relying heavily on the trickledown effect.
 Borrowing
countries‘
governments
looking to come up with a domestic
decision-making process to adopt the
unique characteristics of the PRGT
programmes, rather than implementing
parallel planning processes.
 Donor countries should look to revise
their aid modalities towards those that
strengthen government systems, focusing
on budget support and guaranteeing
predictable multi-annual aid flows as
much as possible.
 Possible ways the Fund can work to be
prepared to subject their proposed
macroeconomic and structural reforms
to independent Poverty and Social
Impact Analysis and have analysis carried
out on the trade-offs associated with
macroeconomic policy choices, such as
the fiscal stance.
 Alternatives platforms to enhance broad
stakeholder participation, including
government, parliament, civil society,
donors and the IFIs should be adopted
as a structure within which to hold
dialogue on key dimensions of the
national planning framework.
 Aim to provide more common
parameters and/or bloc specific
solutions and recommendations to
enable a more effective initiative as
opposed to the current one size fits all
methods.
 The question of the loosening of the
loan conditionality and the population
threshold criterion to accommodate
more low-income countries in a revised
PRGT eligibility list.
 The inclusion of PRSPs in the Standby
Credit Facility to complement the
conditionality, implementation reviews
and
disbursements
under
this
mechanism;
 Structural solutions to tackle the
environmental consequences of rapid
development in low-income countries.
2
FURTHER READING
Barro, R.J. and Lee, J.W. (2002) ‗IMF programs: who is chosen and what are the effects?‘.
NBER Working Paper No. 8951.
Easterly, William. (2003). IMF and World Bank Structural Adjustment Programs and
Poverty. National Bureau of Economic Research. p.361-390.
Goldstein, M. (2000) ‗IMF structural conditionality: how much is too much?‘ Washington, DC:
Institute for International Economics.
Imam, Patrick. (2007). Effect of IMF Structural Adjustment Programs on Expectations: The
Case of Transition Economies. IMF Working Paper. 7 (261).
Independent Evaluation Office (2002) Evaluation of the Prolonged Use of IMF Resources,
Report, Washington, DC: IMF.
Paloni, Alberto and Zanardi, Maurizio (ed.) (2006). The IMF, World Bank and Policy Reform. Oxon:
Routledge.
Picciotto, Robert. (1996) Poverty, Adjustment and the World Bank. Washington, DC: Presentation to
the Religious Working Group on the World Bank/IMF on August 8, 1996.
Ray, R., Johnston, J., Cordero, J. A., & Montecino, J. A. (2009). IMF-supported macroeconomic policies
and the world recession: a look at forty-one borrowing countries. Centre for Economic Policy
Research.
Streeten, Paul. (1987) ―Structural Adjustment: A Survey of the Issues and
Opinions‖. World Development. 15 (12).
United Nations (2011): The Millennium Development Goals Report 2011, New York.
BIBLIOGRAPHY
"A New Architecture of Facilities for Low-Income Countries and Reform of the Fund‘s
Concessional Financing Framework 14354-(09/79)." A New Architecture of Facilities
www.oximun.org
Page 3
for Low-Income Countries and Reform of the Fund‘s Concessional Financing
Framework 14354-(09/79). N.p., n.d. Web. 31 Aug. 2014.
<https://www.imf.org/external/pubs/ft/sd/index.asp?decision=14354(09/79)#P2050_383764>.
"Articles of Agreement of the International Monetary Fund -- 2011 Edition." Articles of
Agreement of the International Monetary Fund -- 2011 Edition. N.p., n.d. Web. 31 Aug.
2014.
"Factsheet -- Financing the Fund's Concessional Lending to Low-Income Countries." Factsheet
-- Financing the Fund's Concessional Lending to Low-Income Countries. N.p., n.d.
Web. 31 Aug. 2014.
<http://www.imf.org/external/np/exr/facts/concesslending.htm>.
"Factsheet - IMF Concessional Financing through the Enhanced Structural Adjustment Facility
(ESAF)." Factsheet - IMF Concessional Financing through the Enhanced Structural
Adjustment Facility (ESAF). N.p., n.d. Web. 31 Aug. 2014.
<https://www.imf.org/external/np/exr/facts/esaf.htm>.
"Factsheet -- IMF Lending." Factsheet -- IMF Lending. N.p., n.d. Web. 31 Aug. 2014.
"Factsheet -- IMF Rapid Credit Facility." Factsheet -- IMF Rapid Credit Facility. N.p., 19 Mar.
2014. Web. 31 Aug. 2014. <https://www.imf.org/external/np/exr/facts/rcf.htm>.
"Factsheet -- IMF Support for Low-Income Countries." Factsheet -- IMF Support for LowIncome Countries. N.p., n.d. Web. 30 Aug. 2014.
<http://www.imf.org/external/np/exr/facts/poor.htm>.
"Factsheet -- The Policy Support Instrument." Factsheet -- The Policy Support Instrument.
N.p., 03 Apr. 2014. Web. 31 Aug. 2014.
<https://www.imf.org/external/np/exr/facts/psi.htm>.
"Factsheet -- The Poverty Reduction and Growth Facility (PRGF)." Factsheet -- The Poverty
Reduction and Growth Facility (PRGF). N.p., 31 July 2009. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/exr/facts/prgf.htm>.
International Monetary Fund. Handbook of IMF Facilities for Low-Income Countries. The
IMF, 21 Mar. 2012. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/pp/eng/2012/032112.pdf>.
International Monetary Fund Annual Report. (2013). Annual Report 2013: Promoting a More Secure
and Stable Global Economy. <Available: http://www.imf.org/external/pubs/ft/ar/2013/eng/>.
"IMF Lending to Poor Countries - How Does the PRGF Differ from the ESAF? -- An IMF
Issues Brief." IMF Lending to Poor Countries - How Does the PRGF Differ from the
ESAF? -- An IMF Issues Brief. N.p., n.d. Web. 31 Aug. 2014.
<https://www.imf.org/external/np/exr/ib/2001/043001.htm>.
IMF. (2013a). IMF Executive Board Reviews Facilities for Low-Income Countries and Eligibility for Using
Concessional Financing. Available:
https://www.imf.org/external/np/sec/pn/2013/pn1345.htm
www.oximun.org
Page 4
IMF. (2013b). Reviews of Facilities for Low-Income Countries – Proposals for Implementation.
Available: http://www.imf.org/external/np/pp/eng/2013/031813/
IMF Country Reports (2014). Grenada: 2014 Article IV Consultation and Request for An Extended
Credit Facility Arrangement-Staff Report; and Press Release. Washington: International
Monetary Fund Western Hemisphere Department. p.45-56.
IMF (2014). IMF Conditionality. Available:
http://www.imf.org/external/np/exr/facts/conditio.htm.
IMF (2014). IMF Lending. Available: http://www.imf.org/external/np/exr/facts/howlend.htm.
IMF. (2014). Poverty Reduction and Growth Trust (PRGT) Pledges Linked to SDR 700 Million
Distribution of Reserves Associated with Gold Sales. Available:
https://www.imf.org/external/np/fin/prgt/
Kose, M. Ayhan and Eswar S. Pasad (2002) ―Thinking Big,‖ Finance and Development, Vol. 39,
No. 4, International Monetary Fund.
Martin, Matthew and Watts, Richard. (2012). Enhancing The IMF‘s Focus on Growth and
Poverty Reduction in Low-Income Countries. Development Finance International. p.2-93.
"Public Information Notice: IMF Executive Board Discusses PRGF Program Design." Public
Information Notice (PIN) No. 05/127. N.p., 16 Sept. 2005. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/sec/pn/2005/pn05127.htm>.
Reed, D. (1996) Structural Adjustment, the Environment, and Sustainable Development. London:
Earthscan Publications Ltd. p.34-67.
Selm, Bert van, Farhan, Nisreen, Shirono, Kazuko and Dabrowska, Barbara. (2010). Eligibility to
Use the Fund‘s Facilities for Concessional Financing. International Monetary Fund. p.2-17.
Selm, Bert van, Farhan, Nisreen, Shirono, Kazuko and Dabrowska, Barbara. (2012). Eligibility to
Use the Fund‘s Facilities for Concessional Financing. International Monetary Fund. p.2-20.
"The IMF and the World Bank: How Do They Differ?" The IMF and the World Bank: How Do
They Differ? N.p., n.d. Web. 31 Aug. 2014.
"The IMF's Framework for Low-income Countries - Bretton Woods Project." Bretton Woods
Project. N.p., 17 June 2010. Web. 31 Aug. 2014.
<http://www.brettonwoodsproject.org/2010/06/art-566378/>.
"What Are Middle-income Countries?" Middle Income Countries. N.p., n.d. Web. 31 Aug. 2014.
<http://web.worldbank.org/WBSITE/EXTERNAL/EXTOED/EXTMIDINCCOU
N/0%2C%2CcontentMDK%3A21453301~menuPK%3A5006209~pagePK%3A64829
573~piPK%3A64829550~theSitePK%3A4434098%2C00.html>.
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Page 5
TOPIC B
The BRICS initiative to create the Contingent Reserve Arrangement (CRA), and the potential of a future
collaboration.
INTRODUCTION
The Bretton Woods Institutions (BWIs) were
founded in 1944 upon the principle of
preserving the global and intra-national financial
equilibria and thereof creating the conditions of
international recovery and concurrent economic
development. The new institutional framework
aimed to facilitate economic cooperation,
enabling then- non-industrialized but most
importantly industrializing economies to be part
of that Great Recovery. Nevertheless,
throughout its 70 years of prevalence in the
international finance scene, the International
Monetary Fund has not managed to develop in
an ever-adaptive manner so as to include ‗newcomers‘.
The term BRICS was firstly introduced by a
Goldman Sachs economist, Jim O‘Neill to
signify the safe havens for investors, hence it
has ever since been used by media and scholars.
The BRICS, whereby Brazil, Russia, India,
China and South Africa used to represent in the
90s‘ and 00s‘ the a sort of second-rate
economies with a lot of potential, however this
race between the ‗advanced‘ economies and
these rapidly-advancing new-comers is a fait
accompli. The BRICS currently represent more
than 40 per cent of the world‘s population and
account for some of the currently fastest growth
rates, nevertheless the structure of the Fund
does not allow for an equally grave and weighty
role in the decision-making process, as they are
only possessing 11% of the votes in the IMF.
Being deprived of a say in the financial
arrangements nowadays could severely impact
the performance of these newcomers.
The US dollar stands hegemonic in the
international transactions, much due to its
robustness and universal trustworthiness.
Indicatively, the US dollar constitutes the
60.9%31 of the Official Allocated Reserves
globally, whereas the yuan for instance, as well
as the other BRICS currencies are nowhere near
in becoming a global currency32. Developing
economies‘ currencies simply lack the
institutional and legal infrastructure that could
bolster them.
31
"Currency Composition of Official Foreign
Exchange Reserves (COFER)." Currency
Composition of Official Foreign Exchange
Reserves (COFER). IMF, 30 June 2014. Web.
31 Aug. 2014.
<http://www.imf.org/external/np/sta/cofer
/eng/>.
32 Ruan, Victoria. "Yuan Decades Away from
Being Global Reserve Currency." South
China Morning Post. N.p., 11 Apr. 2014.
Web. 31 Aug. 2014.
<http://www.scmp.com/business/money/a
rticle/1475607/yuan-decades-away-beingglobal-reserve-currency?page=all>. =all
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HISTORY OF THE TOPIC
During the East Asian financial crisis (1997-8)
many middle-income, developing economies
experienced severe crises and recessions; it was
then that few of them, including China, Japan
and Taiwan devised an initiative to create their
own ‗Asian‘ Monetary Fund in order to provide
liquidity and correct financial gaps in some
countries‘ balance of payments. This is known
as the Chiang Mai Initiative (CMI). The
neuralgic reactions of the IMF, though delayed,
contained partly the crisis; notwithstanding
some of its weaknesses were shown. It was then
that the idea of an alternative creditor was
conceived, and although it was met by the US
veto, it streamlined the trajectory for criticism
and alternative seeking. The then-IMF Managing
Director Horst Köhler commended the
initiative, pointing out that it would be advisable
for
such
an
initiative
to
‗pursue
regionalization… in a complementary fashion
[with the Fund]‘33. Evidently, although the
initiative expanded quantitatively over the years,
reaching the $240 billion in 2012, the swap lines
and credit have never been used, that is not even
during the Great Recession and the global
financial crisis of 2008/9; which can be credited
to the very divergent pursuits of its creators as
well as the potential creditors and borrowers.
The CMI became a regional complement to the
Fund, rather than a substitute.
On March 27, 2013, in the context of the V
BRICS Summit, the leaders of BRICS decided
to embark upon their plan and create the New
Development Bank (NDB). One year later,
during the first session of the VI BRICS Summit
in Fortaleza, Brazil, the group of leaders
reaffirmed their intention and co-signed the
33
"Address by Horst Köhler Chairman of the
Executive Board and Managing Director of
the IMF to the Board of Governors of the
Fund." Address by Horst Köhler Chairman
of the Executive Board and Managing
Director of the IMF to the Board of
Governors of the Fund. N.p., 26 Sept. 2000.
Web. 31 Aug. 2014.
<https://www.imf.org/external/np/speeche
s/2000/092600.htm>.
2
Charter, creating a $100 billion Development
Bank and a $100 billion Contingent Reserve
Arrangement (CRA) to rival the World Bank
and the IMF accordingly. A key determining
factor that seems to have opened up the way for
this agreement at this particular time, is the
prospect of the reversal of US‘s expansionary
monetary policy, which has enabled for an
investment flow (and indeed cash flow) toward
many developing, middle-income economies, in
which case the latter would face a siphoning of
vital funding.
The original Instruments of CRA, as set by the
Treaty for the Establishment of a Brics
Contingent Reserve Arrangement34 can be
viewed below:
Liquidity
Instrument
Contingent
Reserve
Arrangement
(CRA)
Precautionary
Instrument
The Liquidity Instrument will provide financial
assistance in case of ―short-term balance of
payments
pressures‖,35
whereas
the
Precautionary Instrument
shall
provide
assistance en vue of such short-term pressures.
The objective of this reserve is to provide
protection against global liquidity pressures
(Novosti). This includes currency issues where
members' national currencies are being adversely
affected by global financial pressures. The CRA
is an integral part of the New Development
Bank (formerly called the BRICS Development
Bank), which was agreed upon by the five
member nations at the 5th BRICS Summit held
in Durban, South Africa on March 27, 2013.
(Powell)
On 15 July 2014, the first day of the 6th BRICS
summit held in Fortaleza, Brazil, the BRICS
(Brazil, Russia, India, China and South Africa)
signed the long-anticipated document to create
the $100 billion BRICS Development Bank and
a reserve currency pool worth over another
$100 billion. (Watson) Both are expected to
counter the influence of Western-based lending
institutions and the dollar. Documents on
cooperation between BRICS export credit
agencies and an agreement of cooperation on
innovation were also signed. Shanghai was
selected as the headquarters after competition
from New Delhi and Johannesburg. An African
regional centre will be set up in Johannesburg.
(Reporter)
The first president will be from India,
(Bloomberg) the inaugural Chairman of the
Board of directors will come from Brazil and
the inaugural chairman of the Board of
Governors will be Russian.
The CRA and the Fund
"VI BRICS Summit." Treaty for the
Establishment of a BRICS Contingent
Reserve Arrangement – Fortaleza, July 15.
N.p., 15 July 2014. Web. 31 Aug. 2014.
<http://brics6.itamaraty.gov.br/media2/pre
ss-releases/220-treaty-for-theestablishment-of-a-brics-contingent-reservearrangement-fortaleza-july-15>.
35 Ibid.
34
In the Treaty, there are several explicit
references to t he Fund. One of the most
important thereof is the requirement for
Requesting Parties that require more than 30%
of their swaps (maximum access) to have an on-
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Page 3
going /―on-track arrangement with the IMF‖.36
This condition clearly resembles the CMI‘s
exactly same provision of 30/70 rule, by which
the 70% of their access is drawable only under
the condition that the Requesting Party has been
subject to IMF non-concessional financing. This
is what the Treaty refers to as IMF-linked
Drawing.
Moreover, the Swap Transactions are to be
carried out through the means of US dollar, as
well as the BRICS individual commitments to
the CRA are designated in USD. Paradoxically,
the CRA is intended to smoothly deprive the
BRICS of their dependence upon the US dollar
and West-led monetary institutions, and that is
to be done through the $100-billion pool of
foreign exchange reserves, however they are
very intertwined with the current international
financial status quo of the Fund and the US
dollar.
The Fund‘s reactions have been prudent, yet
commending vis-à-vis the CRA project. The
current IMF Managing Director, Christine
Lagarde, via a press statement praised the CRA
initiative by the BRICS and welcomed future
cooperation.37
36
37
Ibid.
"Press Release: Statement by IMF Managing
Director Christine Lagarde on the BRICS
Summit." Press Release: Statement by IMF
Managing Director Christine Lagarde on the
BRICS Summit. Christine Lagarde, n.d.
Web. 31 Aug. 2014.
<https://www.imf.org/external/np/sec/pr/
2014/pr14349.htm>.
www.oximun.org
Page 4
DISCUSSION
PROBLEM:
OF
THE
The volatility of global markets post the 2008
recession shed light on the lack of
comprehensive contingency plans from the
IMF, World Bank and the individual member
nations. Despite being economically sound,
certain mechanisms in regional economies had
failed spectacularly and there were no fail-safes
in place to avoid a recessionary trend. The
problem that arises is that certain countries
perceive a lack of initiative from the
Washington-based institutions in countering the
recession and developing counter-measures for
the future. Hence, the bone of contention lies in
the CRA becoming a possible threat to the
IMF‘s programs and global initiatives and
weakening of its role as a global financial
institution.
Another alarming problem to be addressed is
the possible failure of this CRA from the BRICS
which will result in a grave impact on global
markets considering the risk involved. The
NDB has an initial capital of $100 Billion dollars
from the BRICS and an equal amount in a
reserve currency pool. The currency pool can
potentially rival the US Dollar or even the
Special Drawing Rights (SDRs) for international
trade but it can also cause a devastating
economic bubble, similar to the Asian Currency
crisis of 1997.
Therefore, the two problems the IMF faces are:
a) The CRA may be formed to counter the
IMF‘s mandate thereby drastically reducing our
role, and b) is the CRA an intelligent investment
2
for Least Developed and Medium Developed
countries?
6) What can the IMF do in order to diffuse the
tense credit environment for troubled and
developing economies?
THE FUTURE:
The CRA‘s future is uncertain because of its
unique nature and agenda. Presently, it has a
corpus of $100 Billion but as the BRICS open
their NDB to other LDCs and MDCs, we can
expect the membership of the NDB to increase
along with the contributions from other
member nations. Although there is no imminent
threat to the IMF, the future looks challenging,
especially with the emergence of a reserve
currency pool. The one factor we can predict
the increase in the allocation and utilization of
SDRs in international trade in order to counter
the CRA from BRICS. In respect to all other
factors, the IMF remains unsure of the
application of this CRA in global geo-politics
and use or misuse of this arrangement by its
member nations.
POINTS
RESOLUTIONS
SHOULD ADDRESS:
1) Does the IMF stand to gain or lose from the
creation of the CRA?
2) What changes in the IMF‘s structure can be
encouraged in order to counter the BRICS
NDB?
3) Can the IMF increase SDR allocations to
make international trade more LDC-friendly?
4) Is there a possibility of a future collaboration
between the IMF and the CRA?
5) Can the IMF afford to create a currency
reserve or a contingency reserve considering
the viability of the same in the global
economy?
BLOC POSITIONS:
Due to the contemporaneity of the topic, one
cannot identify concrete and explicitly defined
blocs or fields. The Fund has expressed its
willingness to cooperate with the CRA initiative.
It is certain though, that the project has drawn
support from particular countries, and naturally
criticism by others. Many commentators have
actually pointed out the likelihood of the two
international financial institutions being
complementary to each other, rather than rivals.
BRICS and other developing
economies
The CRA debate is argued by two main blocs:
BRICS and the other LDCs and the developed
economies. The BRICS argue that the CRA is a
viable alternative to LDCs for loans, grants and
aid for development without the additional
burden of falling prey to western domination.
They advocate the NDB as the easier and safer
credit-lending alternative to the IMF but it is
evident that their intention is to drastically
www.oximun.org
Page 3
reduce the
economics
western
influence
on
global
Moreover South American countries were
warmly invited to meet BRICS leaders during
the VI Summit, and due to the openly aversive
feelings towards the IMF, many of them will
view in the CRA a light of hope for an
alternative. Many African countries, unsatisfied
with their running IMF programme might
support the initiative, opposing to any
cooperation with the Fund and willing to see
institutional competition for their own benefits.
The other major bloc is the High income
countries led by the United States, the EU,
Japan and others, who argue that the CRA is
worsen the volatility of global markets as it aims
to inject billions of dollars in troubled
economies which were denied funds from the
IMF due to lack of adherence to certain prerequisites. This bloc also believes that there is
no intention of the BRICS to sponsor real
development, rather this is a gambit to increase
their influence over Africa dramatically by acting
as the ―heralds of development‖ in the LDCs.
This bloc believes that the CRA is ―good
politics but bad economics‖ because there is
already a global financial institution charged
with maintaining the stability of the global
markets and the CRA defies popular belief.
FURTHER READING:

http://www.pbc.gov.cn/publish/english/955/2014/20140717154639176510565/20140717154
639176510565_.html

http://rt.com/business/173008-brics-bank-currency-pool/

http://www.reuters.com/article/2013/03/21/us-brics-bank-idUSBRE92K0R820130321

http://www.imf.org/external/np/exr/facts/sdr.HTM

http://www.imf.org/external/np/fin/data/rms_five.aspx

http://www.imf.org/external/about/borrow.htm

http://www.imf.org/external/about/lending.htm
BIBLIOGRAPHY
"Address by Horst Köhler Chairman of the Executive Board and Managing Director of the IMF to the Board of
Governors of the Fund." Address by Horst Köhler Chairman of the Executive Board and Managing Director of the IMF to
the Board of Governors of the Fund. N.p., 26 Sept. 2000. Web. 31 Aug. 2014.
<https://www.imf.org/external/np/speeches/2000/092600.htm>.
Bloomberg. Bloomberg India. 16 July 2014. <http://www.btvin.com/videos/watch/8003/india-gets-firstpresidency-of-the-brics-bk>.
"Currency Composition of Official Foreign Exchange Reserves (COFER)." Currency Composition of Official Foreign
www.oximun.org
Page 4
Exchange Reserves (COFER). IMF, 30 June 2014. Web. 31 Aug. 2014.
<http://www.imf.org/external/np/sta/cofer/eng/>.
Novosti, Ria. Russia and India Report. 17 July 2014.
<http://in.rbth.com/world/2014/07/17/brics_currency_fund_to_protect_members_from_volatility__russias_top_ba_36767.html>.
Powell, Anita. Voice of America . 27 March 2013. <http://www.voanews.com/content/brics-summit-leadersoptimistic-about-new-development-bank/1629583.html>.
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