This was something that I put together a few weeks ago. The IMF press release is in reference to the G192 meeting that the UN is promoting. I am moving this into the food for thought column as I believe it still has merit. The date for the review is now in question and may be extended to August. Hopefully we will have a better idea after the UN has the UNAMI meeting on the 18th as to their next course of action
5/15/09
I think the IMF press release is an indirect response to the UN activity. Basically, he is agreeing with the need for oversight of the international financial market. There was another article that came out this week from the IMF regarding the need for a new charter bank to oversee the international money market. It would appear that the IMF is not going to set themselves up as being in competition with anything that the UN is successful in accomplishing. See paragraph #1.
I also think this press release gives us a key to what may be happening regarding the revaluation of currency issue.
Based on everything that I have read and your input, I don't believe that the IMF can force monetary policy changes. See paragraph #2. Whatever leverage the IMF has only comes from a country's access to the SDR funding. If a country wants a loan then they have to follow whatever rules the IMF sets. The IMF has a history of being heavy handed with their controls and a number of countries do not like or want to be involved with the IMF. The IMF controls evidently proved disastrous for a number of South American countries several years ago. Over the years the IMF has also lost influence within the international financial community. With this present financial crisis the IMF has been resurrected. Even the director made a statement referencing several times "The IMF is back." As a result the IMF has been pushing their new agenda of less controls and supervision, new lending procedures, etc to overcome these bad vibes. Some of the countries are coming back into the fold because they have no choice. Of course, China and a few other countries are providing other options such as currency swaps and funding of their own.
So that brings up the next question. Will the IMF attempt to force a revaluation of currency. I don't believe they will for several reasons. The first is their past history in forcing a country to comply with their program and the adverse financial results. I believe they will err on the side of caution to prevent another financial crisis due to their intervention. Second, they are required to have an 85% vote for monetary policy changes. I do not believe that they were given this mandate in the last G20 meeting. China's undervalued currency has obviously been a problem for some time. If the IMF had the mandate why is it necessary for the US congress to file a bill adding tariffs to China imports until they agree to revalue their currency. Third, not all countries are going to avail themselves of SDR funding that would require compliance on a monetary currency change. Fourth, I believe that either a change in the composition of the SDR basket and/or the transition to the SDR as the reserve currency is a very real possibility and that would impact currency values. I think that any currency shifts in the near future will be countries that want to make that shift or will be in agreement with IMF recommendations based on the Article IV consultations. The IMF has agreed to escalate the completion of the quota reviews which require the Article IV consulation. A major shift of currencies could have been put on hold pending some of these reviews.
So where does that leave us in regards to Iraq. Iraq is still outside the bubble of the international financial community. Iraq is still economically under UN Chapter VII control via the IAMB/DFI which is also indirectly linked to the IMF/World Bank. Several individuals have raised the question whether the IMF will force the reval. The IMF could order a reval and force Iraq to comply since Iraq is still under a program rate. If that were to happen, it would have to be completed before Chapter VII is lifted which has a deadline of June 15th for a review. Once Iraq is totally removed from Chapter VII, then Iraq would have full control and their position in the international community would be equal to every other country. I don't believe the IMF will force a reval without the consent of Iraq. There was an article that was posted regarding protests from Iraq regarding the IMF intervention. Based on what the IMF is attempting to accomplish I just don't see this as a politically correct move for the IMF.
So what type of time frame could be involved. I think that if it goes it will be either just before or just after Chapter VII is lifted. The pressure is on to conduct the review of the UN resolutions. There may be some type of agreement with Kuwait. Numerous articles have referenced June 15th. The IAMB report has not been released which could be significant if the report will be used to support an immediate removal of Chapter VII. Until Chapter VII has been removed Iraq does not have full control of the money currently in the DFI fund, the frozens assets fund and their revenues from the sale of oil and gas. I think there is sufficient evidence from the research and articles that this is a viable deadline.
1) "How would such a framework be made operational? And who would oversee and enforce it? I think that institutions with expertise in the field—including the Financial Stability Board and the Basel Committee—will need to play a leading role. The IMF is certainly part of the process, even if we do not claim leadership. Our main role involves monitoring the implementation of the agreed framework through our surveillance process. We would verify that the framework has been translated into day-to-day practices and check whether it is followed when a crisis occurs."
2) "Of course, I also argued that the record is less favorable with cross- border financial regulation, and much remains to be done. I won’t downplay the challenges. It is one thing to give more resources to the IMF, or coordinate liquidity provision or fiscal stimulus among countries, but it is quite another to change domestic legislation in line with international agreements."
http://www.imf.org/external/np/speeches/2009/051509.htm
5/15/09
I think the IMF press release is an indirect response to the UN activity. Basically, he is agreeing with the need for oversight of the international financial market. There was another article that came out this week from the IMF regarding the need for a new charter bank to oversee the international money market. It would appear that the IMF is not going to set themselves up as being in competition with anything that the UN is successful in accomplishing. See paragraph #1.
I also think this press release gives us a key to what may be happening regarding the revaluation of currency issue.
Based on everything that I have read and your input, I don't believe that the IMF can force monetary policy changes. See paragraph #2. Whatever leverage the IMF has only comes from a country's access to the SDR funding. If a country wants a loan then they have to follow whatever rules the IMF sets. The IMF has a history of being heavy handed with their controls and a number of countries do not like or want to be involved with the IMF. The IMF controls evidently proved disastrous for a number of South American countries several years ago. Over the years the IMF has also lost influence within the international financial community. With this present financial crisis the IMF has been resurrected. Even the director made a statement referencing several times "The IMF is back." As a result the IMF has been pushing their new agenda of less controls and supervision, new lending procedures, etc to overcome these bad vibes. Some of the countries are coming back into the fold because they have no choice. Of course, China and a few other countries are providing other options such as currency swaps and funding of their own.
So that brings up the next question. Will the IMF attempt to force a revaluation of currency. I don't believe they will for several reasons. The first is their past history in forcing a country to comply with their program and the adverse financial results. I believe they will err on the side of caution to prevent another financial crisis due to their intervention. Second, they are required to have an 85% vote for monetary policy changes. I do not believe that they were given this mandate in the last G20 meeting. China's undervalued currency has obviously been a problem for some time. If the IMF had the mandate why is it necessary for the US congress to file a bill adding tariffs to China imports until they agree to revalue their currency. Third, not all countries are going to avail themselves of SDR funding that would require compliance on a monetary currency change. Fourth, I believe that either a change in the composition of the SDR basket and/or the transition to the SDR as the reserve currency is a very real possibility and that would impact currency values. I think that any currency shifts in the near future will be countries that want to make that shift or will be in agreement with IMF recommendations based on the Article IV consultations. The IMF has agreed to escalate the completion of the quota reviews which require the Article IV consulation. A major shift of currencies could have been put on hold pending some of these reviews.
So where does that leave us in regards to Iraq. Iraq is still outside the bubble of the international financial community. Iraq is still economically under UN Chapter VII control via the IAMB/DFI which is also indirectly linked to the IMF/World Bank. Several individuals have raised the question whether the IMF will force the reval. The IMF could order a reval and force Iraq to comply since Iraq is still under a program rate. If that were to happen, it would have to be completed before Chapter VII is lifted which has a deadline of June 15th for a review. Once Iraq is totally removed from Chapter VII, then Iraq would have full control and their position in the international community would be equal to every other country. I don't believe the IMF will force a reval without the consent of Iraq. There was an article that was posted regarding protests from Iraq regarding the IMF intervention. Based on what the IMF is attempting to accomplish I just don't see this as a politically correct move for the IMF.
So what type of time frame could be involved. I think that if it goes it will be either just before or just after Chapter VII is lifted. The pressure is on to conduct the review of the UN resolutions. There may be some type of agreement with Kuwait. Numerous articles have referenced June 15th. The IAMB report has not been released which could be significant if the report will be used to support an immediate removal of Chapter VII. Until Chapter VII has been removed Iraq does not have full control of the money currently in the DFI fund, the frozens assets fund and their revenues from the sale of oil and gas. I think there is sufficient evidence from the research and articles that this is a viable deadline.
1) "How would such a framework be made operational? And who would oversee and enforce it? I think that institutions with expertise in the field—including the Financial Stability Board and the Basel Committee—will need to play a leading role. The IMF is certainly part of the process, even if we do not claim leadership. Our main role involves monitoring the implementation of the agreed framework through our surveillance process. We would verify that the framework has been translated into day-to-day practices and check whether it is followed when a crisis occurs."
2) "Of course, I also argued that the record is less favorable with cross- border financial regulation, and much remains to be done. I won’t downplay the challenges. It is one thing to give more resources to the IMF, or coordinate liquidity provision or fiscal stimulus among countries, but it is quite another to change domestic legislation in line with international agreements."
http://www.imf.org/external/np/speeches/2009/051509.htm
