Currency Devaluation or Depreciation might be helpful in outward paying economies that have an export-led model of growth.
Economies where the majority of the derived demand is based on domestic commercial activity, might find currency price reduction as a harrowing systemic risk
The first thing that an IMF Program desires from its client states is that they should devalue or assist market-based depreciation of their nominal exchange rate.
In this way, the economy can instil a shock by means of which macroeconomic adjustment will take place!
Reducing CAD
All client states that borrow to finance the balance of payments gap, working under the IMF Program, lose their economic sovereignty and turn into satellite states.
The International Political Economy of the IMF Structural Adjustment Program needs understanding.
These are tools
IMF will not lend money without the permission of Major Foreign Powers, especially Uncle Sam
Not only do the big powers dominate such Bretton Wood Institutions, but they also choose to bring countries to fall in line with the global political and economic agenda of the big powers
Still, dont understand why nations that have repeatedly failed to implement the IMF Economic Program in letter and spirit get another chance?
What is the meaning of this?
It is like a borrower getting a constant debt rollover lolly pop from the bank!
Politics of the World Economy
Well, most of the nations that keep borrowing from the IMF under various schemes have relinquished their right to suzerainty to the big capitalist economies.
The same mantra was offered to Malaysia, but, @chedetofficial rightly rejected their prescriptions during the Asian Crisis
Dr M did not allow the Malaysian Ringgit to free float.
Most economists such as @paulkrugman and late Robert Mundell hurled vitriolic criticisms at Mahathir during the AFC Asian Financial Crisis.
But, they later admitted their mistakes.
Malaysia was the first to recover post AFC!
If you hand over your currency and interest rate, then what is left?
The central bank can only work as a printing machine, and a post box transferring orders to and fro the IMF.
Also, fiscal policy targets are set by the Fund, which further strangulates the domestic demand.
A lot of studies in Development and Transition Economics have been published by various Independent Economists.
Most of the studies show that IMF #ESAF - Enhanced Structural Adjustment Programs have led to deindustrialization across many developing nations.
Notably across Africa.
Speedy removal of tariffs, cutting off subsidies, slashing of development expenditure such as poverty alleviation programs to meet fiscal targets such as budget deficit as a % of GDP, privatizing of SOEs,dismantling of price ceilings & restricting social welfare are IMF Hallmarks
Shock Therapy sounds good in books written by Chicago Boys.
IMF models work well in mathematical economics terms, but, in reality, they might damage the social and psychological characteristics of a populace and a nation beyond recognition.
@JosephEStiglitz was right when he lambasted the Fund during the AFC
Even a basic econs 101 student knows that a contractionary monetary and fiscal policy will wreak economic destruction on a nation
Raising short term interest rates and allowing the nominal exch rate to free fall
President #Suharto lost power due to the IMF Package he took.
Still, remember how Indonesians were ransacking shops and private property as the value of Rupiah sank
Will never forget those anarchic and arsenic scenes.
The antidote provided by the fund worked to accentuate flames
Yeah, #IMF Macroeconomic Model tends to tweak the economy using the J-Curve Assumptions.
This completely ignores the price elasticity of demand figures for exports and imports.
if exports are inelastic, #devaluation won't help!
Econs 101 which the fund refuses to ignore?
Market determined interest rate, exch rate, commodity prices and wage rate might work well if the economy and agents can transfer financial and business risks.
In the absence of social safety nets and risk transference, price deregulation is akin to throwing sheep before the wolf

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Risk Manager(Banks,Asset Management,Insurance)

Risk Manager(Banks,Asset Management,Insurance) Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @SAH16928046

18 Sep
Slowing population growth can have broad benefits for society, including enhancing the many ways that older citizens enrich our communities, write The University of Queensland Jane O'Sullivan and ADB's Dr Susann Roth
This is highly debatable.
China has rolled back its one-child policy and is now incentivizing population growth.
Singaporeans are not replacing themselves at the desired rate, and hence they have to import foreigners into their markets to fill in positions.
Canada, Australia and Newzealand invite immigrants to fill in their countries because they have low population density figures compared to other countries having a large landmass.
Read 7 tweets
16 Sep
Had an interesting encounter with a management consulting firm which wants to set up an ERM Desk for one of its client in the E&P Sector
So I enquired about the client expectations?
Con: Client wants a friendly Risk Dept.
Me: What's friendly?
Con: No authorizations or approvals
Well, that is the general problem across different industries.
Even in the financial sector, remember meeting a client that wanted me to design the JD of a #CRO who would report to the #CFO.
Another, e.g. where the Risk Manager was made subordinate to the Chief Investment Officer
Furthermore, they want GRC/ERM or any other Control Staff to be highly understanding of the business process, and remain courteous even if risks are being materialized and losses are mounting
Never work as a Risk Professional where the notion of making a Profit at all costs exist
Read 7 tweets
27 Aug
There is a vested commercial interest in increasing #complexity around everything.
Some scholars and intellectual propagandists would like to make things appear overly complicated because that is how they can make money.
#Complexity problem can be broken down by asking relevant straightforward questions and providing equally relevant simple-minded answers which address the root causes and understands the effects.
Read 14 tweets
26 Aug
Many students doing basic mathematics cannot distinguish between #iteration, #simulation, and #emulation as different methods of experiment design.
Even further surprised why so many students don't know the similarity and the difference between computation and calculation.
These are some of the basic mistakes which one, embedded into the mind, will work their way right into a workplace and destroy our educational foundations
For, e.g. when I was teaching Introduction to FRM Financial Risk Management, I noticed many students thought they are three different types of VaR - Value at Risk.
What they didn't realize is that VaR can be computed using different models aka methodologies, namely, HS, VCV, MCS.
Read 10 tweets
25 Aug
Did the #Irish Central Bank provide sovereign guarantees to buyers of Irish Bank Bonds and other contractual debt liabilities classified as fixed income securities, before the #GFC struck?
I asked this question after watching Professor Kelly on YouTube.
He was describing how the #Irish Central Bank allowed banks to import capital in large sums, and later lend it out to housing finance borrowers.
That created a severe #ALM Mismatch, as homes are not liquid assets.
Only after the #GFC, did the Irish and other banks realize that a run on the #deposits could lead to financial #insolvency.
#Ruin #Risk by definition is the gap between Unexpected #Loss and Expected Loss.
As the gap increases, the chances of financial ruin and #default rises too!
Read 7 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!