International Monetary Fund

Dear Delegates,

It is my pleasure to welcome you all to the Economic and Social Council of Harvard National Model United Nations 2011. My name is Alex Zhang and I will serve as your committee director. A little about myself – I was originally born in Beijing, China but moved to Thailand and then to Toronto, Canada when I was twelve years old. My international experience has exposed me to a variety of cultures and viewpoints that has shaped who I am today. I am currently concentrating in Economics, a discipline that has impressed upon me the importance of global financial integration and the International Monetary Fund’s role in it. On campus, I am the director for the Harvard Program for International Education (HPIE), an organization that sends student tutors to inner-city Boston High Schools. I am also a research assistant with the Harvard School of Public Health.

During your weekend at conference, I hope you will experience a fantastic journey through the world of international finance and hold within your hands the power to change the fiscal policies of governments around the world. In an ever-changing international economy, the IMF must adapt its policies and mandate to remain relevant. In the wake of the global financial crisis, it is the role of the IMF to expand its stabilizing role as a supra-national entity dedicated to helping nations in need. The topics of special drawing rights and reform on conditionality will serve towards this end.

Best,

Alex Zhang
Director, International Monetary Fund
Harvard National Model United Nations 2011

Topic Area A: Conditionality

The first topic proposes a revision of the current conditionality clause of the IMF’s lending practices. Currently, the IMF restores confidence in global financial markets in a bailed-out country by imposing ex post structural adjustments on a macroeconomic level. By insisting to keep a fiscal balance and reducing the budget deficit in borrowing countries, the IMF loans have played a role in reducing government spending in these countries and consequently eliminating vital social programs like education and poverty-reduction. I want to propose a change for the IMF policy on conditionality for loans. Instead of informal negotiations with member countries, the loan conditions should be designed by the recipient developing nation. The negotiations will be transparent and the IMF will play an advisory role in formulating a sustainable macroeconomic policy for the recipient country rather than the current practice of imposing a blanket western neoliberal solution to all debtor countries. In particular, the current market adjustment mechanisms imposed by the funds such as fiscal balance, commodity prices and tax regimes can be detrimental to some emerging markets.

There is ample economic evidence to suggest that some nations may have to rely on temporary capital and trade barriers in order to elevate their domestic industries to a competitive level on the world stage. By having conditionality agreements fall under the jurisprudence of each nation requesting IMF assistance, we can insure that such nations tailor sustainable macroeconomic reforms according to the current conditions of their economy.

Topic Area B: Special Drawing Rights

Special drawing rights were created in 1969 as part of the Bretton Woods agreement to serve as a reserve asset in conjunction with gold (each SDR was worth approximately 0.82 ounces of gold). Currently, the SDR is denominated as a weighted basket of major currencies (Yen, Dollar, Yuan, Euro etc…) and the total world reserves is approximately $32 Billion.

A possible future use for the SDR is as an alternative reserve asset that can be issued broadly in case of a dramatic U.S. dollar crash. A dollar crash, a plausible event in light of the persistent U.S. balance of payment deficits, and the central role of the dollar as a reserve currency (roughly 70 percent of all foreign reserves are held in U.S. dollar–denominated assets), might create the conditions for a general flight from the dollar. By denominating reserve holdings in SDRs, nations who hold dollar reserves are partially insulated from foreign exchange rate crises and depreciations of the dollar.

Another possible move is for the availability of purchase of SDRs on private markets (currently it is in the exclusive domain of the country’s central bank).