Thursday, May 25, 2017

Money Matters: An IMF Exhibit -- The Importance of Global Cooperation. Globalization and Integration (1989-1999)

Transition to the Free Market

With the fall of the Berlin Wall on November 9, 1989, the Iron Curtain began to recede. Within two years, Communism was a thing of the past in Bulgaria, Czechoslovakia (later the Czech Republic and Slovakia), Hungary, Poland and Romania. For former Eastern bloc countries, the transition from central planning to a free market economy was not easy and progress was uneven. They have, however, taken the first steps toward joining the global economy.

Hungary began its reforms early and built up a vigorous market economy in the early 1990s. Under its Solidarity-led government, Poland plunged into the free market. Almost immediately GDP fell by 10%, real wages fell by 40% and electricity prices rose by 300%. Though painful, the strategy proved successful: by the early 1990s, Poland had completely divested itself of central planning and was well on its way to prosperity. The Czech Republic opted for a more gradual approach to economic reform than Poland, possibly losing precious time by delaying the inevitable. Romania spent the 1990s reforming its socialist economy.

Collapse of the Soviet Union

Collapse of the Soviet Union
The revolutions in Eastern and Central Europe also shook the U.S.S.R. Soviet debate on economic reform began in 1986, but produced only minor palliatives. Growth stagnated, and foreign debt doubled between 1986 and 1991.

Economic reform proved to be the final issue that drove the old Soviet empire apart. In 1990, the Baltic Republics – Estonia, Latvia and Lithuania – declared their independence. By late 1991, the Soviet Communist Party voted itself out of existence, and soon the U.S.S.R. itself was replaced by 15 independent republics. Progress in establishing a market economy has varied from country to country in the former Soviet Union. Western aid, loans, and investment have speeded the transition.

Recovery From Debt

The debt crisis seemed to be over, as most Latin American economies grew themselves out of debt in the 1990s.

In 1994, however, Mexico devalued the peso and had to work out another adjustment program with the IMF. In 1998, Brazil was shaken by a loss of investor confidence. Flight from the Brazilian real began. Prompt action by the IMF and other international lenders in cooperation with Brazil’s government, helped stabilize the economy. In a globalized economy, no major country could be allowed to fail.

Progress In Africa

The 1990s have been a decade of progress for Africa. In South Africa, apartheid was eliminated and democratic elections brought in a multiracial government under Nelson Mandela. Since 1994, the economies of the sub-Saharan African countries have been growing an average of 5% a year. Much remains to be done, however, to improve infrastructure, increase investment, raise health and living standards and meet the challenge of globalization.

Asia in the 1990s

Asia is a continent of remarkable political, cultural, social and economic diversity. Despite this, the region is thoroughly integrated in the world economy. Asia includes the world’s most populous country, the world’s largest democracy and the world’s second most productive economy.

Economic setbacks of the late 1990s in Korea, Indonesia, and Thailand are thought to be a temporary exception to Asia’s unrivaled economic growth over the past 50 years.

Meltdown in Asia

Meltdown in Asia
In 1997, as investor confidence waned, Southeast Asia suddenly found itself in one of the worst financial crises of the postwar period. The crisis threatened to spread economic malaise to fragile transition economies and provoke recession in the industrial world. By early 1998, the IMF had provided $36 billion to support reform efforts as part of an international support package worth some $100 billion. Because of the severity of the crisis, however, corrective measures are likely to take several years.

European Economic Unity

For the first time since the Roman Empire, Europe now shares a single currency – the euro. Introduced January 1, 1999, the euro represents the culmination of European economic integrations, which began in the 1950s.

Cooperation in Europe

Cooperation in Europe
The European Union manages political and economic cooperation among its 15 member countries. Born in the hope that shared sovereignty would make another war in Europe unthinkable, the European Union is dedicated to creating an ever closer political and economic union among the peoples of Europe.

Economic and Monetary Union

The introduction of a common euro currency marks the final phase of Europe’s Economic and Monetary Union (EMU). As of January 1999, the euro is the currency for eleven countries (four European Union countries have opted out at this time):

  • Euroland (the euro zone) accounts for almost 20% of world trade and world GDP.
  • Euroland is the world’s second largest economy.

The New Millennium

If the somber history of the first half of the twentieth century – two world wars and the Great Depression – can teach one lesson, it is the need for cooperation among nations. In the second half of the century, the IMF and other international institutions such as the United Nations, the World Bank, and the World Trade Organization have been part of the most sustained effort in history to achieve that cooperation.
"In a world of accelerating history, the future is already with us, calling for a high sense of responsibility, for bold action, and for intense cooperation between member countries." - Michel Camdessus, IMF Managing Director (1987–2000)

Looking to the Future...

We can anticipate a further integration of markets and massive global private capital flows.

We can also anticipate tough challenges: poverty, aging of populations, and a surge in extremism and violence if the inequalities between the poorest and most affluent countries are not reduced.

The IMF will meet these challenges by responding to the needs of each of its members and by responding to the systemic needs of a globalized world.

By International Monetary Fund

Source: International Monetary Fund

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