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The full [20 points] will be given to a discussion response posting that
- Delivery: Clear, grammatically correct, complete sentences with rare misspellings, responds to every aspect with originality (how well do you say it)
- Quality of Expression: generates learning within the community; demonstrates knowledge and insight; understanding of material from the text; thoughtful; support points with reasons, logic and examples (how much does it move the discussion forward). For example, does your posting identify and describe key economic concepts that apply from this unit’s readings and apply and explain economic key concepts from this weunit s readings to a real life example
- Relevance: relates to, or expands on, the main theme of the discussion topic (is it on point)
- At the discretion of the instructor, points will be taken off any response that does not fulfill all of these goals. Late points will be deducted according to the standard late submission policy.
- Prompt: initial posting done in the required timeframe (is it on time)
Question
Go to the International Monetary Fund’s Financial Crisis page at www.imf.org/external/np/exr/key/finstab.htm (Links to an external site.). Report on the most recent three countries that the IMF has given emergency loans in response to a financial crisis. According to the IMF, what caused the crisis in each country?
ANSWER
Financial crisis
The International Monitory fund is a financial institution that offers financial support to countries faced with a financial crisis. The funds aim at stabilizing the member country’s currency, financial status and offers the country’s ability to purchase imports IMF also protects countries against financial crisis by lending them money. IMF has extended emergency loans to Cyprus, Portugal, and Ireland through its emergency Financing Mechanism in the recent years due to their financial crisis brought about by debt (Pisani-Ferry, 2013).
The IMF offered Cyprus a $1.33 billion emergency loan in 2013 to stabilize the countries financial sector. The instability of the financial sector was brought about the oversize banking sector in the country that was twice the GDP of the country. The banks had offered huge loans to Greek citizens and the real estate industry. Cyprus had over 85% of its GDP in public debts leading to a financial crisis. In 2011 Portugal was offered a $5.4 billion loan by the IMF due its financial crisis brought about by an increase in private and public debts (Pisani-Ferry, 2013). The country’s banks were collapsing because of embezzlement, accounting fraud and bad investments.
Ireland received $3.5 billion in 2010 from IMF as a result of the crisis brought about by the liquidity problem. The liquidity problem was fueled by the banks’ lending cheap credits that the borrowers later defaulted. The government borrowed money that incurred high interest to fund its national government budget. The Irish banks lacked money to lend and money to withdraw from deposit accounts leading to a financial crisis.
References
Pisani-Ferry, J., Sapir, A., & Wolff, G. B. (2013). EU-IMF assistance to euro-area countries: an early assessment (Vol. 16). Brussels: Bruegel.
www.imf.org/external/np/exr/key/finstab.htm
