The IMF,WTO and World Bank Essay Sample
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The IMF,WTO and World Bank Essay Sample
The International Monetary Function is provide short terms credit to member countries for meeting temporary difficulties due to adverse balance of payments, reconciling conflicting claims of member countries, provide a reservoir of currencies of member-countries and enabling members to borrow on another’s currency, promoting orderly adjustment of exchange rates and to advising member countries on economic, monetary and technical matters. In becoming members of the IMF, countries agree to pursue economic policies that are consistent with the objectives of the IMF. The Articles of Agreement confer on the IMF the legal authority to oversee compliance by members with this obligation, making the IMF “the only organization that has a mandate to examine on a regular basis the economic circumstances of virtually every country in the world.” The IMF provides concessional loans to low-income member countries to help support these countries’ efforts to eradicate poverty. In this venture, the IMF works closely with the World Bank and other development partners. In this area the IMF also plays a critical catalytic role to mobilize external financing and donor support for the countries’ balance of payments and development needs.
The IMF also participates in two international initiatives to provide debt relief: the Heavily Indebted Poor Countries The Articles of Agreement enable the IMF to lend to member countries that have a balance of payments need to provide temporary respite and enable countries to put in place orderly corrective measures and avoid a disorderly adjustment of the external imbalance. Such lending is usually undertaken in the context of an economic adjustment program implemented by the borrowing country to correct the balance of payments difficulties, which also safeguards IMF resources. In addition to providing direct financing to its member countries, the IMF plays an important catalytic role in helping member countries to mobilize external financing for their balance of payments needs. IMF endorsement of a country’s policies serves as an important catalyst for mobilizing resources from bilateral and multilateral lenders and donors. They rely on an IMF endorsement of a country’s economic policies or might even require a formal IMF supported economic program before committing or disbursing their own resources to that country or granting debt relief. IMF policy assessments and recommendations also provide important signals to investors and financial markets regarding a country’s economic future, and impact on investor and market confidence in the economy.
The IMF is the central institution in the international monetary system. It serves as a forum for consultation and collaboration by members on international monetary and financial matters, and works with other multilateral institutions to devise international rules that would facilitate the prevention and orderly resolution of international economic problems. The IMF is authorized to issue an international reserve asset called the Special Drawing Right (SDR) if there is a global need to supplement existing reserve assets. These allocated SDRs are part of the net international reserves of members and can be exchanged for convertible currencies. They are not a claim on the IMF. The SDR is also the IMF’s unit of account for all financial transactions with members. Technical assistance and training are provided in the core areas of IMF expertise to help member countries design economic policies and improve economic management capabilities, which in turn can help reduce the risk of policy failures and the countries’ resilience to shocks, and facilitating program design and implementation. These activities are particularly important in developing countries, where resources are scarce and institutions often weak.
The IMF is a premier source for economic analysis of its member countries’ economic policies and statistical information. Information is disseminated through its numerous economic reports and research studies on member countries, as well as specialized statistical publications. The IMF also conducts research in areas relevant to its mandate and operations, mainly to improve its economic analysis and its advice to member countries. The results of this research are disseminated through books, IMF and academic journals and working papers, occasional papers, and the internet. In light of the economic transformation wrought by 21st century globalization, the IMF embarked on a review of its future direction, publishing the Managing Director’s Report on Implementing the Fund’s Medium-Term Strategy (MTS) in April 2006. The strategy concluded that the emergence of new economic powers, integrated financial markets, unprecedented capital flows, and new ideas to promote economic development required an updated interpretation of the IMF’s mandate as the steward of international financial cooperation and stability. Without new focus and carefully chosen priorities, the institution risked being pulled in too many directions and losing its relevance to large parts of the membership. The World Bank
World Bank performs the granting of reconstruction loans to war devastated countries, granting developmental loans to underdeveloped countries, providing loans to governments for agriculture, irrigation, power, transport, water supply, educations, health, providing loans to private concerns for specified projects, promoting foreign investment by guaranteeing loans provided by other organizations’. Provide technical, economic and monetary advice to member countries for specific projects as well as encouraging industrial development of underdeveloped countries by promoting economic reforms. The World Bank had initially authorized capital of $10 billion subscribed by the member countries in accordance with their economic strength. The United States of America is the largest subscriber. The Bank collects funds from members as well as by issue of international bonds. The World Bank is not a bank in the usual sense.
Rather, it is an organization comprised of two development institutions known as the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), which are owned by member countries. The World Bank raises money for low interest and no interest loans to poor countries by selling bonds in international financial markets and through the support of member nations. According to the World Bank, the organization has more than 100 offices and 10,000 employees worldwide. The World Bank is beneficial in many ways. First, it enables poor countries access to money at low interest rates, which allows them to develop programs and projects that they might not be able to afford otherwise. The programs the World Bank sponsors are often aimed at building infrastructure and eradicating disease, which can help countries become more financially stable and self-sufficient in the future.
The main functions of the WTO are, to oversee implementing and administering WTO agreements, to provide a forum for negotiations and to provide a dispute settlement mechanism. The goals behind these functions are set out in the preamble to the Marrakech Agreement, which are the raising standards of living, ensuring full employment, ensuring large and steadily growing real incomes and demand and expanding the production of and trade in goods and services. These objectives are to be achieved while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, and while seeking to protect and preserve the environment. The preamble also specifically mentions the need to assist developing countries, especially the least developed countries, secure a growing share of international trade. The World Trade Organization or WTO was formed in the year 1995. The main goal of WTO is to help the trading industry to become smooth, fair, free and predictable. It was organized to become the administrator of multilateral trade and business agreements between its member nations. It supports all occurring negotiations for latest agreements for trade.
WTO also tries to resolve trade disputes between member nations. Multi-lateral agreements are always made between several countries in the past. Because of this, such agreements become very difficult to negotiate but are so powerful and influential once all the parties agree and sign the multi-lateral agreement. WTO acts as the administrator. If there are unfair trade practices or dumping and there is complain filed, the staff of WTO are expected to investigate and check if there are violations based on the multi-lateral agreements. If the offending country is found guilty of violations, sanctions are levied. To become a member of WTO is very important. It only means that a member country automatically becomes part of the “Most Favored Nations.”
Having the status of being one of the “Most Favored Nation” gives access to discounted tariffs and lesser trade barriers, excessive regulations and import quotas that are all the privileges of WTO’s members. These privileges pave way to bigger market for the members’ products which results to more sales, more jobs and better economic growth. More than 75% of the members are ranked as developing countries. Through their membership with WTO, they can easily penetrate the market of developed countries at lower tariffs. At the same time, developing countries are also lessening tariffs in their import market. By doing this practice, developing countries are using the chance to develop their corporations and industries into more mature and sophisticated kind until they become competitive to the market of developed countries. Four Steps to Become a WTO Member
1. The interested country should submit an application to become a member. A committee of any member country can review this application. 2. The interested country then makes negotiations on bilateral agreements on trade with any country it prefers. The content of these agreements will apply automatically to all members of WTO. 3. The review committee of WTO creates a draft of the terms and conditions of membership which takes account of the necessary changes in its current trade policies. 4. Two-thirds of the member nations should vote that the interested country can become a part of WTO. After the voting, the new member must ratify the membership agreement. If a country is not yet a member of WTO, they can opt to become the “observers” where they must apply for membership within five years of being an observer. The highest decision-making committee of the WTO is known as the Ministerial Conference which meets biennially. All the members of WTO attend this conference. The last Ministerial Conference was held in Geneva from November 30 to December 2, 2009.
Criticism of the World Bank and the IMF encompasses a whole range of issues but they generally center a round concern about the approaches adopted by the World Bank and the IMF in formulating their policies. This includes the social and economic impact these policies have on the population of countries who avail themselves of financial assistance from these two institutions.Critics of the World Bank and the IMF are concerned about the conditionality’s imposed on borrower countries. The World Bank and the IMF often attach loan conditionality’s based on what is termed the ‘Washington Consensus’, focusing on liberalization—of trade, investment and the financial sector—, deregulation and privatization of nationalized industries. Often the conditionality’s are attached without due regard for the borrower countries’ individual circumstances and the prescriptive recommendations by the World Bank and IMF fail to resolve the economic problems within the countries.IMF conditionality’s may additionally result in the loss of a state’s authority to govern its own economy as national economic policies are predetermined under the structural adjustment packages.
Issues of representation are raised as a consequence of the shift in the regulation of national economies from state governments to a Washington-based financial institution in which most developing countries hold little voting power The IMF has not always been complemented about its way of working it also has been subject to a series of criticisms. These disapprovals were mostly concentrated on the conditions of the loans, but also on the lack of accountability and the will to lend to countries with bad human right records. The first criticism is about the conditions of the loans. The IMF makes the loan conditional on following specific economic policies. A country has to fulfill certain conditions before the IMF loans the money. Conditions such as: Higher taxes and lower spending by reducing the government borrowing, Higher interest rates to stabilize the currency, permission for failing firms to go bankrupt, Structural adjustment like privatization, deregulation, reducing corruption and bureaucracy. The problem with these economic policies is that they make the situation worse instead of better.
Some examples are the Asian crisis in 1997, were the IMF forced countries to a tight monetary and fiscal policy to reduce the budget deficit and reinforce exchange rates. The result of this policy was a serious recession and mass unemployment. The same policy was ordered in Argentina in 2001, the outcome was a decline in investments in public services that damaged the whole economy. The IMF have also been criticized that they allow inflationary devaluations. A devaluation is a decline in the value of a currency. This leads to a more competitive export and a more expensive import. Inflation is an increase in the general price level. A devaluation could cause inflation for three reasons. based on the multi-lateral agreements. If the offending country is found guilty of violations, sanctions are levied. To become a member of WTO is very important. It only means that a member country automatically becomes part of the “Most Favored Nations.”
EconomicsHaving the status of being one of the “Most Favored Nation” gives access to discounted tariffs and lesser trade barriers, excessive regulations and import quotas that are all the privileges of WTO’s members. These privileges pave way to bigger market for the members’ products which results to more sales, more jobs and better economic growth. More than 75% of the members are ranked as developing countries. Through their membership with WTO, they can easily penetrate the market of developed countries at lower tariffs. At the same time, developing countries are also lessening tariffs in their import market. By doing this practice, developing countries are using the chance to develop their corporations and industries into more mature and sophisticated kind until they become