International economics Unit - V

UNIT – V :
EVOLUTION, ROLE AND
FUNCTIONS OF
INTERNATIONAL
INSTITUTIONS - IMF, IBRD,
GATT, WTO AND ADB.
DR. M. MADHAVAN
ASSISTANT PROFESSOR OF ECONOMICS
PG & RESEARCH DEPARTMENT OF ECONOMICS
ARIGNAR ANNA GOVERNMENT ARTS COLLEGE, NAMAKKAL - 637 002
B.A. ECONOMICS
SEMESTER - IV
INTERNATIONAL ECONOMICS

INTERNATIONAL
MONETARY FUND
அனைத்துலக
நாணய
நிதியம்
In April 1943, Lord Keynes suggested a plan for resolving multilateral clearing of International
payments. The plan was jointly assessed by UK and USA governments in April 1944.
In following that a UN conference was held at Bretton Wood with 45 members to decide the
framework for IMF in July 1944.
Now, The IMF is an organization of 189 countries, working to foster global monetary
cooperation, secure financial stability, facilitate international trade, promote high employment
and sustainable economic growth, and reduce poverty around the world.
Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its
near-global membership.
The IMF's primary purpose is to ensure the stability of the international monetary system—the
system of exchange rates and international payments that enables countries (and their citizens)
to transact with each other. The Fund's mandate was updated in 2012 to include all
macroeconomic and financial sector issues that bear on global stability.

OBJECTIVES OF IMF
Providing Financial Assistance
The primary objective of IMF is to provide financial assistance to poor
countries that are experiencing difficult economic times due to civil
wars, natural disasters etc.
This organization lends out money through loans that are given under
certain conditions.
Preventing Possible Financial Crisis
It is essential for the countries to launch certain reforms measures to
regulates borrowed fund management.
These reforms are essential for those countries which have fixed
exchange rates policies from a crisis resulting from monetary, fiscal
and various political practices.
IMF not only assists member states to develop economically by
lending them loans, but they also provide measures that supports
them from experiencing a possible financial crisis.

OBJECTIVES OF IMF (CONTD … … …)
Carrying out National, Regional & Global
Surveillance
Through a formal system known as surveillance, IMF tries to review a
country’s policies, regional and global financial and economic
developments to ensure its own stability and prevent a financial crisis
from happening in their system.
By so doing, this organization encourages all member countries to
establish policies that stirs up economic growth as well as polices
which fosters living standards of the locals in a particular state.
Providing Various Types of Financial &
Economic Training to Member Countries
Apart from lending loans to the member countries, IMF trains individual
countries on various monetary habits to avoid rampant inflation,
disequilibrium in the balance of payments and other financial crises, which
affect most countries having ‘struggling’ economies.
Since, 1950s, IMF has been offering various training courses on
international economics and on balance of payments statistics.
In 1964, the IMF Institute was founded to foster these training activities
allowing various countries to take advantage of good money
management habits.

OBJECTIVES
OF IMF
(CONTD …
… …)
• IMF aims in providing technical assistance in various
sectors to individual countries.
Providing Technical Assistance
• Technical assistance is delivered through field
assignments, staff missions and studies as well as
workshops meant to update state officials with
trending developments in the global financial
industry.
How Technical Assistance is Offered

OBJECTIVES
OF IMF
(CONTD …
… …)
• IMF collaborates with various donors on behalf of each member country that requires
assistance at any time. These donors may be either bilateral or multilateral donors.
They both help IMF in meeting the requirements of all member countries. Robust and
well-bonded partnerships with other institutions such as UN ensure that countries
receive every kind of assistance whether political, social, or economic.
Partnering With Donors
• IMF assist new member states in developing export and import sectors, choosing the
right currency, setting up interest rates and credit regulations, making structural
reforms and reserving certain financial requirements. This enables the new members
to acquaint themselves with IMF’s rules, terms, & conditions before starting a long-
term economic relationship. Generally, the functions of IMF not only involve financial
assistance but also incorporates various things that are meant to improve economic
status of each member country.
Service to the New Members

THREE MAJOR FUNCTIONS OF IMF
Surveillance
Gathering the data
and gives advices
in making policies
of the country.
Technical
Assistant
Strengthening the
human skills and
institutional skills of
the country.
Financial
Assistant
Lending to
countries to
support reforms

FUNCTION
S OF IMF
(CONTD …
… …)
 The IMF also plays an important role in the
fight against Money Laundering and
Terrorism

STRUCTURE OF IMF
IMF is Governed by FOUR main Bodies:
Governing Body
Executive Board
Managing Director
IMF Staff

THE
GOVERNING
BODY
All powers of the IMF are Vested in its Board of Governors,
all the members of countries are represented.
Ministry of finance or President of central bank
Governor and Alternate Governor
Meet once in a year in Washington DC

EXECUTIVE
BOARD
24 Executive Directors
5 are appointed by the countries having
Largest Quotas - US, UK, Japan, Germany,
France
19 are appointed by Regional Groups of
remaining members

IMF
MANAGING
DIRECTORS
Headed by Executive Board
Managing Director is chosen by Executive
Board
It is responsible for the conduct of the
ordinary business of the Fund
Manager appointed for the period of 5-Years

IMF STAFF
It has staff of about 2,600
economists, statisticians,
research scholars, experts in
public finance and taxation and
in finance systems and banking,
linguists, writers and editors,
and support personnel.
Most headquartered in
Washington, DC

IMPORTANCE OF IMF
To develop international
monetary cooperation.
To promote and
establish system of
multinational trade and
payments system.
To help member
nations to achieve
balanced economic
growth.
To ensure stability in
foreign exchange rates.
To reduce the
disequilibrium in the
balance of payments.
To offer special aids or
loans to member
countries in solving their
economic problem.

பன்னாட்டு
புனரமைப்பு
ைற்றும்
மைம்பாட்டு
வங்கி
 INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
 The world’s largest development bank, IBRD
provides financial products and policy advice
to help countries reduce poverty and extend
the benefits of sustainable growth to all of
their people

IBRD
பன்ைாட்டு புைரனைப்பு ைற்றும் மைம்பாட்டு வங்கி
(ஐ.பி.ஆர்.டி) (International Bank for Reconstruction and
Development) என்பது உலக வங்கிக் குழுைத்தில் உள்ள
ஐந்து வங்கிகளில் ஒன்றாகும். இரண்டாம்
உலகப்மபாரில் பாதிப்பனடந்த நாடுகளுக்கு உதவ
உருவாக்கப்பட்ட இந்த வங்கி பிற்காலத்தில் வறுனை
ஒழிப்பிற்கு உதவி வருகிறது. இனறனையுள்ள
நாடுகளின் மூலம் நிதி ஆதரங்கனளத்
திரட்டிக்ககாண்டு அந்நாடுகளின் உறுப்பிைர்களால்
நிர்வாகிக்கப்படுகிறது.
01
இவ்வங்கி அரசாங்கத்திற்கும், கபாதுத்துனற
நிறுவைத்திற்கு அரசு உத்திரவாதத்தின்
அடிப்பனடயில் கடன் வழங்குகிறது. 187 உறுப்பு
நாடுகளின் மைம்பாட்டுக்காக கூட்டுறவு
அடிப்பனடயில் இயங்குகிறது. உலக வங்கியின்
பினணப்பத்திரங்கனள சர்வமதச சந்னதயில்
கவளியிட்டு திரட்டப்படும் நிதிமய இதன் முக்கிய
நிதி ஆதாரைாகும். இவ்வங்கியின் பங்குகள் வளர்ந்த
நாடுகளிடம் இருப்பதாலும், உத்திரவாதத்துடன் கடன்
வழங்குவதாலும் இதன் பினணப்பத்திரங்கள் ைிக
அதிக பாதுகாப்பாைதாக கருதப்படுகிறது.
ைிககுனறந்த வட்டியில் ைத்திய வருவாய் ககாண்ட
நாடுகளுக்கு நிதிக்கடன் வழங்கப்படுகிறது.
02

THE WORLD BANK
GROUP
 The International Bank for Reconstruction and
Development (IBRD) was created in 1944 to
help Europe rebuild after World War II. Today,
IBRD provides loans and other assistance
primarily to middle income countries. IBRD is
the original World Bank institution. It works
closely with the rest of the World Bank Group
(IBRD, IDA, IFC, MIGA) to help developing
countries reduce poverty, promote economic
growth, and build prosperity. IBRD is owned by
the governments of its 188 member countries.

IBRD
 WORLD Bank is also known as The International Bank for Reconstruction
and Development (IBRD). The Second World War damages the economies
of the world. So in 1945 it was realized to concentrate on the
reconstruction of that war damaged economies. The IBRD was established
in Dec. 1945 with the IMF on the basis of recommendations of the Bretton
woods conference that is reason why IMF and World Bank are called
Bretton woods twin. IBRD started working in June 1946. As on April 2019;
the World Bank of 189 members.

CAPITAL
RESOURCE
OF
WORLD
BANK
Initial authorized capital of World Bank was $10,000 million,
which was divided in one lakh shares of $ 1 each. The authorized
capital of World Bank has increased $ 24 bn to $27 bn. Members
countries repay the share of the World Bank in the following
way:
 i. Only 2% of allotted share are repaid in gold, US dollar or SDR.
 ii. Every member country is free to repay 18% of its capital share
in its own currency
 iii. The remaining 80% is deposited by the member country on
demand by the World Bank.

OBJECTIVES OF WORLD BANK:
i. To provide long term capital to
members countries for
reconstruction and
ii. To induce long term capital
investment for assuring BOP
equilibrium and balanced
development of international
trade
iii. To promote capital investment
in members countries by
following ways
a. To provide guarantee on
private loans or capital investment
b. If capital is not available even
after providing guarantee, then
IBRD provides loans for
productive activities on
considerate conditions.
iv. To ensure the implementation
of development projects so as to
bring about a smooth
transference from a war time to
peace economy.

FUNCTION
S OF THE
WORLD
BANK
To assist in the reconstruction & development of its member countries.
To promote private foreign investment.
To promote balanced growth of international trade.
The institutions provides a combination of financial resources, Knowledge and technical services, and strategic
advice to developing countries, including middle income and credit worthy lower income countries.
Support long-term human and social development that private creditors don not finance.
To bring about a smooth transition from a war time economy to peace time economy.
Preserves borrower's financial strength by providing support in times of crises, when poor people are most
adversely affected.
Creates a favorable investment climate to catalyze the provision of private capital
Facilitates access to financial markets often at more favorable terms than members can achieve on their own.

IBRD SERVICES  To assist in the reconstruction & development of its member countries.
 To promote private foreign investment.
 To promote balanced growth of international trade.
 The institutions provides a combination of financial resources,
Knowledge and technical services, and strategic advice to
developing countries, including middle income andcredit worthy
lower income countries.
 Support long-term human and social development that private creditors
don not finance.
 To bring about a smooth transition from a war time economy to peace time
economy.
 Preserves borrowers financial strength by providing support in
times of crises, when poor people are most adversely affected.
 Creates a favorable investment climate to catalyze the provision of private
capital
 Facilitates access to financial markets often at more favorable terms than
members can achieve on their own.

WORLD
BANK
LENDING
TO INDIA
India has been borrowing from the World Bank for various projects in the area of
poverty reduction, infrastructure and rural development etc.
IDA funds are one of the most concessional external loans for government of India
and are largely used in the social sector projects that contribute to the achievement of
the millennium development goals.
The first World Bank loan to India was in 1948 of US$ 86 bn.
The debt disbursed and outstanding as on March 2011 for IBRD is US$ 11.28 and for
IDA it is US$ 27 bn.

APPRAISAL OF
THE WORLD
BANK
ACTIVATES
 Bank has sanctioned 75% of its loans to
developing countries of AFRICA, Asia and
Latin America while only 25% was given
to developed nations of the Europe. But
still it is believed by most of the countries
that the developed countries do have
good command on the governing body
of World Bank because of their largest
contribution to the exchequer of the
bank.

EVALUATIO
N OF GATT
The General Agreement on Tariffs and Trade (GATT) was a free trade
agreement between 23 countries that eliminated tariffs and
increased international trade.
GATT grew out of the Bretton Woods Agreement. The summit at Bretton
Woods also created the World Bank and the International Monetary Fund to
coordinate global growth.
The 50 countries that started negotiations wanted it to be an agency within
the United Nations that would create rules, not just on trade, but also
employment, commodity agreements, business practices, foreign direct
investment, and services.
As the first worldwide multilateral free trade agreement, GATT governed a
significant portion of international trade between January 1, 1948 and
January 1, 1995.

EVALUATIO
N OF GATT
(CONTD …
… …)
The General Agreement on Tariffs and Trade was a treaty created after World War II to help the economies of countries
affected by the war.
With countries becoming increasingly integrated economically, war between member countries dropped.
GATT did have drawbacks when it came to the amount of autonomy some countries gave up, with global goals prioritized
over local ones.
Throughout the years, rounds of further negotiations on GATT continued. The main goal was to further reduce tariffs. In
the mid-1960s, the Kennedy round added an Anti-Dumping Agreement.The Tokyo round in the seventies improved other
aspects of trade. The Uruguay round lasted from 1986 to 1994 and created the World Trade Organization.
The agreement ended when it was replaced by the more robust World Trade Organization (WTO)

PROS AND CONS OF GATT
PROS CONS
GATT encouraged international trade.
Domestic industries that can't compete globally will
likely fail.
Countries with trading agreements are less likely to
go to war with one another.
The globalization of industries exposes more of the
world to risks within that industry.
The success of GATT inspired other international
deals and organizations.
Trade agreements could overrule domestic law,
forcing governments to cede some level of control
over their citizens.
Trade increases communication.
Small economies and businesses may struggle to
compete with large economies and businesses.

GATT MEMBER COUNTRIES
 The original 23 GATT members were Australia;
Belgium; Brazil; Myanmar; Canada; Sri Lanka;
Chile; China; Cuba; Czechoslovakia, now Czech
Republic and Slovakia; France; India; Lebanon;
Luxembourg; Netherlands; New Zealand;
Norway; Pakistan; Southern Rhodesia, now
Zimbabwe; Syria; South Africa; the United
Kingdom and the United States. The
membership increased to more than 128
countries by 1994.

PRINCIPLES
OF GATT
It worked to eliminate all non-tariff
barriers and imports quotas.
It was to give an early boost to trade
liberalization and to correct the
overhang of protectionist measure
GATT members are not truly members
but only contracting parties.

IMPACT OF
GATT
Opportunity an expected benefits.
Predictable trading environment.
Counter to unfair trade practices.
Access to dispute settlement body.

EVALUATIO
N OF WTO
 WTO stands for World Trade Organization.
 WTO replaced GATT on 15th December 1993 with successful completion
of the Uruguay negotiations.
 There are 153 membership nation on January 2011.
 WTO is located in Geneva, Switzerland.
 The ministers of member countries signed the final Act of WTO at a
meeting in Marrakesh, Morocco in April 1994.

WTO
PRINCIPLES
 National Treatment : Treating foreigners & locals equally.
 Most favored nation.
 Predictable & stable trading system.
 Promoting fair competition.
 Encouraging socio & economic development.
 Free Trade & liberalization.

POSITIVE
IMPACT OF
WTO
WTO helps to maintain the peace among the member nations.
WTO system allows disputes to be handled constructively.
The system based on rules rather than power makes life easier for all.
Free trade reduces the cost of living.
It gives consumers more choice, and a broader range of qualities to choose from.
Trade raises incomes
Trade stimulates economic growth, and that can be good news for employment
The biggest positive impact which it has on developing countries is that it has helped them in providing market for the manufacturing
goods which has enhanced the exports at a higher price.

NEGATIVE
IMPACT OF
WTO
 The WTO is dominated by leading industrialized countries and by the corporation of
these countries. The developing countries have a less say In this organization.
 The developing countries have fewer human and technical resources and therefore
not able to withstand the competitions from developed natons.
 Through the various agreements signed under the WTO ,the developing nations have
actually foreclosed a wide range of development options.
 The argument for supporting domestic got neglected because of the competitive
imported goods .
 The agendas of the WTO are in favour of the developed nations, and ignore the
interests of developing and the least developed countries.
 The rules which have uniformly applied on WTO members have brought about
inequalities because of the varied economic conditions of the countries.
 The developing countries have discovered that finding resources in the dispute
settlement system is costly and requires a legal expertise which they may not have.

ASIAN
DEVELOPMENT
BANK
 The Asian Development Bank (ADB)
was established as a financial
institution that would support
economic growth and cooperation in
the Asia - Pacific Region. It assist its
members and partners by providing
loans, technical assistance, grants, and
equity investments to promote social
and economic development.

VISION & MISSION
ADB’s Vision
• An Asia and Pacific Free of Poverty
ADB’s Mission
• is to help its developing member countries reduce poverty
and improve the quality of life of their people.

EVALUATIO
N OF ADB
ADB is a multilateral development finance institution dedicated to
reducing poverty in Asia and the Pacific.
Established in 1966, they are now owned by 63 members, mostly from the
region.
Headquarters is in Manila, Philippines
ADB is owned by 63 members: 45 from Asia and the Pacific and 18 from
other parts of the world.
When it was formed, ADB had 31 members.

FUNCTION
S OF ADB
I. Provides loans and equity investments to its
Developing Member Countries (DMCs)
II. Provides technical assistance for the planning and
execution of development projects and programs
and for advisory services
III. Promotes and facilitates investment of public and
private capital for development
IV. Assists in coordinating development policies and
plans of its DMCs

FUNDING OF ADB
ADB raises funds through bond issues
on the world's capital markets. It also
rely on its members' contributions,
retained earnings from our lending
operations, and the repayment of
loans.
It also provide loans and grants from a
number of Special Funds. The largest is
the Asian Development Fund, which
offers grants and loans at very low
interest rates.
Japan holds the largest proportions of
shares at 15.67%. The United States
holds 15.56%, China holds 6.47%, India
holds 6.36%, and Australia holds 5.81%.

INDIA AND
ADB
India started borrowing from ADB’s ordinary capital resources in 1986.
A.D.B.’s lending to India has been mainly in
• Energy,
• Transport,
• Communications,
• Finance,
• Industry,
• Social urban infrastructure,
• Agriculture and
• Irrigation sector.

THANK
YOU
manimadhavan@gmail.com
+91-9865210146

International economics Unit - V

More Related Content

What's hot

Similar to International economics Unit - V

More from Dr. Mani Madhavan

Recently uploaded

International economics Unit - V