International Financial and Economic Organisations

Learning Outcomes:

1. Understand the role of International Organisations (IOs) in global cooperation and financial stability.
2. Learn the structure, functions, and reforms of key financial institutions like IMF and World Bank.
3. Explore major trade agreements and the roles of WTO, UNCTAD, and other economic groups.
4. Compare similarities and differences among global institutions, focusing on economic growth and trade facilitation.

International Organisations are forums for cooperation among sovereign states, functioning based on multilateral agreements. Their core feature is the establishment of permanent organs that drive common objectives.

Role of International Organisations

International Organisations (IOs) serve multiple key roles in promoting global cooperation:

1. Preserve State Sovereignty: Despite varying social systems, IOs facilitate and expand peaceful collaboration among sovereign states.
2. Ensure Peaceful Competition: They maintain peaceful interactions among countries, managing conflicts and ensuring cooperation remains non-violent.

Important Note: IOs are vital in stabilizing global politics, economics, and trade by fostering diplomacy and multilateral agreements.

Bretton Woods Conference

The Bretton Woods Conference was pivotal in establishing the post-World War II international monetary system. Major outcomes included:

1. Creation of the IMF: Established to oversee global financial systems and stabilize exchange rates.
2. Formation of the World Bank (IBRD): Aimed at reconstruction and development, supporting post-war economic recovery.

International Monetary Fund (IMF)

The IMF is an inter-governmental organization based in Washington, D.C., focusing on global financial system oversight. Established in 1945, it now has 189 member countries.

Key Functions:

1. Monitoring Global Financial Stability: Publishes the Global Financial Stability Report (GFSR) and World Economic Outlook to provide updates on global economic conditions.
2. Lending: Helps countries manage Balance of Payments (BoP) problems and prevent economic crises.

• Adjustment to Shocks: Supports economies in adjusting to disruptions and avoiding defaults.
• Catalyst for Financing: Acts as a stimulant for other lenders.
• Crisis Prevention: Assists in mitigating capital account crises.

1. Quota System: Determines a member’s financial contribution, voting power, and access to IMF financing. Quotas are the IMF’s primary financial resource.
2. Special Drawing Rights (SDRs): An international reserve asset based on five major currencies (USD, JPY, GBP, EUR, RMB). SDRs can be exchanged for freely usable currencies.

IMF Reforms:

1. 14th General Review of Quotas (2010):

• Doubled quotas to about SDR 476.8 billion.
• Shifted more than 6% quota share to dynamic emerging markets.
• Realigned quota shares, placing all BRIC countries among the top 10 shareholders.
• Preserved the quota and voting share of the poorest member countries.

1. India’s Position: India’s quota share increased to 2.79%, ranking it 8th in the IMF.

Important Note: Quota changes require approval by 85% of the voting power, including consent from countries whose quotas change.

World Bank

The World Bank Group (WBG) consists of five international organizations providing leveraged loans primarily to poorer countries. Its establishment in 1945 marked a significant shift in global financial development.

Main Components:

1. International Bank for Reconstruction and Development (IBRD): Works with middle-income countries, offering financial products, knowledge services, and strategic advice.
2. International Development Association (IDA): Focuses on the world’s poorest nations, offering interest-free credits and grants to boost economic growth and reduce inequality.
3. International Finance Corporation (IFC): Promotes sustainable private sector investment, providing financing, mobilizing funds, and offering technical assistance.
4. Multilateral Investment Guarantee Agency (MIGA): Provides political risk insurance to encourage foreign direct investment into developing nations.
5. International Centre for Settlement of Investment Disputes (ICSID): Facilitates the arbitration of investment disputes between member countries and individual investors.

Objectives:

1. IBRD: Assists in reducing poverty and promoting job-creating growth.
2. IDA: Serves as the largest donor for basic social services in the poorest countries.
3. MIGA: Raises FDI inflows, reduces poverty, and supports higher economic growth.

Important Note: The World Bank differs from the IMF in its focus on long-term economic development and poverty reduction.

International Trade and Development Organisations

United Nations Conference on Trade and Development (UNCTAD)

UNCTAD was established in 1964 to formulate policies on trade, aid, transport, finance, and technology. Its goals are to maximize the trade, investment, and development opportunities of developing countries.

Key Functions:

1. Policy Formulation: Focuses on development issues, ensuring equitable integration into the global economy.
2. Conferences: Held every four years to assess trade and development issues and formulate policy responses.

General Agreement on Tariffs and Trade (GATT) and World Trade Organisation (WTO)

GATT was a multilateral agreement from 1947-1994, aimed at reducing tariffs and trade barriers. Replaced by the WTO in 1995, it now oversees international trade with 164 members.

WTO Structure:

1. Ministerial Conference: Top decision-making body meeting every two years.
2. General Council: Regularly functions in Geneva for ongoing WTO duties.
3. Trade Councils: Handle specifics like trade in goods and services.
4. Subsidiary Bodies: Focus on subjects like agriculture and market access.

Key Agreements:

1. GATS: Applies to trade in services.
2. TRIPS: Introduces intellectual property rules into global trade.

Functions:

1. Regulating Trade Agreements: Ensures smooth trade negotiations.
2. Dispute Resolution: Provides mechanisms to address trade conflicts.
3. Technical Assistance: Supports countries in building trade capacities.

Comparative Analysis of IMF and World Bank

Aspect	IMF	World Bank
Purpose	Oversee orderly payment systems between nations	Promote economic progress in developing countries
Focus	Short-term stabilization	Long-term economic development
Lending	Balance of Payments support	Development projects and infrastructure

Regional Financial Institutions and Economic Groups

G-20

Comprising 19 countries and the European Union, G-20 represents 90% of global GDP. It addresses financial stability, regulatory reforms, and climate change. India plays a key role in G-20 frameworks for balanced growth.

BRICS and New Development Bank (NDB)

BRICS (Brazil, Russia, India, China, South Africa) emphasizes cooperation among emerging economies. The New Development Bank provides resources for infrastructure and sustainable development projects.

Asian Infrastructure Investment Bank (AIIB)

AIIB focuses on supporting infrastructure in Asia. Founded in 2013, it aims to fill the gap in regional infrastructure investment.

Asian Development Bank (ADB)

ADB supports economic growth in the Asia-Pacific region. Functions include making loans, providing technical assistance, and fostering policy coordination.

Concept: Ease of Doing Business Index: Released annually by the World Bank, it ranks nations based on regulatory environments, business facilitation, and property rights protection.

Key Agreements and Policies

Agreement on Agriculture

Uruguay Round introduced the first multilateral agreement on agriculture, aiming for:

1. Market Access: Reducing trade restrictions.
2. Domestic Support: Curbing subsidies that distort trade.
3. Export Subsidies: Phasing out competitive export practices.

Intellectual Property – TRIPS

TRIPS agreement set global standards for intellectual property protection, requiring countries to enforce patents, trademarks, and copyrights.

Concept: Boxes in WTO: Subsidies are categorized into Green (permitted), Amber (reduce), and Blue (reduce but with limits) boxes to regulate agricultural subsidies.

Additional Important Organisations

Organisation of Petroleum Exporting Countries (OPEC)

OPEC coordinates petroleum policies among 14 member countries to stabilize oil markets and secure fair prices.

Asia-Pacific Economic Co-operation (APEC)

APEC is a forum for economic growth in the Asia-Pacific, emphasizing non-binding commitments and open dialogue among its 21 member economies.

Organisation for Economic Co-operation and Development (OECD)

An intergovernmental economic organization of 34 countries, OECD promotes policies that improve global economic and social welfare. Originating in 1948, it now provides a platform for policy comparison and cooperation.

Concept: Financial Action Task Force (FATF): Sets global standards for anti-money laundering and terrorism financing. India’s membership strengthens its capacity to combat financial crimes.

Important Summits and Agreements

• SAARC: Promotes economic, technological, and social development among South Asian nations.
• ASEAN: Established in 1967, focuses on economic collaboration in Southeast Asia.

MCQ:
Which of the following was a major outcome of the Bretton Woods Conference?

1. Creation of the WTO
2. Establishment of the Asian Development Bank
3. Formation of the IMF and IBRD
4. Signing of the

TRIPS Agreement
Correct Answer: 3. Formation of the IMF and IBRD