World Economy and International Financial Institutions.

Importance of the International Financial Institutions (World Bank, IMF and

WTO) in the whole story of development and aid, integrated world trade
and in the relationship between the First and Third Worlds cannot be
doubted.

The International Monetary Fund and World Bank have had an

extraordinary impact on the shape of the post-war world, and particularly
on the developing countries. In the Immediate post-war years, this pair of
Institutions (Bretton Woods Institutions) was a new phenomenon on the
world scene. International Economic co-operation through multinational
set up for the purpose was new – it became significant for the first time in
the second half of the twentieth century. The effectiveness of these two
institutions over the last 50 years is to be attributed partly to the fact,
unlike the New York-based organisations of the United Nations and its
other specialised agencies, they were founded on financial realism1

However, a long time has passed since the creation of the World Bank and
IMF. The world has out of recognition over the past half century and the
purposes for which they were created are no longer fully relevant. If these
institutions are to go on serving the world well, they will have to adapt
and change.

When we look back, IMF was established in the background of Great

Depression of the 1930s and consequently severe decline in global trade
and international economic cooperation, and at the end of WWI, need for
joint effort for post-war reconstruction. In July 1994 when 44 countries
were got together at the Bretton Woods Conference, the Ideas were – by
working together to increase world economic welfare, nations would also
increase the chance of world political peace. Membership from 1950
onwards, absorbing African nations 1960s after gaining independence had
a significant effect on its growth. According to the structure of IMF, to
become a member, a country must apply and then be accepted by a
majority of the existing members, where Members are represented
through a quota system based on their relative size in the global
economy. In June 2009, the former Yugoslav republic of Kosovo joined the
IMF, becoming the institution's 186th member.

Article 1 of the IMF charter explains the main objectives as:

1. Promote international monitory cooperation
2. Facilitation the expansion and balanced growth of international trade
3. Promote and maintain high level of employment
4. Promote exchange stability and avoid competitive exchange rate
depreciation
5. Eliminate foreign exchange restrictions
6. Offer resources to countries to correct maladjustments in their balance
of payments without restoring to measure destructive of national or
international prosperity
7. Shorten the duration and lessen the degree of disequilibrium in the
international balance of payments of its members

The core activities of the IMF based on objectives expand as, providing
policy advice to governments and central banks based on analysis of
economic trends and cross-country experiences; Research, statistics,
forecasts, and analysis based on tracking of global, regional, and
individual economies and markets; Loans to help countries overcome
economic difficulties; Concessionary loans to help fight poverty in
developing countries; Technical assistance and training to help countries
improve the management of their economies.

World Bank also was established in the same background, Initially as it

was setup to help europe to rebuild the first loan was given to France in
1947. Actually it is the International Bank forReconstruction and
Development (IBRD), since 1950 The World Bank Group includes:
– International Development Association (IDA)
– International Finance Corporation (IFC)
– Multilateral Investment Guarantee Agency (MIGA)
– International Centre for Settlement of Investment Disputes (ICSID)
The World Bank taegets: projects which are likely to stimulate
economic growth and raise the standard of living of the
recipient county;
Reconstruction work - natural disasters, post conflict rehabilitation, needs
affecting a transitioning economy ,etc;
Eliminate poverty is the overarching goal sustainable economic growth by
encouraging the poor as key participants in development;
Other objectives Create infrastructure, develop financial systems, protect
individual and property rights, implement legal systems that encourage
business, and combat corruption to ensure that the progress they make
remains effective.

Criticism of the World Bank and the IMF encompasses a whole range of
issues but they generally centre around 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
conditionalities imposed on borrower countries. The World Bank and the
IMF often attach loan conditionalities based on what is termed the
'Washington Consensus', focusing on liberalisation—of trade, investment
and the financial sector—, deregulation and privatisation of nationalised
industries. Often the conditionalities 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 conditionalities 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.

With the World Bank, there are concerns about the types of development
projects funded by the IBRD and the IDA. Many infrastructural projects
financed by the World Bank Group have social and environmental
implications for the populations in the affected areas and criticism has
centred around the ethical issues of funding such projects. For example,
World Bank-funded construction of hydroelectric dams in various countries
have resulted in the displacement of indigenous peoples of the area.
There are also concerns that the World Bank working in partnership with
the private sector may undermine the role of the state as the primary
provider of essential goods and services, such as healthcare and
education, resulting in the shortfall of such services in countries badly in
need of them.

Critics of the World Bank and the IMF are also apprehensive about the role
of the Bretton Woods institutions in shaping the development discourse
through their research, training and publishing activities. As the World
Bank and the IMF are regarded as experts in the field of financial
regulation and economic development, their views and prescriptions may
undermine or eliminate alternative perspectives on development.

There are also criticisms against the World Bank and IMF governance
structures which are dominated by industrialised countries. Decisions are
made and policies implemented by leading industrialised countries—the
G7—because they represent the largest donors without much consultation
with poor and developing countries.

By the end of the Bretton Woods conference,the groundwork was laid for
the General Agreement on Tariffs and Trade (GATT), and eventually, in
1995, the creation of the World Trade Organisation. WTO as it claim itself
is an organization for liberalizing trade; a forum for governments to
negotiate trade agreements; a place for them to settle trade disputes;
operates a system of trade rules.

The main principles of the WTO as following:

Non discrimination
National treatment implies both foreign and national companies are
treated the same, and it is unfair to favor domestic companies over
foreign ones. Some countries have a most favored nation treatment,
but under WTO the policy is that all nations should be treated
equally in terms of trade. Any trade concessions etc offered to a
nation must be offered to others.
Reciprocity
Nations try to provide similar concessions for each other.
Transparency
Negotiations and process must be fair and open with rules equal for
all.
Special and differential treatment
A recognition that developing countries may require “positive
discrimination” because of historic unequal trade.
WTO has acqiured Agreements and Treaties with special regards to the
Developing Countries,
Treaty on Special and Differential Treatment (SDT). This aims to
give more time period for developing states in which to implement
WTO regulations.
Assist in technical support, providing preferential market access.
Technical Assistance and Capacity Building (TACB), the support
given to ensure the developing states full participation in WTO.
Agreement on Trade Related Intellectual Property Rights (TRIPS).
Agreement on Intellectual Property Rights and Development focused
on elimination of world’s poverty and making globalization work for
the poor more.
 Agreement on Transfer of Technology favors foreign direct
investments (FDI).
Many other: market access, trade related technical assistance,
multilateral agreements, accession of LDCs to the WTO.

As principles, many of these sound good. Certainly the vast majority of the
world’s nations believe so for they have signed up to the WTO.
However, in reality, power politics has meant that the WTO has received
criticized by various groups and third world countries for numerous things,
including:
• Being very opaque and not allowing enough public participation,
while being very welcoming to large corporations.
• That while importing nations cannot distinguish how something is
made when trading, though it sounds good at first along the lines of
equality and non-discrimination, the reality is that some national laws
and decisions for safety and protection of people’s health,
environment and national economies have been deemed as barriers
to free trade. Take the following as a very small set of examples:
o Countries cannot say no to genetically engineered food
or milk that contains genetically engineered growth hormones
known to cause health problems
or trees that have been felled from pristine forests and so on.
o Guatemala took efforts to help reduce infant mortality, in
accordance with the World Health Organization’s guidelines, and
to counter aggressive marketing by baby food companies aimed
at convincing mothers their products are superior to the more
nutritious and disease-protecting breast milk for their babies. The
result? The affected corporations managed to take this to GATT
(the predecessor to the WTO) and get a reversal of the law
amidst the threat of sanctions. Profits prevailed.
Even according to traditional economic models, new figures show much
less global economic growth from the current WTO round than originally
projected. In the recent study released by the World Bank, a successful
outcome in the current negotiations could expect global economic gains
of a mere $3 to $20 a year per person worldwide by 2015, of which more
than two-thirds would go to the rich countries.2
Here the truth reveals that International Financial Institutions have
contributed to a more stable and prosperous Western World Economy
instead of Whole World Economy which consist of Third world countries
too.

1. William Ryrie, First World, Third world - Second Edition (MACMILLAN PRESS,
1999), p- 183 Corporate Globalization in Crisis.
2. Deborah James, Global Exchange, AlterNet, December 10, 2005