WORLD BANK, IMF & WTO

ASHISH RANJAN
 BRETTON WOODS AGREEMENT

• United Nations conference convened in

Bretton Woods, U.S.A in July 1944.
Result of discussion was
Ø IMF (International Monetary Fund)
Ø IBRD (International Bank for
Reconstruction and Development)
Ø ITO (International trade organization)

The IMF and IBRD are called as the "Bretton

Woods Twins". However, the proposal for the
ITO did not materialize: instead the General
Agreement on Tariff and trade (GATT) was
formed
BRETTON WOODS CONFERENCE
 THE IMF & THE WORLD BANK
• The International Monetary Fund (IMF) and the World
Bank share a common goal of raising living standards in
their member countries.
• Their approaches to achieving this shared goal are
complementary:
• The IMF focuses on macroeconomic and financial
stability while the World Bank concentrates on long-
term economic development and poverty reduction.
• The IMF and the World Bank were created in July 1944 at
an international conference in the United States (in Bretton
Woods, New Hampshire) that established a framework for
economic cooperation aimed at creating a more stable and
prosperous global economy.
• While this goal remains central to both institutions, their
work constantly evolves in response to economic
developments and challenges.
WHAT IS THE IMF?
• The International Monetary Fund (IMF) works to achieve sustainable growth and
prosperity for all of its 190 member countries.
• It does so by supporting economic policies that promote financial stability and monetary
cooperation, which are essential to increase productivity, job creation, and economic well-
being.
• The IMF is governed by and accountable to its member countries.
• The IMF has three critical missions:
• Furthering international monetary cooperation,
• Encouraging the expansion of trade and economic growth, and
• Discouraging policies that would harm prosperity.
• To fulfil these missions, IMF member countries work collaboratively with each other and
with other international bodies.
OBJECTIVE OF IMF

• To promote International monetary cooperation that provides machinery for consultation and
collaboration on international monetary problems.

• To facilitate the expansion of balanced growth of international trade, and therefore employment and
income

• To stabilize exchange rates and to avoid competitive devaluations.

• Elimination of foreign exchange restrictions, which hamper the economic growth.

• To provide loans to help cover shortfalls in Balance of Payments (BOP) to help correct BOP problems
without hurting national or international interests.

• To reduce restrictions on payments for trade.

FUNCTIONS OF IMF
• IMF mainly focuses on supervising the international monetary system along with providing
credits to the member countries. The functions of the International Monetary Fund can be
categorized into three types:

1. Regulatory functions: IMF functions as a regulatory body and as per the rules of the
Articles of Agreement, it also focuses on administering a code of conduct for exchange rate
policies and restrictions on payments for current account transactions.

2. Financial functions: IMF provides financial support and resources to the member countries
to meet short term and medium term Balance of Payments (BOP) disequilibrium.

3. Consultative functions: IMF is a centre for international cooperation for the member
countries. It also acts as a source of counsel and technical assistance.
 WORLD BANK

• It is designed to finance projects that enhance the economic development of member states
• Provides technical assistance and policy advice and supervises—on behalf of international
creditors—the implementation of free-market reforms
• Together with the International Monetary Fund (IMF) and the World Trade Organization, it plays
a central role in overseeing economic policy and reforming public institutions in developing
countries and defining the global macroeconomic agenda.
 WORLD BANK

• The term "World Bank" generally refers to just the IBRD and IDA, whereas the term "World
Bank Group" or "WBG" is used to refer to all five institutions collectively.
• The IBRD offers assistance to middle-income and poor, but creditworthy, sovereign
countries. It also works as an umbrella for more specialized bodies under the World Bank.
• The IDA offers loans to the world's poorest countries. These loans come in the form of
"credits" and are essentially interest-free. They offer a 10-year grace period and hold a
maturity of 35 years to 40 years.
• The IFC works to promote private sector investments by both foreign and local investors.
It provides advice and information to investors and businesses, and also acts as an investor
in capital markets.
• The MIGA offers insurance against the political risk that an investment in a developing
country may bear. These guarantees come in the form of political risk insurance.
• The ICSID facilitates and works toward a settlement in the event of a dispute between a
foreign investor and a local country.
VOTING POWER

Member countries are

allocated votes at the
time of membership
and subsequently for
additional
subscriptions to
capital. Votes are
allocated differently in
each organization.
INDIA AND WORLD BANK

• India is a founding member of the World

Bank. Today, India is a member of four of
the five constituents of the World Bank
Group viz., IBRD, IFC, IDA and MIGA.
• Some World Bank funded projects in India
include:
• Sarva Shiksha Abhiyan (SSA)
• Pradhan Mantri Gram Sadak Yojana
Project
• National Ganga River Basin Project
• Green National Highways Corridor
Project
• National Nutrition Mission
WORLD TRADE ORGANIZATION (WTO)

• The General Agreement on Tariffs and Trade (GATT) was an international organization, created in 1947
and headquartered in Geneva (Switzerland), devoted to the promotion of freer trade through multilateral
trade negotiations.
• It was signed by 23 nations in Geneva on 30 October 1947, and was applied on a provisional basis 1
January 1948.
• It remained in effect until 1 January 1995, when the World Trade Organization (WTO) was established
after agreement by 123 nations on 15 April 1994, as part of the Uruguay Round Agreements
• GATT rested on three basic principles:
1. Non-discrimination. This principle refers to the unconditional acceptance of the most-favored-nation
principle discussed earlier. The only exceptions to this principle are made in cases of economic
integration, such as customs unions and in the trade between a nation and its former colonies and
dominions.
2. Elimination of nontariff trade barriers (such as quotas), except for agricultural products and for
nations in balance-of-payments difficulties.
3. Consultation among nations in solving trade disputes within the GATT framework.
SCENES FROM 1999 SEATTLE WTO PROTEST
HOW BENEFICIAL IS FOREIGN
DIRECT INVESTMENT FOR
DEVELOPING COUNTRIES?
WHY FDI IS IMPORTANT?
• Foreign direct investment (FDI) has proved to be resilient during
financial crises.
• For instance, in East Asian countries, such investment was
remarkably stable during the global financial crises of 1997-98.
• In sharp contrast, other forms of private capital flows—portfolio
equity and debt flows, and particularly short-term flows—were
subject to large reversals during the same period.
• The resilience of FDI during financial crises was also evident
during the Mexican crisis of 1994-95 and the Latin American
debt crisis of the 1980s.
• This resilience could lead many developing countries to favor
FDI over other forms of capital flows, furthering a trend that has
been in evidence for many years.
• Is the preference for FDI over other forms of private capital
inflows justified?
• FDI allows the transfer of technology—particularly in the form of new varieties of capital
inputs—that cannot be achieved through financial investments or trade in goods and
services. FDI can also promote competition in the domestic input market.
• Recipients of FDI often gain employee training in the course of operating the new
businesses, which contributes to human capital development in the host country.
• Profits generated by FDI contribute to corporate tax revenues in the host country.
• Of course, countries often choose to forgo some of this revenue when they cut
corporate tax rates in an attempt to attract FDI from other locations.
• For instance, the sharp decline in corporate tax revenues in some of the member
countries of the Organization for Economic Cooperation and Development (OECD)
may be the result of such competition.