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World Economy and International Financial Institutions.

World Economy and International Financial Institutions.

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Published by: Jananthan Thavarajah on Jul 01, 2010
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12/23/2012

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World Economy and International Financial Institutions.
Importance of the International Financial Institutions (World Bank, IMF andWTO) in the whole story of development and aid, integrated world tradeand in the relationship between the First and Third Worlds cannot bedoubted. The International Monetary Fund and World Bank have had anextraordinary impact on the shape of the post-war world, and particularlyon the developing countries. In the Immediate post-war years, this pair of Institutions (Bretton Woods Institutions) was a new phenomenon on theworld scene. International Economic co-operation through multinationalset up for the purpose was new – it became significant for the first time inthe second half of the twentieth century.
The effectiveness of these twoinstitutions over the last 50 years is to be attributed partly to the fact,unlike the New York-based organisations of the United Nations and itsother specialised agencies, they were founded on financial realism
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However, a long time has passed since the creation of the World Bank andIMF. The world has out of recognition over the past half century and thepurposes for which they were created are no longer fully relevant. If theseinstitutions are to go on serving the world well, they will have to adaptand change.When we look back, IMF was established in the background of GreatDepression of the 1930s and consequently severe decline in global tradeand international economic cooperation, and at the end of WWI, need for joint effort for post-war reconstruction. In July 1994 when 44 countrieswere got together at the Bretton Woods Conference, the Ideas were – byworking together to increase world economic welfare, nations would alsoincrease the chance of world political peace. Membership from 1950onwards, absorbing African nations 1960s after gaining independence hada significant effect on its growth. According to the structure of IMF, tobecome a member, a country must apply and then be accepted by amajority of the existing members, where Members are represented
 
through a quota system based on their relative size in the globaleconomy. In June 2009, the former Yugoslav republic of Kosovo joined theIMF, becoming the institution's 186
th
member.Article 1 of the IMF charter explains the main objectives as:1. Promote international monitory cooperation2. Facilitation the expansion and balanced growth of international trade3. Promote and maintain high level of employment4. Promote exchange stability and avoid competitive exchange ratedepreciation5. Eliminate foreign exchange restrictions6. Offer resources to countries to correct maladjustments in their balanceof payments without restoring to measure destructive of national orinternational prosperity7. Shorten the duration and lessen the degree of disequilibrium in theinternational balance of payments of its members The core activities of the IMF based on objectives expand as, providingpolicy 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, andindividual economies and markets; Loans to help countries overcomeeconomic difficulties; Concessionary loans to help fight poverty indeveloping countries; Technical assistance and training to help countriesimprove the management of their economies.World Bank also was established in the same background, Initially as itwas setup to help europe to rebuild the first loan was given to France in1947. Actually it is the International Bank forReconstruction andDevelopment (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 stimulateeconomic growth and raise the standard of living of therecipient county;Reconstruction work - natural disasters, post conflict rehabilitation, needsaffecting a transitioning economy ,etc;Eliminate poverty is the overarching goal sustainable economic growth byencouraging the poor as key participants in development;Other objectives Create infrastructure, develop financial systems, protectindividual and property rights, implement legal systems that encouragebusiness, and combat corruption to ensure that the progress they makeremains effective.Criticism of the World Bank and the IMF encompasses a whole range of issues but they generally centre around concern about the approachesadopted by the World Bank and the IMF in formulating their policies. Thisincludes the social and economic impact these policies have on thepopulation of countries who avail themselves of financial assistance fromthese two institutions.Critics of the World Bank and the IMF are concerned about theconditionalities imposed on borrower countries. The World Bank and theIMF often attach loan conditionalities based on what is termed the'Washington Consensus', focusing on liberalisation—of trade, investmentand the financial sector—, deregulation and privatisation of nationalisedindustries. Often the conditionalities are attached without due regard forthe borrower countries' individual circumstances and the prescriptiverecommendations by the World Bank and IMF fail to resolve the economicproblems within the countries.IMF conditionalities may additionally result in the loss of a state'sauthority to govern its own economy as national economic policies arepredetermined under the structural adjustment packages. Issues of representation are raised as a consequence of the shift in the regulation

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