Economics 151

International Economic Issues

International Economic Institutions

Three global organizations play major role
in international economic relations:
International Monetary Fund (IMF)
World Bank (WB)
World Trade Organization (WTO)

WTO is successor to GATT (General

Agreement on Tariffs and Trade)

Bretton Woods Conference, 1944

Bretton Woods, New Hampshire

44 nations participated, led by U.S., U.K.
Established IMF, World Bank
GATT started up soon thereafter

International Monetary Fund

Over 180 members
Oversees exchange rate policies
Monitors international payments
imbalances
Provides temporary loans for balance-ofpayments financing

International Monetary Fund

Main function: help countries overcome
international payments crisis
Crisis occurs when country runs out of foreign
exchange reserves a major currency or gold
that can be used to pay for imports and
international borrowings

IMF conditionality requirement for the

borrowing member to carry out economic
reforms in exchange for a loan

Global Financial Crises and the IMF

IMF bailouts for troubled economies
Mexico (1995)
Thailand, Indonesia, Korea (1997)
Russia, Brazil (1998)
Turkey (2001)
Argentina (2001-present)

World Bank
Founded as the International Bank for
Reconstruction and Development (IBRD)
Over 180 members

World Bank
Main functions: provide loans to developing
countries for projects aimed at:
poverty reduction
improvement of health and education systems
infrastructure for private sector development
(bridges, dams, etc.)

GATT
GATT was beginning of large-scale
multilateral trade negotiations
First round in 1947 in Geneva - Eight
rounds altogether through 1993

GATT
Five Key Principles in GATT:
1. trade barriers should be lowered in general and
quotas should be eliminated
2. trade barriers should be applied on MFN basis
no discrimination among trading partners
3. national treatment imported goods treated
same as domestic goods

GATT
Five Key Principles in GATT
4. tariff concessions, once made, cannot be
rescinded without compensating trade partners,
and new barriers cannot be erected in place of
lowered tariffs
5. trade disputes to be settled by consultation

GATT
Major GATT Negotiating Rounds
First Round, Geneva, 1947, 21% Average Cut in
Tariffs
Kennedy (6th) Round, Geneva, 1964-67, 36%
Average Cut in Tariffs
Tokyo (7th) Round, Geneva, 1974-79, 30%
Average Cut in Tariffs
Uruguay (8th) Round, Geneva, 1986-93, 33%
Average Cut in Tariffs

Uruguay Round, 1986-93

Over 100 Nations Participated
Very Contentious Because Issues Went Far
Beyond Tariff Reduction
Nontariff Barriers, Intellectual Property Rights,
Services Trade, Agriculture Polices, Improving
How GATT Functions

Created WTO as successor to GATT,

beginning in 1995

World Trade Organization

WTO continues with all five key
principles of GATT
WTO continues two main roles of GATT
1. enforcing existing trade agreements and
2. serving as forum for new talks to liberalize
trade

World Trade Organization

Over 140 Countries Belong - More Seek
to Join
Member Countries Account for Over 90
Percent of World Trade
Membership Requires Acceptance of All
Agreements and Rules From Uruguay
Round