New Liberal Economic System

(World bank, IMF and WTOs

Stabilization, Structural Adjustments
and Trade Reform Programs)
• Presentation on Structural Adjustment
Program of IMF by S.M. Younus Jafri
• Davis, Leyla, Eccvit and Swiderski, “A First
Look at Financial Programing”, pp. 41-43,
Finance and Development, March Issue,
Washington D.C.,1993.
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Introduction
• Since the mid-1970s, as a Consequence Of The "Debt Crisis" and other
developments, new economic policies have been proposed to many developing
countries by a number of international organizations such as the International
Monetary Fund (IMF), the World Bank, the Inter- American Bank, and other
institutions, under the general heading of "Structural Adjustment Programmes".
These cover a wide spectrum of proposals, from tight monetary policy to tax
system reforms and rate of exchange adjustments.
• The general idea behind these proposals is that the debt crisis is fundamentally a
Consequence Of Inadequate Economic Structures, that is, a bad arrangement of
all the parts of the economic system.
• Therefore, the solution to the debt crisis depends on structural adjustment.
• During the 1950s, few western European countries were exempt from the kind
of recommendations we are dealing with here.
• These recommendations, however, are Now Being Made To Developing
Countries.
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CAUSES FOR CONCERN
• Another characteristic of these policies is that they are painful. This is
not a case of pure masochism on the part of their promoters. On the
contrary; their intended long-term effects are highly beneficial, with
steadier economic growth and higher incomes for every section of the
population.
• But, in the short term, changing the rules of the economic game
makes economic agents revise their expectations and strategies, thus
introducing the risk of error and failure. Apart from expressing
skepticism about their final success (a point which will not be
examined here), this is most serious objection.
• It is quite possible that, in spite of their long-term beneficial effects,
structural policies may at least temporarily impose severe losses to
certain people. Such a possibility must be taken seriously, especially if
these people are the poorest.
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• In this case, it would probably be necessary to provide some form of
compensation, or to mitigate the contemplated policies to avoid their
most detrimental effects. Together with the urban poor and the
landless rural workers, smallholders may be permanent or temporary
losers in the structural policy game. This is an important reason for
taking an interest in them.
• Even so, although they are poor, smallholders play an essential role in
the economic life of most developing countries. The success or failure
of structural adjustment policies will thus depend upon how much
they are resented by smallholders, whose production is individually
negligible but who, taken as a whole, represent a significant share of
the GNP.
• The subject of this paper is, therefore, to examine the possible
consequences of structural policies on smallholders, both in the long
and in the short term, in terms of equity as well as productive
efficiency.
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The Difficulties Of A Statistical Definition
• In agricultural matters, especially when poor and traditional farmers
are concerned, economic ideas are usually severely biased by the
European and North American situation.
• The Farmer is a well-identified decision-maker, most of the time head
of a family presenting a certain degree of "stability".
• The Farm itself is well defined by a set of clearly identified plots,
which either belong to the farmer (who, in this case, possesses the
corresponding titles) or are hired from a landlord, who can produce
proof of his or her rights.
• Land is supplemented by machinery, cattle, buildings and trees, each
of which has a clearly identified owner. In this case, defining a
smallholder is mainly a matter of threshold: more precisely, a farm
size index can be defined and below a certain size a farmer is called a
smallholder.
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Certain Problems are involved in these two operations.
• The Size of a Farm may be defined by the cultivated area (however,
a vegetable grower with 5 ha is obviously larger, from an economic
point of view, than a cereal grower with 10 ha), or by Gross Income
(however, the size will depend upon the price system), or by a
weighed sum of outputs (with the same problem as above, the size
then depending upon the weights, which play exactly the same role
as prices and are just as arbitrary).
• The Threshold is even more difficult to define: changing the
minimum size required for being considered a farm in the European
Community from I ha to 0.5 ha doubles the number of farms. This is
because the size distribution of the plots of land belonging to, or
being cultivated by, the same person has a very long lower tail
(Figure 1).
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9/28/2019 Ijaz 7
• A slight change in any threshold in this region of the distribution may
considerably change the number of cases belonging to one category or another.
The same is true whatever measure is chosen for farm size. This makes any
definition of a smallholder rather arbitrary in these countries: one would have
preferred a "double-peaked" distribution, such as the one shown in Figure 2.
Such distributions are not uncommon in many developing countries, with the
lower peak corresponding to peasant or traditional farmers, and the upper peak
corresponding to colonial or modem or cooperative farming (other words are
used, but these are adequate for our present purpose). In this case, defining
smallholders is relatively easy, because fixing the threshold at a particular level in
the valley between the two peaks is of limited consequence for the classification
of most of the farms in the population.
• The Hectare (/ˈhɛktɛər, -tɑːr/; SI symbol: ha) is an SI (The
International System of Units(accepted metric system unit of area equal to a
square with 100-metre sides, or 10,000 m2, and is primarily used in the
measurement of land. There are 100 hectares in one square kilometre. An acre
is about 0.405 hectare and one hectare contains about 2.47 acres.
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FIGURE 1 : Typical distribution of farm area in developed countries.
• Unfortunately, in many other developing countries, the problem is
even more difficult, because the real problem is not so much the
choice of a threshold as the definition of a farm. In these countries,
land-use decisions are made at different levels, and by different
individuals, so that the notion of "farmer" is not clearly identified.
• Senegalese Carré. The carré is a local community headed by a Chief,
usually the elder of a large family. All carré members live together in
the same village, each household (husband, wife and young children)
having its own house. The carré, as a whole, collectively cultivates cash
crops, such as groundnuts or cotton. In this respect, the carré is a
collective farm, the farmer being its head, just as the farmer of a
cooperative farm is the president of the board of the cooperative.
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FIGURE 2 : Double-peaked distribution of farm areas in many devoloping
countries.
• Apart from collective fields, the chief allocates plots of land to each household.
Originally the plots allocated were intended for food crops. But it is now quite
common to see ambitious young men growing cash crops on their individual
plots, because cash crops give them more freedom, or are more profitable.
• At the same time, there is a Division Of Labour Between The Sexes In The
Household. The wife is responsible for food, including growing crops such as
paddy or cassava, necessary for feeding the family, whereas The Husband is
concerned exclusively with cash crops.
• Thus the household plot is again divided into two parts, one for food crops
under the responsibility of the wife, and one for cash crops operated by the
husband.
• In such a case, should husband and wife be described as two separate farmers?
This is a question that may be raised.
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• A statistical definition of a smallholder is, therefore, very
difficult.
• They constitute mainly the rural poor, because the notion of
smallholders refers to poverty, although poverty is essentially
relative, i.e. a full-time farmer with 10 ha of grain crops in
Africa is rather rich, whereas the same situation would
classify him/her automatically as poor in any western
European country.

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• However, the smallholder category excludes the rural poor who are so
poor they would never be able to operate a farm of their own. This is
because of the specific role of smallholders, in comparison with
"simple" landless workers and other rural poor, in shaping economic
activity in their countries.
• If the impact of structural adjustment programmes on smallholders
was only a matter of equity, there might be no reason for taking an
interest in this segment of the population.
• But smallholders play a important role in economic development, a
role that is probably much more important than is apparent from
their relative number or from their total income.
• Neglecting Their Welfare Could Actually Jeopardize The Success Of
Economic Policies that would otherwise have every chance of
succeeding.
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Common Features Of Smallholders
• Despite the incredible variety of socio-economic status and organization of poor
agricultural producers, they have many common features, especially with respect
to their production techniques.
• Specificity of production techniques
• It is almost tautological (repetitive) to say that A Poor Entrepreneur Has Virtually
No Capital and thus the Basic System Of Production is mainly a combination of
land and labour. This Is The Original Of "Traditional Agriculture" and the source
of many justified comments about it.
• First, it is not "backward" (with its derogatory connotation of irrationality).
• On the contrary, plain elementary economic theory teaches us that, with very
small capital, the optimal techniques of the income-maximizing entrepreneur
should actually be labour- and land-intensive. This has a number of
consequences.
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FIGURE
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3 : Total Output Of Labour Functions
Ijaz
At Various Levels Of Capital Availability
14
Low Productivity of Labour
• Labour productivity is low. Again, this is a consequence of the most elementary
economic theory (see Figure 3).
• As a consequence, since most of their incomes are derived from the rewards of labour,
incomes are low, and this is Both The Cause And The Consequence Of Poverty.
• Land Productivity Depends On Demography
• Land productivity is also low, as shown by low yields, and for the same reason: far from
being a proof of backwardness, the low yields of smallholders are a consequence of
their lack of capital, and a mark of economic rationality.
• Two Contrasted Situations can nevertheless occur with respect to yields: in some
cases, land is abundant at the regional or national level.
a. The productivity of land can then be extremely low, the limiting factor being the
working time lost in cultivating remote fields. On the contrary, in overpopulated
regions, Land Is Scarce. Yields are comparatively higher than in underpopulated
areas.
b.But the marginal productivity of labour is lower and people, in general, are poorer,
especially if the land rent is appropriated by landlords not belonging to the class of
smallholders.
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• Of course, there are intermediary situations between these two
extremes, because land is never homogeneous.
• Scarcity usually begins with some types of land being defined by their
pedagogical characteristics (such as the famous "grey soils" in Africa),
or by distance to road or village, or by other geographical features. In
this case, some soils are intensively cultivated, whereas others remain
apparently idle (they are often used for extensive activities such as
hunting, wild fruit harvest or even pasture).
• In any case, demography is the main determinant of these types of
soil occupation, because land scarcity arises when there is population
growth over a certain limit (otherwise, with free land available,
newcomers simply occupy virgin land).

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High Productivity Of Capital
• Capital productivity, by the same token, is extremely high: again, it is
well known in economics that a very scarce factor can have a very
high return.
• Simple budget calculations show the high profitability of simple tools
such as spades, or bicycle wheels, or even donkeys or buffaloes.
• High capital productivity is also indirectly shown by the large interest
rates charged by traditional moneylenders, which may reach several
hundred percent. Without passing a moral judgement on Usury
(moneylending), it must be recognized that such rates could not exist if
the marginal productivity of capital were not large enough.

9/28/2019 Ijaz 17
• In such a case, Economic Theory assumes that firms only have to
borrow to increase the quantity of capital they use, thus decreasing
the marginal productivity of capital at a level commensurate with
that in other activities. But, here, economic theory is wrong,
because it neglects two points that are very important and, to a large
extent, specific to smallholders.
• First, the elements of capital at stake are very small: for example, a
plough, or a fertilizer dose per hectare; the largest indivisible piece of
equipment is a pair of oxen. Yet, oxen are often hired for few
individuals can afford them. Nowadays, which bank would open a
file for a credit of $50? Thus, the relative efficiency and the
comparative advantage of the traditional moneylender begin to
appear. He or she can make a loan of $50 without opening a file,
simply because they know their client personally.
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• Second, lender availability is not the only obstacle to borrowing. Unless the
peasant is dishonest (and this is rare), he or she knows the loan must be
reimbursed. But nobody is ever sure of anything, especially in the case of a
smallholder, who is subject to a variety of risks, both climatic and economic.
Thus, peasant behaviour in borrowing matters is extremely conservative and
highly "risk-averse". In fact, borrowing is a risk in itself! Only rich people can
afford it. This is why so few poor people in developing countries borrow (and
also, why is it so difficult for them to find a lender).
• The blocking scheme just described must not be considered as the only obstacle
to smallholders' economic development. If it were possible to remove it, other
obstacles such as land scarcity or market saturation would appear. But it is an
important factor in the explanation of the permanency of the smallholder's
situation, whatever form it takes.
• It accounts for the combination of the low productivity of land and labour and
the high capital productivity that are the fundamental characteristics of
smallholders.
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Role Of Risk In Economic Decisions
• One of the lessons learned from the above is the importance of Risk As A
Deterrent To Investment. But this is not the only effect of risk on smallholders.
• Risk plays a particular role in the decisions of smallholders simply because they
are poor and, thus, considerably risk-averse.
• Risk imposes diversified patterns of production, and costly practices to avoid it
as far as possible. Also, the existence of risk and of risk aversion implies that
average prices and yields are not the only elements entering into utility
computations of rational producers. Their variability is just as important, as is
illustrated by the following simple example.
• Let us assume that a farmer has the choice between two crops, with the same
prices, the same yields and the same inputs. Of course, the decision-maker will
be indifferent between the two. At the same time, the slighest change in prices
or yields will induce him or her to shift the totality of their resources from one
production to another. If all producers act in the same manner, the markets of
these crops will be characterized by a devastating
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• Let us assume now that the yields are random, and independently
distributed with, again, the same mean and variance. Nothing is
changed with a risk-neutral decision-maker. But only a slight degree of
risk aversion will suffice to induce any risk-averse farmer to choose
unhesitatingly a 5050 output mix, which minimizes income variance.
• Even better, in such a situation, if the price of crop A decreases
slightly, farmers will increase their production of B. but never cease
to devote a part of their production capacity to A.
• Thus, risk not only clearly defines an optimum where it apparently
does not exist, but it may stabilize markets and stand as the major
determinant of price supply elasticity.

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• We shall now assume that the Government Decides To
Stabilize Crop A.
• Since farmers are compensated for any loss due to random
changes in the price or in the yield of A, with the unitary
income at the previous average level being guaranteed, crop A
is riskless. Then, every risk-averse farmer shifts to A, so that
the production of B is nil.
• If the government wants to have the least quantity of B
harvested, the return for A should be fixed at a level
significantly below the average unitary income of B.
particularly as farmers are more risk-averse.

9/28/2019 Ijaz 22
Consider The Case Of Export Crops and food crops (that is, crops consumed
within the country) in most African countries.
• As a rule, export crops have a price guaranteed by stabilization boards, or
other agencies, whereas food crops are sold (when they are sold) on
unorganized markets, with tremendous seasonal and interannual
fluctuations.
• Thus, mutatis mutandis, export crops resemble Crop A, and food crops
Crop B in the preceding example.
• At present, prices give a definite advantage to export crops, and this has
been the object of complaints from international organizations, and of
recommendations to increase the prices of food crops, to make them
competitive with export crops.
• The above analysis suggests that it would suffice to stabilize food crops at
their previous average level to induce a very significant shift of resource
allocation from cash to food crops.
• This9/28/2019
illustrates the Importance Of Risk
Ijaz
Considerations In Agricultural Policy.
23
Supply Responsiveness
• The question of smallholder sensitivity to price variations has been the subject of
controversy.
• Some economists deny any price responsiveness on the part of smallholders,
either because they are "irrational" (a very strong assumption) or because their
rationality is different from that of the capitalist entrepreneur.
• Sicco Mansholt, prepared a plan for the restructuring of European agriculture.
• The backbone of the "Mansholt Plan" was to increase farm size to make
farms more responsive to prices. European farms nowadays are, on average,
considerably larger than was intended by Mansholt, and apparently not much
more responsive to prices than before.
• Of course, smallholders in developing countries cannot be compared with
European farmers; nevertheless, this story shows the need for intellectual
modesty.
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The Smallholders Response To Price Is Never Zero, but is determined by
complicated patterns that jeopardize any attempt to measure it statistically. This is
because a price variation in one crop (say, a price increase) has Two Separate
Effects:
a.A Profitability Effect, because the cultivation of the crop is now more (and
that of other crops less) advantageous. This effect always induces farmers to
increase the production of the crop in question.
b.An Income Effect. If the farmers already cultivate this crop, their income is
now greater. A part of the incremental income will be saved. If this saving is
reinvested in farming (this is not always the case ), it will serve to buy new
inputs which will be allocated to the most profitable crop, not necessarily the
crop whose price has been increased.
c. Thus, in a situation where, say, groundnut and paddy compete for the
allocation of scarce inputs in a Senegalese farm, it may happen that an
increase in the price of paddy generates an increase in the sale of groundnuts,
and vice-versa.
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• These Considerations Interfere With The Risk Effect which has been described
above, in two different ways:
• Because Of Expectations: a sudden change in price may not be interpreted as
permanent by farmers. It may be considered as a transitory expression of the
"noise", exactly as for income expectation in the permanent income theory of
consumption. For That Reason, The Lag For Farmers' Supply Response May Be
Large, perhaps several years, which considerably complicates econometric
estimations.

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• Because of the utility of financial reserves: in an uncertain world,
Keeping Liquid Or Semi-liquid Reserves Is One Of The Most Popular
(As Well As Rational) Anti-risk Strategies.
• Even with very scarce liquidities, smallholders in developing countries
make extensive use of reserves constituted, for example, by cattle
and granaries, not to mention fostering good relations with the
neighbourhood.
• Of course, the increased saving obtained from any price increase may
be invested in reserves of any kind, with the consequence that the
farmer can take more risks with increased reserves and, thus, expand
the most risky crops at the expense of safer ones.
• Thus, increasing the price of a "safe" crop (say, groundnuts in
Senegal) may decrease its supply and increase the supply of a riskier
crop, such as sorghum, in excess of the needs of the family.
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 Structural Adjustment Programs (SAPs)
• Structural adjustment programs (SAPs) Consist Of Loans Provided By
The International Monetary Fund (IMF) And The World Bank (WB) To Countries
That Experienced Economic Crises.
• The two Bretton Woods Institutions Require Borrowing Countries To Implement
Certain Policies In Order To Obtain New Loans (Or To Lower Interest Rates On
Existing Ones).
• The Conditionality Clauses Attached To The Loans Have Been Criticized Because
Of Their Effects On The Social Sector.

9/28/2019 Ijaz 28
• SAPs are created with the goal of reducing the borrowing country's fiscal imbalances in the short and medium
term or in order to adjust the economy to long-term growth.[2] The bank from which a borrowing country receives
its loan depends upon the type of necessity. The IMF usually implements stabilization policies and the WB is in
charge of adjustment measures.[2]
• SAPs are supposed to allow the economies of the developing countries to become more market oriented. This
then forces them to concentrate more on trade and production so it can boost their economy.[3] Through
conditions, SAPs generally implement "free market" programmes and policy. These programs include internal
changes (notably privatization and deregulation) as well as external ones, especially the reduction of trade
barriers. Countries that fail to enact these programmes may be subject to severe fiscal discipline.[2] Critics argue
that the financial threats to poor countries amount to blackmail, and that poor nations have no choice but to
comply.[citation needed]
• Since the late 1990s, some proponents of structural adjustments (also called structural reform),[4] such as the
World Bank, have spoken of "poverty reduction" as a goal. SAPs were often criticized for implementing generic
free-market policy and for their lack of involvement from the borrowing country. To increase the borrowing
country's involvement, developing countries are now encouraged to draw up Poverty Reduction Strategy
Papers (PRSPs), which essentially take the place of SAPs. Some believe that the increase of the local government's
participation in creating the policy will lead to greater ownership of the loan programs and thus better fiscal
policy. The content of PRSPs has turned out to be similar to the original content of bank-authored SAPs. Critics
argue that the similarities show that the banks and the countries that fund them are still overly involved in the
policy-making process.[citation needed] Within the IMF, the Enhanced Structural Adjustment Facility was succeeded by
the Poverty Reduction and Growth Facility, which is in turn succeeded by the Extended Credit Facility.[5][6][7][8]
• As of 2018, India has been the largest recipient of structural adjustment program loans since 1990.[9][10] Such loans
cannot be spent on health, development or education programs.[11] The largest of these have been to the banking
sector ($2 trillion for IBRD 77880) and for Swachh Bharat mission ($1.5 trillion for IBRD 85590).[9][12]
• Wiki…

9/28/2019 Ijaz 29
• The U.S. uses its dominant role in the global economy and in
the IFIs to impose SAPs on developing countries and open up
their markets to competition from U.S. companies.
• SAPs are based on a narrow economic model that
perpetuates poverty, inequality, and environmental
degradation.
• The growing civil society critique of structural adjustment has
forced the IFIs and Washington to engage in national debates
regarding SAPs, though these have not led to much change in
bank policy.
• World Bank and the International Monetary Fund in April 2001, they
declared Poverty “The Greatest Challenge Facing The International
Community” And An Issue Concerning Which “The Bank And Fund
Have An Important Role To Play”.
9/28/2019 Ijaz 30
The international Monetary Fund (IMF) and the World Bank
were set up at the end of World War II at Bretton Woods, USA
in 1944.
• After the World War 11, the USA emerged as a successful victor in political and
economic terms. The USA zoos looking for new and growing markets and sources of raw
materials.
• The war-ravaged countries like Germany were in dire need of capital to revive their
economies.
• The USA managed to force its interests against rival industrial countries weakened by
the war and to anchor these interests in the structure of the new world monetary
system led to the creation of twin institutions, the IMF and World Bank.
• The IMF started its operation in 1947 while the World Bank commenced operations in
1946.
• With the foundation of these institutions, the USA succeeded in imposing its interests
on world economic order based on free trade and free enterprise. These institutions
closely follow a carrot and stick principle - WITHOUT IMF MEMBERSHIP NO
ADMISSION TO THE WORLD BANK, without conformity to IMF rules no development
aid from the World Bank..
9/28/2019 Ijaz 31
 The IMF
• As watchdog, the IMF ensures that loans of private banks will be
repaid and countries like Mexico should not be allowed to default the
repayments.
• In Mexico, it acted as an arbitrator rather than a lender. It made a
package for Mex¬ico—rescheduling of debt, new loans through banks,
governments and its own resources. Founded —1944
• Members — 155 (likely to increase due to the changes in Eastern
Europe and disintegration of Soviet Union).

9/28/2019 Ijaz 32
 Distribution of Votes in the IMF
Country Votes (in %)
USA 19.3
U.K. 6.7
West Germany 5.8
France 4.8
Japan 4.6
China 2.6
India 2.2

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THE STRUCTURAL ADJUSTMENT PROGRAMME The implementation of
stabilisation programme is followed by the implementation of
'necessary' structural reforms. The package of reforms includes :
• Liberalisation of Trade and the elimination of protective barriers to
make domestic industry more "competitive";
• Liberalisation Of The Banking System and the privatisation of state
controlled banks in agriculture and industry. The Central Bank (like
Reserve Bank in India) losescontrol over monetary policy and interest
rates are determined in the free market by the commercial banks;
• The Privatisation Of State Controlled Commercial, Financial And
Industrial Enterprises. In many countries, it is tied to the sale of the
assets of public enterprises to foreign capital in enterprises with a
minimal amount of actual investment, now being implemented in
many East European countries;
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• The Withdrawal Of The State From Social Sector Programme like
education, health and nutrition, and privatisation of these
programmes on the principles of cost recovery;
• The Reorganisation Of The State Sector In View Of Eliminating
'Unproductive' Expenditures, the introduction of cost recovery
schemes in state programmes and streamlining of state enterprises.
These measures are marked by massive dismissal of public
employees;
• Tax Reforms Leading To Greater Tax Burden On The Middle Income
Groups. The registration of small agricultural produces and units of
the informal urban sector is a part of tax reforms; and
• The development Of Poverty Alleviation Schemes through the
creation of a social development fund to deal with 'social
consequences' of structural adjustment. The poor are defined as 'tar-
get groups' under this framework.
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 POLICIES OFFICIAL AIMS ACTUAL EXPERIENCE

Increase Exports Reduce Imports U.N. survey of 12 SAPs found little improvement in export earnings;
1. Currency Devaluation commodity prices fall as more exporters compete for same markets;
damages import'dependent economies.

2. Export Promotion Earn Foreign Exchange For Debt Repayment

replaces food crops with export crops, “a recipe for starvation";
increases dependence on foreign markets;
damages ecology through pesticides used in export
agriculture and cutting of forests;
earnings go to debt payments instead of investment in
development;
displaces rural people and damages environment by building large
dams, irrigation projects, mining, five-star hotels and nuclear power
projects

3. Government Spending Cuts Reduce “Excessive" Demand means cutbacks in

education, health services, sanitation, water & irrigation, electric
power supply, roads & transportion.

4. Privatization Make Enterprises More Efficient

turning over utilities to private sector, where profitability overrides
social welfare; exclude the poor from electricity, transportation &
communication services; subsidizes private investors.

5. Unrestrictive imports Increase International Competitiveness; Improve

Efficiency undermines local industries; discourages food self-reliance;
encourages luxury imports, while poor can’t afford basic necessities.

6. High interest Rates Allocate Investment To “Most Efficient Investors” discourages investment in production for home market; encourages
speculations; reduces small farmers and small manufacturers access
to credit; fuels inflation.
7. Restricted Money Supply Control Inflation
9/28/2019 Ijaz 36
depresses economy; raises unemployment; infrastructure
deteriorates; U.N. survey of 12 SAPs found only half lowered inflation.
Trade Reform Programs
• Trade integration can play a much larger role in boosting shared prosperity.
Greater openness in these areas would promote competition, lift productivity,
and raise living standards. In many other areas, such as the rural economy,
smaller enterprises, and women’s economic empowerment, trade-related reforms
are important particularly to foster more inclusive growth.
• Harnessing flexible approaches to WTO negotiations may be the key to
reinvigorating global trade reform. Despite the benefits at stake—and with
important exceptions such as the WTO Trade Facilitation Agreement—trade
reform has lagged since the early 2000s. Now, as groups of WTO members
pursue joint initiatives in several areas, attention is turning to how other
negotiating approaches—including some used effectively in the past—can be
leveraged so that trade once again plays its full role in driving increased global
economic
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prosperity Ijaz 37
• The opening of trade after World War II through the early 2000s lifted living
standards and reduced poverty, but remains incomplete. Tariffs fell sharply,
starting with advanced economies, but then also emerging market and
developing economies. For example, developing (advanced) economies cut their
average tariffs from 31 percent (10 percent) in 1980 to 9 percent (4 percent) in
2015. However, tariffs, regulatory differences, and other policy barriers still
impede trade in goods.
• Fundamental changes in newer areas of the global economy are not being
reflected in global trade policy, stifling future prosperity. Services comprise
two-thirds of global GDP and employment, and (on a value-added basis) nearly
half of global trade, yet barriers to services trade today are still. Digital
technologies make more services tradable across borders. Trade and investment
decisions are increasingly

9/28/2019 Ijaz 38
• Trade can also be a powerful force for more inclusive growth, including by
lowering poverty and by opening opportunities to small firms, farmers, and
fishermen, as well as women.
• The path forward needs to heed the hard lessons of nearly two decades of WTO
negotiations and to recognize a more complex trade policy landscape. The slow
pace of reforms since the early 2000s, fundamental changes in a more
interconnected modern economy, and the risk of trade policy reversals call for
urgency to reinvigorate trade policy reforms.
• More flexible negotiating approaches have been effective in the past. Key parts
of the current WTO rule book were initially agreed by and applied (in the 1970s
and 1980s) only to those countries adopting the Tokyo Round “Codes.” The 1996
Information Technology Agreement (ITA) and its 2016 expansion of WTO
members agreed tariff cuts.

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• Flexible approaches could help to advance reforms in the areas discussed in this
paper. On top of actions to open economies unilaterally, reforms are ideally
advanced through fully multilateral agreements among all WTO members. What
is important is that initiatives using flexible negotiating approaches attract a
diverse and representative set of members, are open to all, and serve to
strengthen the global trading system.

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• At their July 2017 meeting in Hamburg G20 leaders emphasized how open
investment and trade promote growth, productivity, jobs, and development.
They called for advancing strong, sustainable, balanced and inclusive growth
and expressed their determination to shape globalization to better enable
people to seize the opportunities it provides. This sets up a discussion in the
latter part of the paper on how cooperative reforms can be achieved. The role of
domestic policies in a healthy adjustment to trade and technology—a focus in a
recent joint paper (IMF, WB, WTO 2017)—remains important; this paper updates
the earlier coverage, including with new evidence at the national level.

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• Foreign Direct Investment (FDI) is now a major driver of economic growth. As a
vehicle of international commerce, estimated sales of FDI affiliates of $38 trillion
in 2016 exceeded global goods and services exports of $21 trillion. Trade and FDI
can be substitutes, particularly when barriers to trade are high, but trade and
investment are also complements when a commercial presence is needed, and
FDI barriers can then effectively serve as a barrier to trade. Studies associate the
expansion of FDI since 1990 with a 20 percent increase in global GDP. Increased
foreign investment is closely linked with the rise of regional and global value
chains, which itself is facilitated by factors such as information technology and
reduced shipping costs. In fact, most types of FDI are now seen as complements
to trade, rather than as a substitute. Exports of foreign affiliates account for
about a third of global goods and services exports (Cadestin and others, 2018).
Accordingly, many governments have become more welcoming of FDI.

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What is the role of the WTO, World Bank and IMF in globalisation?
• WTO is world trade organisation, whose main objective is liberalisation of
international trade. I.e to remove all kinds of barriers in trade between
nations. For which number of agreements are there under WTO for trade in
goods and services, for intellectual property rights and investment. There
are several other terms and agreements. Also there is a dispute settlement
body under it.
• World bank is actually a development fund or institution working towards
the social and economic development of developing countries. Like
providing funds and technical help for health, education, infrastructure,
irrigation projects etc.
• IMF International Monetary fund is more like a cooperative bank which
works towards the monetary cooperation of member countries i .e helps in
matters of money and currency. It works in areas like balance of payment
problems, exchange rate stability , providing policy advice to govt and
central banks etc.
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• On the 75th anniversary of the Bretton Woods conference that established the
World Bank and International Monetary Fund, finance and development
ministers and central bank governors from across the world are holding their
Spring meetings.
• This is all the more evident in view of the brutal, head-on attacks by the Trump
administration on globalization.
• According to a wide range of leading experts meeting in Washington now, Donald
Trump practices a disturbing head-in-the-sand attitude on three of the four
dominating threats to global economic stability. These threats are:
a. Cyber-risks To World Finance
b. Climate Change
c. Corruption.
• On the fourth major threat, disregard for global trading rules, Trump relishes in
acting as flame-thrower in chief.
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Cyber Risks Rise
• Bank of England, stresses that making the financial sector fully resilient in the
face of mounting cyber attacks is a profound worry.
Climate Change Neglect
• IMF is highlighting her environmental concerns.
• World Bank president, David Malpass, a Donald Trump partisan who has just
started his new job, will not make environmental protection central to the
Bank’s agenda.

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Trade Power
• U.S.-China trade negotiations. U.S. Treasury Secretary Steven Mnuchin told the
meetings that President Trump wants “fair trade.”
• Meanwhile, former Bush administration trade chief Carla Hills argues that what
we are actually seeing is the White House promoting “managed trade.”
• Former WTO appellate judge and U.S. Congressman Jim Bacchus notes that the
Trump administration is ignoring international trade laws, which are at the core
of the WTO system. TRUMP IS JUST REPLACING TRADE LAW WITH RAW POWER.
• Trump’s new trade agreements with Mexico and Canada. They are concerned
that the U.S. deal with China will disadvantage many other trading nations and
thereby violate WTO laws and rules.
• They are also worried about the prospects of new trade negotiations to start
soon by the United States with both Japan and the EU.

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Don’t Neglect Africa’s Future
• For Ellen Johnson Sirleaf, the 2011 Nobel Peace Prize laureate former Liberian
president, points to another major challenge that has yet to secure a meaningful
multilateral response.
• Over 60% of the populations of many African countries are under 35 years of
age and many of these people do not have good job opportunities. Frustrations
may well rise and spill over to challenge governmental systems.
• Sirleaf stresses that it is enormously difficult to end decades of
corruption, especially in countries emerging from conflict, and create the
institutions necessary to stimulate the private sector and job creation. She is one
of the few presidents to achieve this.

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Governance neglect
• The World Bank’s answer to bad governance is to strengthen institutional
capacities in the governments of developing countries.
• It holds true for the private sector as well. On governance, Morgan Stanley’s Clare
Woodman notes that banks have to do a lot more to strengthen their conduct
and culture. Nobody disagrees.
Chinese challenge
• U.S. Treasury Secretary Mnuchen says he welcomes talks now on a new capital
increase for the IMF, but points out that the United States will not give up its
veto power.
• The fear expressed by some delegates to these meetings is that this means China
will continue to be marginalized in the boards of the IMF/World Bank.
• As a result, China will likely just continue to build its own aid and investment
institutions, use them to strengthen its Asian regional and global influence and,
in effect,
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undermine the Bretton WoodsIjazsisters in the process. 48
 Typical Stabilisation Policies Include
• Balance Of Payments Deficits Reduction Through Currency
Devaluation
• Budget Deficit Reduction Through Higher Taxes And Lower
Government Spending, Also Known As Austerity
• Restructuring Foreign Debts
• Monetary Policy To Finance Government Deficits (Usually In The Form
Of Loans From Central Banks)
• Eliminating Food Subsidies
• Raising The Price Of Public Services
• Cutting Wages
• Decrementing Domestic Credit.
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Long-term Adjustment Policies Usually Include
• Liberalization Of Markets To Guarantee A Price Mechanism
• Privatization, Or Divestiture, Of All Or Part Of State-owned Enterprises
• Creating New Financial Institutions
• Improving Governance And Fighting Corruption (From The Perspective Of A
Neoliberal Formulation Of 'Governance' And 'Corruption')[citation Needed]
• Enhancing The Rights Of Foreign Investors Vis-à-vis National Laws[citation
Needed]
• Focusing Economic Output On Direct Export And Resource Extraction[citation
Needed]
• Increasing The Stability Of Investment (By Allowing Foreign Investors) With The
Opening Of Companies
• Reducing Government Expenditure e.g. Reducing Government Employment
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9/28/2019 Ijaz 51
 The Purposes Of The International Monetary Fund
• To promote international monetary cooperation through a permanent
institution which provides the machinery for consultation and
collaboration on international monetary problems.
• To facilitate the expansion and balanced growth of international
trade, and to contribute thereby to the promotion and maintenance
of high levels of employment and real income and to the development
of the productive resources of all members as primary objectives of
economic policy.
• To promote exchange stability, to maintain orderly exchange
arrangements among members, and to avoid competitive exchange
depreciation.
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• To assist in the establishment of a multilateral system of payments in respect of
current transactions between members and in the elimination of foreign
exchange restrictions which hamper the growth of world trade.
• To give confidence to members by making the general resources of the Fund
temporarily available to them under adequate safeguards, thus providing them
with opportunity to correct maladjustments in their balance of payments without
resorting to measures destructive of national or international prosperity.
• In accordance with the above, to shorten the duration and lessen the degree of
disequilibrium in the international balances of payments of members.

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 The current primary focus of the World Bank centers on
Six Strategic Themes
1. The Poorest Countries. Poverty reduction and sustainable growth in the
poorest countries, especially in Africa.
2. Postconflict And Fragile States. Solutions to the special challenges of post
conflict countries and fragile states.
3. Middle-income Countries. Development solutions with customized services as
well as financing for middle-income countries.
4. Global Public Goods. Addressing regional and global issues that cross national
borders, such as climate change, infectious diseases, and trade.
5. The Arab World. Greater development and opportunity in the Arab world.
6. Knowledge and learning. Leveraging the best global knowledge to support
development.
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 The World Trade Organization (WTO)
• Is an intergovernmental organization that is concerned with the regulation of
international trade between nations.
• The WTO officially commenced on 1 January 1995 under the Marrakesh
Agreement, signed by 123 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the
largest international economic organization in the world.
• General Agreement on Tariffs and Trade (GATT), was established by a
multilateral treaty of 23 countries in 1947 after World War II in the wake of other
new multilateral institutions dedicated to international economic cooperation—
such as the World Bank (founded 1944) and the International Monetary Fund
(founded 1944 or 1945).
• A comparable international institution for trade, named the International Trade
Organization never started as the U.S. and other signatories did not ratify the
establishment
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 Functions of WTO
• It oversees the implementation, administration and operation of the covered agreements.
• It provides a forum for negotiations and for settling disputes.
• To review and propagate the national trade policies, and to ensure the coherence and transparency
of trade policies through surveillance in global economic policy-making.
• Assistance of developing, least-developed and low-income countries in transition to adjust to WTO
rules and disciplines through technical cooperation and training.
• The WTO shall facilitate the implementation, administration and operation and further the objectives
of this Agreement.
• The WTO shall provide the forum for negotiations among its members concerning their multilateral
trade relations.
• Rules and Procedures Governing the Settlement of Disputes.
• The WTO shall administer Trade Policy Review Mechanism.
• WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with
the International Bank for Reconstruction and Development (IBRD) and its affiliated
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agencies.
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