Role of International economic

institutions in global business(with

reference to IMF and World Bank)

Presented by: Group 9

Flow of presentation
 Some international economic institutions
 IMF
 History
 Responsibilities of IMF
What IMF does?
 Economic surveillance
 Lending by IMF
 Accountability and Transparency
 Gold and Borrowings
 Quotas and SDRs
 Tackling current challenges
 India’s relations with IMF
 The World Bank
 Criticism of IMF and the World Bank
 International Economic Institutions
since World War II

1. The International Monetary Fund (IMF)

3. The World Bank
5. Global Agreement on Tariffs and Trade
(GATT)
7. World Trade Organization (WTO)
9. Organization for Economic Cooperation
and Development (OECD)
11. United Nations (UN) Department of
Economic and Social Affairs (DESA)
About IMF
International Monetary Fund (IMF) is
an administrative unit that is
international in nature and whose
objective is to regulate and administer
the financial system of the world.
The IMF does this by observing the
payments balance and exchange rates
of the world. It offers technical and
financial help to the member nations.
 Its head office is in Washington D.C,
USA
Its MD is Mr. Dominique Strauss Kahn.
History –Cooperation and
reconstruction(1944-1971)
Why was IMF created?
The Great Depression of 1930s

Institution
of IMF-
IMF was instituted in Dec.1945 after
The Bretton Woods Agreement by its
29 member countries. It began
operations on March 1, 1947. France
became its first borrower.

Until1971,the IMF practised The Par

Value System which was suspended
thereafter.
The end of Bretton Woods
System(1972-81)
In 1971,the US decided to suspend the
dollar’s convertibility into gold
temporarily which led to the overall
dismissal of the Bretton Woods
System.
The transition from fixed exchange
rates to floating rates was smooth and
facilitated adjustments to external
shocks such as the oil price shocks of
the 1970s.
To help oil importers deal with
inflation the IMF set up the first of two
oil facilities and what we know as the
Debt and painful reforms (1982–89)
 The oil shocks forced oil importing countries
to borrow from western commercial banks
who lent billions of recycled petrodollars to
them.
 In 1979,interest rates in developing
countries skyrocketed and this led to an
international debt crisis.
 At the same time, recession in developing
countries pushed them to expand their fiscal
policies by further borrowings.
 The IMF initiatives calmed the panic by
engaging commercial banks but a long road
of painful reforms lay ahead.
 In March 1986, the IMF created a new
concessional loan program called the
Structural Adjustment Facility. The SAF was
succeeded by the Enhanced Structural
The end of communism (1989-
2004)
Post 1991, the IMF membership
increased from 152 to 172 countries
making it a universal institution.
The IMF's staff expanded by nearly 30
percent in six years. The Executive
Board expanded to accommodate
Directors from Russia and Switzerland.
The IMF provided policy advice,
technical assistance, and financial
support to new member countries
helping them make the transition from
centrally planned to market driven
economies.
Continued Globalisation(2005-
present)
 Global capital flows have risen to 15%of GDP
compared to 2-6% in 1980-95.
 Originally IMF had lent only to countries
facing current account crisis but in recent
years capital account crisis have become
rampant.
 The magnitude of the loans is larger now
and response has to be more urgent.
Continued globalization has brought new
challenges like current financial crisis and Oil
price shocks.
 The IMF proposed spending cuts of $100
million until 2011 and 380 staff dismissals.
 IMF executive board has agreed to sell a part
of the gold reserves.
Responsibilities of IMF
 Promoting international monetary
cooperation.
 Facilitating the expansion and balanced
growth of international trade.
 Promoting exchange stability.
 Assisting in the establishment of a
multilateral system of payments and

 Making its resources available (under

adequate safeguards) to members
experiencing balance of payments
difficulties.
What IMF does??
Economic Surveillance:-
a) Country
b) Region
c) Global

Technical Assistance
Highlights of this section
Beneficiaries of Technical Assistance
Types of Technical Assistance
Working Closely with Donors
Lending by IMF
3 main purposes of lending
i) help make adjustments to external shocks
ii) act as a catalyst for other lenders
iii) prevention of crisis

 Conditionsof lending:-
a) Loans are disbursed in installments
b) Loans are pledged against economic
targets
c) The IMF loans provide only a small portion
to finance BOPs
Lending contd.
 Main lending Facilities:-
a) Stand-By Arrangement- Most popular with
middle income countries
b) Short Term Liquidity Facility- for
temporary liquidity problems in emerging
markets
c) Emergency Assistance- for coping with
natural disasters or military conflicts
d) Extended Fund Facility- for long term
structural reforms
e) Trade Integration Mechanism- for
countries facing multilateral trade
liberalization
Lending Contd
 Lending to low income countries:-
a) Poverty Reduction and Growth Facility-
largest no. of loans made in recent years.
Interest rate is 0.5% and period is 5-10 yrs
b) Exogenous Shocks Facility- helps deal with
economic shocks such as food and fuel price
hikes or natural disasters
 Debt Relief:-
a) Heavily Indebted Poor Countries
b) Multilateral Debt Relief Initiative- 100%
debt was written off for many African nations
Accountability and
Transparency
 The IMF’s internal watchdog is called
Independent Evaluation Office.
 The IMF also has its own Ethics Office
 An Integrity Hotline-a 24hour
whistleblowing system was launched in
2008.
 The IMF is engaged with intergovernmental
groups like G7 and G24.
 IMF’s executive board has adopted a
transparency policy to encourage
publication of member countries’ policies
and data.
Gold and Borrowings
 The IMF holds 103.4 million ounces(3217
metric tonnes) of gold worth $83 billion.
 Gold played an important role in the Bretton
Woods era(1944-71).
 Until 1970s member countries paid 25% of
their subscription in gold.
 Today IMF is considering selling some of its
gold following a large decline in outstanding
credit.
Gold and Borrowings
contd..
The proceeds from selling gold will be
retained for investment in HIPC and
PRGF.
IMF can borrow from 11 industrialized
countries.
In times of crisis its first resort is NAB
and then GAB. It can borrow up to
SDR34 billion under these
arrangements.
Quotas and SDRs
 Quotas broadly reflect the size of each
member's economy- output, trade.
 USA, world’s largest economy has the
largest quota.
 Quotas, together with the equal number of
basic votes each member has, determine
countries' voting power.
 They also help determine how much
countries can borrow from the IMF and their
share in allocations of
special drawing rights or SDRs (the reserve
currency created by the IMF in 1969).
Quotas and SDRs contd..
 Countries pay 25% of their quota
subscriptions in SDRs or major currencies,
such as U.S. dollars, Euros, pounds
sterling, or Japanese yen. They pay the
remaining 75 percent in their own
currencies.
 Under a quota and voice reform the quotas
of dynamic economies, many of which are
emerging market countries, should be
increased.
 As of end-August 2008, IMF's total quotas
stood at SDR 217.4 billion (about $341
billion).
Quotas and SDRs contd..
 Today, the SDR has only limited use as a
reserve asset, and its main function is to
serve as the unit of account of the IMF.
 It is a potential claim on the freely usable
currencies of IMF members.
 The value of the SDR was initially defined as
equivalent to 0.888671 grams of fine gold—
which, at the time, was also equivalent to
one U.S. dollar.
 Today it is calculated as the sum of specific
amounts of 4 currencies valued in U.S.
dollars, on the basis of exchange rates
quoted at noon each day in the London
market.
Quotas and SDRs contd..
SDR interest rate provides basis for
calculating interest charged on loans
and paid on SDR holdings.
An SDR allocation provides each
member with a costless asset on
which interest is neither earned nor
paid.
If a member's SDR holdings rise above
its allocation, it earns interest on the
excess; conversely, if it holds fewer
SDRs than allocated, it pays interest
on the shortfall.
Tackling current
challenges
The IMF was first in drawing attention
to growing risks in the U.S. mortgage
market in its
Global Financial Stability Report. It has
tracked the deterioration in the global
economy.
The IMF is helping low-income
countries by encouraging
aid effectiveness, promoting
social spending, providing
policy frameworks for good
performers, and expanding regional
Tackling current challenges
contd..
Sovereign wealth funds—getting
consensus.
IMF is helping to reduce global
payments imbalances.
IMF is working on exchange rate
stability.
IMF is analyzing economic impact of
global warming
IMF is tracking global trends-
population aging, march of the cities,
financial globalization, gender and
development.
Data Dissemination
systems
In 1995, the International Monetary
Fund began work on data
dissemination standards with the view
of guiding IMF member countries to
disseminate their economic and
financial data to the public. The
International Monetary and Financial
Committee (IMFC) endorsed the
guidelines for the dissemination
standards and they were split into two
tiers: The General Data Dissemination
System (GDDS) and the Special Data
DDS contd..

IMF members using SDDS IMF members

not using any of the DDSystems IMF members
using GDDS No interaction with IMF
India's relations with the
International Monetary Fund
 The IMF provides financial assistance to
India, which helps in boosting the country’s
economy.
 In 2005, the IMF said that the budget of
India is very positive for it points that the
economy of the country will grow at the rate
of 6.7%.
 The IMF said that the reasons behind the
economic growth of India are that the RBI
has been able to control inflation and has
also handled its monetary policies very
skillfully.
 The IMF has suggested that India can
become a financial super power by bringing
in more reforms in its economic policies that
The current relationship between
IMF and India
The relationship between the IMF
and India has grown strong over
the years. In fact, the country has
turned into a creditor to the IMF
and has stopped taking loans
from it.
The loans provided by IMF to India:
SDR 3,260,405,000 in 1992
SDR 3,584,905,000 in 1993
SDR 2,763,180,833 in 1994
SDR 1,966,633,125 in 1995
SDR 1,085,250,003 in 1996
SDR 589,791,667 in 1997
SDR 284,916,664 in 1998
SDR 38,500 in 1999
The World Bank
 Established in 1944
 The World Bank is the world's largest source
of development assistance.
 It provides nearly $16 billion in loans
annually to its client countries for social
development, institution-building,
environmental protection, private business
development, stable macroeconomic
environment, and poverty reduction.
 The Washington, D.C.-based Bank is owned
by its 185 member countries, and has 67
country offices around the world.
The World Bank contd
Headed by Robert.B.Zoellick who is
the president.
World Bank comprises two institutions:
-International Bank For Reconstruction
and Development (IBRD)
-International Development
Association (IDA)
Issued its first loan of US$250 million
to France for post-war reconstruction.
The bank obtains its funding through
the IBRD’s sale of AAA-rated bonds in
world financial markets.
World Bank contd..
 Issues two types of loans:
Investment loans- support for
economic and social development
projects
Development policy loans- support
policy and institutional reforms
 Grants- given by IDA.
 Other services include analytical,
advisory and educational services.
 Current focus is on Millennium
Development Goals (MDGs).
World Bank cont.
Poverty Reduction strategies
include collaboration with poor
people’s organizations such as Slum
Dwellers International and obtaining
aid through IDA.
World Bank is temporarily managing
Clean Technology Fund which
focuses on developing renewable
energy sources.
World Bank Institute looks after
training of staff and civil servants from
member countries.
Global Development Learning Network
(GDLN) is a network of 120 learning
centers across 80 countries facilitating
Criticism of IMF and World
Bank
Conditionalities including
Structural Adjustment Programs.
The IMF advocates Keynesian
approach of demand-side economics,
currency devaluation which is
inflationary.
Theirausterity programmes are self
contradictory.
International Monetary Fund Gold
Reserve is allegedly undervalued.
Contd
 TheArgentinean economic crisis of 2001
due to privatization of vital national
resources and maldesigned fiscal
federalism.

 Easiercurrency movement by Kenyan

central bank proposed by SAPs of IMF led
to the Goldenberg scandal worth billions
of Kenyan shillings.

 Since1980 over 100 countries have

experienced a banking collapse which
has reduced GDP by 4% or more.

 In 21 countries of eastern Europe which

contd
 The World Bank is accused of undermining
democratic efforts by loaning huge amounts
to dictatorships.

 US effectively has a veto on some

constitutional decisions with over 16%
shares in the bank and a 2008 WB report
which found that biofuels had driven food
prices up by 75% was never published.

 Thedirector of World bank has always been

an American and the MD of IMF a European.

 The Jamaican dollar in 1978 was worth a

little more than the US dollar but by 1995 it
References
Wikipedia encyclopedia
IMF official website
World Bank official website
Mapsofindia.com
Business line website
Thank you
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wonderful
audience!