World Bank And Imf)

INTERNATIONAL MONETARY FUND & WORLD BANK

What is IMF? • An international organization of 185 member countries • Established to promote international monetary cooperation, exchange stability • And orderly exchange arrangements • To foster economic growth and high levels of employment; and • To provide temporary financial assistance to countries to help ease balance of payments adjustment

Beginning of IMF • Great depression Bretton Wood System

• After effects of World War II • Bretton Wood System IMF

World Bank

The Bretton Woods System • A Conference was held at Bretton Woods New Hampshire in USA in July, 1944, in order to put in place a new international monetary system.

• 44 representing countries met to set up a system of fixed exchange rates. • All currencies had fixed exchange rates against the U.S. dollar and an unvarying dollar price of gold ($35 an ounce).

• It intended to provide lending to countries with current account deficits. • It called for currency convertibility.

Failure of Bretton Woods System • The Bretton Woods System lasted from 1944 to 1971 • In 1960s the US balance of payment deficits started mounting • In 1968, convertibility of privately held Dollar into Gold was abandoned •

By 1947, the US conclude that the Bretton Woods system was not working and that the Western system was on the verge of collapse

• The primary factor for the collapse of the system was currency convertibility into Gold. – Several attempts to revise the system trough a series of – parity realignments, – Dollar revaluation (in terms of gold)

• the Bretton Woods System totally invalid in 1978.

Who runs the IMF? Member Countries Board of Governors Executive Board IMF Managing Directors First Deputy Managing Dir

Deputy Managing Deputy Managing Dir Dir

Who runs the IMF? • Governed by, and is accountable to, its member countries through its Board of Governors. • There is one Governor from each member country, • The Governors usually meet once a year, in September or October, at the Annual Meetings of the IMF and the World Bank. • The day-to-day work of the IMF is carried out by the Executive Board • Receives its powers from the Board of Governors • The Executive Board selects the IMF's Managing Director, who is appointed for a renewable fiveyear term.

Who runs the IMF? • The Managing Director reports to the Board and serves as its chair and the chief of the IMF's staff • He is assisted by a First Deputy Managing Director and two other Deputy Managing Directors. • The Executive Board usually meets three times a week, in fullday sessions, and more often if needed, at the IMF's headquarters in Washington, D.C. • Of the 24 Executive Directors on the Board, 8 are appointed by single countries—the IMF's 5 largest quota-holders (the United States, Japan, Germany, France, and the United Kingdom) and China, Russia, and Saudi Arabia. • The other 16 Executive Directors are elected for two-year terms by groups of countries known as "constituencies.“

Who runs the IMF? • IMF employees are international civil servants. • Their responsibility is to the IMF, not to the national authorities of the countries of which they are citizens. • About one-half of the IMF's approximately 2,700 staff members are economists. • Most staff work at the IMF's Washington, D.C., headquarters • In addition, it maintains offices in Brussels, Paris, and Tokyo New York and Geneva,

Objectives of IMF • To promote international monetary corporation • To facilitate expansion and balanced growth of international trade; • To promote exchange stability; • To assist in the establishment of multilateral system of payments; • To make its general resources temporarily available to its members experiencing balance of payment difficulties under adequate safeguard. • To shorten the duration and lessen the degree of disequilibrium in the international balance of payments of members.

“The architects of the IMF hoped to design a fixed exchange rate system that would encourage growth

Activities of IMF • The IMF performs three main activities: • Monitoring and advising member countries on their economic policies • Lending members • Offering technical assistance

Monitoring and Advising • Advice on policies and global oversight • Country surveillance • Crisis prevention • Crisis resolution • Global surveillance • Lending to countries in difficulty

IMF lending facilities • Stand-By Arrangements • Extended Fund Facility • Poverty Reduction and Growth Facility • Emergency Assistance • Trade Integration Mechanism

Technical Assistance • The IMF provides technical assistance and training mainly in four areas: • Monetary and financial policies (monetary policy instruments; banking system supervision, and restructuring; foreign management and operations; clearing settlement systems for payments; and structure development of central banks)

• fiscal policy and management (tax and customs policies and administration, budget formulation, expenditure management, design of social safety nets, and management of domestic and foreign debt) • compilation, management, dissemination, and improvement of

statistical data • economic and financial legislation.

Place of IMF under the Balance of Payment

Items A. Current Account 1. Merchandise a. Private b. Government 2. Invisibles a. Travel b. Transportation c. Insurance d. Investment Income e. Government (not included elsewhere) f. Miscellaneous 3. Transfer Payments a. Official b. Private Total Current Account (1+2+3) B. Capital Account 2. Private a. Long Term b. Short Term 3. Banking 4. Official a. Loans b. Amortisation c. Miscellaneous Total Capital Account (1+2+3) C. IMF D. SDR Allocation E. Capital Account, IMF & SDR Allocation (B+C+D) F. Total Current Account, Capital Account, IMF & SDR Allocation (A+E) G. Errors & Omissions H. Reserves and Monetary Gold

Credits

Debits

Net

Where does the IMF get its money? • The IMF's resources come mainly from the quotas that countries deposit when they join the IMF. • Quotas broadly reflect the size of each member's economy: the larger a country's economy in terms of output, and the larger and more variable its trade, the larger its quota tends to be. – For example, the United States, the world's largest economy, has the largest quota in the IMF. Quotas are reviewed periodically and can be increased when deemed necessary by the Board of Governors

Where does the IMF get its money? • Countries deposit 25 percent of their quota subscriptions in Special Drawing Rights or major currencies, such as U.S. dollars or Japanese yen. • Most IMF loans are financed out of members' quotas. • IMF may borrow from a number of its financially strongest member countries to supplement the resources available from its quotas.

How does the IMF help poor countries? • The IMF is not a development institution. • IMF's loans to low-income countries are made on concessional terms. • Ease the pain of the adjustments these countries need to make to bring their spending into line with their income. • To promote reforms that foster stronger, sustainable growth and .

How does the IMF help poor countries? • Poverty reduction. • IMF loan also encourages other lenders and donors to provide additional financing, by signaling that a country's policies are appropriate. • Also participates in debt relief efforts for poor countries

Criticism • Conditionalities • Structural Adjustment Programs • IMF frequently advocates currency devaluation • Austerity programmes • International Monetary Fund gold reserve being undervalued. – E.g. : Argentina

THE WORLD BANK

World Bank Group • The World Bank Group (WBG) is a family of five international organizations – – – – –

International Bank for Reconstruction and Development (IBRD) International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Centre for Settlement of Investment Disputes (ICSID)

• The World Bank has 185 member countries • Headquarters at Washington D.C

World Bank Group • Since inception in 1944, the World Bank has expanded from a single institution to a closely associated group of five development institutions. • The World Bank was formally established on December 27, 1945 • The World Bank expanded from a single institution to an associated group of coordinated development institutions • Two years later, the Bank issued its first, and largest, loan: $250 million to France for post-war reconstruction

World Bank Group • It is an international organization owned by member governments; it makes profits, these profits are used to support continued efforts in poverty reduction • Responsible for providing finance and advice to countries for the purposes of economic development and eliminating poverty. • Started as a facilitator of post-war reconstruction and development • Present day mandate of worldwide poverty alleviation. • Whereas heavy infrastructure investment projects once dominated the Bank's portfolio

Organization structure Member Governments

President Board of governors

Executive directors

Governance structure • The World Bank Group is owned by its member governments, -subscribe to its basic share capital -votes proportional to shareholding • The President of the World Bank is nominated by the President of the United States and elected by the Bank's Board of Governors • As of November 1, 2006 – – – –

United States held 16.4% of total votes, Japan 7.9%, Germany 4.5% France and the United Kingdom each held 4.3%.

Governance structure • The institutions of the World Bank Group are all run by a Board of Governors meeting once a year. • Each member country appoints a governor • Daily work is governed by a Board of 24 Executive Directors to whom the governors have delegated certain powers. • Executive Directors are appointed by their respective governments or the constituencies • The agencies of the World Bank are each governed by their Articles of Agreement that serve as the legal and institutional foundation for all of their work

Objectives • Investing in people, particularly through basic health and education • Focusing on social development, inclusion governance, and institution-building as key elements of poverty reduction. • Strengthening the ability of the governments to deliver quality services, efficiently and transparently • Protecting the environment. • Supporting and encouraging private business development • Promoting reforms to create a stable macroeconomic environment, conducive to • investment and long-term planning. “For each of its clients, the Bank works with government agencies, nongovernmental organizations, the private sector to formulate assistance strategies.”

4 keys for economic growth The World Bank sees the four key factors necessary for economic growth and the creation of a business environment as: • Capacity Building – Strengthening governments and educating government officials • Infrastructure creation – implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honoring of contracts • Development of Financial Systems – the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures • Combating corruption – Eradicating corruption to ensure optimal effect of actions

Issues handled by World Bank • Information, Computing & Telecommunications • International Economics & Trade • Labor & Social Protections • Agriculture & Rural Development • Conflict & Development • Development Operations & Activities • Economic Policy

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Education Energy Environment Financial Sector Gender Governance Health, Nutrition & Population • Industry • Information & Communication Technologies

Issues handled by World Bank • Governance • Health, Nutrition & Population • Industry • Information & Communication Technologies

• Information, Computing & Telecommunications • International Economics & Trade • Labor & Social Protections

Bank’s mission • The Bank’s mission is to aid developing countries and their inhabitants achieve the alleviation of poverty – – – –

by developing an environment for investment, jobs and sustainable growth, thus promoting economical growth and through investment in and empowerment of the poor to enable them to participate in development

Financial Assistance •

Lending Instruments – – –

•

Depending upon eligibility, a member country will draw on loans from either IBRD or IDA to support a lending project The Bank offers borrowers a number of lending instruments designed for different kinds of investment and adjustment projects E.g. Sector Investment and Maintenance Loans (SIMs),

Co financing –

•

Refers to funding committed by an external official bilateral or multilateral partner, an export credit agency, or a private source in the context of a specific Bank-funded project.

Grants – –

Grants are seed money for pilot projects with innovative approaches and technologies. become catalysts for collaboration with partner organizations to promote shared regional and global objectives.

Analytic and Advisory Services •

The Bank undertakes a broad range of analytic and advisory activities to support its development mission

•

Country clients benefit from a tailored program of economic and sector work (ESW) geared to their specific development challenges.

•

ESW examines a country's economic prospects, including, – for example, its banking or its financial sectors, and trade, poverty, and social safety net issues.

•

The Bank's diagnostic work is shared with clients and partners

•

The Advisory Services draw on the work of Thematic Groups, which are organized and coordinated by Bank staff, and focus on specific development topics.

Learning & Capacity Building • The Bank conducts learning and knowledge sharing programs to enhance the skills and development of its clients, staff, and partners. • Includes training courses, policy consultations, partnership with training and research institutions worldwide, and the creation and support of knowledge networks related to international development. • The program enhances the professional and technical skills of participating staff and promotes cultural exchange, fresh perspectives, and diversity for the institutions involved.

Data And Charts

Policies Of World Bank • Policy Definitions and Documentation • Policy Formulation and Review • Compliance Monitoring • Disclosure of Information • Fiduciary Policies • Safeguard Policies

Evaluation at the World Bank • Social and environmental concerns • The Independent Evaluation Group • Extractive Industries Review • Impact evaluations

Allegations of corruption • In 2005, Paul Wolfowitz, President of the World Bank, allegedly used his position to influence a pay and grade increase for his girlfriend Shaha Riza. • Liz Cheney, while remaining on the bank's payroll. Her salary was increased from nearly $133,000 to taxfree compensation of $180,000, and eventually reached $193,590 after subsequent raises. • The panel concluded that the salary increase at Mr. Wolfowitz's direction.

Criticism • The World Bank has long been criticized by nongovernmental organizations and academics & including its former Chief Economist. • Called free market policies – Bank advocates in many cases • In practice are often harmful to economic development if implemented badly, too quickly in the wrong sequence, or in very weak, uncompetitive economies

Criticism • Makes a sharp criticism of the assumptions and structure of the World Bank operation. • In the past six years, it has committed about US$2 billion through grants, loans and credits for programs to fight HIV/AIDS. • Critics, claim these financial expenditures to be insufficient. "Race Against Time"

International Bank for Reconstruction & Development • The IBRD is an international organization whose original mission was to finance the reconstruction of nations devastated by WW -II. Now, its mission has expanded to fight poverty • The IBRD provides loans to governments, and public enterprises, always with a government guarantee of repayment • Issue world Bank bonds on the global capital markets • Originally the bank focused mainly on large-scale infrastructure projects, building highways, airports, and power plants

International Development Asso. • Helps the world’s poorest countries. • IDA is responsible for providing long-term interest-free loans to the world's 81 poorest countries, 40 of which are in Africa. • Education, basic health services, clean water and sanitation, environmental safeguards, business climate improvements, infrastructure and institutional reforms. • Arrest the spread of HIV/AIDS.

Multilateral Investment Guarantee Agency • It was established to promote foreign direct investment into developing countries. • MIGA was founded in 1988 with a capital base of $1 billion. • Insuring investors against political risk, advising governments on attracting investment, sharing information

MIGA’S BUSINESS • Guarantees protect investors against the risks of Transfer Restriction, Expropriation, War and Civil Disturbance •

MIGA can cover only new investments. These include: 1. New, Greenfield investments; 2. New investment contributions associated with the expansion, modernization, or financial restructuring of existing projects; and 3. Acquisitions involving privatization of state enterprises

International Finance Corp. • Promotes private sector investment in developing countries as a way to reduce poverty and improve people's lives. •

Established in 1956

• IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. 1. Financing private sector projects located in the developing world. 2.Helping private companies in the developing world mobilize financing in international financial markets. 3. Providing advice and technical assistance to businesses and governments

IFC- MANAGEMENT • IFC has 179 member countries . • To join IFC, a country must first be a member of the International Bank for Reconstruction and Development (IBRD) • IFC's corporate powers are vested in its Board of Governors, to which member countries appoint representatives • The Board of Governors delegates many of its powers to the Board of Directors, and which represents IFC's member countries. • The Board of Directors reviews all projects.

International Centre for Settlement of Investment Disputes • ICSID has an Administrative Council, chaired by the World Bank's President, and a Secretariat. • investment disputes between member countries and individual investors. • In field of the settlement of disputes has consisted in the Secretary of ICSID accepting to act as the appointing authority of arbitrators for noninstitutional arbitration proceedings. • ICSID also carries on advisory and research activities. • Published a semi-annual law journal entitled ICSID.

BIBLIOGRAPHY • • • • •

www.worldbank.org www.imf.org http://finmin.nic.in http://commerce.nic.in www.rbi.org.in

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