World Development Agencies

What is the purpose of the bank?

"to assist in the reconstruction and development of territories of members... facilitate the investment of capital for productive purposes... to promote private foreign investment by means of guarantees or participation in loans.... to supplement private investment by providing, on suitable conditions.

World Trade Organization

(Formerly GATT and now WTO): was established in 1948 when the General Agreement on Tariffs and Trade (GATT) was ratified by 23 countries.

What is the importance of the WTO?

-Sets the rules for the majority of the world trade. -All the countries present had to agree to upholding two "liberal and unexceptional" principles know as the "national treatment": 1. All countries must treat foreign investment in their economy the same as domestic firms. 2.Any concession granted to one trading partner of the WTO is extended to all.

How does the WTO function?

-The WTO host a series of multilateral trade negotiations know as "rounds." -In these rounds trade arrangements are negotiated and disputes resolved. -Voting within the WTO is unweighted (each members has one vote) -Decision making is generally based in consensus. -However, there are provisions that ¾ majority is needed such the adoption of an interpretation of a trade agreement or for a waiver of obligations by a member. -The length of each round gives an insight into the challenges of achieving international consensus on trade agreements. Ex. The Uruguay round took seven years to complete.

Origin of WTO

-The origin of the WTO goes back to 1948 when the General Agreement on Tariffs and Trade (GATT) was ratified by 23 countries. -As of July 2008, 153 countries belong to the WTO. -Similar to the IMF it ranks its members "most favored nation" status.

Economic Results of the WTO

-Value of merchandise trade has increased from $57 billion to $3,500 billion. -Trade in services has risen by 20%.

Key Players

-World Trade Organization -The World Bank Group -International Monetary Fund -United Nations

Basic Principle of WTO

-cut tariffs -eliminate barriers to trade -open markets -treat all countries the same in matters of trade

Specific Changes in IMF

1) On September 18, 2006 IMF approved reforms to increase the voting shares of China, South Korea, Turkey and Mexico. Thus, reflecting their growing economic power. Help to boost the credibility of the IMF after six decades of giving the United States and other Western powers too much influence. 2) The IMF will overhaul the voting structure of all member nations within two to give developing nations a great representation. 3) On March 2008, after 18 month of negotiations the IMF's board approved a plan to change the IMF's voting structure. However, the plan needs to be approved by the 185 members countries next month in DC. The voting share of developing countries will rise to 42% from about 40.5% Advanced economies like the United States (17%), Germany (6%), and Japan (6.13%) would have 58% down from 59.5% Under pressure to cut costs, it will offer 500 employees buyouts. Of those 380 employees or 13% of 2,900 will not be replaced. The fund has estimated that without the staff reduction could face a budget shortfall of about $400 million by 2010. The fund is seeking to cut $100 million in expenses, largely through staff reductions.

Structural Adjustment Policy

1. Severe spending reductions in government, 2. Balance the budget (no deficit), 3. Eliminating trade barriers, 4. Cutting social subsidies, 5. Encouraging exports, 6. Devaluing currencies, 7. Removing artificial barriers to foreign investment. 8. Price reforms 9. Wage restraints 10. Institutional reforms

How can a country obtain a loan?

1. You have to be a member 2. Advisers and experts representing the bank analyze the prospective borrower can meet conditions stipulated by the bank. -The conditions are designed to ensure that loans will be used efficiently and they will be repaid. 3. The borrower must be unable to secure loans from an outside source. 4. The borrower must show that the project is technical feasible and economically sound. 5. To ensure repayment, the borrower must guarantee repayment. 6. After the loans has been issued the World Bank requires updates on the projects.

Results of problems with IMF

Developing countries in Asia are pilling up enormous foreign exchange reserves as a financial cushion in case anther crisis hit. -In 2005 Asian reserves totaled $1.9 trillion vs. $497 billion in 1997. In 2000, 13 Asian Countries launched the Chiang Mai Initiative a first step toward a regional monetary fund. In Latin America Brazil and Argentina have paid off IMF loans early in a bid to free of the fund's structure. Together with a healthy world economy and antipathy toward the IMF. The total loans have plunged from $106.9 billion to $33.9 billion.

How can a country become a member of the World Bank?

How can a country become a member? Members have to purchase shares that are worth about ($120,000 each) The minimum number of share that a member nation must purchase varies of their national economy.

Recent Problem with IMF

IMF bailouts plunged millions of people in countries such as Indonesia, Greece, Ireland, and Russia into poverty and ignited public anger.

WTO

In 2008, discussion among seven nations have produced "very encouraging movements" in efforts to produce a global trade agreements. Members of the core negotiating group, represent US, Brazil, the European Union, India, China, Japan, and Australia. The talks mark the last change to strike a deal on cutting tariffs and subsidies in agriculture and manufacturing goods before the U.S. presidential elections. The Doha rounds (Doha, Qatar 2001) began seven years ago with the aim of helping poor nations benefit from trade liberalization. Negotiators from rich countries want more foreign goods while developing countries are pressing wealthy governments such as the United States and the E.U to cut agricultural tariffs and aid to their farmers. For the meeting to succeed, the WTO's 153 members have to agree.

What impact has structural adjustment policies (SAPs) on women?

Increased numbers of women look for income-generating work outside the home because of harsh economic conditions in the country. Women also enter forms of employment where job security and benefits are few such as domestic service, and where their vulnerability to abuse is often high. There is much evidence to suggest that SAP's have to lead to a widening of wage differentials between men and women in all sectors of the economy. In times of economic recession such as the ones that occur in the SAP's women enrollment of girls in schools to save costs and to care for younger children. Also, during times of food of insecurity women often eat less. Leading to a decline of women's health and affects children if the women is pregnant or breast-feeding. -In Tanzania, cutbacks in public health services have led to an increase in under-five-years-old mortality from 193 per thousand in 1980 to 309 in 1987. The shift to export crops encouraged by SAPs often does not benefit women. Women work in subsistence agriculture and would not benefit from a export oriented market. Greater unemployment, decreased purchasing power, and cut-backs in social services result in women adopting strategies to make funds go further.

How does the World Bank work?

Not all the money is deposited only 8.5%; the remaining money is only to deposited when is needed. The Bank working funds are derived from -Sales of interest-bearing bonds -Notes in capital markets of the world -Repayment of earlier loans -From profits on its operations. The World Bank tends to lend money for individual projects like building highways and dams and financing education and health care. The World Bank has earned profit every year since 1947!!!!!!!!! Unlike commercial banks, the World Bank takes no financial risks since its loans are to governments with whom it has "preferred creditor" status (credit rating) It is estimated that for every US dollar the US government has invested in the World Bank, US companies have received back $1.10. (10% return). Other major holders benefit as well, such as -United Kingdom $1.90 (90% return) -France $1.78 -Germany $1.47 -Japan $.97 (-3% return)

More problems

Now countries that do not want to meet the IMF conditions can go elsewhere. Argentina and Brazil joined Venezuela to build the world's largest natural gas pipeline spanning 5,000 miles at a cost of $20 billion. Lending by the IMF to Latin America and the Caribbean plunged from $49 billion in 2003 to $759 million in 2006!!!!!!!!! Bolivia has naturalized oil and gas industries, reversing the privatization by IMF. Also Bolivia, has forced foreign energy firms to accept drastically diminished profits. Bolivia and other developing countries have various alternative to borrow money from Venezuela and China at a low-interest loans. Less money borrow lower fee income, resulting in emergency financial crunch. In the short term, the IMF is considering selling some $62 billion in gold.

Recent Changes with the World Bank

On September 2006 the World Bank endorsed a broad strategy for tackling corruption that gave the 24 member committee oversight to ensure that the decision are broadly based. Corruption: The World Bank estimates $1 trillion in bribes change hands worldwide each year!!!!!!!!!!!!! -The bank said it uncovered 2,000 cases of reputed fraud, corruption, and other misconduct related to its projects since 1999. -Has sanctioned more than 330 companies and people. The changes come after the president Paul Wolfowitz, blocked a $1 billion projects in Africa and Asia due to massive corruption. The decision brought backlash by: -Both donors and recipients -It penalizes poor people for the abuses of the their gov't On June 30, 2007 Paul Wolfowitz resigned as president of the World Bank. Wolfowitz had resisted pressure to resign for weeks, after it became clear in April that he'd helped his girlfriend, Shaha Riza, win a generous salary and a promotion at the US State Department. -Riza had been a Middle East expert at the bank until 2005, when Wolfowitz was named president. Wolfowitz' critics have argued for weeks that the nepotism scandal hurt his credibility in fighting corruption among governments the bank intended to help. On July 1, 2007, Robert B. Zoellick became the 11th President of the World Bank Group and outlined a new vision for the world Bank: Zoellick said the financial crisis underscored the need for "concerted global action now, not just to deal with the crisis but to put in place new architecture, new norms and new oversight to ensure that this crisis never happens again." "The poorest and must vulnerable groups risk the most serious _ and in some cases, permanent _ damage," Zoellick said. "One hundred million people have already been driven into poverty this year and that number will grow."

Recent changes in IMF

Over 30 years despite wide shifts in the relative size of their economies the voting power has not changed in the last 30 years. For example, China's economy has grown to twice the size of those of Belgium and the Netherlands combined, yet Belgium and the Netherlands together have 1.5 times as many votes. At the Fund, decisions are mostly approved by consensus, so voting power has little practical importance. But given the perception that the U.S. gov't dominates the institution, changing voting shares "is important symbolically." "The proposed reforms fall far short in addressing the challenges facing the IMF and its evolution toward a truly global institution with more balanced and inclusive representation and voting power." In the long run, a new business model is needed. IMF is trying to be an adviser rather than a banker. Also the IMF is trying to shift its focus to areas that include how gov't interact with financial markets, as well as currency imbalances.

What is the purpose of the IMF?

Promote the health of the world economy, International monetary cooperation, world trade, to help countries with balance of payment problems.

How can a country become a member?

The IMF began operations in 1947. Membership is open to all independent nations and included 185 countries in 2008. Each member is assigned a quota; whose value is based on the weighted average value of five major currencies. Each member's quota is an amount corresponding to its relative position in the world economy which determines its maximum contribution to the IMF's financial resources Current total Quotas: $352 billion as of May 2008 For example, The United States has the largest quota, in 2008 the U.S. quota was about SDR 37.1 billion. The smallest quota, that of the Republic of Palau, was about 3.1 million.

Catch of Balance of Payment

The IMF loan's are give in condition that government adopt economic policies determined by the IMF know as structural adjustment policy.

International Monetary Fund (IMF)

The IMF was established, along with the International Bank for Reconstruction and Development, at the UN Monetary and Financial Conference held in 1944 at Bretton Woods, New Hampshire.

IMF

The IMF was established, along with the International Bank for Reconstruction and Development, at the UN Monetary and Financial Conference held in 1944 at Bretton Woods, New Hampshire. Is based in Washington D.C. but operates independently of the World Bank Group.

Recent Changes with IMF: 2010

The International Monetary Fund on Monday tripled the amount of money it can deploy in a crisis, drawing more heavily on commitments from emerging economies such as China and Brazil to establish a pool of more than half a trillion dollars that officials hope will help deter future problems. The board action finalizes an effort begun a year ago when the G20 group of the world's largest economies agreed that the IMF should seek commitments for at least $500 billion that countries would lend to the agency if needed. Although the IMF was not at risk of exhausting the roughly $250 billion it had available going into the recession, the speed with which the downturn hit and the extent of problems in larger, developed economies raised the fear that an extended downturn would stretch its resources. The lending agreement approved on Monday is different from those quotas, and for the first time puts China, Russia, India, Brazil and nine other countries in line to lend money to the fund alongside the 26 nations that already had extended credit lines to the agency. China made the largest commitment among the new countries, promising about $50 billion. The program includes a promised $100 billion in loans from the United States, a tenfold increase

Shift in Focus with World Bank

The World Bank has already shifted its focus in recent years. Its lending for energy efficiency has increased more than sixfold and on renewables more than threefold since 2007. By 2009, renewable energy and energy efficiency projects accounted for 40 percent of the World Bank's $8.2 billion in energy lending while fossil fuel projects accounted for 24 percent. Since the end of apartheid, access to electricity in South Africa has soared from 34 percent to 81 percent, Zoellick said. In 2008, the country suffered from severe power shortages, a result of problems getting coal supplies to power plants but also seen as a result of generation shortages. Eskom, a state-owned utility with 13 other coal plants and a history of financial mismanagement, had done little investment in generation in 20 years. Zoellick said there hasn't been a new power plant built in a decade.

New Projects of the World Bank

The World Bank yesterday approved a $3.75 billion loan to help South Africa build one of the world's largest coal-fired power plants, a decision long expected but bitterly fought from the streets of Durban to the halls of the U.S. Congress. The decision is part of a wider debate about World Bank lending. Non-government organizations have been pressing the bank to shrink or eliminate its support for new fossil fuel plants. They say that new coal facilities will lock in carbon dioxide emissions for the 40-year lifespan of the plants. But the bank believes that in some places -- especially sub-Saharan Africa, where in some countries 90 percent of the people have no electricity -- the priority of reducing poverty might justify some new coal plants.

What are the benefits?

The amount of the quota subscription determines how large a vote a member will have in IMF deliberations: how much foreign exchange it may withdraw from the fund, how many loans it will receive in periodic allocations. The member may use this foreign exchange for a certain time (up to about five years) to extricate itself from its balance-of-payments problem, after which the currency is to be returned to the IMF's pool of resources. The borrower pays a below-market rate of interest for the IMF resources it uses; the member whose currency is used receives almost all of these interest payments; the remainder goes to the fund for operating expenses.

World Bank

The world bank in 1999 was the major source of financing for development in the developing countries. With 1,900 projects worth over $148 billion dollars.

Other problems

Venezuela and Argentina aim to establish a new bank for nations frustrated with conditions imposed by the IMF. Argentina will cooperate with a "binational" bond issue that will serve as the precursor to a region wide financial institution. The so called "bond of the South" will be valued at $2 billion and be used to finance infrastructure projects. Chavez has established his country as a regional lender of last resort. He has purchased $2.8 billion to $3 billion in Argentine bonds in January. Allowing Argentina to cut ties with the IMF. Chavez has also purchased $25 million of Ecuador's debt last year and offered to buy $300 million more.

The World Bank Group

includes four key international institutions in development: -Bank for Reconstruction and Development (IRBD), 1944. -The International Development Association (IDA), 1960. -The International Finance Corporation (IFC), 1956. -Multilateral Investment Guarantee Agency (MIGA), 1988.

Balance of Payment

is a country's record of economic transactions with other countries. (Exports-Imports) Ex. If a country buys more abroad than it sells abroad, it has a balance of payments problem and has to find ways to finance the difference.

Why is the WTO so controversial?

national sovereignty can be threaten, It defines manufacturing standards, Environmental and labor regulations, The agreements made within institutions have an impact on domestic economies throughout health, environment, agriculture, etc. Alleviation of debt, Lack of progress toward democracy, Technology transfer from develop to developing country, Administers trade sanctions when a member has broken WTO rules, WTO is more powerful than its GATT.

United Nations (UN)

was signed in 1945 by 51 countries and by 2003 it had 191 members.