This post tries to explain about such financial institutions as World Bank, IMF, WTO, ADB, AIIB, TRIPS and TRIMs and NDB etc. This is an important topic in UKPSC paper 5 and frequently overlooked. This is also important for UPSC preparation.
It comprises of International Bank for Reconstruction and Development(IBRD) and International Development Association(IDA). When three other institutions i.e. International Finance Corporation(IFC), Multilateral Investment Guarantee Agency(MIGA) and International Centre for Settlement of Investment Disputes(ICSID) are taken with it, it is called World Bank Group. It makes leveraged loans to developing countries. Its stated goal is poverty reduction and it is the biggest such financial institution in the world. Its loans and grants come with conditions:- That the receiving country has to bring economic reforms and open that country for foreign capital. It was founded in Bretton Woods in 1944 along with IMF and another institution. Based in Washington DC, its President was traditionally American until current president Jim Yong Kim, who is South Korean.
Its First loan was given to France on condition that Communist members of it government were removed. After Marshall Plan, WB shifted focus to non-European countries. Currently it works on six strategic themes to preserve environment while promoting development. It finances infrastructure, education, water and transport etc. It promotes goals like eradication of poverty and hunger, universal primary education, gender equality, reducing child mortality, improving maternal health, combat diseases, ensure sustainable development and development of global partnerships. It has also set some Millennium Development Goals.
It is headed by the President and advised by Chief Economist. Its decisions are taken by voting in which US has 15.85% votes and Japan 6.84%. China has third largest 4.42% and India is at seventh place with 2.91% votes. India seeks larger voting % in line with its current economic status.
1. Market reforms too quick can harm economies.
2. Run by a few powerful countries although has 188 members.
3. WB runs by Washington Consensus, which is neoliberal and emphasizes GDP.
4. Focused on outlay and not outcomes.
5.Expands bureaucratic power.
6. Why only American president.
International Monetary Fund is one of the Bretton Woods organisation headquartered at Washington DC. Its initial goa was reconstruction of international payment system but now it also works to foster global monetary cooperation, secure financial stability, facilitate international trade, high employment and sustainable economic growth and reduce poverty. It helps keep countries out of Balance of Payment problems which would otherwise result in worse economic problems. It also surveys economies of member countries for policy issues and provide inputs regarding it. The loans it provides are conditional and with collateral. India sought its assistance during its BoP cirisis in early 90s and had to submit gold a collateral as well as open its economy for receiving assistance. These conditions are as per the Washington Consensus. The currency of IMF is SDR.
All members have two governers in the Board. The Board of Governers has delegated most of its powers to an Executive Board of 24 members that takes decisions. Its membership is permanant for 8 countries( India not permanent) and other members chosen by a roster. The Chairman of Executive Board is called Managing Director who is always a European(currently Christine Lagarde).
The voting power is based on a quota system. India has 2.79% quota of SDRs and 2.67% voting Power. US has 16.73% voting power followed by Japan at 6.23% and China at 6.16%.
1. Control of developed countries over less developed ones.
2. No control over developed world and usurping sovereignty in LDCs.
3. Its conditions that include cutting expenditure have worse effects.
4. Bad effect on food security, education and environment.
In 2014 BRICS CRA(Contingent Reserve Arrangement was started with $100 bn to provide liquidity through currency swaps in BoP crises. Also AIIB and African Monetary Fund have been established.
WTO or World Trade Organistion is an intergovernmental organisation for regulating world trade. It was created in 1995 under Marrakesh Agreement and replaced earlier GATT. It provides a framework for negotiating trade agreements and a mechanism for dispute resolution. Currently the Doha Round negotiations have been stuck since 2001 due to protectionism of farm subsidies by developed economies and free trade of industrial goods.( which hurts developing countries).
1. To oversee implementation, administration and operations of covered agreements.
2. To act as a platform for negotiation and dispute resolution.
WTO framework for trade:-
The main aspects of its trade framework are:-
1. Non discrimination
- MFN rule:- Grant a concession to one nation and it has to be granted to all
- National treatment:- treat external goods as if produced in your country
- Exceptions in favor of developing countries, regional FTAs, customs unions etc. permitted
3. Binding and Enforceable committments
5. Safety rules: Exception for certain reasons like enironment, public health, animal health etc. allowed.
- Council for trade in Goods
- Council for trade in Services
- Council for Trade related aspects of Intellectual Property Rights
- Trade negotiations committee
All rules are agreed by members after negotiations where practice of consensus is followed.
Dispute settlement:- WTO members have agreed to use WTO for dispute settlement rather than take unilateral action if they think a member is violating rules. Case specific panels are appointed by Dispute Settlement Body(DSB), Appeallate body, Director general and Secretariat and Arbitrators. Priority is to settle through mutually agreeable settlement.
Accession to WTO may take a long time and terms are unique for every country. Country applies for membership, a working party studies and gives terms and conditions which are negotiated and sent to general council. Once general council approves, Protocol of Accession with Schedules, it is ratified by applicant’s parliament and it becomes a member.
WTO has 164 members and 22 observers(latest Afghanistan in 2016). Biggest economies outside WTO are Iran and Algeria. WTO has around 60 agreement which it oversees including agreement on agriculture, general agreement on trade in services, agreement on technical barrier to trade and General agreement on trade related aspects of intellectual property rights
Under Doha Round an agreement known as Bali Package was signed in 2013 during 9th Ministerial conference. It aims at lowering trade barriers. It consists of four areas:-Trade facilitation(legally binding; India accepted), Agriculture(for food security in developing countries; India runs NFSA under this), Cotton and Development and LDC issues.
1. Favours developed countries over developing countries, e.g. Agriculture subsidies, Non trade barriers, TRIPs etc.
2. Labour and environmental issues are ignored.
3. Green room discussions which are opaque drive agenda and not good for consensus and democratic nature.
Note: New topics being added.