unit 1 ihrm

8/7/2019 unit 1 ihrm

1/24

1 Introduction

"Globalization is not something we can hold off or turn off . . . it is the economic equivalent of a

force of nature -- like wind or water." Bill Clinton (American 42nd US president (1993-2001))

The first part of this research paper will define the major drivers of globalization and then

introduce some of the basic and advanced theories of international trade and business. With this

foundation it will then try to integrate theories and drivers and compare them to the actual

situation and discuss if they are appropriately describing what we are seeing today.

2 Drivers of Globalization

The media and almost every book on globalization and international business speak about

different drivers of globalization and they can basically be separated into five different groups:

1) Technological drivers

Technology shaped and set the foundation for modern globalization. Innovations in the

transportation technology revolutionized the industry. The most important developments among

these are the commercial jet aircraft and the concept of containerization in the late 1970s and

1980s. Inventions in the area of microprocessors and telecommunications enabled highly

effective computing and communication at a low-cost level. Finally the rapid growth of the

Internet1 is the latest technological driver that created global ebusiness and e-commerce.

2) Political drivers

Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign

direct investments in almost all over the world. The institution of GATT (General Agreement on

Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing

opening and privatization in Eastern Europe are only some examples of latest developments.

3) Market drivers

As domestic markets become more and more saturated, the opportunities for growth are limitedand global expanding is a way most organizations choose to overcome this situation. Common

customer needs and the opportunity to use global marketing channels and transfer marketing to

some extent are also incentives to choose internationalization. (Ferrier, 2004)


2/24

4) Cost drivers

Sourcing efficiency and costs vary from country to country and global firms can take advantage

of this fact. Other cost drivers to globalization are the opportunity to build global scale

economies and the high product development costs nowadays. (Ferrier, 2004)

5) Competitive drivers

With the global market, global inter-firm competition increases and organizations are forced to

play international. Strong interdependences among countries and high two way trades and FDI

actions also support this driver.

INTERNATIONAL TRADE.

What is International Trade?

International trade is exchange of capital, goods, and services across international borders or

territories. It refers to exports of goods and services by a firm to a foreign-based buyer

(importer).

While international trade has been present throughout much of history (see Silk Road, Amber

Road), its economic, social, and political importance has been on the rise in recent centuries.

Industrialization, advanced transportation, globalization, multinational corporations, and

outsourcing are all having a major impact on the international trade system. Increasing

international trade is crucial to the continuance of globalization. International trade is a major

source of economic revenue for any nation that is considered a world power. Without

international trade, nations would be limited to the goods and services produced within their own

borders.

Risk in International Trade:

Companies doing business across international borders face many of the same risks as would

normally be evident in strictly domestic transactions. For example,

Buyer insolvency (purchaser cannot pay);
http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Goodshttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/International_bordershttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Silk_Roadhttp://en.wikipedia.org/wiki/Amber_Roadhttp://en.wikipedia.org/wiki/Amber_Roadhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Transporthttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Outsourcinghttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Goodshttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/International_bordershttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Silk_Roadhttp://en.wikipedia.org/wiki/Amber_Roadhttp://en.wikipedia.org/wiki/Amber_Roadhttp://en.wikipedia.org/wiki/Industrializationhttp://en.wikipedia.org/wiki/Transporthttp://en.wikipedia.org/wiki/Globalizationhttp://en.wikipedia.org/wiki/Multinational_corporationhttp://en.wikipedia.org/wiki/Outsourcinghttp://en.wikipedia.org/wiki/Globalization


3/24

Non-acceptance (buyer rejects goods as different from the agreed upon specifications);

Credit risk (allowing the buyer to take possession of goods prior to payment);

Regulatory risk (e.g., a change in rules that prevents the transaction);

Intervention (governmental action to prevent a transaction being completed);

Political risk (change in leadership interfering with transactions or prices); and

War and Acts of God.

In addition, international trade also faces the risk of unfavorable exchange rate movements (and,

the potential benefit of favorable movements

Regulation of International Trade:

Traditionally trade was regulated through bilateral treaties between two nations. For centuriesunder the belief in mercantilism1 most nations had high tariffs and many restrictions on

international trade. In the 19th century, especially in the United Kingdom, a belief in free trade

became paramount. This belief became the dominant thinking among western nations since then.

In the years since the Second World War, controversial multilateral2 treaties have attempted to

promote free trade while creating a globally regulated trade structure.

Free trade is usually most strongly supported by the most economically powerful nations, though

they often engage in selectiveprotectionism for those industries which are strategically important

such as the protective tariffs applied to agriculture by the United States and Europe. The

Netherlands and the United Kingdom were both strong advocates of free trade when they were

economically dominant, today the United States, the United Kingdom, Australia and Japan are its

greatest proponents. However, many other countries (such as India, China and Russia) are

1Mercantilism is an economic theorythat holds the prosperity of a nation is dependent

upon its supply ofcapital, and that the global volume ofinternational trade is

"unchangeable." Mercantilism suggests that the ruling government should advance these

goals by playing aprotectionistrole in the economy; by encouragingexports anddiscouraging imports, notably through the use oftariffs andsubsidies.[

2Multilateral agreements: These trade agreements have often resulted in discontent and

protest with claims of unfair trade that is not beneficial to developing countries.
http://en.wikipedia.org/wiki/List_of_bilateral_free_trade_agreementshttp://en.wikipedia.org/wiki/Mercantilismhttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Multilateralhttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Economic_theoryhttp://en.wikipedia.org/wiki/Economic_theoryhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Tariffshttp://en.wikipedia.org/wiki/Subsidyhttp://en.wikipedia.org/wiki/Mercantilism#cite_note-0http://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/Economic_theoryhttp://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/World_economyhttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/Tariffshttp://en.wikipedia.org/wiki/Subsidyhttp://en.wikipedia.org/wiki/Mercantilism#cite_note-0http://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/List_of_bilateral_free_trade_agreementshttp://en.wikipedia.org/wiki/Mercantilismhttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Multilateralhttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Europehttp://en.wikipedia.org/wiki/Netherlandshttp://en.wikipedia.org/wiki/Australiahttp://en.wikipedia.org/wiki/Japan


4/24

increasingly becoming advocates of free trade as they become more economically powerful

themselves. As tariff levels fall there is also an increasing willingness to negotiate non tariff

measures, including foreign direct investment, procurement and trade facilitation.The latter looks

at the transaction cost associated with meeting trade and customsprocedures.

Today, the regulation of international trade is done through the World Trade Organization at the

global level like the General Agreement on Tariffs and Trade (GATT) and World Trade

Organization. The international organizations like IMF, World Bank also have a key role to play

in international trade.

At the regional level regional arrangements such as MERCOSURin South America, the North

American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, and

the European Union between 27 independent states, Free Trade Area of the Americas (FTAA)

and similar agreements such as the Multilateral Agreement on Investment (MAI) also play

important role at the regional levels.

I- GATT.

a) Emergence:

Efforts to negotiate international trade agreements (International Trade Organization) began in

1927 at the League of Nations.

The International Trade Organization (ITO), was first proposed in February 1945 by the United

Nations Economic and Social Council

The General Agreement on Tariffs and Trade (typically abbreviated GATT) was negotiated

during the UN Conference on Trade and Employment and was the outcome of the failure ofnegotiating governments to create the International Trade Organization (ITO).

The negotiating countries of the ITO began parallel negotiations for the GATT as a way to

introduce early tariff cuts. The plan called for the ITO to take control over GATT, once the ITO
http://en.wikipedia.org/wiki/Trade_facilitationhttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/MERCOSURhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Free_Trade_Area_of_the_Americashttp://en.wikipedia.org/wiki/Multilateral_Agreement_on_Investmenthttp://en.wikipedia.org/wiki/International_Trade_Organizationhttp://en.wikipedia.org/wiki/International_Trade_Organizationhttp://en.wikipedia.org/wiki/United_Nations_Economic_and_Social_Councilhttp://en.wikipedia.org/wiki/United_Nations_Economic_and_Social_Councilhttp://en.wikipedia.org/wiki/International_Trade_Organizationhttp://en.wikipedia.org/wiki/Trade_facilitationhttp://en.wikipedia.org/wiki/Transaction_costhttp://en.wikipedia.org/wiki/Customshttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/MERCOSURhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/North_American_Free_Trade_Agreementhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Free_Trade_Area_of_the_Americashttp://en.wikipedia.org/wiki/Multilateral_Agreement_on_Investmenthttp://en.wikipedia.org/wiki/International_Trade_Organizationhttp://en.wikipedia.org/wiki/International_Trade_Organizationhttp://en.wikipedia.org/wiki/United_Nations_Economic_and_Social_Councilhttp://en.wikipedia.org/wiki/United_Nations_Economic_and_Social_Councilhttp://en.wikipedia.org/wiki/International_Trade_Organization


5/24

was finalized. Owing to the United States failing to implement the ITO, GATT was the only

organization left.

GATT was formed in 1947 and lasted until 1994, when it was replaced by the World Trade

Organization in 1995.

The history of the GATT can be divided into three phases: the first, from 1947 until the Torquay

Round, largely concerned which commodities would be covered by the agreement and freezing

existing tariff levels. A second phase, encompassing three rounds, from 1959 to 1979, focused on

reducing tariffs. The third phase, consisting only of the Uruguay Round from 1986 to 1994,

extended the agreement fully to new areas such as intellectual property, services, capital, and

agriculture. Out of this round the WTO was born.

GATT signatories occasionally negotiated new trade agreements that all countries would enter

into. Each set of agreements was called a round. In general, each agreement bound members to

reduce certain tariffs. Usually this would include many special-case treatments of individual

products, with exceptions or modifications for each country.

Objective of GATT:

The GATT's main objective was the reduction of barriers to international trade. This was

achieved through the reduction oftariffbarriers, quantitative restrictions and subsidies on trade

through a series of agreements. The GATT was a treaty, not an organization although a small

secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland.

II- WORLD TRADE ORGANIZATION (WTO).

The World Trade Organization (WTO) is an international organization designed by itsfounders to supervise and liberalizeinternational trade. The organization officially commenced

on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs

and Trade (GATT), which commenced in 1947.
http://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade#Torquay_Round_-_1951http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade#Torquay_Round_-_1951http://en.wikipedia.org/wiki/Uruguay_Roundhttp://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Import_quotahttp://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Centre_William_Rappardhttp://en.wikipedia.org/wiki/International_organizationhttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Marrakech_Agreementhttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade#Torquay_Round_-_1951http://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade#Torquay_Round_-_1951http://en.wikipedia.org/wiki/Uruguay_Roundhttp://en.wikipedia.org/wiki/Intellectual_propertyhttp://en.wikipedia.org/wiki/Service_(economics)http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Agriculturehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Tradehttp://en.wikipedia.org/wiki/Tariffhttp://en.wikipedia.org/wiki/Import_quotahttp://en.wikipedia.org/wiki/Subsidieshttp://en.wikipedia.org/wiki/Centre_William_Rappardhttp://en.wikipedia.org/wiki/International_organizationhttp://en.wikipedia.org/wiki/Free_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Marrakech_Agreementhttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Tradehttp://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade


6/24

The World Trade Organization deals with regulation of trade between participating countries; it

provides a framework for negotiating and formalizing trade agreements, and a dispute resolution

process aimed at enforcing participants' adherence to WTO agreements which are signed by

representatives of member governments and ratified by theirparliaments. Most of the issues that

the WTO focuses on derive from previous trade negotiations, especially from the Uruguay

Round (1986-1994).

The organization is currently endeavoring to persist with a trade negotiation called the Doha

Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable

participation of poorer countries which represent a majority of the world's population. However,

the negotiation has been dogged by "disagreement between exporters of agricultural bulk

commodities and countries with large numbers of subsistence farmers on the precise terms of a'special safeguard measure' to protect farmers from surges in imports. At this time, the future of

the Doha Round is uncertain."

The WTO has 153 members, representing more than 97% of total world trade[8] and 30

observers, most seeking membership. The WTO is governed by a ministerial conference,

meeting every two years; a general council, which implements the conference's policy decisions

and is responsible for day-to-day administration; and a director-general, who is appointed by the

ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva,

Switzerland.

Functions of WTO:

Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.

It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty 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.Another priority of the WTO is the assistance ofdeveloping, least-developed and
http://en.wikipedia.org/wiki/Parliamenthttp://en.wikipedia.org/wiki/Uruguay_Roundhttp://en.wikipedia.org/wiki/Uruguay_Roundhttp://en.wikipedia.org/wiki/Doha_Development_Agendahttp://en.wikipedia.org/wiki/Doha_Development_Agendahttp://en.wikipedia.org/wiki/World_Trade_Organization#cite_note-7http://en.wikipedia.org/wiki/World_Trade_Organization#cite_note-7http://en.wikipedia.org/wiki/Centre_William_Rappardhttp://en.wikipedia.org/wiki/Genevahttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/Parliamenthttp://en.wikipedia.org/wiki/Uruguay_Roundhttp://en.wikipedia.org/wiki/Uruguay_Roundhttp://en.wikipedia.org/wiki/Doha_Development_Agendahttp://en.wikipedia.org/wiki/Doha_Development_Agendahttp://en.wikipedia.org/wiki/World_Trade_Organization#cite_note-7http://en.wikipedia.org/wiki/Centre_William_Rappardhttp://en.wikipedia.org/wiki/Genevahttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Developing_countries


7/24

low-income countries in transition to adjust to WTO rules and disciplines through technical

cooperation and training.

The WTO is also a center of economic research and analysis: regular assessments of the global

trade picture in its annual publications and research reports on specific topics are produced by

the organization. Finally, the WTO cooperates closely with the two other components of the

Bretton Woods system, the IMF and the World Bank.

Criticism:

The World Trade Organization is the most powerful legislative and judicial body in the world.

By promoting the "free trade" agenda of multinational corporations above the interests of local

communities, working families, and the environment, the WTO has systematically undermined

democracy around the world.

In the ten years of its existence, WTO panels composed of corporate attorneys have ruled that:

the US law protecting sea turtles was a barrier to "free trade"; that US clean air standards and

laws protecting dolphins are too; that the European Union law banning hormone-treated beef is

illegal. According to the WTO, our democratically elected public officials no longer have the

rights to protect the environment and public health.

Unlike United Nations treaties, the International Labor Organization conventions, or multilateral

environmental agreements, WTO rules can be enforced through sanctions. This gives the WTO

more power than any other international body. The WTO's authority even eclipses national

governments.

III- WORLD BANK.


8/24

World Bank3 is a term used to describe an international financial institution that provides

leveraged loans to developing countries forcapital programs. The World Bank has a stated goal

of reducingpoverty.

The World Bank is one of two institutions created at the Bretton Woods Conference in 1944.

The International Monetary Fund, a related institution is the second. Delegates from many

countries attended the Bretton Woods Conference. The most powerful countries in attendance

were the United States and United Kingdom which dominated negotiations

The World Bank's current focus is on the achievement of the Millennium Development Goals

(MDGs)4, lending primarily to "middle-income countries" at interest rates which reflect a small

mark-up over its own (AAA-rated) borrowings from capital markets; while the IDA provides

low or no interest loans and grants to low income countries with little or no access to

international credit markets. The IBRD is a market-based nonprofit organization, using its high

credit rating to make up for the relatively low interest rate on its loans, while the IDA is funded

primarily by periodic "replenishments" (grants) voted to the institution by its more affluent

member countries. The Banks mission is to aid developing countries and their inhabitants to

achieve development and the reduction of poverty, including achievement of the MDGs, by

helping countries develop an environment for investment, jobs and sustainable growth, thus

3The World Bank differs from theWorld Bank Group, in that the World Bank comprises only two institutions: theInternational Bank for Reconstruction and Development(IBRD) and theInternational Development Association(IDA), whereas the latter incorporates these two in addition to three more:[3]International Finance Corporation(IFC),Multilateral Investment Guarantee Agency(MIGA), andInternational Centre for Settlement of InvestmentDisputes (ICSID).

4 The Millennium Development Goals (MDGs) are eightinternational development goals that 192 United Nationsmember statesand at least 23 international organizations have agreed to achieve by the year 2015. They include:

Goal 1: Eradicate extreme poverty and hunger

Goal 2: Achieve universal primary education Goal 3: Promote gender equality and empower women

Goal 4: Reduce child mortality

Goal 5: Improve maternal health

Goal 6: Combat HIV/AIDS, malaria, and other diseases

Goal 7: Ensure environmental sustainability

Goal 8: Develop a global partnership for development
http://en.wikipedia.org/wiki/International_financial_institutionhttp://en.wikipedia.org/wiki/Leveraged_loanhttp://en.wikipedia.org/wiki/Leveraged_loanhttp://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Povertyhttp://en.wikipedia.org/wiki/Bretton_Woods_Conferencehttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Millennium_Development_Goalshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Grant_(money)http://en.wikipedia.org/wiki/Nonprofit_organizationhttp://en.wikipedia.org/wiki/World_Bank_Grouphttp://en.wikipedia.org/wiki/World_Bank_Grouphttp://en.wikipedia.org/wiki/International_Bank_for_Reconstruction_and_Developmenthttp://en.wikipedia.org/wiki/International_Bank_for_Reconstruction_and_Developmenthttp://en.wikipedia.org/wiki/International_Development_Associationhttp://en.wikipedia.org/wiki/International_Development_Associationhttp://en.wikipedia.org/wiki/World_Bank#cite_note-WBFAQ-2http://en.wikipedia.org/wiki/World_Bank#cite_note-WBFAQ-2http://en.wikipedia.org/wiki/World_Bank#cite_note-WBFAQ-2http://en.wikipedia.org/wiki/International_Finance_Corporationhttp://en.wikipedia.org/wiki/Multilateral_Investment_Guarantee_Agencyhttp://en.wikipedia.org/wiki/Multilateral_Investment_Guarantee_Agencyhttp://en.wikipedia.org/wiki/Multilateral_Investment_Guarantee_Agencyhttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/International_developmenthttp://en.wikipedia.org/wiki/International_developmenthttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/United_Nations_member_stateshttp://en.wikipedia.org/wiki/United_Nations_member_stateshttp://en.wikipedia.org/wiki/International_organizationshttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_1:_Eradicate_extreme_poverty_and_hungerhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_2:_Achieve_universal_primary_educationhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_3:_Promote_gender_equality_and_empower_womenhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_4:_Reduce_child_mortalityhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_5:_Improve_maternal_healthhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_6:_Combat_HIV.2FAIDS.2C_malaria.2Cand_other_diseaseshttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_7:_Ensure_environmental_sustainabilityhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_8:_Develop_a_global_partnership_for_developmenthttp://en.wikipedia.org/wiki/World_Bank_Grouphttp://en.wikipedia.org/wiki/International_Bank_for_Reconstruction_and_Developmenthttp://en.wikipedia.org/wiki/International_Development_Associationhttp://en.wikipedia.org/wiki/World_Bank#cite_note-WBFAQ-2http://en.wikipedia.org/wiki/International_Finance_Corporationhttp://en.wikipedia.org/wiki/Multilateral_Investment_Guarantee_Agencyhttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/International_financial_institutionhttp://en.wikipedia.org/wiki/Leveraged_loanhttp://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Povertyhttp://en.wikipedia.org/wiki/Bretton_Woods_Conferencehttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/International_developmenthttp://en.wikipedia.org/wiki/United_Nationshttp://en.wikipedia.org/wiki/United_Nations_member_stateshttp://en.wikipedia.org/wiki/International_organizationshttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_1:_Eradicate_extreme_poverty_and_hungerhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_2:_Achieve_universal_primary_educationhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_3:_Promote_gender_equality_and_empower_womenhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_4:_Reduce_child_mortalityhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_5:_Improve_maternal_healthhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_6:_Combat_HIV.2FAIDS.2C_malaria.2Cand_other_diseaseshttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_7:_Ensure_environmental_sustainabilityhttp://en.wikipedia.org/wiki/Millennium_Development_Goals#Goal_8:_Develop_a_global_partnership_for_developmenthttp://en.wikipedia.org/wiki/Millennium_Development_Goalshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Grant_(money)http://en.wikipedia.org/wiki/Nonprofit_organization


9/24

promoting economic growth through investment and enabling the poor to share the fruits of

economic growth.

The World Bank sees the five key factors necessary for economic growth and the creation of an

enabling business environment as:

1. Build capacity: Strengthening governments and educating government officials.

2. 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.

3. Development of Financial Systems: the establishment of strong systems capable ofsupporting endeavors from micro credit to the financing of larger corporate ventures.

4. Combating corruption: Support for countries' efforts at eradicating corruption.

5. Research, Consultancy and Training: the World Bank provides platform for research

on development issues, consultancy and conduct training programs (web based, on line,

tele-/ video conferencing and class room based) open for those who are interested from

academia, students, government and non-governmental organization (NGO) officers etc.

World Bank obtains funding for its operations primarily through the IBRDs sale of AAA-rated

bonds in the worlds financial markets. The IBRDs income is generated from its lending

activities, with its borrowings leveraging its own paid-in capital, plus the investment of its

"float"5.

The World Bank is active in the following areas:

Agriculture and Rural Development; Conflict and Development ; Development

Operations and Activities ; Economic Policy ; Education; Energy; Environment ;

Financial Sector; Gender ; Governance; Health, Nutrition and Population; Industry;

Information and Communication Technologies; Information, Computing and

5 The IDA obtains the majority of its funds from forty donor countries who replenish the banks funds every threeyears, and from loan repayments, which then become available for re-lending.


10/24

Telecommunications; International Economics and Trade; Labor and Social Protections;

Law and Justice; Macroeconomic and Economic Growth; Mining; Poverty Reduction;

Poverty; Private Sector; Public Sector Governance; Rural Development; Social

Development; Social Protection; Trade; Transport; Urban Development; Water

Resources; Water Supply and Sanitation.

Many achievements have brought the MDG targets for 2015 within reach in some cases. For the

goals to be realized, the following (six) criteria are set and met:

Stronger and more inclusive growth in Africa and fragile states, More effort in health and

education, Integration of the development and environment agendas, More and better aid,

Movement on trade negotiations, and Stronger and more focused support from

multilateral institutions like the World Bank.

Criticism:

The World Bank has long been criticized by non-governmental organizations, such as the

indigenous rights group Survival International, and academics, including its former Chief

Economist Joseph Stiglitz who is equally critical of the International Monetary Fund, the US

Treasury Department, US and other developed country trade negotiators.

Critics argue that the so-called free market reform policies which the Bank advocates are often

harmful to economic development if implemented badly, too quickly ("shock therapy"), in the

wrong sequence or in weak, uncompetitive economies.

In Masters of Illusion: The World Bank and the Poverty of Nations (1996), Catherine Caufield

argued that the assumptions and structure of the World Bank harms southern nations. Caufield

criticized its formulaic recipes of "development". To the World Bank, different nations and

regions are indistinguishable and ready to receive the "uniform remedy of development". She

argued that to attain even modest success, Western practices are adopted and traditional

economic structures and values abandoned. A second assumption is that poor countries cannot

modernize without money and advice from abroad.
http://en.wikipedia.org/wiki/Non-governmental_organizationhttp://en.wikipedia.org/wiki/Survival_Internationalhttp://en.wikipedia.org/wiki/Joseph_Stiglitzhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Treasury_Departmenthttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Economic_developmenthttp://en.wikipedia.org/wiki/Shock_therapy_(economics)http://en.wikipedia.org/wiki/Non-governmental_organizationhttp://en.wikipedia.org/wiki/Survival_Internationalhttp://en.wikipedia.org/wiki/Joseph_Stiglitzhttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Treasury_Departmenthttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Economic_developmenthttp://en.wikipedia.org/wiki/Shock_therapy_(economics)


11/24

A number of intellectuals in developing countries have argued that the World Bank is deeply

implicated in contemporary modes of donor and NGO imperialism and that its intellectual

contribution function to blame the poor for their condition.

One of the strongest criticisms of the World Bank has been the way in which it is governed.

While the World Bank represents 186 countries, it is run by a small number of economically

powerful countries. These countries choose the leadership and senior management of the World

Bank so their interests dominate the bank.

The World Bank has dual roles that are contradictory: that of a political organization and that of

a practical organization. As a political organization the World Bank must meet the demands of

donor and borrowing governments, private capital markets and other international organizations.

As an action-oriented organization, it must be neutral, specializing in development aid, technical

assistance and loans. The World Banks obligations to donor countries and private capital

markets have caused it to adopt policies which dictate that poverty is best alleviated by the

implementation of "market" policies.

In the 1990s the World Bank and the IMF forged the Washington Consensus, policies which

included deregulation and liberalization of markets, privatization and the downscaling of

government. Though the Washington Consensus was conceived as a policy that would bestpromote development, it was criticized for ignoring equity, employment and how reforms like

privatization were carried out. Many now agreethat the Washington Consensus placed too much

emphasis on the growth of GDP and not enough on the permanence of growth or on whether

growth contributed to better living standards.

Some analysis shows that the World Bank has increased poverty and been detrimental to the

environment, public health and cultural diversity. Some critics also claim that the World Bank

has consistently pushed a neoliberal agenda, imposing policies on developing countries which

have been damaging, destructive and anti-developmental.

It has also been suggested that the World Bank is an instrument for the promotion of US or

Western interests in certain regions of the world. Even South American nations have established

the Bank of the South in order to reduce US influence in the region. Criticism of the bank, that
http://en.wikipedia.org/wiki/Imperialismhttp://en.wikipedia.org/wiki/Washington_Consensushttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Civil_service_reform_in_developing_countrieshttp://en.wikipedia.org/wiki/Civil_service_reform_in_developing_countrieshttp://en.wikipedia.org/wiki/Environment_(biophysical)http://en.wikipedia.org/wiki/Environment_(biophysical)http://en.wikipedia.org/wiki/Public_healthhttp://en.wikipedia.org/wiki/Cultural_diversityhttp://en.wikipedia.org/wiki/Neoliberalismhttp://en.wikipedia.org/wiki/Bank_of_the_Southhttp://en.wikipedia.org/wiki/Imperialismhttp://en.wikipedia.org/wiki/Washington_Consensushttp://en.wikipedia.org/wiki/Deregulationhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Civil_service_reform_in_developing_countrieshttp://en.wikipedia.org/wiki/Civil_service_reform_in_developing_countrieshttp://en.wikipedia.org/wiki/Environment_(biophysical)http://en.wikipedia.org/wiki/Environment_(biophysical)http://en.wikipedia.org/wiki/Public_healthhttp://en.wikipedia.org/wiki/Cultural_diversityhttp://en.wikipedia.org/wiki/Neoliberalismhttp://en.wikipedia.org/wiki/Bank_of_the_South


12/24

the President is always a citizen of the United States, nominated by the President of the United

States (though subject to the "approval" of the other member countries). There have been

accusations that the decision-making structure is undemocratic as the US has a veto on some

constitutional decisions with just over 16% of the shares in the bank; decisions can only be

passed with votes from countries whose shares total more than 85% of the bank's shares. A

further criticism concerns internal management and the manner in which the World Bank is said

to lack accountability.

Criticism of the World Bank often takes the form ofprotesting as seen in recent events such as

the World Bank Oslo 2002 Protests, the October Rebellion, and the Battle of Seattle. Such

demonstrations have occurred all over the world, even amongst the BrazilianKayapo people

In 2008, a World Bank report which found that bio-fuels had driven food prices up 75% was not

published. Officials confided that they believed it was suppressed to avoid embarrassing the

President of the United States, George W. Bush.

Knowledge production:

The World Bank has been criticised for the manner in which it engages in the production,

accumulation, circulation and functioning of knowledge. The Bank production of knowledge

has become integral to the funding and justification of large capital projects. The Bank relies on

a growing network of trans-local scientists, technocrats, NGOs, and empowered citizens to help

generate data and construct discursive strategies. Its capacity to produce authoritative

knowledge is a response to intense scrutiny of Bank projects resulting from the successes of

growing anti-Bank and alternative-development movements. Development has relied

exclusively on one knowledge system, namely, the modern Western one. The dominance of this

knowledge system has dictated the marginalization and disqualification of non-Western

knowledge systems. It has been remarked, that in these alternative knowledge systems

researchers and activists might find alternative rationales to guide interventionist action away

from Western (Bank) produced ways of thinking. Knowledge production has become an asset to

the Bank and it is generated and used in highly strategic ways to provide justifications for

development.
http://en.wikipedia.org/wiki/Protestinghttp://en.wikipedia.org/wiki/World_Bank_Oslo_2002_Protestshttp://en.wikipedia.org/wiki/October_Rebellionhttp://en.wikipedia.org/wiki/World_Trade_Organization_Ministerial_Conference_of_1999_protest_activityhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Kayapo_peoplehttp://en.wikipedia.org/wiki/Protestinghttp://en.wikipedia.org/wiki/World_Bank_Oslo_2002_Protestshttp://en.wikipedia.org/wiki/October_Rebellionhttp://en.wikipedia.org/wiki/World_Trade_Organization_Ministerial_Conference_of_1999_protest_activityhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Kayapo_people


13/24

Structural adjustment:

The effect of structural adjustment policies on poor countries has been one of the most

significant criticisms of the World Bank. The oil crisis in the late 1970s plunged many countries

into economic crises. The World Bank responded with structural adjustment loans which

distributed aid to ailing countries while enforcing policy changes meant to reduce inflation and

fiscal imbalance. Some of these policies included encouraging production, investment and

labour-intensive manufacturing, changing real exchange rates and altering the distribution of

government resources. Structural adjustment policies were most effective in countries with an

institutional framework that allowed these policies to be implemented easily. For some countries,

particularly in Sub-Saharan Africa economic growth regressed and inflation worsened. The

alleviation of poverty was not a goal of structural adjustment loans and the circumstances of thepoor often worsened due to a reduction in social spending and an increase in the price of food as

subsidies were lifted.

By the late 1980s, international organizations began to admit that structural adjustment policies

were worsening life for the worlds poor. The World Bank changed structural adjustment loans

allowing for social spending to be maintained and encouraging a slower change to policies such

as transfer of subsidies and price rises. In 1999 the World Bank and the IMF introduced the

Poverty Reduction Strategy Paper approach to replace structural adjustment loans. The Poverty

Reduction Strategy Paper approach has been interpreted as an extension of structural adjustment

policies as it continues to reinforce and legitimize global inequities. Neither approach has

addressed the inherent flaws within the global economy that contribute to economic and social

inequities within developing countries. By reinforcing the relationship between lending and

client states, many believe that the World Bank has usurped indebted countries' power to make

economic policy.

Water privatization:

Sociologist Michael Goldman has argued that Industry analysts predict that private water will

soon be a capitalized market as precious, and as war-provoking, as oil. Goldman says These

days, an indebted country cannot borrow capital from the World Bank or IMF without a
http://en.wikipedia.org/wiki/Structural_adjustmenthttp://en.wikipedia.org/wiki/Exchange_rateshttp://en.wikipedia.org/wiki/Structural_adjustmenthttp://en.wikipedia.org/wiki/Exchange_rates


14/24

domestic waterprivatization policy as a precondition. The Bank is utilizing the 'Washington

Consensus' model of "development" to promote water privatization. Following this model the

World Bank is forcing many countries to commodify their water resources, rather than using

their expertise in the public sector to acknowledge water as a universal human right and an

essential public service. The push for water privatization development plays upon the

shocking tragedy that much of the world lacks affordable clean water. This image creates new

opportunities in development though it may have little to do with ultimately quenching the

needs of impoverished countries. The problem of water scarcity for the worlds poor has been

analyzed by the World Bank as one in which the public sector has failed to deliver and has

therefore prevented development from taking off and the economy from modernizing. If the

state cannot deliver something as basic as water and sanitation, the argument goes, it is a strong

indication of a general failure of public-sector capacity. However, with the sale or lease of a

public good comes more than simply a privatized service; alongside it comes a wide set of

postcolonial institutional forces that intervenes in state-citizen relations and North-South

dynamics

Business and political interests of main stakeholders:

Although controversial and far from proven, there is criticism that World Bank and IMF are used

as a means to fulfill business (interests of large corporations to enter the natural resource markets

of the country and obtain the legal guarantees that it can stay there) or political needs of the main

IMF donors (mostly USA), that were previously historically obtained by more direct activity -

war, economic blockade, espionage.6

Sovereign immunity:

Despite claiming goals of good governance and anti-corruption the World Bank requires

sovereign immunity against countries it deals with. Sovereign immunity waives a holder from all

legal liability for their actions. It is proposed that this immunity from responsibility is a shield

to which [The World Bank] wants resort to for escaping accountability and security by the

6 See for exampleConfessions of an Economic Hit Man.
http://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Washington_Consensushttp://en.wikipedia.org/wiki/Washington_Consensushttp://en.wikipedia.org/wiki/Sovereign_immunityhttp://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Manhttp://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Manhttp://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Manhttp://en.wikipedia.org/wiki/Privatizationhttp://en.wikipedia.org/wiki/Washington_Consensushttp://en.wikipedia.org/wiki/Washington_Consensushttp://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Manhttp://en.wikipedia.org/wiki/Sovereign_immunity


15/24

people. As the United States has veto power, it can prevent the World Bank from taking action

against its interests.

IV- INTERNATIONAL MONETARY FUND. (IMF) 7

GENESIS OF IMF:

The IMF was founded more than 60 years ago toward the end of World War II. During the Great

Depression of the 1930s, countries attempted to shore up their failing economies by sharply

raising barriers to foreign trade, devaluing their currencies to compete against each other for

export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts

proved to be self-defeating. World trade declined sharply and employment and living standards

plummeted in many countries.

This breakdown in international monetary cooperation led the IMF's founders to plan an

institution charged with overseeing the international monetary systemthe system of exchange

rates and international payments that enables countries and their citizens to buy goods and

services from each other. The new global entity would ensure exchange rate stability and

encourage its member countries to eliminate exchange restrictions that hindered trade.

In other words, the founders aimed to build a framework for economic cooperation that would

avoid a repetition of the disastrous economic policies that had contributed to the Great

Depression of the 1930s and the global conflict that followed.

II- OBJECTIVES OF IMF:

More specifically, the IMF aims to

provide a forum for cooperation on international monetary problems facilitate the growth of international trade, thus promoting job creation, economic growth,

and poverty reduction;

promote exchange rate stability and an open system of international payments; and

7 For more details on IMF ref: http://www.imf.org.
http://en.wikipedia.org/wiki/United_Stateshttp://www.imf.org/http://en.wikipedia.org/wiki/United_Stateshttp://www.imf.org/


16/24

lend countries foreign exchange when needed, on a temporary basis and under adequate

safeguards, to help them address balance of payments problems.

Today, with its near-global membership of 186 countries, the IMF is uniquely placed to help

member governments take advantage of the opportunitiesand manage the challengesposed

by globalization and economic development more generally. The IMF tracks global economic

trends and performance, alerts its member countries when it sees problems on the horizon,

provides a forum for policy dialogue, and passes on know-how to governments on how to tackle

economic difficulties.

It also provides policy advice and financing to members in economic difficulties and also works

with developing nations to help them achieve macroeconomic stability and reduce poverty.

Also, the IMF supports its membership by providing:

Research, statistics, forecasts, and analysis based on tracking of global, regional, and

individual economies and markets;

Loans to help countries overcome economic difficulties;

Concessional loans to help fight poverty in developing countries; and

Technical assistance and training to help countries improve the management of their

economies.

Marked by massive movements of capital and abrupt shifts in comparative advantage,

globalization affects countries' policy choices in many areas, including labor, trade, and tax

policies. Helping a country benefit from globalization while avoiding potential downsides is an

important task for the IMF.

The IMF's way of operating has changed over the years and has undergone rapid change since

the beginning of the 1990s as it has sought to adapt to the changing needs of its expanding

membership in an globalized world economy.

III- ACTIVITY AREAS OF IMF:
http://www.imf.org/external/np/exr/ib/2008/053008.htmhttp://www.imf.org/external/np/exr/ib/2008/053008.htm


17/24

IMF has three major activity areas viz., 1. Surveillance 2. Technical assistance and 3. Lending.

The details of them are as follows:

1. Surveillance.

When a country joins the IMF, it agrees to subject its economic and financial policies to the

scrutiny of the international community. It also makes a commitment to pursue policies that are

conducive to orderly economic growth and reasonable price stability, to avoid manipulating

exchange rates for unfair competitive advantage, and to provide the IMF with data about its

economy. The IMF's regular monitoring of economies and associated provision of policy advice

is intended to identify weaknesses that are causing or could lead to financial or economic

instability. This process is known as surveillance. It is done at the following three levels.

a) Country level surveillance

Country surveillance is an ongoing process that culminates in regular (usually annual)

comprehensive consultations with individual member countries, with discussions in between as

needed. The consultations are known as "Article IV consultations" because they are required by

Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team

of economists visits a country to assess economic and financial developments and discuss the

country's economic and financial policies with government and central bank officials. IMF staff

missions also often meet with parliamentarians and representatives of business, labor unions, and

civil society.

The team reports its findings to IMF management and then presents them for discussion to the

Executive Board, which represents all of the IMF's member countries. A summary of the Board's

views is subsequently transmitted to the country's government. In this way, the views of the

global community and the lessons of international experience are brought to bear on national

policies. Summaries of most discussions are released in Public Information Notices and are

posted on the IMF's web site, as are most of the country reports prepared by the staff.

In June 2007 the IMF's Executive Board adopted a comprehensive policy statement on

surveillance. The 2007 Decision on Bilateral Surveillance over Member's Policies, complements
http://www.imf.org/external/np/exr/key/survcris.htmhttp://www.imf.org/external/news/default.aspx?pnhttp://www.imf.org/external/np/exr/facts/surv07.htmhttp://www.imf.org/external/np/exr/key/survcris.htmhttp://www.imf.org/external/news/default.aspx?pnhttp://www.imf.org/external/np/exr/facts/surv07.htm


18/24

Article IV of the IMFs Articles of Agreement and introduces the concept of external stability as

an organizing principle for bilateral surveillance. This means that the main focus of the

discussions between the IMF and country officials is whether there are risks to the economys

domestic and external stability that would call for adjustments to that countrys economic or

financial policies.

b) Regional level surveillance

Regional surveillance involves examination by the IMF of policies pursued under currency

unionsi ncluding the euro area, the West African Economic and Monetary Union, the Central

African Economic and Monetary Community, and the Eastern Caribbean Currency Union.

Regional economic outlook reports are also prepared to discuss economic developments and key

policy issues in Asia Pacific, Europe, Middle East and Central Asia, Sub-Saharan Africa, and the

Western Hemisphere.

c) Global level surveillance

Global surveillance entails reviews by the IMF's Executive Board of global economic trends and

developments. The main reviews are based on the World Economic Outlook reports and the

Global Financial Stability Report, which covers developments, prospects, and policy issues in

international financial markets. Both reports are published twice a year, with updates being

provided on a quarterly basis. In addition, the Executive Board holds more frequent informal

discussions on world economic and market developments.

The IMF also has the option of holding multilateral consultations, involving smaller groups of

countries, to foster debate and develop policy actions designed to address problems of global or

regional importance. In 2006, multilateral consultations brought together China, euro area

countries, Japan, Saudi Arabia, and the United States to discuss global economic imbalances.

2 Technical Assistance.

The IMF shares its expertise with member countries by providing technical assistance and

training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax
http://www.imf.org/external/pubs/ft/reo/reorepts.aspxhttp://www.imf.org/external/ns/cs.aspx?id=29http://www.imf.org/external/pubs/ft/gfsr/index.htmhttp://www.imf.org/external/pubs/ft/survey/so/2007/SurveyartA.htmhttp://www.imf.org/external/mmedia/view.asp?eventID=850http://www.imf.org/external/np/exr/facts/tech.htmhttp://www.imf.org/external/pubs/ft/reo/reorepts.aspxhttp://www.imf.org/external/ns/cs.aspx?id=29http://www.imf.org/external/pubs/ft/gfsr/index.htmhttp://www.imf.org/external/pubs/ft/survey/so/2007/SurveyartA.htmhttp://www.imf.org/external/mmedia/view.asp?eventID=850http://www.imf.org/external/np/exr/facts/tech.htm


19/24

policy and administration, and official statistics. The objective is to help improve the design and

implementation of members' economic policies, including by strengthening skills in institutions

such as finance ministries, central banks, and statistical agencies. The IMF also gives advice to

countries that have had to reestablish government institutions following severe civil unrest or

war.

In 2008, the IMF embarked on an ambitious reform effort to enhance the impact of its technical

assistance. The reforms emphasize better prioritization, enhanced performance measurement,

more transparent costing and stronger partnerships with donors.

Technical assistance being one of the IMF's core activities, it is concentrated in critical areas of

macroeconomic policy where the Fund has the greatest comparative advantage. Thanks to its

near-universal membership, the IMF's technical assistance program is informed by experience

and knowledge gained across diverse regions and countries at different levels of development.

About 80 percent of the IMF's technical assistance goes to low- and lower-middle-income

countries, in particular in sub-Saharan Africa and Asia. Post-conflict countries are major

beneficiaries. The IMF is also providing technical assistance aimed at strengthening the

architecture of the international financial system, building capacity to design and implement

poverty-reducing and growth programs, and helping heavily indebted poor countries (HIPC) indebt reduction and management.

The IMF's technical assistance takes different forms, according to needs, ranging from long-term

hands-on capacity building to short-notice policy support in a financial crisis. Technical

assistance is delivered in a variety of ways. IMF staff may visit member countries to advise

government and central bank officials on specific issues, or the IMF may provide resident

specialists on a short- or a long-term basis. Technical assistance is integrated with country

reform agendas as well as the IMF's surveillance and lending operations.

The IMF is providing an increasing part of its technical assistance through regional centers

located in Gabon, Mali, and Tanzania for Africa; in Barbados for the Caribbean; in Lebanon for

the Middle East; and in Fiji for the Pacific Islands. As part of its reform program, the IMF is

planning to open four more regional technical assistance centers in Africa, Latin America, and
http://www.imf.org/external/pubs/ft/survey/so/2008/POL073108B.htmhttp://www.imf.org/external/np/exr/facts/afritac.htmhttp://www.imf.org/external/pubs/ft/survey/so/2008/POL073108B.htmhttp://www.imf.org/external/np/exr/facts/afritac.htm


20/24

central Asia. The IMF also offers training courses for government and central bank officials of

member countries at its headquarters in Washington, D.C., and at regional training centers in

Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates.

Contributions from bilateral and multilateral donors are playing an increasingly important role in

enabling the IMF to meet country needs in this area, now financing about two thirds of the IMF's

field delivery of technical assistance. Strong partnerships between recipient countries and donors

enable IMF technical assistance to be developed on the basis of a more inclusive dialogue and

within the context of a coherent development framework. The benefits of donor contributions

thus go beyond the financial aspect.

The IMF is currently seeking to leverage the comparative advantages of its technical assistance

to expand donor financing to meet the needs of recipient countries. As part of this effort, the

Fund is strengthening its partnerships with donors by engaging them on a broader, longer-term

and more strategic basis.

The idea is to pool donor resources in multi-donor trust funds that would supplement the IMF's

own resources for technical assistance while leveraging the Fund's expertise and experience.

Expansion of the multi-donor trust fund model is envisaged on a regional and topical basis,

offering donors different entry points according to their priorities. The IMF is planning toestablish a menu of seven topical trust funds over the next two years, covering anti-money

laundering/combating the financing of terrorism; fragile states; public financial management;

management of natural resource wealth, public debt sustainability and management, statistics

and data provision; and financial sector stability and development.

3. Lending.

A country in severe financial trouble, unable to pay its international bills, poses potential

problems for the international financial system, which the IMF was created to protect. Any

member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it

has a balance of payments needthat is, if it cannot find sufficient financing on affordable terms

in the capital markets to make its international payments and maintain a safe level of reserves.


21/24

IMF loans are meant to help member countries tackle balance of payments problems, stabilize

their economies, and restore sustainable economic growth. The IMF is not a development bank

and, unlike the World Bank and other development agencies, it does not finance projects

Purposes of lending:

Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is "...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 practice, the purpose of the IMF's lending has changed dramatically since the organization

was created. Over time, the IMF's financial assistance has evolved from helping countries deal

with short-term trade fluctuations to supporting adjustment and addressing a wide range of

balance of payments problems resulting from terms of trade shocks, natural disasters, post-

conflict situations, broad economic transition, poverty reduction and economic development,

sovereign debt restructuring, and confidence-driven banking and currency crises.

Today, IMF lending serves three main purposes. First, it can smooth adjustment to various

shocks, helping a member country avoid disruptive economic adjustment or sovereign default,

something that would be extremely costly, both for the country itself and possibly for other

countries through economic and financial ripple effects (known as contagion).

Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders.

This is because the program can serve as a signal that the country has adopted sound policies,

reinforcing policy credibility and increasing investors' confidence. Third, IMF lending can help

prevent crisis. The experience is clear: capital account crises typically inflict substantial costs on

countries themselves and on other countries through contagion. The best way to deal with capital

account problems is to nip them in the bud before they develop into a full-blown crisis.

Conditions for lending


22/24

When a member country approaches the IMF for financing, it may be in or near a state of

economic crisis, with its currency under attack in foreign exchange markets and its international

reserves depleted, economic activity stagnant or falling, and a large number of firms and

households going bankrupt.

The IMF aims to ensure that conditions linked to IMF loan disbursements are focused and

adequately tailored to the varying strengths of members' policies and fundamentals. To this end,

the IMF discusses with the country the economic policies that may be expected to address the

problems most effectively. The IMF and the government agree on a program of policies aimed at

achieving specific, quantified goals in support of the overall objectives of the authorities'

economic program. For example, the country may commit to fiscal or foreign exchange reserve

targets.

The IMF discusses with the country the economic policies that may be expected to address the

problems most effectively. The IMF and the government agree on a program of policies aimed at

achieving specific, quantified goals in support of the overall objectives of the authorities'

economic program. For example, the country may commit to fiscal or foreign exchange reserve

targets.

Loans are typically disbursed in a number of installments over the life of the program, with eachinstallment conditional on targets being met. Programs typically last up to 3 years, depending on

the nature of the country's problems, but can be followed by another program if needed. The

government outlines the details of its economic program in a "letter of intent" to the Managing

Director of the IMF. Such letters may be revised if circumstances change.

For countries in crisis, IMF loans usually provide only a small portion of the resources needed to

finance their balance of payments. But IMF loans also signal that a country's economic policies

are on the right track, which reassures investors and the official community, helping countries

find additional financing from other sources.

o0o
http://www.imf.org/external/np/exr/facts/conditio.htmhttp://www.imf.org/external/np/exr/facts/conditio.htm


23/24

Anti-globalization & Pro-globalization (globalism)

Various aspects of globalization are seen as harmful by anti-globalization, public-interest

activists. There is a wide variety of different kinds of "anti-globalization." In general, critics

claim that the results of globalization have not been what was predicted when the attempt to

increase free trade began, and that many institutions involved in the system of globalization have

not taken the interests of poorer nations and labor into account.

Economic arguments by fair trade theorists claim that unrestricted free trade benefits those with

more financial leverage (i.e. the rich) at the expense of the poor.

Many anti-globalism activists see globalization as the promotion of a Corporatist agenda, which

is intent on constricting the freedoms of individuals in the name of profit. They also claim that

increasing autonomy and strength of corporate entities increasingly shape the political policy of

nation-states.

Some anti-globalism groups argue that globalism is necessarily imperialistic, is one of the

driving reasons behind the Iraq war and that it has forced savings to flow into the United States

rather than developing nations.

Some argue that globalization imposes credit based economics, resulting in unsustainable growth

of debt and debt crises.

Few activists favor getting rid of globalization completely. Rather, the main opposition is to

unfettered globalization (neoliberal; laissez-faire capitalism), guided by governments and quasi-

governments (such as the International Monetary Fund and the World Bank) that are not held

responsible to the populations that they govern and instead respond mostly to the interests of

corporations. Many conferences between trade and finance ministers of the core globalizing
http://www.wordiq.com/definition/Anti-globalizationhttp://www.wordiq.com/definition/Public_interesthttp://www.wordiq.com/definition/Activismhttp://www.wordiq.com/definition/Fair_tradehttp://www.wordiq.com/definition/Free_tradehttp://www.wordiq.com/definition/Corporatisthttp://www.wordiq.com/definition/Neoliberalhttp://www.wordiq.com/definition/Laissez-faire_capitalismhttp://www.wordiq.com/definition/International_Monetary_Fundhttp://www.wordiq.com/definition/World_Bankhttp://www.wordiq.com/definition/Anti-globalizationhttp://www.wordiq.com/definition/Public_interesthttp://www.wordiq.com/definition/Activismhttp://www.wordiq.com/definition/Fair_tradehttp://www.wordiq.com/definition/Free_tradehttp://www.wordiq.com/definition/Corporatisthttp://www.wordiq.com/definition/Neoliberalhttp://www.wordiq.com/definition/Laissez-faire_capitalismhttp://www.wordiq.com/definition/International_Monetary_Fundhttp://www.wordiq.com/definition/World_Bank


24/24

nations have been met with large, and occasionally violent, protests from opponents of

"corporate globalism".

Supporters ofdemocratic globalization can be labelled pro-globalists. They consider that the first

phase of globalization, which was market-oriented, should be completed by a phase of building

global political institutions representing the will of World citizens. The difference with other

globalists is that they do not define in advance any ideology to orientate this will, which should

be left to the free choice of those citizens via a democratic process.

Supporters offree trade point out that economic theories such as comparative advantage suggests

that free trade leads to a more efficient allocation of resources, with all those involved in the

trade benefitting. In general, they claim that this leads to lower prices, more employment and

better allocation of resources.

Libertarians and other proponents oflaissez-faire capitalism sees differences in capitalism as the

main reason that the western world is rich and that other parts of the world are poor. They see

globalization as the beneficial spread of the capitalistic system to other countries. One effect

being that the percentage of people in developing countries living below $1 (adjusted for

inflation) per day have halved in only twenty

Many pro-capitalists are also critical of the WHO and IMF, arguing that they are corrupt

bureaucracies controlled and financed by states, not corporations. Many loans have been given to

dictators who never did any reforms. Instead leaving the common people to pay the debts later.

They thus see too little capitalism, not too much. They also note that some of the resistance to

globalization come from special interest groups with conflicting interests like Western world

unions.
http://www.wordiq.com/definition/Democratic_globalizationhttp://www.wordiq.com/definition/World_citizenhttp://www.wordiq.com/definition/Free_tradehttp://www.wordiq.com/definition/Comparative_advantagehttp://www.wordiq.com/definition/Libertarianshttp://www.wordiq.com/definition/Laissez-faire_capitalismhttp://www.wordiq.com/definition/Capitalismhttp://www.wordiq.com/definition/Trade_unionhttp://www.wordiq.com/definition/Democratic_globalizationhttp://www.wordiq.com/definition/World_citizenhttp://www.wordiq.com/definition/Free_tradehttp://www.wordiq.com/definition/Comparative_advantagehttp://www.wordiq.com/definition/Libertarianshttp://www.wordiq.com/definition/Laissez-faire_capitalismhttp://www.wordiq.com/definition/Capitalismhttp://www.wordiq.com/definition/Trade_union

unit 1 ihrm

Documents

Transcript of unit 1 ihrm