Economic Institutions Flashcards
The IMF role
When founded in1944, main role was to encourage stability in world exchange rates. IMF oversaw a system of fixed exchange rates, linked to the US dollar, in turn was fixed to the price of gold. 1971 broke apart
Prevented unsettling fluctuations in currency values.
States and traders in the int financial system knew how much currency was worth and could make investments w/ a greater degree of stability, rather than being buffeted by variations in the value of a currency.
Roles today include giving financial support by lending to states… focusing on developing world but 1976 UK borrowed US$3.9 mil from the IMF as it struggled to deal with/ a deep financial crisis.
More recently, Greece, Portugal and Spain have received IMF loans to help save their economy from bankruptcy
Monitors their econ outlook of both the world econ and Indiv memb countries, including forecasting and commenting on pot threats
IMF structure + resources
189 memb states. Managing director leads the IMF. Makes frequent interventions and commentary on the global economy as a whole. During the 2016 Brexit referendum Lagarde predicted that Brexit would lead to increased inflation and reduce the UK’s GDP by 5.5% pushing the UK into recession.
Main source of finance is payments made by member countries. Quotas reflect members elative positions and wealth in the world economy. Incr amount of funding during 2008 financial crisis… quotas incr. As of 2016 additional pledged or committed resources totalled $668 billion
Some have criticised the IMF for being undemocratic, voting power = weighted to how much states cont financially.
IMF SAPs
When IMF makes a loan oft conditional . Spec that states must undergo econ reforms to overcome the probs that led it to request help in the first place.
For example; cutting wasteful pub spending and raising taxes, to eliminate the budget deficit
Selling gov-owned assets to priv ownership
Incr the amount of taxes that states collects that help pay for its own pub services
Reducing pub sector wages
Disadvantages of SAPs
Impedes upon state sovereignty
Privatisation = an incr in corporate profs… not shared w/ wider Soc
System disproportionately benefit the richest
Tax rises hit the poorest the hardest, partic indirect taxation such as sales tax, poor cannot avoid if they cont to buy goods
Opening markets to foreign investors can open delicate econ up to the effects of a for econ crisis
Many of the poorest working in the informal sector, actually has no impact.
The World Bank objectives
Leading organisation on development and poverty reduction
Provides loans, technical and financial assistance to support reconstruction and development. It allocates $20 billion of loans annually
Growing emphasis on reducing poverty, linking strongly to the MDGs and now to sustainable development goals. Overarching goal of the world bank is to end poverty w/in a generation and boost shared prosperity
Fund specific development projects e.g higher education in Africa
Proves technical assistance to states, w/ this advice focusing on human and social development (in contrast to the IMF, where the technical assistance is focused on econ growth and management of public finances)
Carries out analytical work on development matters, which is made freely available to states and NGOs working on development, adding to global research on the factors that aid and impede development
2 key institutions of world bank
- The int bank for reconstruction and development: provides loans and assistance to middle-income countries. Some of these loans include conditionality and elements of SAPs
- The international development assosciation: provides loans to the poorest countries. These loans tend to have very low rates of interst and sometimes no interest at all.
World bank successes
It’s programmes have contributed to the success of MDG 1, to reduce world poverty
It focuses on direct grants to poorer states, rather than loans, which prevents the creation of additional debt pressures on poorer states
World bank critics
Its contributions are dwarfed by those of private investors, which amounted to as much as $900 billion for china and India in 2011. The world banks resources reached only 8 billion in the same year. Consequently, the world bank should focus only on the poorest or most conflict-ridden states that are unattractive to private investors
The imbalance in voting powers is outdated in an increasingly globalised world economy where rising powers, including Brazil, India and China, have less than a third of the voting powers of the USA
The World Trade Organisation aims
Became the world trade organisation in 1995.
Key goal is to reduce barriers on trade in both goods and services, which usually include tariffs that states might impose on imports.
The WTO is not the only means by which states can reduce tariff barriers- states are free to enter negs with other states
The WTO also:
Checks that states are following trade agreements
Produces research on global trade and economic policy
Helps to resolve trade disputes between states
WTO structure
164 members… member states account for 97% of world trade
Takes years to go through the process of joining the WTO- ALgeria applied to join in 1987 and is still not a full member
The EU is a member of the WTO and its member states are also members in their own right, but EU member states have to act together as a unified bloc of states.
Membership of the WTO involves both rights and obligations
Every member must agree for rounds to be successful… Doha round since 2001 not been blue to agree a new set of rules since then.
6 key principles of the WTO
Non-discrimination … treat partners equally shld not discriminate between their own and foreign products
More open… com to free trade and lowering barriers
Predictable and transparent… states shld not raise barriers w/out warning or arbitrarily
More competitive…. States should not interfere in a way which gives them an unfair competitive edge
More benefits for less-developed countries… allows scope for less-developed countries to catch up and transition to becoming full participants in international trade
Protection of the environment
The G7/8 structure
Informal group founded in 1975 of the six wealthiest economies
No formal application or criteria for membership- invite and expel whom it likes for ex Russia of the annexation of crimea
Does not include all the world’s major econ powers
Meets annually
No formal rules but the UN charter
It can invite any states, IGOs or NGOs to its meetings
Can choose to remove any of its members from meetings, if the presidency state has not invited them to the meetings. Flexible membership of like-minded allies
No budget or supporting secreteriat
Dec are not binding
No defined objectives
Primarily a forum
Strengths of g7
Has little impact on state sovereignty. Forum never forces states to do things they do not agree with.
Informality allows members to focus on any issue of importance and to respond to the major issues of the moment.
A smaller number of memb states prevents gridlock in dec making. WTO has a far larger membership and has not been able to agree a new trade deal since 2001
Weaknesses
Meets less frequently, acts in bursts rather than consistently
It is a forum for like minded allies, rather than active problem- solving and resolving differences of opinion
It is a forum of the richest and most powerful states to preserve their own interests
No longer reflects the states that are the most econ powerful
Little accountability- for ex no checking that states deliver on the commitments they have made
G20 roles and aims
Created in 1999 as means of expanding the G7/8 to include a wider group of industrialised states and emerging economic powers
Can be criticised as being narrow alliance of the oldest and more est econ powers, g20 includes emerging econ powers and a more geographically diverse range of states
Key features include;
Its membership represent both established and emerging econs which account for 2/3 of the pop, more than 4/5 of gross world product and 3/4 of world trade
The G20 has the key econ IGOs attend all of its meetings. All of the Bretton wood institutions attend, along w/ the UN + EU… very diff to the g7 only has eu
Meetings take place annually, w/ rotating presidency… presidency states has considerable power over which additional states + other int orgs it invites and the agenda
Agenda has become increasingly broad… extending beyond econ matters. CC and terrorism have featured on recent agendas
