IMF & World Bank

Formation of global institutions ( ) international economy viewed as one cause of war Why the US took the lead -rivalry with USSR -USA dominant (50% of world income) -dollar = “world currency” -changing US views after WWII ▫experience as international actor ▫rise of outward oriented industries e.g. shipbuilding, aircraft ▫rise of Pacific coast economy post-war institutions -United Nations on political, economic, social -IMF on macroeconomics -World Bank on development -GATT on trade

IMF – International Monetary Fund December 1945 >Originally part of UN (today no longer so) Macroeconomics objectives -“promote international monetary cooperation” -“facilitate the expansion and balanced growth of international trade”- “promote exchange [rate] stability” -“make its general resources temporarily available to its members xperiencing balance of payments difficulties” Organization 184 members each contributes a “quota” -proportional to size of economy -US quota = 17.5% of total voting power roughly equal to quotas G7 (US, UK, France, Germany, Italy, Japan, Canada) 49.5% of votes Managing Director traditionally European

IMF Operations surveillance official commentary on all members’ policies technical assistance examples -tax administration -design of statistical procedures financial assistance crisis management -lends to member countries with problems -at low interest rates conditionality -on macroeconomic policies -on foreign borrowing -trade restrictions

Commentary on IMF Problems identified by critics narrow view of appropriate economic policies "austerity", free markets, globalization influenced too much by Western financial interests "moral hazard" problem conditionality selectively enforced -political reasons e.g. Russia

World Bank World Bank Group – set of related institutions sister institutions of IMF membership, organization, and voting as IMF usually World Bank President is from US Objectives “to help each developing country onto a path of stable, sustainable, and equitable growth in the fight against poverty” Resources contributed capital by members funds borrowed from world capital markets

World Bank operations technical assistance examples: -designing development projects -building capacities of governments lending to governments long-term (30-40 years) no interest for poorest countries low interest next poorest two types of loans 1.developments projects 2. countries in crisis facilitating international investment insurance against political risk International Center for the Settlement of Investment Disputes

Criticisms straying too far into the IMF’s area -crisis loans -conditionality from "left" -not sensitive enough to environment, human rights, democracy, etc from "right" -too “socialist”, interventionist from both -willing to deal with corrupt, incompetent governments -aid has not produced a large effect on growth