School of Distance Education

International Economics
Page
28
markets. They set procedures for settling disputes. These agreements are
not static; they are
renegotiated from time to time and new agreements can be added to the
package. Many are now
being negotiated under
the Doha Development Agenda, launched by WTO trade ministers in
Doha, Qatar, in November 2001.
Implementation and monitoring
WTO agreements require governments to make their trade policies
transparent by
notifying the WTO about laws in force and measures
adopted. Various WTO councils and
committees seek to ensure that these requirements are being followed and
that WTO agreements
are being properly implemented. All WTO members must undergo
periodic scrutiny of their trade
policies and practices, each revie
w containing reports by the country concerned and the WTO
Secretariat.
Dispute settlement
The WTO’s procedure for resolving trade quarrels under the Dispute
Settlement
Understanding is vital for enforcing the rules and therefore for ensuring
that trade f
lows smoothly.
Countries bring disputes to the WTO if they think their rights under the
agreements are being
infringed. Judgements by specially appointed independent experts are
based on interpretations of
the agreements and individual countries’ commitmen
ts.
Building trade capacity
WTO agreements contain special provision for developing countries,
including longer
time periods to implement agreements and commitments, measures to
increase their trading
opportunities, and support to help them build their t
rade capacity, to handle disputes and to
implement technical standards. The WTO organizes hundreds of technical
cooperation missions
to developing countries annually. It also holds numerous courses each year
in Geneva for
government officials. Aid for Trad
e aims to help developing countries develop the skills and
infrastructure needed to expand their trade.
Outreach
The WTO maintains regular dialogue with non
-
governmental organizations,
parliamentarians, other international organizations, the media and th
e general public on various
aspects of the WTO and the ongoing Doha negotiations, with the aim of
enhancing cooperation
and increasing awareness of WTO activities.
Trade Rounds.
These methods are used to improve the trade system through different
Trade R
ounds.
In each
Trade rounds groups of countries get together to negotiate a set of tariff
reductions and other measures to
liberalize trade. Eight trade rounds have been completed since 1947. The last
round was the Uruguay round
of trade negotiations in 19
94. In 2001 there was the ninth round which is known as the Doha Round. The
eighth round of trade negotiations started in the year 1986 at Punta de Este in
Uruguay. After Eight long
years of negotiations the participants could finally produce a document w
hich is signed at Marrakesh in
Morrocco.
The World Trade Organization (WTO)

The World Trade Organization (WTO) which came into existence

on 1st January, 1995 mainly deals with the rules of trade between
nations at a global or near-global level. The WTO is the only global
international organization dealing with the rules of trade between
nations. At its heart are the WTO agreements, negotiated and
signed by the bulk of the world’s trading nations and ratified in
their parliaments. The goal is to help producers of goods and
services, exporters, and importers conduct their business.

More specifically, WTO is an organization for liberalizing

trade where it provides a forum for governments of different
economies to negotiate trade agreements between them. Unlike,
GATT its agreements now cover trade in services, and in traded
inventions, creations and designs (intellectual property).

The WTO provides a forum for negotiating agreements

aimed at reducing obstacles to international trade and ensuring a
level playing field for all, thus contributing to economic growth
and development. The WTO also provides a legal and institutional
framework for the implementation and monitoring of these
agreements, as well as for settling disputes arising from their
interpretation and application. The current body of trade
agreements comprising the WTO consists of 16 different
multilateral agreements (to which all WTO members are parties)
and two different plurilateral agreements (to which only some
WTO members are parties). The specific activities of the WTO are
as follows:

1) Negotiating the reduction or elimination of obstacles to trade

such as import tariffs, other barriers to trade and agreeing
on rules governing the conduct of international trade viz.,
antidumping, subsidies, product standards.
2) Administering and monitoring the application of the WTO's
agreed rules for trade in goods, trade in services, and trade-
related intellectual property rights.
3) Monitoring and reviewing the trade policies of our members, as
well as ensuring transparency of regional and bilateral trade
agreements.
4) Settling disputes among our members regarding the
interpretation and application of the agreements.
5) Building capacity of developing country government officials in
international trade matters.
6) Assisting the process of accession of some 30 countries who
are not yet members of the organization.
7) Conducting economic research and collecting and
disseminating trade data in support of the WTO's other main
activities.
 The WTO's founding and guiding principles remain the
pursuit of open borders, the guarantee of most-favoured-nation
principle and non-discriminatory treatment by and among
members, and a commitment to transparency in the conduct of
its activities. The opening of national markets to international
trade, with justifiable exceptions or with adequate flexibilities, will
encourage and contribute to sustainable development, raise
people's welfare, reduce poverty, and foster peace and stability.
At the same time, such market opening must be accompanied by
sound domestic and international policies that contribute to
economic growth and development according to each member's
needs and aspirations.

Over the past 60 years, the WTO, which was established in

1995, and its predecessor organization the GATT have helped to
create a strong and prosperous international trading system,
thereby contributing to unprecedented global economic growth.
The WTO currently has 153 members, of which 117 are
developing countries or separate customs territories. WTO
activities are supported by a Secretariat of some 700 staff, led by
the WTO Director General. The Secretariat is located in Geneva,
Switzerland, and has an annual budget of approximately $180
million. The three official languages of the WTO are English,
French and Spanish.

Decisions in the WTO are generally taken by consensus of

the entire membership. The highest institutional body is the
Ministerial Conference, which meets roughly every two years. A
General Council conducts the organization's business in the
intervals between Ministerial Conferences. Both of these bodies
comprise all members. Specialized subsidiary bodies such as
Councils, Committees and Sub-committees also comprising all
members administer and monitor the implementation by
members of the various WTO agreements.

WTO and the Principle of Trading System

The WTO agreements are lengthy and complex because they are
legal texts covering a wide range of activities. They deal with:
agriculture, textiles and clothing, banking, telecommunications,
government purchases, industrial standards and product safety,
food sanitation regulations, and intellectual property. But a
number of simple, fundamental principles run throughout all of
these documents. These principles are the foundation of the
multilateral trading system.

The following are the principles of the multilateral trading system

governed by the WTO:

1) Most-favoured-nation (MFN): Under the WTO agreements,

countries cannot normally discriminate between their
trading partners. Grant someone a special favour such as a
lower customs duty rate for one of their products and you
have to do the same for all other WTO members. This
principle is known as most-favoured-nation (MFN) treatment.
However, some exceptions are allowed. For example,
countries can set up a free trade agreement that applies
only to goods traded within the group discriminating against
goods from outside. Or they can give developing countries
special access to their markets. Or a country can raise
barriers against products that are considered to be traded
unfairly from specific countries. And in services, countries
are allowed, in limited circumstances, to discriminate. But
the agreements only permit these exceptions under strict
conditions. In general, MFN means that every time a country
lowers a trade barrier or opens up a market, it has to do so
for the same goods or services from all its trading partners
whether rich or poor, weak or strong.
2) National Treatment: Imported and locally-produced goods
should be treated equally at least after the foreign goods
have entered the market. The same should apply to foreign
and domestic services, and to foreign and local trademarks,
copyrights and patents. This principle of “national
treatment” that is giving others the same treatment as one’s
own nationals is found in all the three main WTO
agreements (Article 3 of GATT, Article 17 of GATS and Article
3 of TRIPS), although once again the principle is handled
slightly differently in each of these. National treatment only
applies once a product, service or item of intellectual
property has entered the market. Therefore, charging
customs duty on an import is not a violation of national
treatment even if locally-produced products are not charged
an equivalent tax.
3) Freer trade: Lowering trade barriers is one of the most obvious
means of encouraging trade. The barriers concerned include
 customs duties and or tariffs and measures such as import
bans or quotas that restrict quantities selectively.
4) Predictability: Sometimes, promising not to raise a trade barrier
can be as important as lowering one, because the promise
gives businesses a clearer view of their future opportunities.
With stability and predictability, investment is encouraged,
jobs are created and consumers can fully enjoy the benefits
of competition choice and lower prices. The WTO’s
multilateral trading system is an attempt by governments to
make the business environment stable and predictable.
Many WTO agreements require governments to disclose
their policies and practices publicly within the country or by
notifying the WTO. The regular surveillance of national trade
policies through the Trade Policy Review Mechanism
provides a further means of encouraging transparency both
domestically and at the multilateral level.
5) Promoting fair competition: The WTO is sometimes described
as a “free trade” institution, but that is not entirely accurate.
The system does allow tariffs and, in limited circumstances,
other forms of protection. More accurately, it is a system of
rules dedicated to open, fair and undistorted competition.
The rules on non-discrimination, MFN and national treatment
are designed to secure fair conditions of trade. Many of the
other WTO agreements aim to support fair competition: in
agriculture, intellectual property, services, for example.
6) Encouraging development and economic reform: The WTO
system contributes to development. On the other hand,
developing countries need flexibility in the time they take to
implement the system’s agreements. And the agreements
themselves inherit the earlier provisions of GATT that allow
for special assistance and trade concessions for developing
countries for higher growth and development.
3. WTO: Organizational Structure and the Decision Making
Process

The highest WTO authority is the Ministerial Conference

which meets at least once every two years and is composed of
representatives from all WTO signatories. The day-to-day work of
the WTO, however, falls to a number of subsidiary bodies,
principally the General Council, which is required to report to the
Ministerial Conference. The General Council meets several times a
year in the Geneva headquarters. Like the Ministerial Conference,
the General Council is composed of representatives from all
member nations. As well as conducting its regular work on behalf
of the Ministerial Conference, the members of the General Council
also convene as the Dispute Settlement Body (DSB) and as the
Trade Policy Review Body. At the next level are the Goods
Council, Services Council and Intellectual Property (TRIPS)
Council, which report to the General Council.

Five other bodies are established by the Ministerial

Conference and report to the General Council: the Committee on
Trade and Development, the Committee on Trade and
Environment, the Committee on Regional Trade Agreements, the
Committee on Balance of Payments, and the Committee on
Budget, Finance and Administration. A Trade Negotiations
Committee was also established in November 2001 as a result of
the Doha Declaration. At the second Ministerial Conference in
Geneva in 1998, ministers decided that the WTO would also study
the area of electronic commerce, a task to be shared by existing
councils and committees.

Each of the pluri-lateral agreements of the WTO those on

civil aircraft, government procurement, dairy products and bovine
meat have their own management bodies which report to the
General Council.

The DSB itself also establishes subsidiary bodies for the

resolution of trade disputes. One such set of bodies are called
"panels." These panels are set up on an ad-hoc basis and last only
long enough to hear the merits of a particular trade dispute
between WTO members and reach a decision as to whether unfair
trade practices are involved. After the DSB approves the
formation of a panel, the WTO Secretariat will suggest the names
of three potential panelists to the parties to the dispute, drawing
as necessary on a list of qualified persons. If there is real difficulty
in the choice, the Director-General can appoint the panelists. The
panelists serve in their individual capacities and are not subject to
government instructions.

The DSB also has the responsibility of establishing an

Appellate Body to review decisions made by individual panels.
The Appellate Body is modeled after the structure of the U.S.
Federal Appeals Courts: the Appellate Body is composed of seven
persons, three of which are assigned to each appeal from a
panel's judgment. The members of the Appellate Body must be
broadly representative of WTO membership, and are required to
be persons of recognized standing in the field of law and
international trade, and not affiliated with any government. Each
member serves a four-year term.

The WTO Secretariat is located in Geneva. It has around 450

staff and is headed by its Director-General, Mr. Renato Ruggiero,
and four deputy directors-general. Its responsibilities include the
servicing of WTO delegate bodies with respect to negotiations and
the implementation of agreements. It has a particular
responsibility to provide technical support to developing
countries, and especially the least-developed countries. WTO
economists and statisticians provide trade performance and trade
policy analyses while its legal staff assist in the resolution of trade
disputes involving the interpretation of WTO rules and
precedents. Much of the Secretariat's work is concerned with
accession negotiations for new members and providing advice to
governments considering membership.

Decision Making Process

The WTO is run by its member governments. All major decisions

are made by the membership as a whole, either by ministers who
meet at least once every two years or by their ambassadors or
delegates who meet regularly in Geneva. Decisions are normally
taken by consensus. In this respect, the WTO is different from
some other international organizations such as the World Bank
and International Monetary Fund. In the WTO, power is not
delegated to a board of directors or the organization’s head.
When WTO rules impose disciplines on countries’ policies, that is
the outcome of negotiations among WTO members. The rules are
enforced by the members themselves under agreed procedures
that they negotiated, including the possibility of trade sanctions.
But those sanctions are imposed by member countries, and
authorized by the membership as a whole. This is quite different
from other agencies whose bureaucracies can, for example,
influence a country’s policy by threatening to withhold credit.

Reaching decisions by consensus among all the members can be

difficult. Its main advantage is that decisions made this way are
more acceptable to all members. And despite the difficulty, some
remarkable agreements have been reached. Nevertheless,
proposals for the creation of a smaller executive body perhaps
like a board of directors each representing different groups of
countries are heard periodically. But for now, the WTO is a
member-driven, consensus-based organization. So, the WTO
belongs to its members. The countries make their decisions
through various councils and committees, whose membership
consists of all WTO members.

Topmost is the ministerial conference which has to meet at least

once every two years. The Ministerial Conference can take
decisions on all matters under any of the multilateral trade
agreements.

WTO STRUCTURE

All WTO members may participate in all councils, committees etc,

except Appellate Body, Dispute Settlement panels, and
plurilateral committees.
Source: WTO

The second level is the General Council which has three bodies.
Day-to-day work in between the ministerial conferences is
handled by three bodies. They are The General Council, The
Dispute Settlement Body, and The Trade Policy Review Body. All
three are in fact the same. The agreement establishing the WTO
states they are all the General Council, although they meet under
different terms of reference. Again, all three consist of all WTO
members. They report to the Ministerial Conference. The General
Council acts on behalf of the Ministerial Conference on all WTO
affairs. It meets as the Dispute Settlement Body and the Trade
Policy Review Body to oversee procedures for settling disputes
between members and to analyze members’ trade policies.

The third level consists of three more councils for each broad area
of trade. These three councils, each handling a different broad
area of trade, report to the General Council: The Council for Trade
in Goods (Goods Council), The Council for Trade in Services
(Services Council) and The Council for Trade-Related Aspects of
Intellectual Property Rights (TRIPS Council). As their names
indicate, the three are responsible for the workings of the WTO
agreements dealing with their respective areas of trade. Again
they consist of all WTO members. The three also have subsidiary
bodies. Six other bodies report to the General Council. The scope
of their coverage is smaller, so they are “committees”. But they
still consist of all WTO members. They cover issues such as trade
and development, the environment, regional trading
arrangements, and administrative issues. The Singapore
Ministerial Conference in December 1996 decided to create new
working groups to look at investment and competition policy,
transparency in government procurement, and trade facilitation.
Two more subsidiary bodies dealing with the plurilateral
agreements keep the General Council informed of their activities
regularly.

In the fourth level, each of the higher level councils has subsidiary
bodies. The Goods Council has 11 committees dealing with
specific subjects (such as agriculture, market access, subsidies,
anti-dumping measures and so on). Again, these consist of all
member countries. Also reporting to the Goods Council is the
Textiles Monitoring Body, which consists of a chairman and 10
members acting in their personal capacities, and groups dealing
with notifications governments informing the WTO about current
and new policies or measures and state trading enterprises. The
Services Council’s subsidiary bodies deal with financial services,
domestic regulations, GATS rules and specific commitments.

At the General Council level, the Dispute Settlement Body also

has two subsidiaries: the dispute settlement “panels” of experts
appointed to adjudicate on unresolved disputes, and the
Appellate Body that deals with appeals.

Important breakthroughs are rarely made in formal meetings of

these bodies, least of all in the higher level councils. Since
decisions are made by consensus, without voting, informal
consultations within the WTO play a vital role in bringing a vastly
diverse membership round to an agreement. One step away from
the formal meetings is informal meetings that include the full
membership, such as those of the Heads of Delegations (HOD). A
common recent practice of the chairperson of a negotiating group
is to attempt to forge a compromise by holding consultations with
delegations individually, in twos or threes, or in groups of 20-30 of
the most interested delegations.

These smaller meetings of the WTO are handled sensitively. The

key is to ensure that everyone is kept informed about what is
going on and the process is kept transparent even if they are not
in a particular consultation or meeting.

The way countries now negotiate has smoothened the decision

making process in the WTO. For example, in order to increase
their bargaining power, countries have formed coalitions. In some
subjects such as agriculture almost all countries are members of
at least one coalition and in many cases, several coalitions. This
ensures that all countries can be represented in the process if the
coordinators and other key players are present. The coordinators
also take responsibility for both transparency and inclusiveness
by keeping their coalitions informed and by taking the positions
negotiated within their alliances. In the end, decisions have to be
taken by all members and by consensus. The membership as a
whole would resist attempts to impose the will of a small group.
No one has been able to find an alternative way of achieving
consensus on difficult issues, because it is nearly impossible for
members to change their positions voluntarily in meetings of the
full membership.
Market access negotiations also involve small groups, but for a
completely different reason. The final outcome is a multilateral
package of individual countries’ commitments, but those
commitments are the result of numerous bilateral, informal
bargaining sessions, which depend on individual countries’
interests. So, informal consultations in various forms play a vital
role in allowing consensus to be reached, but they do not appear
in organization charts, precisely because they are informal. They
are necessary for making formal decisions in the councils and
committees. They are the forums for exchanging views, putting
countries’ positions on the record, and ultimately for confirming
decisions. The art of achieving agreement among all WTO
members is to strike an appropriate balance, so that a
breakthrough achieved among only a few countries can be
acceptable to the rest of the membership.

The work of the WTO is undertaken by representatives of member

governments but its roots lie in the everyday activity of industry
and commerce. Trade policies and negotiating positions are
formulated in capitals, usually with a substantial advisory input
from private firms, business organizations, farmers as well as
consumer and other interest groups. Most countries have a
diplomatic mission in Geneva, sometimes headed by a special
Ambassador to the WTO, whose officials attend meetings of the
many negotiating and administrative bodies at WTO
headquarters. Sometimes expert representatives are sent directly
from capitals to put forward their governments' views on specific
questions.

As a result of regional economic integration in the form of

customs unions and free trade areas and looser political and
geographic arrangements, some groups of countries act together
in the WTO with a single spokesperson in meetings and
negotiations.

The largest and most comprehensive grouping is the

European Union and its 15 member states. The EU is a customs
union with a single external trade policy and tariff. While the
member states coordinate their position in Brussels and Geneva,
the European Commission alone speaks for the EU at almost all
WTO meetings. The EU is a WTO member in its own right as are
each of its member states.
 A lesser degree of economic integration has so far been
achieved by the countries which are GATT members of the
Association of South East Asian Nations (ASEAN) Malaysia,
Indonesia, Singapore, Philippines, Thailand and Brunei
Darussalam.

Nevertheless, they have many common trade interests and

are frequently able to coordinate positions and to speak with a
single voice.

Among other groupings which occasionally present unified

statements are the Latin American Economic System (SELA) and
the African, Caribbean and Pacific Group (ACP). More recent
efforts at regional economic integration for instance, NAFTA
(Canada, US and Mexico) and MERCOSUR (Brazil, Argentina,
Paraguay and Uruguay) have not yet reached the point where
their constituents frequently have a single spokesperson on WTO
issues.

A well-known alliance in the Uruguay Round bringing

together a similarity of trade interests rather than a regional
identity was the Cairns Group which comprised, and still
comprises, agricultural exporting nations from developed,
developing and East European countries.

The WTO continues a long tradition in GATT of seeking to

make decisions not by voting but by consensus. This procedure
allows members to ensure their interests are properly considered
even though, on occasion, they may decide to join a consensus in
the overall interests of the multilateral trading system. Where
consensus is not possible, the WTO agreement allows for voting.
In such circumstances, decisions are taken by a majority of the
votes cast and on the basis of "one country, one vote".

There are four specific voting situations envisaged in the

WTO Agreement. First, a majority of three-quarters of WTO
members can vote to adopt an interpretation of any of the
multilateral trade agreements. Second, and by the same majority,
the Ministerial Conference, may decide to waive an obligation
imposed on a particular member by a multilateral agreement.
Third, decisions to amend provisions of the multilateral
agreements can be adopted through approval either by all
members or by a two-thirds majority depending on the nature of
the provision concerned. However, such amendments only take
effect for those WTO members which accept them. Finally, a
decision to admit a new member is taken by a two-thirds majority
in the Ministerial Conference.

Most WTO members are previously GATT members who

have signed the Final Act of the Uruguay Round and concluded
their market access negotiations on goods and services by the
Marrakesh meeting in 1994. A few countries which joined the
GATT later in 1994, signed the Final Act and concluded
negotiations on their goods and services schedules, also became
early WTO members. Other countries that had participated in the
Uruguay Round negotiations concluded their domestic ratification
procedures only during the course of 1995, and became members
thereafter.

Aside from these arrangements which relate to original WTO

membership, any other state or customs territory having full
autonomy in the conduct of its trade policies may accede to the
WTO on terms agreed with WTO members.

In the first stage of the accession procedures the applicant

government is required to provide the WTO with a memorandum
covering all aspects of its trade and economic policies having a
bearing on WTO agreements. This memorandum becomes the
basis for a detailed examination of the accession request in a
working party.

Alongside the working party's efforts, the applicant

government engages in bilateral negotiations with interested
member governments to establish its concessions and
commitments on goods and its commitments on services. This
bilateral process, among other things, determines the specific
benefits for WTO members in permitting the applicant to accede.
Once both the examination of the applicant's trade regime and
market access negotiations are complete, the working party
draws up basic terms of accession.

Finally, the results of the working party's deliberations contained

in its report, a draft protocol of accession, and the agreed
schedules resulting from the bilateral negotiations are presented
to the General Council or the Ministerial Conference for adoption.
If a two-thirds majority of WTO members vote in favour, the
applicant is free to sign the protocol and to accede to the
Organization; when necessary, after ratification in its national
parliament or legislature.

5. WTO’s Evolving Role

WTO comprises of 147 member nations and accounts for

approximately 97% of world trade and is the only international
organization dealing with the global rules of trade between
nations. As mentioned, the central objective of the WTO is to
ensure that trade flows as smoothly, predictably and freely as
possible by encouraging the liberalization of multinational trade in
goods, services and intellectual property. The main functions
characterizing the WTO are designed to achieve the central
objective of regulating international trade. The strengths of the
WTO, many of which are the very reasons for its establishment,
embrace the benefits of free trade and a rules-based
organization.

The WTO assigns benefits to promoting a multilateral trading

system many of which are reasons for the WTO’s establishment.
The benefits are listed below:

1. The WTO being a system of international governance

contributes to international peace.
2. WTO has the power to settle disputes and create
agreements that bind members; an underlying strength of
the WTO is preventing trade disputes evolving into war.
3. WTO plays a very crucial role in reducing inequality, the
product of a rules based organization and non-
discrimination. Given agreements are derived from
consensus both developed and developing countries have
equal contribution in decision making and settling of
disputes.
4. Assisting developing and transition economies, where, the
WTO Secretariat, alone or in cooperation with other
international organizations, conducts missions and seminars
and provides specific, practical technical cooperation for
governments and their officials dealing with accession
negotiations, implementing WTO commitments or seeking to
participate effectively in multilateral negotiations.
5. The WTO Secretariat also provides training courses. These
take place in Geneva twice a year for officials of developing
countries. Since their inception in 1955 and up to the end of
 1994, the courses have been attended by nearly 1400 trade
officials from 125 countries and 10 regional organizations.
Since 1991, special courses have been held each year in
Geneva for officials from the former centrally-planned
economies in transition to market economies.
6. An important aspect of the WTO's mandate is its role to
cooperate with the International Monetary Fund, the World
Bank and other multilateral institutions to achieve greater
coherence in global economic policy-making.

 VipulBharatwal(4067)

 2. WHAT IS IMF
“It is an organization of 186 countries ,working to foster global monetary cooperation , secure
financial stability ,facilitate international trade ,promote high employment and sustainable
economic growth and reduce poverty” .
The IMF is the most detailed attempt to organize the conduct of international monetary
affairs.

 3. The International Monetary Fund was created in July 1944, originally with 45 members,
with a goal to stabilize exchange rates and assist the reconstruction of the world's
international payment system. Countries contributed to a pool which could be borrowed from,
on a temporary basis, by countries with payment imbalances. (Condon, 2007)
Headquarters in Washington D.C.
International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn (R) briefs
journalists on the outcomes of the International Financial Monetary and Financial Committee
meeting with Egyptian Finance Minister and International Monetary and Financial
Committee (IMFC) Chairman Youssef Boutros-Ghali (M), and IMF First Deputy Managing
Director John Lipsky (L); April 25, 2009 at IMF Headquarters in Washington, DC.

 4. Who runs the IMF?

Member Countries
Board of Governors
Executive Board
IMF Managing Directors
First Deputy Managing Dir
Deputy Managing
Dir
Deputy Managing
Dir
 5. MEMBERSHIP
There are two types of members:
ORIGINAL MEMBERS: All those countries whose representatives took part in
BRETTONWOODS CONFERENCE and who agreed to be the members of the fund prior to
31st December,1945.
ORDINARY MEMBERS: All those who became its members subsequently.
*BANK has the authority to suspend any member and similarly every member is free to
resign.

 6. RESOURCES OF THE FUND

QUOTAS AND THEIR FIXATION: The fund has general account based on quotas allocated
to its members .when a country joins the fund, it is assigned a quota that governs the size of
its subscription, its voting power and its drawing rights .
FUND BORROWING: It was in force from October 1962 to December 1998 .At that time its
total borrowing was SDR 17 billion .

 7. OBJECTIVES OF THE IMF

INTERNATIONAL MONETARY CO OPERATION
TO FACILITATE EXPANSION AND BALANCED GROWTH OF INTERNATIONAL
TRADE
TO PROMOTE EXCHANGE STABILITY
GENERATING HIGHER EMPLOYMENT AND INCOME
ABOLITION OF EXCHANGE RESTRICTION
AID TO MEMBERS DURING EMERGENCY
TO SHORTEN THE DURATION AND LESSEN THE DEGREE OF DISEQUILIBRIUM
IN THE INTERNATIONAL BALANCE OF PAYMENTS OF MEMBERS.

 8. MAIN FUNCTIONS OF THE FUND

DETERMINING THE RATE OF EXCHANGE BY EVERY COUNTRY
FUND LENDING
CREDIT TRANCHES
A CENTRAL BANK’S BANK
TRAINING AND TECHNICAL ASSISTANCE
CONSULTANCY ROLE

 9. ACHIEVEMENTS OF THE IMF

INTERNATIONAL MONETARY CO-OPERATION
EXCHANGE STABILITY
CHECKING COMPETITIVE DEPRECIATION
INCREASED ASSISTANCE
INCREASE IN CAPITAL RESOURCES
EXPANSION OF TRADE
GURANTEE AGAINST COMPETITIVE DEVALUATION

 10. Criticism

 Many observers comment on the fact that the IMF has a ”one size fits all” mentality,
that whatever the situation the IMF prescribes basically the same set of policies.
 11. IMF does not adequately monitor the impact of its decisions on the poor.
  12. Some of U.S. critics say, IMF is an incredibly wasteful organization that takes
valuable funds and pours it down the drain of developing economies whose leaders
become fabulously rich off the money without any intention of ever helping out
anyone.
 13. the IMF has no effective authority over the domestic economic policies of its
members.

 ADVANTAGES TO INDIA OF THE MEMBERSHIP OF IMF

 FINANCIAL ASSISTANCE FROM THE FUND

loan given by IMF to INDIA

 HELPS IN FOREIGN EXCHANGE CRISIS

 14. FREEDOM FROM STERLING
 15. MEMBERSHIP OF THE WORLD BANK
 16. ECONOMIC CONSULTATION

 The current relationship between IMF and India

The relationship between the IMF and India has grown strong over the years. In fact, the
country has turned into a creditor to the IMF. India and IMF must continue to boost their
relationship this way, as it will prove to be advantageous for both.
The International Monetary Fund, or IMF, predicted lower growth in India and economic
contractions in the US, Japan and euro region next year, calling for further interest rate cuts
and fiscal stimulus.
India recorded a GDP growth of 9.8% in 2006 and 9.3% in 2007. Its estimate for India’s
growth in 2009 is now 6.3%.

 17. Cont..
An economist said India could grow faster than IMF’s estimate. “Growth next year will
definitely be slower than this year, but it may still touch 7%. New oil refineries coming up
next year will also boost GDP (gross domestic product). I agree with IMF that growth
momentum will slow further, but it may pick up towards the end of next year,” said
Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd.

 18. CONCLUSION
The IMF’s primary purpose is to safeguard the stability of the international monetary system
—the system of exchange rates and international payments that enables countries (and their
citizens) to buy goods and services from each other. This is essential for achieving
sustainable economic growth and raising living standards. IMF came into being on December
27, 1945 when 29 countries of the world signed on “Articles of Agreement”. It started
functioning in March 1947.

Structure of IMF:

The Board of Governors is the supreme body of IMF, which is headed by a Governor and an
alternate Governor who are appointed by the members of the Fund. The board of Governors
deals with the entry of new members, determination of quotas and distribution of SDRs.
Board of Governors consists of one Governor from each of its 184 members. 24 of the
Governors sit on International Monetary and financial committee and meet twice a year.
There is an annual meeting of the Fund which is held once in a year all members participate
in it.

The other big authority in the IMF is “Executive Board”. It has a Managing Director who is
the Chairman of the executive board and controls day-to-day matters of the Fund. IMF has
two committees:

(1) Interim Committee now replaced by IM FC,

(2) Development Committee. The Interim Committee deals with international liquidity and
world monetary arrangements. Moreover this committee analyses the amendments of the
Articles of the Agreement. Where as the development committee suggests those measures
where by the real resources could be transferred to the developing countries. Till the end of
2003 the total staffs of IMF was 2800 which was from 141 countries. The Fund has its
headquarters at Washington with its offices at Paris and Genera.

Objectives of the IMF:

In the first article of the Fund’s Charter there have been described the six objectives of IMF.
They are as:

1. To increase international cooperation by providing consultancy services regarding

international monetary issues.

2. To assist in the balanced growth of world trade, which will be helpful in raising the
efficiency, employment and income of the world.

3. To Stabilize the exchange rate and discourage the tendency of competitive devaluation.

4. To abolish those restrictions which are obstacles in the way of World Trade and create a
multi-lateral system of payments.

5. The countries facing deficit in their balance of payments can borrow from IMF to finance
temporarily.

6. To reduce the volume and time period of disequilibrium (deficit) in balance of payments.

Functions of IMF:

Following are some functions performed by IMF.

1. Exchange Arrangements:

As a result of 2nd amendment in Articles each country can opt for any one of the following in
connection with exchange rate.

(1) A country can represent the value of its currency in terms of any other currency like
dollar.
(2) The par value of a currency can be represented in SDRs.

(3) The exchange rate can be expressed in terms of some currency composite.

(4) No country is allowed to represent its currency in terms of gold.

(5) The members can make such arrangements where they can show the par value in terms of
the currencies.

Accordingly, in 1985, the arrangements regarding exchange rate determination, the 32

countries had fixed exchange rate in terms of dollar, there are 14 countries whose value is
fixed in terms of Franc. There 12 countries who show their value in terms of SDRs where as
the large number of countries are on ‘Managed Floating’ exchange rate system.

2. Surveillance:

It is the responsibility of the Fund to see whether the members are serious regarding their
functions, whether they get guidance from Fund regarding exchange rate policies. In respect
of conduct of exchange rate policies fund has approved three principles (1) A member in
order to get undue benefit will not prefer any other member (2) For the sake of abolition of
destabilizing forces in exchange rate govt. should interfere in foreign exchange market (3)
Regarding such intervention is should be kept in view that the interests of the other countries
be not affected. Thus under this function there is regular dialogue and policy advice which
IMF offers to each member. Hence IMF makes an appraisal of each member’s economy.

3. Exchange Restrictions:

In the light of Article VIII of the Fund, no country can put any type of restrictions on the
payments regarding Current Account. However a country can impose restrictions on the
movement regarding capital amount. Again no country can impose restrictions that the
transactions will be made in certain currencies.

4. Consultation and Technical Assistance:

For the sake of effective performance of its functions fund must be having the information
regarding the economic policies and economic conditions of its member countries. This will
be possible if the fund and the members are linked to each other. In 1984, 118 countries
completed their talks with fund under Article IV. Again the Fund provides technical
assistance to its members regarding strengthening their capacity to design and implement
effective policies. Fund assists in the areas of fiscal policy, monetary policy, exchange rate,
banking and financial system etc.

5. Lending For BOP Difficulties:

Basically Fund is aimed to provide financial assistance to those member countries which
suffer from BOP difficulties. But to the poor countries, it also assists in the attainment of
growth and alleviation of poverty.

Resources of the IMF:

The main source of the Fund is those subscriptions which are paid by the members in form of
quotas. We also know that each country has to pay 75% of its quotas in terms of the domestic
currency and 25% in terms of SDRs. In 8 th General Review which was promulgated in
November, 1983, it was decided that 25% of quota can be paid in those currencies which are
allowed by the Fund instead of SDRs. The New Arrangement to Borrow (NAB) introduced in
1997 with 25 participating countries and institutions. Under the GAB and NAB the IMF has
upto SDRs 34 billion or $46 billion available to borrow.

In order to enhance its resources, the Fund can borrow from the official as well as unofficial
sources. Fund obtained its first loan in 1962 under ‘General Arrangements to Borrow
(GAB)’. In 1983 the GAB has been extended Accordingly under GAB Fund has borrowed
from US Deutsche Bunds Bank, Japan, Saudi Arabia, France, Belgium, Holland, Italy,
Canada and Swiss National Bank. Against such loans the Fund pays as much interest as it
gets against the use of SDRs.

Fund gets three types of charges against the use of resources.

1. Each country has to pay 0.5% as service charges.

2. The agreement free is 25% per annum.

3. The borrowing country has to pay 7% as interest charges. However they very from facility
to facility.

Performance of IMF:

We know that IMF was setup in 194 and has completed, its 60 years in 2004. Therefore we
see how far the IMF has been successful in attaining its objectives. The role of IMF is
discussed below.

1. IMF has been much more of value for developed countries. It not only plays an important
role in the determination of exchange rate, but IMF arrangement provided the opportunities to
European industrial countries to follow macro-economic management policies in better way.
They followed the realistic exchange rates. They reduced the restrictions over world trade and
foreign exchange, and depended upon monetary policy for economic stability. As a result not
only their deficits decreased, but the inflation was also controlled. All this means that IMF
helped in attaining both internal and external balances.

2. In 1960 IMF brought two big changes in operation. To increase its resources to finance the
deficit countries it introduced GAB where by the IMF could be able to borrow from 10 big
industrial countries. Secondly because of shortage of world’s liquidity in was authorized to
issue SDRs.

3. During 1960’s IMF paid special attention on the under-developed countries. It introduced
two facilities like CFF and BSF with aim of assisting those poor countries which faced fall in
their export earnings.

4. During 1970’s, because of oil price like under-developed countries had to face soaring
deficits. Moreover the world has to see melodrama of inflation and unemployment. In such
circumstances, there was fear that rate of exchange will face big fluctuations and there will be
big devaluation like 1940’s. In order to compensate the oil affected countries IMF introduced
for oil Facility and 2nd oil Facility. In 1976, IMF set up TF, while in 1977 it formed SFF.

5. In 1986 and 1987 the Structural Adjustment Facility (ESAF) were introduced. Under these
facilities, IMF helps those countries which are engaged in removing price distortions,
maintaining real exchange rate and enhancing productive capacity. The purpose of such all
reforms is to create a suitable environment for economic development. The above facilities
have been renewed in 1944 with the aim of providing loans to developing countries at the
concessionary rates so that they could initiate medium term programme of macro-economic
stability.

6. In 1933 IMF initiated “Temporary Systematic Transformation Facility” for the assistance
of former states of Soviet Union. As a result of such facility, the Central Asian States will be
assisted which are transferring themselves from command economies to market-economics.
Moreover IMF is providing training facilities to the staff of these states so that they could
train themselves for a better macro economic management.

7. During 1977-98 Asian Financial Crisis, Fund pledged $21 billion to assist Korean to
reform economy, restructure its financial and corporate sectors and recover from recession.

8. In the year 2000 IMF approved an additional sum of $52 million loan for Kenya to cope
with sever effects of drought und PRGF.

 providing advice to members on adopting policies that can help them prevent or
resolve a financial crisis, achieve macroeconomic stability, accelerate economic
growth, and alleviate poverty;
 19. making financing temporarily available to member countries to help them address
balance of payments problems—that is, when they find themselves short of foreign
exchange because their payments to other countries exceed their foreign exchange
earnings; and
 20. offering technical assistance and training to countries at their request, to help them
build the expertise and institutions they need to implement sound economic policies.
 The International Bank for Reconstruction and Development (IBRD), commonly
referred to as the World Bank, is an international financial institution whose purposes
include assisting the development of its member nation’s territories, promoting and
supplementing private foreign investment and promoting long-range balance growth
in international trade.
 The World Bank was established in December 1945 at the United Nations Monetary
and Financial Conference in Bretton Woods, New Hampshire. It opened for business
in June 1946 and helped in the reconstruction of nations devastated by World War II.
Since 1960s the World Bank has shifted its focus from the advanced industrialized
nations to developing third-world countries.
 Organization and Structure:
 The organization of the bank consists of the Board of Governors, the Board of
Executive Directors and the Advisory Committee, the Loan Committee and the
president and other staff members. All the powers of the bank are vested in the Board
of Governors which is the supreme policy making body of the bank.
 The board consists of one Governor and one Alternative Governor appointed for five
years by each member country. Each Governor has the voting power which is related
to the financial contribution of the Government which he represents.
 The Board of Executive Directors consists of 21 members, 6 of them are appointed by
the six largest shareholders, namely the USA, the UK, West Germany, France, Japan
and India. The rest of the 15 members are elected by the remaining countries.
 Each Executive Director holds voting power in proportion to the shares held by his
Government. The board of Executive Directors meets regularly once a month to carry
on the routine working of the bank.
 The president of the bank is pointed by the Board of Executive Directors. He is the
Chief Executive of the Bank and he is responsible for the conduct of the day-to-day
business of the bank. The Advisory committees appointed by the Board of Directors.
 It consists of 7 members who are expects in different branches of banking. There is
also another body known as the Loan Committee. This committee is consulted by the
bank before any loan is extended to a member country.
 Capital Resources of World Bank:
 The initial authorized capital of the World Bank was $ 10,000 million, which was
divided in 1 lakh shares of $ 1 lakh each. The authorized capital of the Bank has been
increased from time to time with the approval of member countries.
 On June 30, 1996, the authorized capital of the Bank was $ 188 billion out of which $
180.6 billion (96% of total authorized capital) was issued to member countries in the
form of shares.
 Member countries repay the share amount to the World Bank in the following
ways:
 1. 2% of allotted share are repaid in gold, US dollar or Special Drawing Rights
(SDR).
 2. Every member country is free to repay 18% of its capital share in its own currency.
 3. The remaining 80% share deposited by the member country only on demand by the
World Bank.
 Objectives:
 The following objectives are assigned by the World Bank:
 1. To provide long-run capital to member countries for economic reconstruction and
development.
 2. To induce long-run capital investment for assuring Balance of Payments (BoP)
equilibrium and balanced development of international trade.
 3. To provide guarantee for loans granted to small and large units and other projects
of member countries.
 4. To ensure the implementation of development projects so as to bring about a
smooth transference from a war-time to peace economy.
 5. To promote capital investment in member countries by the following ways;
 (a) To provide guarantee on private loans or capital investment.
 (b) If private capital is not available even after providing guarantee, then IBRD
provides loans for productive activities on considerate conditions.
 Functions:
 World Bank is playing main role of providing loans for development works to
member countries, especially to underdeveloped countries. The World Bank provides
long-term loans for various development projects of 5 to 20 years duration.
 The main functions can be explained with the help of the following points:
 1. World Bank provides various technical services to the member countries. For this
purpose, the Bank has established “The Economic Development Institute” and a Staff
College in Washington.
 2. Bank can grant loans to a member country up to 20% of its share in the paid-up
capital.
  3. The quantities of loans, interest rate and terms and conditions are determined by the
Bank itself.
 4. Generally, Bank grants loans for a particular project duly submitted to the Bank by
the member country.
 5. The debtor nation has to repay either in reserve currencies or in the currency in
which the loan was sanctioned.
 6. Bank also provides loan to private investors belonging to member countries on its
own guarantee, but for this loan private investors have to seek prior permission from
those counties where this amount will be collected.

The World Bank is like a cooperative, made up of 188 member countries. These member
countries, or shareholders, are represented by a Board of Governors, who are the ultimate
policymakers at the World Bank. Generally, the governors are member countries' ministers of
finance or ministers of development. They meet once a year at the Annual Meetings of the
Boards of Governors of the World Bank Group and the International Monetary Fund.

The governors delegate specific duties to 25 Executive Directors, who work on-site at the
Bank. The five largest shareholders appoint an executive director, while other member
countries are represented by elected executive directors.

 World Bank Group President Jim Yong Kim chairs meetings of the Boards of
Directors and is responsible for overall management of the Bank. The President is
selected by the Board of Executive Directors for a five-year, renewable term.
 The Executive Directors make up the Boards of Directors of the World Bank. They
normally meet at least twice a week to oversee the Bank's business, including
approval of loans and guarantees, new policies, the administrative budget, country
assistance strategies and borrowing and financial decisions.

The World Bank operates day-to-day under the leadership and direction of the president,
management and senior staff, and the vice presidents in charge of Global Practices, Cross-
Cutting Solutions Areas, regions, and functions.