Unit 9. INTERNATIONAL ECONOMY

Text A. The World Bank

The International Bank for Reconstruction and Development

(IBRD) is better known as the World Bank. It is an international organization whose original mission was to finance the reconstruction of nations devastated by World War II. Now its mission has expanded to fight poverty by means of financing states. The World Bank's activities are now focused on developing countries in education, agriculture and industry.

The World Bank provides loans at preferential rates to countries experiencing economic difficulties. The World Bank provides long-term loans, grants, and technical assistance, to help developing countries implement their poverty reduction strategies. The IBRD provides loans to governments and public enterprises.

The funds for the lending come from a combination of the repayment of loans and the issuing of bonds on the global capital markets. The IBRD is one of the biggest borrowers on the international markets, and is able to borrow at relatively low interest rates. It lends to countries at interest rates that are attractive to them by adding a small margin (about 1%) to its borrowing costs to cover administrative overheads.

In addition to financing, the World Bank Group provides advice and assistance to developing countries on almost every aspect of economic development.

The World Bank started on December 27,1945 after the international ratification of the agreements at the Bretton Woods Conference of July 1— July 22,1944. Together with four affiliated agencies created between 1956 and 1988, the IBRD is part of the World Bank Group. The Group's headquarters are in Washington, D.C. An unwritten rule establishes that the president of the World Bank must be from the United States of America. The IBRD's four affiliated agencies are the International

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Finance Corporation (IFC), established in 1956, the International Development Association (IDA), established in 1960, the Multilateral Investment Guarantee Agency (MIGA), established in 1988, and the International Centre for Settlement of Investment Disputes (ICSID), established in 1966. The institutions of the World Bank Group are run by a Board of 24 Executive Directors, with each Director representing either one country (for the largest countries), or a group of countries.

The work of the Bank is subject to strong criticism from a range of NGO's and academics. It was accused of being a US or western tool for imposing economic policies that support western interests. One general critique is that the Bank is under the political influence of certain countries that would profit from advancing their interests.

Another critique is that the Bank operates under the belief that the market can solely bring prosperity to nations that practice free competition. In this perspective, reforms born of "neo-liberal" inspiration are not always suitable for nations experiencing conflicts (ethnic wars, border conflicts, etc.), or that are oppressed (dictatorship or colonization) and do not have stable, democratic political systems.

The World Bank is a closed system. The decision-making processes are not open for those who fund the projects, mostly the taxpayers in the member nations. Membership gives certain voting rights that are the same for all countries but there are also additional votes. The additional votes depend on financial contributions to the organisation. Many critics say that it implies undemocratic decision-making.

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Questions to the Text

1.What is the shorter name for the International Bank for Reconstruction and Development?

2.What was the original mission of the World Bank?

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3.What is the current mission of the World Bank?

4.What types of assistance does the World Bank provide to countries in need?

5.Where do the funds for the lending come from?

6.Why is the IBRD able to borrow at low interest rates?

7.What does the organization charge when it lends money?

8.What other types of services does the World Bank provide?

9.What affiliated agencies are there in the World Bank Group?

10.Where are the headquarters of the World Bank Group?

11.Who runs the institutions of the World Bank group?

12.What was the World Bank accused of?

13.What do critics say about "neo-liberal" politics of the World

Bank?

14.Why is the World Bank a closed system?

15.What determines the number of additional votes for the member nations?

Text B. The International Monetary Fund

The International Monetary Fund (IMF) is the international organization which oversees the global financial system by monitoring foreign exchange rates and balance of payments, as well as offering technical and financial assistance when asked.

The IMF describes itself as "an organization of 184 countries, working to foster global monetary cooperation, to secure financial stability, to facilitate international trade, promote high employment and sustainable economic growth, and to reduce poverty". Of all UN member states only North Korea, Cuba, Liechtenstein, Andorra, Monaco, Tuvalu and Nauru are either integrated or represented by other member states or choose not to participate. An unwritten rule establishes that the IMF's managing director must be European.

Agreement for the creation of the IMF came at the Monetary and Financial Conference in Bretton Woods, New Hampshire, United States, on

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generally hostile to the views of democracy, human rights, and labour rights. These criticisms generated a controversy that helped to inspire the anti-globalization movement. Others claim the IMF has little power to democratize sovereign states. Arguments in favour of the IMF say that economic stability is necessary in democracy.

Overall the IMF success record is limited. It was created to help stabilize the global economy, however, since 1980 over 100 countries have experienced a banking collapse that reduced GDP by four percent or more. Much more than any previous time in history. The considerable delay in response to a crisis, and the fact that it tends to respond to rather than prevent them, has led many economists to argue for reform.

Whatever the feelings people in the Western world have for the IMF, research by the Pew Research Centre shows that more than 60 percent of Asians and 70 percent of Africans feel that the IMF and the World Bank have a positive effect on their country. Such research has made proponents of IMF claim the IMF-critique misleading, as it would be difficult to speak of suffering if the sufferers don't feel hurt.

There is much confusion about the difference between the IMF and the World Bank. The IMF keeps account of trade balances between member states as an independent auditor. The World Bank, on the other hand, gives more long-term loans for more general purposes. What it does, as an investment bank, is to intermediate between lenders and borrowers. It sells bonds to corporations, individuals, and sometimes governments, and lends that money to borrowing governments.

The IMF was originally founded to stabilize countries" currencies in relation to each other, and to oversee the currency exchange market. Since the IMF is not really a bank, it doesn't give loans as such. Rather, it has finances from which member countries can borrow when they need to stabilise their currency quickly. All loans from the IMF must be paid back within 5 years.

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VOCABULARY

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Questions to the Text

1.What is the IMF?

2.How many countries are members of the IMF?

3.What are the main goals of the organization?

4.Where was the agreement for the creation of the IMF reached?

5.Who were the main creators of the IMF?

6.When did the Articles of the Agreement for the creation of the IMF come into force?

7.What institutions are often called Bretton Woods institutions?

8.If a country applies for a membership status, where is the application considered?

9.What is a Membership Resolution?

10.What happens when the Board of Governors adopts the Membership Resolution?

11.What does a member's quota determine?

12.What kind of assistance does the IMF provide to countries with economic difficulties?

13.Why was the role of the Bretton Woods institutions controversial?

14.Why was the IMF success record limited?

15.What does the research by the Pew Research Centre show?

16.What is the difference between the IMF and the World Bank?

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