Explain the significant role of international financial institution

(IMF, IBRD, IFC) on the export promotional measures.

An international financial institution (IFI) is a financial institution that has been
established (or chartered) by more than one country, and hence are subjects
of international law. Its owners or shareholders are generally national
governments, although other international institutions and other organizations
occasionally figure as shareholders. The most prominent IFIs are creations of
multiple nations, although some bilateral financial institutions (created by two
countries) exist and are technically IFIs. The best known IFIs were established
after World War II to assist in the reconstruction of Europe and provide
mechanisms for international cooperation in managing the global financial system.

How IFIs work:
IFIs provide long-term, low-interest loans, credits, and grants to finance projects
run by governments or the private sector. They operate through shareholdings,
trade services and bank shares, and provide technical and policy advice to
governments, private enterprises and civil society.

1. International Bank for Reconstruction and Development (IBRD)

The IBRD was set up in 1945 along with the IMF to aid in rebuilding the world
economy. It was owned by the governments of 151 countries and its capital is
subscribed by those governments; it provides funds to borrowers by borrowing
funds in the world capital markets, from the proceeds of loan repayments as well as
retained earnings. At its funding, the bank’s major objective was to serve as an
international financing facility to function in reconstruction and development. With
Marshall Plan providing the impetus for European reconstruction, the Bank was
able to turn its efforts towards the developing countries.

2. International Finance Corporation(IFC)

The IFC was established in 1956. There are 133 countries that are members of the
IFC and it is legally and financially separate from the IBRD, although IBRD
provides some administrative and other services to the IFC.

The IFC’s main responsibilities are

  To provide risk capital in the form of equity and long-term loans for
productive private enterprises in association with private investors and
management;
 To encourage the development of local capital markets by carrying out
standby and underwriting arrangements; and
 To stimulate the international flow of capital by providing financial and
technical assistance to privately controlled finance companies. Loans are
made to private firms in the developing member countries and are usually
for a period of seven to twelve years.

3. International Monetary Fund (IMF)

The International Monetary Fund (IMF) came into official existence on December
27, 1945, when 29 countries signed its Articles of Agreement (its Charter) agreed
at a conference held in Bretton Woods, New Hampshire, USA, from July 1-22,
1944. The IMF commenced financial operations on March 1, 1947. Its current
membership is 182 countries. Its Total Quotas are SDR 212 billion (almost
US$300 billion), following a 45 per cent quota increase effective from January 22,
1999.

• Staff: approximately 2,700 from 110 countries.

• Accounting Unit: Special Drawing Right (SDR). As of August 23, 1999,

SDR I equalled US $1.370280.

IMF is a cooperative institution that 182 countries have voluntarily joined because
they see the advantage of consulting with one another on this forum to maintain a
stable system of buying and selling their currencies so that payments in foreign
currency can take place between countries smoothly and without delay. Its policies
and activities are guided by its Charter known as the Articles of Agreement.

EXPORT PROMOTION MEASURES

The Commerce Ministry of the Government of India announces Export Import

(EXIM) Policy every five years, which governs laws related to export and import
of items within that period. The focus of trade policy reforms in India has been on
liberalization, openness and globalization with a basic thrust on outward oriented
export promotion activity, removal of quantitative restrictions and improving
competitiveness of Indian industry to meet global market requirements. Although
trade policy of India is primarily a 5 year policy, the Commerce Ministry
announces appropriate amendments every year keeping in mind the latest national
and international developments. This is usually done on 31st March every year. It
is also worth mentioning that the Government has changed the name of EXIM
Policy to “Foreign Trade Policy’. The researcher makes an attempt to highlight the
salient features of EXIM Policy / Foreign Trade Policy changes made in the recent
years taking into account the important sectors.

Export promotion measures are public policy measures taken by the government of
a country to potentially enhance the exporting activities and employment of that
country. In India, a number of export promotion schemes have been in existence
for some time which promotes the industries that have a potential for developing
and competing with foreign industries. A good example of export promotion in
India is the development of EPZ, FTZ and SEZ.

Roles of Export Promotion measures

 To compensate exporters for high domestic cost of production

 To provide assistance to exporters in setting up a fully independent export
unit
 To increase relative profitability in domestic market as compared to foreign
market
 Provide opportunity to achieve economies of scale and growth
 To achieve export lead growth
 To Reduce the effect of domestic recession
 A platform for production houses to sell surplus