International Economic

Institutions
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Contents
Bretton Woods’ Conference .............................................................................................................................. 2
International Monetary Fund (IMF) ................................................................................................................... 2
Functions of IMF ........................................................................................................................................ 2
IMF Quotas ................................................................................................................................................ 3
Special Drawing Rights (SDRs) .................................................................................................................. 3
Governance Structure ............................................................................................................................... 4
Types of Financing by IMF ......................................................................................................................... 4
World Bank......................................................................................................................................................... 5
Important Facts about World Bank .......................................................................................................... 5
International Bank for Reconstruction and Development ....................................................................... 5
International Development Association (IDA) ......................................................................................... 5
International Finance Corporation (IFC) ................................................................................................... 6
Multilateral Investment Guarantee Agency (MIGA) ............................................................................... 6
International Centre for Settlement of Investment Disputes (ICSID) ...................................................... 6
Board of Executive Directors of World Bank ............................................................................................ 6
World Trade Organization (WTO) ...................................................................................................................... 7
General Agreement on Tariffs and Trade ................................................................................................. 7
Important Facts about WTO ..................................................................................................................... 7
Organizational Structure........................................................................................................................... 8
Principles of WTO ...................................................................................................................................... 8
Major WTO Agreements ........................................................................................................................... 9

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Bretton Woods’ Conference

• In July 1944, representatives of USA, UK and other 42 countries met at Bretton Woods,
USA.
• The meeting was held to decide a new international monetary system and to establish
international monetary and financial order after the second world war.
• Two international institutions International Monetary fund and World Bank (with its first
group institution – IBRD) were established as a result of the conference.
▪ IBRD – International Bank for Reconstruction and Development.
• Both the institutions are popularly called as Bretton Woods’ twins, having their
headquarters at Washington DC.

We will now discuss IMF and World Bank in detail.

International Monetary Fund (IMF)

• It is an autonomous organization under UNO
• It was established on 27th December 1945 with 30 member nations (India was among the
30 nations)
• Current number of members – 190 (Andorra is the 190th member, joined in 2020)
• Headquarters – Washington DC
• Headed by – Managing Director
• Initial fund - $8.8 Billion

Functions of IMF
The IMF employs three main functions – surveillance, financial assistance, and technical
assistance – to promote the stability of the international monetary and financial system.

Surveillance

• The IMF closely monitors each member country's economic and financial developments
and holds a policy dialogue with a member country on a regular basis
• This dialogue is done to assess the economic conditions of the country with a view to
providing policy recommendations
• The IMF publishes its multilateral assessment through the World Economic Outlook and the
Global Financial Stability Report on a semi-annual basis.

Financial Assistance
• The IMF lends to its member countries facing balance of payments problems
• An IMF loan is usually provided under an "arrangement," requiring a borrowing country to
undertake the specific policies and measures to resolve its balance of payments problem
• Most IMF loans are primarily financed by its member countries through payments of
quotas. Thus, the IMF's lending capacity is mainly determined by the total amount of
quotas.

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Technical Assistance
• The IMF provides technical assistance to help member countries strengthen their capacity
to design and implement effective policies in four areas –
▪ Monetary and financial policies
▪ Fiscal policy and management
▪ Statistics
▪ Economic and financial legislation

IMF Quotas
• When a country joins the IMF, it is assigned an initial quota according to its relative position
in the global economy.
• Quotas determine the maximum contribution of a country to IMF’s financial resources
• Quotas are denominated in Special Drawing Rights (SDRs)
• Quotas are reviewed at least after every 5 years
• The current quota formula is a weighted average of –
▪ GDP of member country (weight of 50 percent)
▪ Economic openness of the country (30 percent)
▪ Country’s economic variability (15 percent)
▪ International reserves (5 percent)
• Role of Quotas
▪ Subscriptions – A member's quota subscription determines the maximum amount of
financial resources the member is obliged to provide to the IMF
▪ Voting power – The quota largely determines a member's voting power in IMF
decisions.
▪ Access to financing – The amount of financing a member can obtain from the IMF (its
access limit) is based on its quota
• Quota of some member countries
▪ Highest quota – USA (17.43)
▪ Lowest Quota – Tuvalu (0.001)
▪ India’s Quota – 2.75

Special Drawing Rights (SDRs)

• IMF lends to its member countries in its artificial currency unit known as SDR
• The SDR is an international reserve asset, created by the IMF in 1969 to supplement its
member countries’ official reserves.
• SDR is not tradable
• Value of SDR keeps on changing due to continuous fluctuations in exchange rates
• The value of SDR is based on five major currencies –

Currency Weights (Determined in 2022)

US Dollar 43.38%
Euro 29.31%
Chinese Yuan 12.28%
Japanese Yen 7.59%
Pound Sterling 7.44%

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Governance Structure
Board of Governors (BoG)

• It is the top most decision making body of the IMF

• It consists of one governor and one alternate governor from each member country (In case
of India, Finance Minister is the governor and RBI governor is the alternate governor)
• Powers of BoG
▪ To approve the quota of member countries
▪ Allocation of Special Drawing Rights
▪ Admitting new member country
▪ Appointing executive director
• The BoG is advised by two committees –
▪ International Monetary and Finance Committee – This committee meets twice a
years and advise BoG about matters of common concern affecting global economy.
▪ Development Committee – It is a joint forum of IMF and World Bank, which meets
twice a year. It has the responsibility of giving advice on financial requirements for
the economic development of developing countries

Executive Board

• It consists of 24 directors appointed by the member countries.

• The Managing director of IMF is the chairperson of the executive board, who is appointed
for a period of 5 years (term can be renewed)

Types of Financing by IMF

• Concessional Lending – This lending is given to low-income countries to manage their
balance of payment crisis at zero interest rate. There are 3 types of concessional lending –
▪ Extended credit facility – Medium to long term loans for prolonged BOP problems
▪ Standby credit facility – Loans for short term BoP crisis
▪ Rapid credit facility – For urgent BoP needs of Low-income countries

• Non-Concessional Lending – This type of lending is open for all member nations and are
based on market determined interest rate along with some surcharges. They are of 5 types:
▪ Stand by Arrangement – To address short term or potential BoP problems of
member countries
▪ Extended fund facility – To address medium- and long- term BoP crisis
▪ Rapid financing instrument – To address urgent BoP needs
▪ Flexible credit line – Funds are provided to member countries with strong
fundamentals, policies and track records of policy implementation. The purpose is to
boost market confidence
▪ Precautionary and liquidity line – Funds are provided to member countries with
strong fundamentals, policies and track records of policy implementation to manage
their moderate vulnerabilities. (Till January 2023, only three members, the republic of
North Macedonia, Morocco and Panama)

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World Bank
The World Bank generally referred to as International Bank for Reconstruction and Development
(IBRD) and International Development Association (IDA). However, the term World Bank Group
refers to a group of five institutions –
• International Bank for Reconstruction and Development (IBRD)
• International Development Association (IDA)
• International Finance Corporation (IFC)
• Multilateral Investment Guarantee Agency (MIGA)
• International Centre for Settlement of Investment Disputes (ICSID)

Important Facts about World Bank

• To be a member of World Bank, a country needs to be a member of IMF
• India is a member of above-mentioned institutions except ICSID
• Headquarters – Washington DC
• Headed by President (5-year term)

Now, we will discuss the 5 arms of World Bank in detail

International Bank for Reconstruction and Development

• It was established on 27th December 1945 as the original World Bank institution
• Total members – 189
• Initial objective – To help countries in their reconstruction affected due to second world war
• Current objective – Economic development of developing and poor countries
• India’s voting right is 2.91%

International Development Association (IDA)

• It was established in 1960 with India as its founding member
• Total members – 174
• It is also known as “Soft lending arm” of the World Bank
• It provides long term interest free loans to the poorest countries for their development
• The repayment periods are stretched over 25 to 40 years with a grace period of 5 to 10
years
• A total of 75 countries are eligible to receive IDA resources (as on January 2023)
• Eligibility for IDA support depends on a country’s relative poverty, defined as per capita
income below a threshold which is updated annually
• IDA also provides grants to countries at risk of debt distress

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International Finance Corporation (IFC)

• It was established in 1956
• Total members – 186 (India is the founding member)
• It is focused on promotion of private sector in developing countries by providing loans to
private sector of a country
• Focus areas of IFC –
▪ Renewable energy production
▪ Improving food security
▪ Infrastructure building
• In 2014, IFC floated Rupee Bond and Masala Bond in the global credit market to fund
Indian companies

Multilateral Investment Guarantee Agency (MIGA)

• It was established in 1988
• Total members – 182
• Functions
▪ To promote FDI by providing insurance to private sector foreign investors
▪ To provide credit enhancement guarantee to cross border private sector investors
and lenders

International Centre for Settlement of Investment Disputes (ICSID)

• It was established in 1966
• Total members – 158 (India is not a member)
• It is a dispute resolution organization which aims to settle investment related disputes
between member countries.
• Settlement through ICSID is voluntary but once the parties agree to settle the dispute, they
cannot withdraw unilaterally

Board of Executive Directors of World Bank

• The World Bank Group has four Boards of Executive Directors representing the four
institutions of the World Bank Group: IBRD, IDA, IFC and MIGA.
• Executive Directors serving on these Boards are usually the same.
• The Boards of Executive Directors are responsible for the conduct of the general operations
of the World Bank Group and exercise all the powers delegated to them by the Board of
Governors under the Articles of Agreement.
• The Boards are composed of 24 Executive Directors, who are appointed or elected by
member countries or by groups of countries, and the President, who serves as its
chairperson

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World Trade Organization (WTO)

The WTO was established on 1st January 1995 by replacing General Agreement on Tariffs and
Trade (GATT)

Before discussing WTO, let’s have a brief look at GATT!

General Agreement on Tariffs and Trade

• It was signed in 1947 to establish free and fair international trade system among member
countries
• It was then signed by 23 countries
• Headquarters of GATT was at Geneva in Switzerland
• By 1993, there were 123 member countries in GATT
• Under GATT, negotiations among member nations were held through Trade Rounds
• Total eight such rounds were held under GATT –
▪ Havana Round (1947)
▪ Annecy Round (France)
▪ Torquay Round (England)
▪ Geneva Round
▪ Dillon Round (Geneva)
▪ Kennedy Round (Geneva)
▪ Tokyo Round
▪ Uruguay Round (1986-94)

Negotiations and consensus through Uruguay round led to the creation of WTO through signing of
Marrakech Agreement

Important Facts about WTO

• It was established on 1st January 1995
• Headquarters – Geneva, Switzerland
• It is headed by a Director General whose term is 4 years and renewable.
• Total members – 164 (Afghanistan was the 164th member); India is a founding member
• European Union is also a member of WTO
• WTO is not a part of UN
• It publishes World Trade Report every year
• The highest decision-making body is Ministerial Conference. The first ministerial
conference took place in Singapore in 1996.
• Unlike IMF and World Bank, WTO has a “One Country One Vote” system

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Organizational Structure
Ministerial Conference

• It meets once in every 2 years and is the highest decision-making body

• It is attended by ministers of commerce and trade of all member nations
• Last ministerial conference took place in Geneva in 2022. This was the 12th MC

General Council

• It meets every year in Geneva

• It is attended by Ambassadors of the members states
• It has the authority to act on behalf of Ministerial conference
• It functions as dispute settlement body and trade policy review body

Councils for Trade

• It includes three councils for

▪ Goods
▪ Services
▪ Trade related aspects of Intellectual Property rights

Principles of WTO
Most Favored Nation (Treating other Partners equally)

• All WTO members are statutorily obliged to grant one another the MFN status.
• It means treating one’s trading partners equally on the principle of non-discrimination
• If a WTO member grants any favour to any of its trading partner, then the same has to be
granted to all members
• Some exceptions are allowed –
▪ Regional economic integration; for ex – ASEAN
▪ Special access to developing countries
▪ Security clause

National Treatment

• This principle is based on non-discrimination between domestic products and foreign

products
• It implies that both imported and domestic product shall be treated equally within the
national boundary.
• It avoids discrimination between imported and domestic product with respect to internal
taxation or government regulations. Therefore, charging custom duty is not a violation of
National Treatment principle

Special and Differential Treatment

• Under this principle, the developed countries can possibly treat developing countries more
favourably than other WTO members.

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Major WTO Agreements

Agreement on Agriculture

• The Agreement on Agriculture (AoA) is a WTO treaty that was negotiated during the
Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and formally
ratified in 1994 at Marrakesh, Morocco. The AoA came into effect in 1995.
• It focuses on reducing the agricultural support and subsidies (called trade distorting) given
to domestic producers by countries.
• It is one of the most contentious agreements within the WTO.

The Agreement is based on three pillars –

Reasonable level of domestic support – Here the domestic support means the subsidies which
are provided by the government to the farmers. There are three types of subsidies under this pillar:

▪ Green Box – It includes those subsidies which do not distort trade. It is given by the
governments in order to compensate farmers for deficiency in agriculture environment. For
ex – Payment for lack of access to research, lack of training etc. There is no prescribed limit
on subsidies under Green Box
▪ Blue Box – These are direct payments under production limiting program. These are less
trade distorting. For ex – farmers are paid to limit their production so that the farm can be
left fallow for it to regain top soil fertility. There are no limits prescribed for Blue box
subsidies
▪ Amber Box – These subsidies are trade distorting. These distort trade by encouraging
excessive production through subsidies on fertilizers, seeds, irrigation and power.
o Limits on Amber Box subsidies – For developed countries, the subsidy limit is 5% of
the value of production and for developing countries, it is 10%.

Providing Market Access

• This head includes improving access to markets by removing trade barriers.

• It implies that all non-tariff barriers to be abolished and converted to tariffs. Non-tariff
barriers include variable levies, minimum import prices, quotas, state trading measures,
discretionary licensing, etc.

Reducing Export Subsidies

• Subsidy on inputs of agriculture or other incentives such as import remission etc. making
export cheaper which leads to dumping highly subsidized (and cheap) products in other
countries and damage the domestic agriculture sector of other countries.

Non-Agricultural Market Access (NAMA)

• NAMA negotiations are based on Doha ministerial declarations of 2001.

• It intends to reduce tariffs on exportable goods that are not covered by the Agreement on
Agriculture.
• Non-Agriculture products include industrial goods, forestry products, manufactured goods,
textiles, fuels, footwear etc.

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General Agreement on Trade in Services (GATS)

• These regulations govern the trade in services among WTO members

• Its objective is to liberalize trade in services
• It includes four modes of delivery of services –
▪ Cross border supply – It includes BPO, transportation, distance education, training
etc.
▪ Local delivery of services – It includes services by foreign banks and insurance
companies
▪ Movement of personnel – for delivery of services
▪ Consumption abroad – It includes services availed by tourists in foreign countries

Agreement of Trade-Related Aspects of Intellectual Property Rights (TRIPS)

• It has been signed by all WTO members and is the most comprehensive agreement on IP
• It lays down legal standards for the member countries to protect IP by the way of
copyrights, geographical indications, industrial designs etc.
• The standards are used to identify products and how the products should be protected once
trade in them is involved

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