Globalisation and IMF

Introduction
• IMF rejects the idea that globalization is being imposed upon the
world by some countries and institutions such as the IMF and the
World Bank.
• It defines globalization as a political choice in favor of international
economic integration which will take place with consolidation of
democracy globally.
• Argues that global poverty can only be reduced through globalization
• The IMF believes that economic growth is the only way to improve
living standards in developing countries, and that this is best achieved
through globalization.
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.
1.Regulatory functions: IMF functions as a regulatory body and focuses on
administering a code of conduct for exchange rate policies and restrictions on
payments for current account transactions.
2.Financial functions: IMF provides financial support and resources to the
member countries to meet short term and medium term Balance of Payments
(BOP) disequilibrium.
3.Consultative fun­ctions: IMF is a centre for international cooperation for the
member countries. It also acts as a source of counsel and technical assistance.
Globalisation is not new
• period through the end of the 19th century was also characterized by unprecedented
economic growth and global integration.
• But globalization was interrupted in the first half of the 20th century by a wave of
protectionism and aggressive nationalism, which led to depression and world war.
• Argument is that whenever economic integration has been stopped it had reverse
consequences.
• Since 1945, democracy and capitalism have been embraced by an increasing
number of countries—including, since 1989, by most of the previously communist
world.
• As a result, the past 50 years have been a period of growing economic and political
freedom and rising prosperity.
Developing nations
• developing countries have already taken advantage of the opportunities of the global economy.
• Example - Brazil, China, Costa Rica, the Philippines, and Mexico
• sub-Saharan Africa—has been left behind by economic progress.
• IMF is committed to maintaining its engagement with the world's poorest countries.
• IMF argues that poor countries must strive to establish peace, the rule of law, and good
governance, as well as implement economic policies that encourage private initiative and
integration into the global economy.
• Meanwhile, rich countries should be offering stronger financial support in the form of
investment, official development assistance, and debt relief.
• Trade liberalization is the best form of help for self-help, both because it offers an escape from
aid dependency and because it is a win-win game; all countries stand to benefit from freer
trade. The true test of the credibility of rich countries' efforts to combat poverty lies in their
willingness to open up their markets and phase out trade-distorting subsidies in areas where
developing countries have a comparative advantage
Contribution of IMF in globalisation
• promoting international economic cooperation
• By focusing on the functioning of the international monetary system,
and on promoting sound macroeconomic policies as a precondition for
sustained economic growth.
• fulfilling these objectives through the culture of consensus-building,
which is based on trust and mutual respect among the more than 180
countries—and their governments—that make up their membership.
IMF seeks to mitigate the negative effects of
globalization on the world economy in two ways:
1. ensuring the stability of the international financial system, and
2. by helping individual countries take advantage of the investment
opportunities offered by international capital markets, while reducing their
vulnerability to adverse shocks or changes in investor sentiment.
• Recognises that private capital flow has both advantages and disadvantages
• To reduce disadvantages, IMF argues that it is encouraging its members to
increase the transparency of their financial and corporate sectors as a means to
reduce financial abuse, such as money laundering and fraud, and ensure a
level playing field for all investors.
• Also stepping up its surveillance of international capital markets to predict
economic depression
Reforms introduced in IMF to strengthen
economic intergration
• The IMF has increasingly become an open and transparent
organization, as demonstrated by the overwhelming amount of
information now available on its internet website.
• taking action to strengthen economic governance. For instance, it is
promoting the use of standards and codes as vehicles for sound
economic and financial management and corporate governance.
• working to safeguard the stability and integrity of the international
financial system by combating money laundering through joint
IMF-World Bank Financial Sector Assessment Program (FSAP)
• encouraging true national ownership of reforms by streamlining
the conditions attached to IMF-supported programs. While
conditionality remains essential, countries must themselves take
responsibility for implementing the necessary reforms.
• recognizes and values the role of civil society organizations in
articulating the moral foundations for collective action and building
grass roots support.
Globalisation and WTO
Functions of WTO : how wto intensifies
economic globalisation
• The World Trade Organization (WTO) is a multilateral organization headquartered in Geneva,
Switzerland. It came into existence on January 1, 1995, as a successor to the General Agreement on
Tariffs and Trade (GATT).
1. The WTO facilitates trade negotiations among countries by providing a framework to structure the
agreements, as well as providing dispute resolution mechanisms.
2. Once the agreements are negotiated, the job of the WTO is to ensure that the signatory countries
adhere to their commitments in practice.
3. The WTO also acts as a dispute settlement body when there is a trade conflict between its member
states. The members of the WTO can file complaints against other member states if they feel the
trade and economic policies of a country are divergent from their commitments under one of the
agreements of the WTO.
4. The WTO runs special programs to support developing countries by helping them build the capacity
to participate in free trade with more developed countries.
5. the WTO carries out lobbying and outreach across the world as a part of its larger objectives to
promote free trade. They try to persuade governments to reduce barriers to trade to free, fair, and
open markets around the world.
WTO arguments in favor of globalisation
• Is open trade threat to human rights ?
1. Argues that trade, investment, growth of business will impact
human rights is contrary to the truth.
2. Infact it is seen that closed economies are often accompanied by
lack of democracy, free media, political repression and absence of
opportunity to individuals to improve their lives through education,
innovation and hard work.
Is free trade driven by corporate interest?
• Allegation is that free trade is driven by corporations and therefore,
serve interest of few i.e., special interest.
• Wto argues that corporations are owed by people, employs people
who pay taxes therefore serves general public good and not special
interest.
• Appropriate regulations exist to oversee corporations.
Globalisation does not take into account
particular context of a state.
• Allegation is that open trade ignores that not every country has the capacity
and resources to pursue liberal trade and economic policies.
• Wto argues that this fundamental decision has to be taken by the
government.
• Either go for free trade or restrict trade. Wto argues former is better.
• Wto has made rules that free trade reflect political and economic realities of
every country.
• Reliance on domestic market behind protective walls does not lead to
economic growth.
• Countries who even make small gains initially have went on to economically
grow more strongly with time.
Free trade harms efforts of eradicating
poverty?
• Argues not true.
• Economists have shown that free trade promotes growth and growth
reduces poverty.
• Stagnant economies cannot pull masses out of unemployment and
therefore, out of poverty.
• What about outsourcing and its negative effects?
Companies can reduce costs in one area through outsourcing may
invest in other areas and create jobs.