RIR 106: Introduction
to International Political
Economy
MANAGING THE GLOBAL ECONOMY
SINCE WORLD WAR II: THE
INTERNATIONAL MONETARY AND
FINANCE STRUCTURE

Lecture Highlights
The Bretton Woods Conference
The World Bank Group
The IMF
African Development Bank
World Trade Organization

International Financial Institutions
are financial institutions that have been established by more than one
country, and hence are subjects of international laws.
Their 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 exist and are technically IFIs.
Many of these are multilateral development banks (MDB).

Objectives of International
Financial Institutions
to reduce global poverty and improve people's
living conditions and standards;
to support sustainable economic, social and
institutional development; and
to promote regional cooperation and
integration.

International Financial Institutions (IFI’S)
World Bank Group (WBG)
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)

International Financial Institutions (IFI’S)?
International Monetary Fund (IMF)
Regional development banks, such as:
African Development Bank (AFDB)
Asian Development Bank (ADB)

The World Bank?
What is World Bank?
 An international organization dedicated to providing financing, advice
and research to developing nations to aid their economic advancement.
 The world bank is one of the two Bretton Woods Institutions which
were created in 1944 to rebuild a war torn Europe after World War II.
Later, largely due to the contributions of the Marshall Plan, the World
Bank was forced to find a new area in which to focus its efforts.

The World Bank?
Why it came into existence?
 The World Bank was created at the end of World War II as a result of many
European and Asian countries needing financing to fund reconstruction efforts.
 The Bank is successful in providing financing for these devastated (destroyed)
countries.
 The International Bank for Reconstruction and Development was the first
“Multilateral Development Bank.” Before World War II had ended.
 Harry Dexter White and John Maynard Keynes conceptualised an international
institution to stabilize exchange rates and provide a source of financing for
reconstruction and development among countries ravaged by the war.

Objectives
 To provide long-term capital to member countries for economic reconstruction and development.
 To induce long-term capital investment for assuring Balance of Payments (BoP) equilibrium and balanced
development of international trade.
 To provide guarantee for loans granted to small and large units and other projects of member countries.
 To ensure the implementation of development projects so as to bring about a smooth transference from a war-
time to peace economy.
 To promote capital investment in member countries by the following ways;
 To provide guarantee on private loans or capital investment.
 If private capital is not available even after providing guarantee, then IBRD provides loans for productive
activities on considerate conditions.

Five purposes:
Assist development and reconstruction
To promote long term balanced international trade
To lend for project development
To conduct its operations with due regard to business
conditions
Promote private investment

Functions
 Granting reconstruction loans to war devastated countries.
 Granting developmental loans to underdeveloped countries.
 Providing loans to governments for agriculture, irrigation, power, transport, water supply,
educations, health, etc
 Providing loans to private concerns for specified projects.
 Promoting foreign investment by guaranteeing loans provided by other organisations.
 Providing technical, economic and monetary advice to member countries for specific project.
 Encouraging industrial development of underdeveloped countries by promoting economic reforms

Areas of Operation
Agriculture and Rural Development
Economic policy
Education
Energy
Environment
Financial sector
Health, nutrition and population industry
Information, computing and
telecommunication
Law and justice
Private sector
Social protection
Trade
Water resources
Water supply and sanitation

5 Priority Areas for the World Bank
World bank provides the largest external funds for
education.
It is a big support in reducing poverty.
It provides fund for biodiversity projects.
it helps to bring clean water, electricity, and transport to
poor people.
It helps in controlling emerging conflicts.

How much loan is given by the World Bank?
The lending terms are determined with reference to recipient countries. World
Bank decides the loan to a country on the basis of 3 criterion;
1. Risk of debt distress (A recipient with a high risk of debt distress
receives 100% of their financial assistance in the form of grants and
those with a medium risk of debt distress receive 50% in the form of
grants.)
2. The level of GNI Per Capita
3. Creditworthiness for the International Bank for Reconstruction and
Development (IBRD) borrowing.

World bank's top borrowers

World Bank's Top contributor's
USA 16.39%
Japan 7.87%
Germany 4.49%
UK 4.30%
France 4.30%

Progress
The new bank received most of its funds from the New York investment
community
The bank made its first, general reconstruction loans to France ($250 million –
largest ever) , the Netherlands, Denmark, and Luxembourg in 1947.
The bank’s first bond offering abroad, worth £5 million, came in London in 1951
China used IDA loans for agriculture and education projects while oil wells were
financed with IBRD loans.
It helped resolve the Indus water dispute between India and Pakistan.

What are the eligibility criteria for IDA loan?
Eligibility for IDA loan depends first and foremost
on a country’s relative poverty, defined as GNI per
capita below an established threshold and updated
annually ($1,165 in fiscal year 2018).
As of now 75 countries are currently eligible to receive IDA
resources.

Overview
The International Monetary Fund (IMF) is an organization
of 190 member countries, working to foster global
monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and
sustainable economic growth, and reduce poverty around
the world.
The IMF works to foster global growth and economic
stability.
It provides policy advice and financing to members in
economic difficulties and also works with developing
nations to help them achieve macroeconomic stability and
reduce poverty.

Overview Cont
With its global membership of 190 countries, the IMF is uniquely placed to
help member governments take advantage of the opportunities—and manage
the challenges—posed by globalization
The IMF tracks global economic trends and performance, alerts its member
countries when it sees problems on the horizon, provides a forum for policy
dialogue, and passes on know-how to governments on how to tackle economic
difficulties
The IMF provides policy advice and financing to members in economic
difficulties and also works with developing nations to help them achieve
macroeconomic stability and reduce poverty
Membership
 The IMF currently has a near-global membership of 190 countries. To
become a member, a country must apply and then be accepted by a
majority of the existing members.
 Upon joining, each member of the IMF is assigned a quota, based broadly

Objectives of IMF
To promote international monetary cooperation
To facilitate the expansion and balanced growth
of International Trade
To promote exchange rate stability
To make its resources available to its members
who are experiencing BOP problems
To establish a multilateral system of payments

IMF Functions
The IMF's main goal is to ensure the stability of the international monetary
and financial system. It helps resolve crises, and works with its member
countries to promote growth and alleviate poverty.
 Economic and Financial Surveillance: The IMF promotes economic
stability and global growth by encouraging countries to adopt sound
economic and financial policies. To do this, it regularly monitors global,
regional, and national economic developments.
 Technical Assistance and Training: IMF offers technical assistance
and training to help member countries strengthen their capacity to
design and implement effective policies. Technical assistance is offered in
several areas, including fiscal policy, monetary and exchange rate
policies, banking and financial system supervision and regulation, and
statistics.
 IMF Lending: In the event that member countries experience difficulties
financing their balance of payments, the IMF is also a fund that can be
tapped to facilitate recovery.

Special Drawing Rights (SDR)
The Special Drawing Right (SDR) is an interest-bearing international
reserve asset created by the IMF in 1969 to supplement other reserve
assets of member countries.
The SDR is based on a basket of international currencies comprising the
U.S. dollar, Japanese yen, euro, pound sterling and Chinese Renminbi.
Supplements members’ existing reserve assets – gold,
Weights assigned show relative importance.
US – 0.557; EURO-0.426; YEN – 21.0; POUND- 0.0984
More stable.

Finances
Quotas:
The IMF's resources come mainly from the money that countries pay as their capital
subscription when they become members. Quotas broadly reflect the size of each
member's economy: the larger a country's economy in terms of output and the larger and
more variable its trade, the larger its quota tends to be. They also help determine how
much countries can borrow from the IMF and their share in allocations of special
drawing rights or SDRs (the reserve currency created by the IMF in 1969).
Gold:
The IMF holds a relatively large amount of gold among its assets, for reasons of
financial soundness, also to meet unforeseen contingencies.
The IMF holds 103.4 million ounces (3,217 metric tons) of gold, worth about $83 billion
as of end-August 2009, making it the third-largest official holder of gold in the world.

Subscriptions
A member's quota subscription determines the maximum amount of
financial resources the member is obliged to provide to the IMF.
A member must pay its subscription in full upon joining the IMF: up to 25
percent must be paid in the IMF's own currency, called Special Drawing
Rights (SDRs) or widely accepted currencies (such as the dollar, the euro,
the yen, or pound sterling), while the rest is paid in the member's own
currency.
Voting power. The quota largely determines a member's voting power in
IMF decisions. Each IMF member has 250 basic votes plus one additional
vote for each SDR 100,000 of quota.
Access to financing. The amount of financing a member can obtain from
the IMF (its access limit) is based on its quota. Under Stand-By and Extended
Arrangements, which are types of loans, a member can borrow up to 200
percent of its quota annually and 600 percent cumulatively.

Conditionality
IMF lends to its member countries,
ensuring that, members are pursuing
policies that will improve external
payment problems.
Commitment to implement
corrective measures.
To repay in a timely manner.

THANK YOU