1. International Financial Institutions Constance L. Danner

2. Members

3. Financial Institutions “A financial institution is an institution that provides financial services for its clients or members.” Act as financial intermediaries.

4. International Financial Institutions ~Definition~ “International Financial Institutions (IFIs) Refers to financial institutions that have been established (or chartered) by more than one country and hence are subject to international law”

5. Examples Of IFIs International Monetary Fund World Bank Group Asian Development Bank African Development Bank Inter-American Development Bank Islamic Development Bank

6. History Of IFIs After the Great Depression in the 1930s there was a need for an organization to create a system for exchange rate stability The World Bank and the International Monetary Fund were created in the aftermath of World War II Countries’ economies affected by WWII need for reconstruction in well-developed nations need for development in the lesser developed nations

7. IFIs: that We’ll discuss International Monetary Fund World Bank

8. International Monetary Fund (The IMF)

9. International Monetary Fund The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is an organization formed to stabilize international exchange

10. International Monetary Fund (cont’d) Established in (1944) Formally organized on (Dec 27th 1945) Member states (186) Headquarters (Washington D.C. USA) Currency (SDR) *SDR = just a unit of account…not a real currency

11. IMF: Managing Director Dominique Strauss-Kahn Nationality: French 10th Managing Director of the International Monetary Fund Assumed this position on Nov 1st ,2007.

13. cooperation

14. ii) Expansion and balanced growth of

15. international trade

17. payments and eliminate foreign

18. exchange restrictions

19. v) Make resources of the Fund available

20. to members

21. vi) Shorten the duration and lessen the

22. degree of disequilibrium in international

25. Technical Assistance

27. Technical Assistance To assist mainly low- and middle-income countries in effectively managing their economies, the IMF provides practical guidance and training on how to upgrade institutions, and design appropriate macroeconomic, financial, and structural policies.

28. Lending The IMF provides loans to countries that have trouble meeting their international payments and cannot otherwise find sufficient financing on affordable terms

29. “QUOTAS”

31. IMF decides on the quota for each member

32. Richer countries have larger quota

35. The member's voting power in institutional decision making (along with basic votes);

36. The level of access of the member to IMF financing;

38. 3 times the amount of its quota, if this is not sufficient

40. India and IMF 1991 Economic Crisis Rising Inflation and BoP unbalance – Very little amount left in reserve. Capable of importing only for 3 weeks IMF put a condition to open up the economy Liberalization of Indian Economy Economic reforms won over Executive Directors and got a loan of 2.2 bn $

42. 2 The WORLD BANK

43. The World Bank is an international financial institution that provides financial and technical assistance to developing countries for development programs (e.g. bridges, roads, schools, etc.) with the stated goal of reducing poverty.

44. : Facts &Figures History: Similar to IMF(result of Bretton Woods Conference,1944) Formation: 27 December 1945 Purpose/ Focus : Poverty elimination by debt creation Membership: 185 countries President: Robert B. Zoellick Main Organ: Board of Directors Parent Organization: World Bank Group First loan: $ 250m to France (for post-war reconstruction)

45. : Activities

46. : President Robert Bruce Zoellick Nationality: American Current (11th) President of World Bank Since: July 1st, 2007 Nominated by: George W. Bush

47. Difference between World Bank and a commercial bank ? World Bank is owned by 186 countries. The financial support and advice is provided to the member countries to fight poverty. Unlike commercial banks, it often lends at little or no interest to developing countries. Offers longer periods to repay loans than commercial banks allow. World bank borrows the money it lends. It has good credit as it has large and well managed financial reserves.

49. International Development Association (IDA)

50. International Finance Corporation (IFC)

51. Multilateral Investment Guarantee Agency (MIGA)

54. IBRD: Functions To assist in process of reconstruction, development and restoration of countries destroyed by war. To promote long term balanced growth all around the world. To encourage international investments for development of the member countries. To encourage private foreign investments by means of guarantees. To help member countries in maintenances of equilibrium of BOP. To play a role so that smooth transition may take place from war time to peace time economies.

55. IDA Origin In 1959, the US made the resolution for the articles of agreement for IDA and in September 1960 the IDA was established. Objectives and functions To promote economic development increase productivity raise standard of living It was established to provide confessional (no interest or "soft") loans to the world's poorest governments.

56. Background and Objectives Natural disasters Needs affecting developing economies Post conflict rehabilitation Needs affecting a transitioning economy

57. Areas of operation Agricultural and Rural Development Conflict and Development Economic Policy Education Energy Environment Financial Sector Gender Governance Health, Nutrition and Population Industry Information and Communication Technologies International Economics and Trade Labor and social protection Law and Justice Macroeconomic and Economic Growth Mining Poverty Reduction Private Sector Public Sector Governance Rural Development Social Development Trade Transport Urban Development Water Resources Water Supply and Sanitation

59. The first step of the World Bank towards the accomplishment of the task is debt relief.

61. and India … India is one of the ‘founding fathers’ of the World Bank. India receives roughly half of its World Bank loans interest free. Also it remains the Bank’s largest single borrower. The Bank also works closely with the Indian government, civil society and communities in designing its support for the country.

62. and India … WB has been the largest financers of India’s National Aids Control Program (NACP). Helped to develop India’s national power grid. Provides support to establish e-governance in India. Supports the Government of India’s nation-wide Education for All program - SarvaShikshaAbhiyan (SSA)

63. Difference between IMF and WB

64. Difference between IMF and WB [cont’d]

65. Criticism on IMF and World Bank

67. Conditionalities (so called SAPs) Slows down social stability Leads to an increase in poverty “Strict programs," increasing taxes to balance budget deficit

68. 2.Impact on Public Health In 2008, A study by Cambridge and Yale concluded: strict conditions on the international loans by the IMF resulted in thousands of deaths as public health care had to be weakened. In the 21 countries which the IMF had given loans, tuberculosis deaths rose by 16.6 %

69. 3.Devaluations 3.Devaluations IMF is also criticized for allowing inflationary devaluations How ??

70. 4.Crititsm from free-market advocates Believers in free markets argue that: it is better to let capital markets operate without attempts at intervention. And attempts to influence exchange rates only make things worse

72. E.g World Bank’s support to a Brazilian Dictator

76. HQs of IMF & WB both in Washington DC.

78. Why do countries sign agreements with the IFI’s if the consequences are ultimately negative? Most countries that accept the loans do so because they have no other way of avoiding total financial collapse. there often are international pressures on such countries to get “Aids” from the IMF and World Bank

80. Internal: Privatization, Deregulation

81. External: International Policies etc…

82. Highly Sensitive- Asian Crisis 1997, Argentina,

83. Soverignity

84. Voluntary Reforms

85. Agri Reforms

87. Policies linked with Loans

88. Quotas: Only Big Daddies

89. Restructuring Bankrupt Firms

90. Moral Hazard

91. SDR: