Spencer Pettiti discusses international financial institutions

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8. The World Bank
The International
Monetary Fund
and

9. Bretton Woods, 1944
• How can we prevent another depression?
• Control the (new) international financial markets
• How can we contain the spread of communism?
• Link the world markets to the US
• Peg world currencies to dollar (+- 1%)
• Dollar stays linked to gold at price of $35 per ounce

10. Washington Consensus, 1980
• Breakdown of BrettonWoods system
• Liberalization of international financial system
• Debt Crisis
• The need to meet interest payments was lead by IMF
• Protect the international financial system (banks)
• Ensure Payment
• New loans to help meet these payments
• Net income for IFI’s

11. Hard Power vs. Soft Power

12. The IMF – “Hard Power”
• The “Fire Brigade”
• Emergency Financing
• Balance of payments assistance
• Fundamental Disequilibrium
• Debt rollover
• Bridge the gap between payments

13. The IMF – “Soft Power”
• Signaling / Surveillance
• Publishing country reports
• Provides potential investors with information
confidence
• Lock-in Effect
• Conditionality allows countries to push blame
onto IMF
• Think-Tank
• Publishes Working Papers
• Controls Data
• The IMF Institute
• Created for foreign government officials (technocrats)
• Helps find interlocutors in potential clientele

14. IMF Projects
• Mexico
• 1980’s
• Series of economic reforms
• 1990’s
• Widening of exchange rate band
• Rapid capital outflow
• Greece, Ireland, Portugal
• Late 2000’s
• Sovereign Debt Crisis, Banking Crisis
• Governments took on private debt
• IMF called in

15. The World Bank (Group)
TheWorld
Bank

16. Three World Bank Agencies
• The IBRD
• Lends to creditworthy low and middle income countries
• The IDA
• Provides interest-free loans (credits) to the lowest income
countries
• The IFC
• Works exclusively with development in the private sector

17. The World Bank – “Hard Power”
• “Potholes and Pipes”
• Structural Adjustment Lending
• Initially:
• Infrastructure Development
• Now:
• Many general projects (environmental, societal issues)
• “Only Economic considerations shall be relevant to their decisions”
• (Article IV, section 5)
• Non-GNP Based goals (McNamara, 1968)

18. The World Bank – “Soft Power”
• World Development Report
• Annual report on areas of important economic development
• Research Grants
• ThinkTanks
• Creates civil society experts
• Field-oriented
• Ex-ante conditionality

19. World Bank Projects
• The IBRD
• Tunisia
• “Improving business environment by removing red tape”
• “Advancing transparency through improved public access to
information”
• The IDA
• Nicaragua
• Rural development
• Gender issues
• The IFC
• Microfinance companies

20. Funding
• Largely determines votes
• (IMF) US 17%, EU 32%, China 4%
• IMF: Special Drawing Rights (SDRs)
• World Bank: US Dollars
• “Small Quota Policy”
• WeightedVoting
• Super-majority requirements for loan disbursement

21. The Polak Model
• Based on a series of conditions
• Identified crises as short-term liquidity crisis or balance of
payments
• GDP growth should = money supply growth
• Easy data: banking system assets and liabilities
• Monetary targets
• Balance of payment problems?
• Buzzword: Austerity
• Reduce government spending, increase taxes, reduce domestic
credit creation

22. Conditionality
• When borrowing from IFI’s, countries agree to specific policy
prescriptions
• Loan disbursement is contingent on following the policies
• E.g., Eurozone Crisis, Greece
• Spending cuts, tax increases
• Predicted growth returning after a few years of downturn
• The problem of ex-post conditionality
• Discussions usually involve isolated economically focused
governmental areas
• E.g.,Central Banks, Finance Ministers, etc.
• May be blocked by parliaments or other government organs

23. “Western” Influences
• IMF Managing Director –
European
• Christine Lagarde
• World Bank President –
American
• JimYong Kim

24. “Western” Influences
• The Case of the IDA
• Special Fund
• 1970’s,Vietnam
• Influence in the IMF
• No specific injunction such asWorld Bank
• The Fund shall “respect the domestic social and political policies
of members” (Article IV, section 3)

25. Collaboration
• Occasionally the IMF andWorld Bank will work together
to create loan agreements
• Cross-Conditionality
• Sometimes this can fail
• 1988, Argentina
• Pressure from US Government
• IMF: Further Austerity
• World Bank: Wanted prioritization on its policy reforms
• “Letter of Development Policy”

26. The Future
• How can the IFI’s lend in an unbiased manner?
• Difficult due to sovereign interests
• Is ex-ante conditionality the future of lending?
• “Soft” Power may be easier to utilize
• Is it possible to create a technocrat based institution that
is open to new ideas?
• ???

27. References
• Woods, Ngaire. The Globalizers:The IMF, theWorld Bank, andTheir
Borrowers. Ithaca, NY: Cornell UP, 2007. Print
• http://www.worldbank.org/en/about
• http://econ.worldbank.org/
• http://www.imf.org/external/index.htm
• http://www.imf.org/external/pubs/ft/fandd/2008/06/people.htm
• http://www.systemdynamics.org/conferences/2001/papers/Grcic_1.pdf

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Article Competition
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 Winners are chosen by a formula: 0.28(quantity) + 0.14(quality) + 0.58(traffic)
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