Regulation of Economic Activities by International Organizations - the World Bank, IMF and WTO - Case Study Example

Regulation of economic activities by International organizations The World Bank, IMF and WTO Regulation of economic activities by International Organizations: The World Bank, IMF and WTO Introduction In the year 1944, World noticed a major change at Bretton Woods conference1: 730 delegates from 44 nations met in Bretton woods, New Hampshire post World war II with the intent to organize international capital order. Three institutions came into existence named International Bank for Reconstruction and Development (IBRD), International Monetary Fund and General Agreement on Tariffs and Trade (GATT). In addition, a set system was placed to maintain exchange rate. These bodies were conceptualized to aid growth of developing countries by assisting them with financial and technical assistance. Today, the World Bank has its operations in more than 100 countries worldwide. GATT was replaced by World Trade organization in the year 1995. World trade organization supervises trading rules between nations. Today, it has more than 150 member nations. Over the last few decades there has been an increasing pressure on the developing countries to open their economies. And they have done so, often at an enormous cost. For some very poor nations, this amount has exceeded their annual budget. But, the results have been disappointing for most of them because there is not enough free trade for them. It has been found that developed nations are keen to export finished products to each other while restraining only raw materials purchase to the developing nations. Moreover, this import of raw materials and export of finished products results in higher tariffs on the finished goods supplied by the developed nations to the developing nations. Increasing gap between the economies has been a concern for the three Bretton Woods organizations. Not meeting the desired aims and the persisting internal discrepancies within these organizations have attracted wide criticisms from analysts, activists and economies around the globe. Growing discontent within the underdeveloped economies has driven them to look for inferior options that inhibit their own and these organization’s functioning. This essay is an effort to understand the functioning of these organizations and delineate the internal and external gaps in them, if present. World Bank The World Bank is composed of two different institutions: International Bank for reconstruction and development (IBRD) and The International Development Association (IDA). “The IBRD aims to reduce poverty in middle-income and creditworthy poorer countries, while IDA focuses on the world's poorest countries” (The World Bank, 2011). They provide “low interest loans, interest free credits and grants” to developing nations. In the last 20 years, the World Bank’s focus2 had shifted from infrastructural projects to projects addressing issues of “gender, community driven development and indigenous people” (The World Bank, 2007, p.3). International Monetary Fund It was not until 1950 that the non-dollar countries (majorly European) were in a position to make payments to the IMF. IMF released its first payments in the year 1958.International Monetary Fund was established to “encourage international co-operation to cope with recession and protectionism on a world scale and to discourage individual countries from pursuing policies that would beggar their neighbors and eventually themselves” (Bird, 1995.p.1). World Trade Organization. With its headquarters in Geneva, Switzerland, WTO is considered to be the most crucial institution in international trade liberalization. It intensifies multilateral trade disciplines and extends them into new areas; and it provides the improved, and more secure, access to markets that is a prerequisite for successful export-oriented development strategies. On the other hand, it also imposes tighter constraints on the range of policy options open to developing countries in pursuing their development strategies (WTO, 1998). Efforts taken by WTO have been largely successful. The most recent initiative by WTO Doha Development Agenda introduced in the year 2001 aims at bringing in equal participation from the poorer countries. Issues and challenges faced by these organizations In last few decades, these organizations have been criticized for their functioning and results. Amongst the issues the most critical and dominant one is biased approach of these institutions. D.C. Goldman is of the opinion that the most powerful countries, United States and United Kingdom, attending Bretton Woods Conference “dominated the negotiations” (Goldman, 2005,p.53). These issues are discussed under separate headings below: Improper functioning of the organizations Woods have included three major forces that drive IMF and World Bank: First is the US and European allies, second the staff of these bodies and third the domestic partners of these institutions in different countries. One most contradicted issue is the leadership in these organizations which is undemocratic in nature. The staffs of these organizations are major economists having academic degrees from “North American and British Universities. Woods writes that the downside of that training is limited knowledge of local circumstances, which may not be congruent with the proposed remedies”(Joyce, 2007,p. 485). There exists a wide gap between the developing nations and these two institutions (The World Bank and IMF) on the basic understanding of policies and their implementation. The imposition of Washington based organizations is not taken well by the inactive local Governments. The policies and methods adopted by The World Bank differ with geographical location. In the report published by Buckley it was mentioned that in contrast with approached in other nations, the World Bank follows a push system in Africa rather than a pull system: Wherein its major development activities are driven by the rural areas instead of cities. Critics have named these policies as “African exceptionalism”. Even in case of neighboring nations India and China there are two different approached. Labour mobility has not been appreciated whereas in case of China it was been taken as a major driving force. Also the reports fail to indicate rapid growth of these two nations. Biased and unfulfilled terms. Along with the establishment of the World Trade Organization, another body International Trade Organization was agreed. This was planned to be a UN body that was supposed to oversee issues directly or indirectly related to international trade. However, the body was not approved by few signatories (including the United States), and so it didn’t come into effect. The World Bank and IMF have been criticized for exclusion of many development countries on their dictatorial terms. A number of countries that have adhered to the policies of IFI’s have lacked behind in global economic expansion. This raises a question on the development attributes of these policies. Millennium Development goals3 established by these bodies haven’t made genuine progress in any of the nations. Of the 139 countries in the WTO, more than 100 countries are developing nations. The 30 developed countries dominate drawings powers. WTO’s dispute settlement has attracted wide criticisms from many activists who point out a major gap between the institution’s “favored causes” and fair dealings. “The IMF engages in bilateral and multilateral monitoring of its members' policies…, but there is no agreement on what constitutes acceptable and unacceptable policies” (Joyce, 2007, p.488). Countries like China that continue to exercise their own private capital markets in poorer countries by lending capital on one side and avail funds from these bodies on the other. American and European leadership. Both The World Bank and the IMF have American and European leaders. Global Unions express “that the leadership selection process is a symptom of a larger crisis of relevance and accountability in the IFIs”(Global Unions4, 2007,p.1). The election process is not democratic and at an instance when it was proposed to have an open candidacy, the board of directors of both entities refused to do so. In the statement produced by the Global Unions, the reluctance of the institutes to adopt open election system (even from within the institutions) is an indicator of poor governance system. Earlier an open selection process was endorsed by both these institutions to create a more transparent internal structure bringing in advisory groups from different geographical locations. However, this was never adopted by either of them. The closed selection system and biased accountability raise a question on the unequivocalness of these institutions. Third Institution WTO also, works on a consensus building decision making system in which countries can form groups and collaborate5 with each other. Often the developing countries are excluded from this process as the major bargaining power remains to be the market size. In his books international Organization, Richard Harold Steinberg has put that these decisions mainly favor Europe and the US. In another article he has written that the “overall effect of the system is to help enforce substantive agreements supported by the United States” (Goldstein & Steinberg, 2008). Labour issues. Repetitive violators of CLS6 such as “Bangladesh, Belarus, China, Colombia, El Salvador, Eritrea, Oman, Saudi Arabia, Swaziland and Uzbekistan” (Gobal Unions, 2007, p.7) receive better CLS rankings. In contrast, many European Nations who have better CLS in place have lower “doing business rankings”. In the year 2007 Georgia, that had rejected the ILO counsel, was given the title for Top performer in “Doing Business rankings”. In addition implementation of “MILES”7, which includes improvement in “social protection”, sill remains unclear. Growing inequality. Despite the initiatives taken by these organizations, inequality in the world has increased. Rich nations have become richer and poor nations have become poorer. Fluctuating currency. Both Bretton woods institutions (The World Bank and IMF) were introduced in a period when the exchange rate was fixed and Governments were responsible for checking potentially distracting capital flows. However, this system melted in the 1970’s when the Governments started to decide the degree of control they wanted to exercise on their “exchange rates and capital accounts”. Attempts to reform of the system have failed, which is not surprising, given that the shift towards more flexible exchange rates and the continuing use by many countries of the U.S. dollar as an international reserve asset, reduced the pressures for far-reaching changes in the international monetary area”(Kenwood and Lougheed, 1999, p.282). Generating new revenue sources and a better mandate are some critical issues that IMF faces today. Floating exchange rates in the Asian countries, easy availability of investments, entry of European single currency and heavy concentration of reserves for developing nations are other issues that IMF needs to deal with. Furthermore,” there is the obsession of the Fund with the rational economists’ approach to economic policy from which, in the second half of the 1990s, without even a close approach to the full requirements of the new policy, major social upheavals have appeared in a number of countries because of the large unemployment such a policy engenders.”(Kenwood & Lougheed, 2002, p.282). Growing discontent Following Argentinean financial and economic collapse, many Asian and Latin American countries have become reluctant to take aid from IMF. This apprehension will not only hurt the IMF’s income but also, it can have a destabilizing effect8 on the world’s economies. In a report published by Buckley it was shown that “The World Bank‘s 2009 World Development Report: Reshaping Economic Geography (WDR) has already had six reviews, four by geographers. All of the latter reviews are overwhelmingly negative”(Buckley & Buckley, 2010.p.1). These reviews have repeatedly shown the unaccountability of The World Bank towards developing countries. They have raised questions on the responsible behavior of the “economic reductionism”. Some others have found the policies to be “narrow and shallow”. Conclusion Many criticisms, from experts in different fields, have been raised about the functioning of the three organizations (more severely for The World Bank and IMF). Whereas some of the criticisms are found to be biased, others are considered as genuine ones. There is a consensus on the nature of these issues however; the solutions are yet to be derived. A common ground should be established to scrutinize and solve these issues. On one hand where developing nations need to avail the export and funding opportunities, on the other they need to protect their rights and interests. In addition, there is a growing need to determine and apply universality of these institutions. The organizations are yet to become flexible to adapt according to the changing economic functions of the world. Bridging such a wide gap is a gradual and lengthy process for which the three organizations need utmost involvement and contribution from both worlds. References Bird, G. (1995). IMF Lending to Developing Countries: Issues and Evidence. New York: Routledge. Buckley, R.M & Buckley, T.D (2010). Discontent with The World Bank’s excursion into Economic Geography: Lions and Butterflies once more?. Retreived May 28, 2011, from http://www.gpia.info/files/u706/Buckley_and_Buckley_2010-04.pdf. Global Unions (2007), The Role of IFIs in Supporting Decent Work and Countering the Risks of Financial Globalization, Retrieved May 24,2011, from http://www.ituc-csi.org/IMG/pdf/statement.imfwb.1007.pdf. Goldman, Michael (2005). Imperial Nature: The World Bank and Struggles for Social Justice in the Age of Globalization. New York: Yale University Press, pp. 52–54. Goldstein, J. L., & Steinberg, R. H. (2008). Negotiate or Litigate? Effects of WTO Judicial Delegation on U.S. Trade Politics. Law and Contemporary Problems, 71(2), 257. Joyce, J.P (2007) . The Globalizers: The IMF, the World Bank, and Their Borrowers. Ethics & International Affairs. 21(4). Kenwood, A. G., & Lougheed, A. L. (1999). The Growth of the International Economy 1820-2000: An Introductory Text. London: Routledge. The World Bank (2007). A Guide to the World Bank. World Bank. Washington, DC. Page Number: 3. The World Bank (2011). About us. Retrieved May 26,2011, from http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,pagePK:50004410~piPK:36602~theSitePK:29708,00.html WTO (1998). Statement by Mr. Rubens Ricupero, Secretary-General of UNCTAD on behalf of the Secretary-General of the United Nations. Retrieved May 25,2011 http://www.wto.org/english/thewto_e/minist_e/min98_e/anniv_e/ricupero_e.htm  Read More