Other International Organizations: IMF, World Bank, WTO IMF and World Bank part of establishment of an international economic regime- same time as U.N. created. IMF and World Bank (International Bank for Reconstruction and Development) created with purposes of leading economic recovery for Europe post WWII World Bank invests in infrastructure and state capacity building. IMF to establish balance of payments regime and as lender of last resort to prevent depression style crisis. 194
Bretton Woods- 1944 Intentional Interdependence Bretton Woods New Hampshire. U.S. and U.K. established funds and rules with U.S. dollar to be the reserve currency. I.M.F. U.S. dollar fixed to gold at $35 to the ounceconvertible. Severely limited U.S. Monetary policy options. Other currencies fixed at equilibrium rates relative to trade partners and required to defend currency within 2% of target. 195
Bretton Woods Institutions Product of U.S. hegemony U.S. shouldered burden of fixed exchange rate and initially financed European reconstruction through both IBRD and Marshall Plan. Reaction to Soviet threat and alternative economic models presented by Warsaw Pact (although WP countries were prevented from leaving Pact by invasion/ occupation.) 196
Changing Institutions-IMF U.S. balance of payments grew unsustainable due to growth of European and Japanese economies, and U.S. military and aid obligations abroad. Dollars went out without other states buying U.S. goods. England and France asked for Gold- U.S. defected and IMF changed to Special Drawing Rights as reserve currency (SDRs had been created in 1969 to cope with lack of gold and dollars.) SDRs are basket (weighted average) of major hard exchangeable currencies. 197
IMF cont d During de-colonializations IMF also served to stabilize economies wracked by terms of trade shocks in commodities crisis. IMF requires quotas of reserves from members states according to economy size. Each state can withdraw quota w/o penalty or conditions IMF has three lending mechanisms Non-concessional- lends short-term at market rates w/o conditions Two concessional lending mechanisms Stand-by arrangements Medium term lending 198
IMF Concessional lending Concessional lending.5-1% interest rates- but Contingent on stand-by agreements that explain targets and structural adjustments Medium term lending, and long-term lending under HIPC (highly indebted poor countries) programs offer refinancing at very low rates (rolls debt over to World Bank). Structural adjustment very controversial, IMF and World Bank both attempt to respect sovereignty, however scandals led to tighter requirements. 199
IMF IMF conditionality: A challenge to state sovereignty. Stand-by agreements include requirements on inflation targets. Often recommend financial liberalization and privatization as way of reducing government debt exposure. Very controversial as 80s-90s driven by strange combo of market fundamentalism and fixed exchange rates the goal was to increase trade and investment. IMF is the credit counseling agency of IR. If states must go- they aren t happy. Domestic Politicians often blame IMF for own failures or to scapegoat pain of reforms. 200
IMF Mixed results in economic recovery. Argentina collapse, recovery has not been IMF. Turkey 1999 program collapsed, 2001 program has been good so far 5-8% growth rate. Malaysia refused IMF conditionality, tightened capital controls and recovered faster than others hit in Asian finance crisis. 201
IBRD (World Bank) Focus shifted from Europe to Post-colonial states with independence movements. As well as Eastern Europe in 1989. IBRD is a Keynsian institution compared to Monetarist IMF. They have a sort of structural rivalry. IBRD goals are Reconstruction and Development, and self-sustainable capacity. Works with both state and non-state actorsdepending on needs. Keeps staff in country longer, works more closely than IMF 202
World Bank Formation The International Bank for Reconstruction and Development 15-20 year loans low rates. Middle income states The International Development Association Technical assistance and Grants &0% loans to poorest countries The International Finance Corporation Helps create regulatory capacity and public-private partnerships The Multilateral Investment Guarantee Agency Provides investment insurance to international investors The International Centre for the Settlement of Investment Disputes 203
World Bank Driven to increase government capacity. Lending for infrastructure Hydro Industry Agriculture Human development Education Health Care Communication Works in cooperation with national and local governments. 204
World Bank Lends for structural adjustment Facilitates foreign investment Scandals of embezzlement by state leaders and diversion of funds has led to tighter monitoring and conditionality of loans Loans dispersed on a per-project basis. Often respects sovereignty of state- means that some projects face criticism when state and international priorities collide. 205