Agencies That Facilitate International Flows:
A variety of agencies have been established to facilitate international trade and financial transactions. These agencies often represent a group of nations. The more important agencies describe follows:
- International Monetary Fund (IMF)
- World Bank
- World Trade Organization
- International Financial Corporation
- International Development Association
- Bank for International Settlements
- Organization for Economic Cooperation and Development
- Regional Development Agencies
International Monetary Fund (IMF):
The United Nations Monetary and financial conference held in Bretton Woods, New Hampshire, in July 1944, was called to develop a structured international monetary system. As a result of this conference, the international monetary fund was formed. The major objectives of the IMF, (i) promote co-operation among countries on international monetary issue (ii) promote stability in exchange rates (iii) provide temporary funds to member countries attempting to correct imbalances of international payments (iv) promote free mobility of capital funds across countries and (v) promote free trade. The IMF’s goals encourage increased internationalized of business.
The IMF is overseen by a board of governors, composed of finance officers from each of the 185 member countries. It also has an executive board composed of 24 executive directors representing the member countries.
One of the key duties of the IMF is its compensatory financing facility (CFF) which attempts to reduce the impact of export instability on country economies. Although it is available to all IMF members, this facility is used mainly by developing countries. A country experiencing financial problems due to reduced export earnings must demonstrate that the reduction is temporary and beyond its control. In addition, it must be willing to work with the IMF in resolving the problem.
The financing by the IMF is measured in special drawing rights (SDR). The SDR is not a currency but simply a unit of account. It is an international reserve asset created by the IMF and allocated to member countries to supplement currency reserves. The SDR’s value fluctuates in accordance with the value of major currencies. The IMF played an active role in attempting to reduce the adverse effects of the Asian crisis.
The international bank for reconstruction and development (IBRD) is also referred to as the World Bank, was established in 1944. Its primary objective is to make loans to countries to enhance economic development. The WB has a profit oriented philosophy. Therefore, its loans are not subsidized but are extended at market rates to government that are likely to repay them.
The key aspect of the World Bank’s mission is the structural adjustment loan (SAL), established in 1980. The SALs are intended to enhance a country’s long term economic growth.
The world bank provide only a small portion of the financing needed by developing countries, it attempts to spread its funds by entering into co financing agreements. Co financing is performed in the following ways:
- Official Aid Agencies: Development agencies may join the World Bank in financing development projects in low income countries.
- Export Credit Agencies: The World Bank co finances some capital intensive projects that are also financed through export credit agencies.
- Commercial Banks: The World Bank has joined with commercial banks to provide financing for private sector development.
The IMF recently established the Multilateral Investment guarantee Agency (MIGA), which offers various forms of political risk insurance.
World Trade Organization:
The world trade organization (WTO) was created as a result of the Uruguay Round of trade negotiations that led to the GATT accord in 1993. This organization was established to provide a forum for multilateral trade negotiations and to settle trade disputes related to the GATT accord. It began its operations in 1995 with 81 member countries, and more countries have joined since then. Member countries are given voting rights that are used to make judgments about trade disputes and other issues.
International Financial Corporation:
The International Financial Corporation (IFC) was established in 1956 to promote private enterprise within countries. Composed of number nations, the IFC works to promote economic development through the private rather than the government sector. IFC not only provides loans to corporations but also purchases stock thereby becoming part owner in some cases rather than just a creditor. The IFC typically provides 10 to 15 percent of the necessary funds in the private enterprise projects in which in invests, and the reminder of the project must be financed through other sources.
International Development Association:
In 1960, the International Development Association (IDA) was created with country development objectives somewhat similar to those of the World Bank. Its loan policy is more appropriate for less prosperous nations. The IDA extends loans at low interest rates to poor nations that cannot qualify for loans from the World Bank.
Bank for International Settlements:
The Bank for International Settlements (BIS) attempts to facilitate cooperation among countries with regard to international transactions. It also provides assistance to countries experiencing a financial crisis. The BIS is sometimes referred to as the “central bank” or the “lender of last resort.” It played an important role in supporting some of the less developed countries during the international debt crisis in the early and mid-1980s. It commonly provides financing for central banks in Latin American and Eastern European countries.
Organization for Economic Cooperation and Development:
The organization for Economic Cooperation and Development (OECD) facilitates governance in governments and corporations of countries with market economics. It has 30 member countries and has relationships with numerous countries. The OECD promotes international country relationships that lead to globalization.
Regional Development Agencies:
Several other agencies have more regional objectives relating to economic development. These include, for example, the Inter-American Development Bank (focusing on the needs Latin America), the Asian Development Bank (established to enhance social and economic development in Asia), and the Africa Development Bank (focusing on development in African countries).
In 1990, the European Bank for Reconstruction and Development was created to help the Eastern European countries adjust from communism to capitalism. Twelve Western European countries hold a 51 percent interest, while Eastern European countries hold a 13.5 percent interest. The United States is the biggest shareholder, with a 10 percent interest. There are 40 member countries in aggregate.