4. Global governance: economic Flashcards
What were the two major economic shocks in the first two decades of the twenty-first century?
The global financial crisis of 2008 and the Covid-19 global pandemic were the two major economic shocks. The 2008 crisis originated in the US but had worldwide repercussions, while the Covid-19 pandemic disrupted economies globally due to prolonged lockdowns
What institutions are turned to for an international response to economic crises?
The international institutions of economic global governance include the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO), and the informal forums of the G7 and G20.
How did economic global governance respond to the 2008 financial crisis compared to the Covid-19 pandemic?
Economic global governance responded more quickly and effectively to the 2008 financial crisis by injecting public spending to bail out banks. However, the response to the Covid-19 pandemic has been more challenging, with economic impacts expected to last for years, making targeted solutions harder.
What challenges do traditional international institutions face in the global economy?
The rise of China, the widening Global North, and the increasing multipolarity of the global economy pose challenges to traditional US-led institutions. Trade wars, economic tensions, and struggles for influence are evident, alongside persistent issues of inequality and echoes of colonialism in international relationships.
Why is economic global governance considered less optional for countries compared to other forms of global governance?
Participating in international trade, a crucial aspect of economic global governance, is hardly optional for countries. Choosing not to participate risks economic isolation and being left behind economically.
What is the International Monetary Fund (IMF)?
Established following the Bretton Woods Conference in 1944, the IMF aims to encourage global financial stability by providing loans to countries facing economic crises and offering technical advice.
What is the World Bank?
Established at the Bretton Woods Conference in 1944, the World Bank focuses on long-term development and provides grants and conditional loans to developing countries.
What is the Group of Twenty (G20)?
The G20 is an international forum consisting of the 19 wealthiest countries and the EU. Unlike the G7, it includes countries from both the developed and developing world.
Define colonialism.
Colonialism refers to a situation where one nation-state exerts economic and political control over another, typically by gaining full or partial control over territory.
What is the World Trade Organization (WTO), and when was it established?
The WTO, established in 1995 as the successor to the GATT (1947), has 164 member states. It facilitates free trade by encouraging global trade deals and resolving trade disputes among member states
What were the aims of the Bretton Woods Conference in 1944?
The aims of the Bretton Woods Conference were to create an agreed system of rules for international economic matters, stabilize world currencies, reduce fluctuations in currency values, prevent a repeat of the Great Depression, and bolster capitalism against the rise of communism.
What does the term “Bretton Woods System” refer to?
The Bretton Woods System refers to the forums and institutions of global economic governance established at the Bretton Woods Conference. It includes the IMF, the World Bank, and the GATT (later WTO), with a focus on managing the global economy.
What are the recent focuses of global cooperation on economic governance?
Recent global cooperation on economic governance has focused on poverty/development, as seen in initiatives like the Millennium Development Goals (MDGs) and Sustainable Development Goals (SDGs). Additionally, there has been an increase in multi-lateral trade agreements, the development of a single currency in the Eurozone (the euro), and the need for forums to discuss and resolve international economic crises.
What economic developments occurred in the EU in the 1990s, particularly regarding currency?
In the 1990s, the EU focused on developing a single currency, the euro, which came into circulation in 2002. In the Eurozone, countries agreed to strict economic rules and delegated significant economic decision-making to supranational institutions, notably the European Central Bank (ECB).
Who are the key actors involved in economic global governance?
Economic global governance involves various actors, including International Governmental Organizations (IGOs) such as the World Bank, the IMF, and the UN. It also includes informal intergovernmental forums like the G7 and G20, multinational corporations (MNCs), and multilateral forums like the World Economic Forum (WEF).
When and where was the International Monetary Fund (IMF) established?
The IMF was established in 1944 at the Bretton Woods Conference and became fully operational in 1947. Its headquarters are located in Washington, DC.
What was the initial role of the IMF when it was founded?
The initial role of the IMF was to encourage stability in world exchange rates. It oversaw a system of fixed exchange rates linked to the US dollar, which, in turn, was fixed to the price of gold. This system aimed to bring increased stability and prevent unsettling fluctuations in currency values.
How did the role of the IMF change from 1971 onwards?
The fixed exchange rate system overseen by the IMF collapsed in 1971 when the US abandoned the fixed link between the US dollar and gold. Subsequently, the IMF’s role shifted to providing financial support or loans to states facing debt crises and advising member countries on economic management
Describe the structure of the IMF and its current Managing Director.
The IMF has 190 member states, with the managing director leading the organization. As of 2019, Kristalina Georgieva, a former Vice-President of the European Commission from Hungary, serves as the managing director.
What are the main sources of the IMF’s financial resources?
The primary source of the IMF’s financial resources is payments made by its member countries, known as quotas. Quotas broadly reflect members’ relative positions and wealth in the world economy. The IMF increased funds available for lending in 2008 in response to the global financial crisis.
What criticisms are often raised regarding the democratic nature and voting power distribution in the IMF?
Critics argue that the IMF is undemocratic, as voting power is weighted based on financial contributions, leading economically powerful states to dominate decision-making. Some view this as an infringement on state sovereignty, particularly for less economically powerful and developing states
What is a key role of the IMF in responding to financial crises?
A key role of the IMF is to respond to financial crises impacting one or more states. It aims to keep struggling economies afloat, prevent them from collapsing or accumulating unsustainable debt, and also works to prevent the crisis from spreading to other countries
What are Structural Adjustment Programs (SAPs) in the context of the IMF?
Structural Adjustment Programs are conditions attached to IMF loans, requiring member countries to undergo economic reforms to overcome problems that led to their request for assistance. While the term is no longer used, similar conditions persist, often involving measures like cutting public spending, privatization, and tax increases.
How does the IMF often operate when providing emergency loans, particularly in the case of the Greek sovereign debt crisis?
The IMF frequently works in partnership with other institutions, as seen in the case of the Greek sovereign debt crisis, where it collaborated with the European Central Bank (ECB) and the European Commission. This partnership, known as the “Troika,” involves negotiations on the amount and conditions of loans.
What were the IMF’s commitments and sources of income in its 2020 Annual Report?
In its 2020 Annual Report, the IMF had commitments including $165 billion of lending to 83 countries, with the majority going to Western hemisphere countries. The US was the largest contributor to the IMF, accounting for 17% of member states’ contributions, followed by China at 6%.
How did the IMF and its managing director, Christine Lagarde, become involved in the UK’s 2016 Brexit referendum?
During the 2016 Brexit referendum, the IMF, led by Christine Lagarde, published a report predicting increased inflation and a 5.5% reduction in the UK’s GDP, potentially pushing it into recession. This intervention sparked criticism from the ‘Leave’ campaign, claiming it was unnecessary interference.
What are the arguments for and against the involvement of the IMF in national economic decisions?
Arguments against IMF involvement include claims of unnecessary interference in national decisions, while supporters argue that the IMF provides valuable economic advice and forecasting, helping states and populations make informed decisions and avoid collateral economic shocks.
How does the IMF contribute to the global economy on a large scale?
The IMF plays a crucial role by providing frequent interventions and commentary on the global economy. It publishes an annual report on the world economic outlook, identifies risks in the economic and financial policies of member states, and contributes to global economic stability.
What major financial crises has the IMF responded to besides the global financial crisis of 2008?
The IMF has responded to the Asian financial crisis (1997), provided emergency lending to Brazil (1998) and Argentina (2000), and played a role in addressing the Eurozone crisis (from 2008 onwards). Its aim is to prevent the collapse of economies and limit the spread of financial crises.
How have the conditions attached to IMF loans evolved over time?
While the term “Structural Adjustment Programs” is no longer used, the conditions attached to IMF loans persist. States are required to propose and implement economic reforms, often involving measures such as cutting public spending, privatization, and increasing taxes to receive IMF funds.
How does the imposition of conditions by the IMF impact state sovereignty?
Critics argue that the imposition of conditions infringes on state sovereignty, as economic policies are negotiated and monitored by the IMF. The demands often align with a neoliberal economic model, leading to concerns about excessive demands on states.
What criticisms are often directed at the IMF regarding contributions and voting power?
The IMF has been criticized for being undemocratic, as voting power is linked to financial contributions. This means economically powerful states contribute more and wield more influence, leading to concerns about domination and unequal decision-making.
How does the IMF allocate its financial resources, and how has it responded to global financial crises?
The IMF allocates financial resources based on quotas, reflecting members’ economic positions. In response to the 2008 global financial crisis, the IMF increased funds by asking member states to contribute more to their quotas.
Provide an example of the IMF’s collaboration with other institutions in handling a financial crisis.
In the Greek sovereign debt crisis, the IMF worked with the ECB and the European Commission, forming the “Troika.” This partnership involved negotiations on loan amounts and conditions to address the economic challenges faced by Greece
How does the IMF contribute to global financial stability?
The IMF provides economic stability by offering financial support or loans to states facing debt crises. It monitors the economic outlook of both the world economy and individual member countries, advising on economic management and identifying potential threats and weaknesses.
How has the IMF been involved in addressing the Eurozone crisis since 2008?
The IMF played a role in addressing the Eurozone crisis from 2008 onwards. Its involvement aimed to prevent economic collapse, support struggling economies, and stop the crisis from spreading to other countries.
How have the conditions attached to IMF loans evolved, and what criticisms have been raised?
While no longer termed “Structural Adjustment Programs,” conditions attached to IMF loans persist. Critics argue these conditions make excessive demands on states, infringing on sovereignty. Proponents claim they provide incentives for economic reforms to prevent recurring difficulties.
How did the IMF respond to the global financial crisis in 2008 in terms of its resources?
In response to the 2008 global financial crisis, the IMF increased funds available for lending by asking member states to contribute more to their quotas. This demonstrated the IMF’s flexibility in adjusting to the changing needs of the global economic environment.
How does the IMF contribute to states’ decision-making processes, and what criticism has it faced in this regard?
The IMF provides frequent interventions and economic advice on a global scale. Critics argue that such interventions may interfere with national decisions, while supporters view the IMF as a valuable source of economic advice, aiding informed decision-making and helping avoid collateral economic shocks.
