L5 - IMF & WTO

Question 1

Lesage, D. (2013) ‘The architecture of international monetary and financial governance.’ (Post WW2 focus)

Answer 1

Identifies three ‘basic logics’ which characterises the architecture of the global banking system - functional, geopolitical and managerial.

POST WW2 = - US only member with veto power in IMF+WB - important decisions require 85% majority
- Informal deal between US and WE in IMF = European, WB = US

IMF
- Quotas = equity capital, Govs facing a balance of payments crisis can borrow - avoiding devaluation or extreme austerity measures
- Quotas are related to a countries economic weight, openness and monetary reserves

Question 2

Short history of the WTO

Answer 2

1947 - General Agreements on Tariffs & Trade (GATT) first multi-lateral trade agreement in history

1994 Uruguay Round deepened liberalisation, including agreements in GATS + TRIPS

reflection of NL following CW

WTO set up to monitor + promote trade liberalisation, also a dispute settlement system

Today 166 members (98%) 22 candidates

Question 3

Collapse of the DDR

Answer 3

DDR was a new agreement following Uruguay

1999 Seattle gridlock (North v South)

2001 DDAgenda launch, emphasis on developing

2003 G20 V G7 - G20 trade of new emerging economies, gridlock on domestic agriculture subsidies, industrial goods access, G20 wanted agricultural access, west wanted services, e-commerce etc and labour rights

2013 Bali agreement on trade facilitation

2015 nairobi failure - agriculture and developing economy hesitation

Question 4

Factors slowing trade liberalisation

Answer 4

exposure to export competition, industrial relocation, growing socio-economic uncertainty - standards (labour/products)

Question 5

TTIP

Answer 5

Trans atlantic trade and investment partnership

EU+Obama - non-tariff trade barriers - concerns over standards - investor-state dispute settlement - TRUMP PULLS OUT

Question 6

TPP

Answer 6

trans-pacific partnership

6 year negotiation, Obama ‘asian pivot’ to counter china, TRUMP PULLS OUT, turned into comprehensive and progressive transpacific partnership agreement 2018, china applies 2021

Question 7

RCEP

Answer 7

Regional comprehensive economic partnership

15 countries from asia & pacific + china, less comp than CPTPP, focus on industrial tariffs, weak investment, intellectual property

absorbed existing bilateral trade deals - 1/3 world popilation + GDP, signed 2020, in force 2022

Question 8

Role of China, India, Brazil

Answer 8

Push to liberalise world markets in strong sectors, protectionist in others, china eg becoming main agricultural subsidizer - harmful for weaker farmers in poorer countries

Question 9

US-CH Trade war

Answer 9

US V China state subsidies, theft of IP, agricultural barriers

2018-2019 US measures on more than 400bn chinese imports

2020 phase 1 trade deal

2021-2025 biden CHIPS act against semiconducter trade, china complains to WTO settlement system

Question 10

Crisis of the Appellate Body?

Answer 10

Key dispute settlement mechanism. appeal body after ‘panel report’ - normally 7 members, 3 members needed to adjudicate on a case

US refusal to consider replacements for new members, since 2020 dispute mechanism down

EU set up multi-party interim appeal arrangement

BIDEN wants reform - only go to AB if both bodies agree, more freedom to use subsidies, more freedom to impose tariffs for nat security

Question 11

Mandate of the IMF

Answer 11

‘support fixed but adjustable exchange rates’ (pegged to USD) - focuses on stability of the global financial system

191 members

LENDING - SURVEILLANCE - KNOWLEDGE - ADVICE/CAPACITY - SDR

Question 12

Basel hub for monetary and financial cooperation

Answer 12

The Basel Hub is a global center for financial stability based in Basel, Switzerland.
It houses the Basel Committee on Banking Supervision (BCBS), setting global banking regulations.
Focuses on capital requirements, risk management, and liquidity standards to promote financial stability.

Question 13

Surveillance role of the IMF

Answer 13

watching risks (national) + spillovers, mandatory annual ‘article IV consultations’ - IMF investigations, regional + global reports

Question 14

SDRs

Answer 14

Special Drawing rights = international reserve (quasi Gold)

USD650 billion new SDR allocation approved, in response to financial impact of Covid-19 = historic
https://data.one.org/data-dives/sdr/

SDR = IMF basket currency = money creation for central banks’ monetary reserves

SDR are allocated according to quotas → Most stick first with rich countries and major economies

Now finding ways to channel money to countries most in need

G20 decided USD100 billion should go to vulnerable countries

SDR are not given to poorer countries as a gift

Why is it difficult?
Small part will be channelled to IMF lending vehicles, and a very small part to regional developing banks; What poorer countries will get, is all in the form of loans.
EU countries reluctant to send SDRs to multilateral development banks as EU rules go against funding of development through central banks

Question 15

‘Comparative advantage’ of the IMF

Answer 15

multilateral pooling of finance + risks, knowledge center…

Global economic stability

Lender of last resort

Surveillance and monitoring

Influence in global governance

Question 16

Governance Structure of the IMF

Answer 16

Board of governers: once a year annual meetings, reps of all MS

International Monetary and Financial committee (IMFC) - advisory body of ministers. superceded by G20 - exec board, 24 members, daily decision making body, managing director and staff

Question 17

IMF + NL

Answer 17

favoured full freedom of capital mobility, made 1997-1998 asian crisis worse (pushing interest rate increases and fiscal austerity)

Question 18

Global financial crisis role of IMF after 2008

Answer 18

Panic !

MF ‘fire power’ or ‘war chest’ needs dramatic increase

G20 London summit April 2009
IMF resources multiplied by 4 (incl. SDR allocation)

New governance reform announced

Quick bilateral loans to IMF

Then expansion of NAB (New Arrangements to Borrow), with emerging economies on board
Promise to double and realign quotas in longer term as definitive solution (i.e. 14th general quota review)

SDR allocation 250 billion USD

Question 19

IMF conditionality

Answer 19

debt with conditions, domestic, fiscal, socio-economic reforms - structural neoliberal demands…

Question 20

Adequacy of funds resources

Answer 20

quota capital of member countries (651bn), new arrangements to borrow (485bn), bilateral borrowing agreements (rich+emerging), 188bbn

Question 21

2010 quota and governance reform

Answer 21

unequal governance - quota, votes, composition of executive board, diversity of staff

Question 22

Quota doubling

Answer 22

Status Quo: Criticism about veto power USA, emerging markets are not in line with their voting power, BRICS lacks a Veto, Europe overrepresented in Executive board with 8 out of 24 seats

Quota doubling
- (to 651 billion USD) – with roll-back of NAB (New arrangements to Borrow, multilateral borrowing)

• Emerging economies want IMF to remain “quota-based institution”, with financial contribution translating into voting rights (unlike NAB)

Question 23

Quota realignment

Answer 23

Quota realignment (= redistribution)
Net shift of 2.8 percentage points in quotas (votes: 2.6) to emerging markets and developing countries (EMDCs) (incl. 2006-2008 reform: 3.9 percentage points quota shift).
China 3rd after US & Japan, new top 10 order. But China still badly underrepresented!
US keeps veto for the important IMF decisions requiring 85% voting threshold; BRICS as a group no veto.
Promise as part of the agreement: “By January 2014 : new quota reform, incl. new quota formula!”

New Quota gives prominent role to economic weight and included GDP, but appreciates economic openness and variability

Question 24

Executive board

Answer 24

Europe was over-represented: seats for Germany, France, UK, Italy, B, NL, Switz., Skand-Balt, Spain (1/3)), so > 1/3

Decision : minus 2 “advanced” European seats (with rotating part-times possible) à 2 seats more for emerging/developing countries

Note: BRICs were already full-time in E.B. Also Argentine, Iran, Mexico (1/3) and Korea (rotating with Australia).

Prominently absent: e.g. Turkey, South Africa
(BRICs more keen on voting power)

US strategy: more votes for emerging economies (BRICS), retaining US veto, let Europeans pay the bill.

Built-in promises: “New quota formula by January 2013” (but yet to be delivered…), 15th general review of IMF quotas by January 2014 (done in 2020: no change in quota/vote distribution)

Question 25

Why did BRICS agree with 2010 governance reform?

Answer 25

1. sake of global financial responsibility
2. stronger surveillence of western economies through IMF
3. avoiding USD liquidy
4. BRIC already in exec board

Question 26

Quota formulation + political Qs

Answer 26

Quota: Voting power in the Board of Governers takes into account countrie’ economic weight, openness, and monetary reserves

Current formula è Calculated quota share =

0,5 * GDP-blend (market based 60% - PPP 40%)

+ 0,3 * openness

+ 0,15 * variability (indicator for vulnerability)

+ 0,05 * monetary reserves

And whole * 0,95 (= compression)

(QF gives some direction to quota distribution, which largely remains a political decision)

Political Questions:

Financial stability: a global public good – matter of solidarity?
→ Why not ‘one country, one vote’?

→ What about population numbers as a variable? (India’s suggestion)

“IMF = kind of bank, with creditors’ interests” ! → the wealthiest should have most votes.

Openness argument? è is now the way to make sure that smaller (rich) countries, which usually score high on economic openness, can have considerable voting powers & (rotating) seats in Executive Board. (otherwise ONLY big countries pull the strings)

Quotas linked to risks? Here the argument goes: “the more exposed to risk, due to size and openness, the more quotas you must have”.

He does not like any of those arguments, only focusing on GDP as China wants it

Question 27

What was the competition between IMFC and G20 and how has it ended?

Answer 27

The competition revolves around their roles in global economic governance, particularly during and after the global financial crises. Both bodies play important roles in shaping global economic policies, but their functions, composition, and influence have led to tensions and competition over which institution should take the lead in addressing key global challenges

G20 took lead in solving global crisis in financial crisis of 2008

G20 has the advantage of not being a formal part of the IMF, can give political instructions to other institutions (OECD, World Bank, Basel Network)

The competition between the IMFC and the G20 has ended in a strategic partnership. While the G20 has become the dominant forum for global economic coordination, the IMF, guided by the IMFC, continues to play a critical role in financial stability, crisis management, and global economic surveillance

Question 28

The global architecture for financial stability, including the financing arrangements, are much wider than the IMF alone: you should be able to give an overview of that architecture. (The ‘global financial safety net’).

Answer 28

National monetary reserves
Central bank liquidity injection (e.g. Fed quantitative easing; ECB)
Bilateral swaps (US): https://www.cfr.org/central-bank-currency-swapssince-financial-crisis/#!/
IMF
Regional financing arrangements
European Stability Mechanism (= the ‘IMF’ of the euro area)
Chiang Mai Initiative (East and South East Asia)
BRICS Contingency Reserve Arrangement (CRA)
…
Overview: https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op207.en.pdf

Brussels Hub