WB and IMF Flashcards
global economic governance
goal at the beginning + now
1940s: economic consequences war in Europe
since decolonization: addressing the socio-economic disparities between North and South to stabalize the global economic order
institutions global economic governance
WB
IMF
WTO/GATT
UN conference on trade and development (UNCTAD)
and so on
current trends in the global economic governance
- informal governance (G7, G20 etc.)
- changing role of the US as promotor of Global economic governance (can the US still be a hegemon + how will the system change)
- emerging powers: BRICS / regional development banks
Bretton Woods Conference 1944
mostly dominated by the West -> western economic thinking
goals:
- reconstruct war-torn Europe
- prevent or at least mitigate an economic crisis like in the 1930s
both the IMF and WB have their origins here: conference-> Articles of Agreement of each institution
how are the WB and IMF related to the UN?
they are specialized agencies
- even more autonomous than some/most of the other specialized agencies
International Bank for Reconstruction and Development
IBRD
objective: poverty reduction and economic development
189 member states
World Bank group
- IBRD: International Bank for reconstruction and development
- International Development Agency (IDA)
- International Finance Corporation
- Multilateral Investment Guarantee Agency
- International Centre for Settlement of Investment Disputes
*IDA and IBRD core lending institutions to states
What does the WB do?
- 40s and 50s: IBRD rebuilding Europe and Asia
- after 60s: focus on developing countries (IDA)
- after 1990: facilitate economic transition in Eastern Europe + post-conflict reconstruction
- as of 2000: contribute to achieving the Millennium Development Goals (2000-2015) + Sustainable Development Goals (2015-)
lending, investments, research, economic advice
In what way does WB lending undermine sovereignty?
to get money from the WB, states have to comply to some sort of reforms
WB and Covid-19: Financing vaccination
WB found that the pandemic and fighting the pandemic is immediately connected with inequality + all focuses of the WB
goal: help countries finance/acquire vaccines
IBRD + IDA made 5-7 Billion $ available for vaccines (large amount over little time)
shows that mandates overlap, while it focuses on economic development, this spreads into other areas
World Bank Structure (IBRD structure)
Board of Governors
- plenary organ: 189 members (each state has a representative ‘‘governor’’ and an ‘‘alter governor’’
- highest decision making body (membership, capital stock, distribution of net income)
- annual meetings
Board of Executive Directors
- meets more frequently
- decisions about lending proposals
- sets bank policies + interprets Articles of Agreement
- 25 members (6 largest stakeholders automatic seat (US, Japan, Germany, UK, France)
- operate by consensus
World Bank Group President (Ajay Banga)
- informal agreement that the head of the WB is always American (+ of the IMF is always European)
- head of the secretariat
- president of the IBRD and IDA at the same time
secretariat (large and growing)
independent evaluation group
- internal monitoring mechanisms that looks at how WB programs are designed in general
Inspection Panel:
- groups and non-state actors can submit complaints
- comparatively new (created after complaints about human rights violations)
- important monitoring mechanism that provides transparency
- other banks also implemented such mechanisms, it became the norm
International Finance Corporation
5
1956
part of the WB
184 member states
supports companies in developing countries
private sector funding
IDA
1962
173 member states
gives credits to the ~80 lowest income countries (GDP below $1.1 capita, if it grows above it goes to the IBRD)
has more favorable conditions than the IBRD; no interest and more long term
Multilateral Investment Guarantee Agency
1988
156 members
part of the WB
insurances against non-commercial, political risk for private investors (to promote economic investments in developing countries)
International Centre for Settlement of Investment Disputes (ICSID)
1966
part of the WB group
161 participating states
mediation and arbitration of investment conflicts between member states and private investors from other countries
cases can only be discussed on a voluntary basis
German case: Germany didn’t invest in nuclear power plants anymore -> company sued Germany for the change in policy -> company won, Germany had to pay settlement
default
failure to pay international debts
main goal IMF and WB
to prevent the situation in which the economic problems of one country lead to generalized crisis in the international system
WB v. IMF
WB: longer term loans for economic development, uses money of members as collateral to borrow
IMF: short term loans to resolve balance-of payments problems, uses money from its Fund
IMF original goals
coordinating exchange rates among countries (became obsolete as the market became freer: floating currency)
control the pool of foreign currency that countries could borrow to stabilize extreme balance-of-payments deficits
headquarters IMF and WB
Washington DC
mandate WB
to reduce poverty by lending the money of the rich countries to the poor countries for specific development projects, and by providing technical assistance to poor countries
obligations to the WB and IMF
- general obligations (e.g. paying to the common pool of resources)
- specific terms of a loan (e.g. policy changes)
WB money
initial subscription: members need to pay 20% of the value of a country’s shares must be paid up front in gold or in US dollars upon joining
(makes the WB sensitive to US currency)
WB doesn’t lend the subscriptions of member states, it uses them as collateral
- WB is a reliable partner (low risk of default) -> can borrow cheaper than other actors
WB enforcement
no enforcement mechanism whatsoever, can only threat to cut off future lending, which influences credit-worthiness in the eyes of other possible investors
in what way can the power relationship between borrower and lender become inverted?
- half-funded project doesn’t help anyone and doesn’t get money back
- borrower may have a powerful patron at the WB making it unlikely that future loans really are dependent on past performance
- if someone lends a lot from the bank, it becomes the problem of the bank instead of the borrower
WB sensitivity to corruption
WB often looks away -> money doesn’t go to the projects, but to elites
criminal depth = money never reached the public treasury of the country and yet it is treated as part of the debt owed by the state and its taxpayers
- can/should be treated as losses of the Bank rather than of the borrowing country
(relieves population from the burden of which they never received benefit + moral accountability at the WB and borrowers instead of elite v. public + incentive for the Bank to be careful in lending)
IMF objective
financial stability
- international financial cooperation: ensuring international liquidity/balance for investments
- monetary stability: adjusting to balance of payments difficulties
- prevent crisis
provide emergency lending when so much money leaves a country that it threatens financial and social stability
what does the IMF do
- bailout : large scale credit to states in financial insecurity
- technical assistance
- monitoring
- general research: reports
the IMF and Covid-19
emergency financing
catastrophe containment and relief trust
augmentation under existing programs
new financing arrangements
capacity development
helping states become/stay stable in an uncertain time
IMF structure
Managing Director
- traditionally always European
IMF secretariat
Executive Board: deciding on IMF loans + core body to make day-to-day decisions
- 24 members (8 permanent)
board of governors (financial ministers or central bankers from member)
- decides on the highest-level policy questions
- delegates power to the executive board
joined IMF-World Bank development committee
independent evaluation office (conditions under which lending can be implemented)
decision-making in WB and IMF Board of Directors
predominantly by consensus, sometimes formal votes
formal votes
- US has de facto veto power as it has such a big share of votes
- group shares: some countries are grouped in more or less regional groups
- if one group/state gets more shares, another immediately gets less
criticism WB/IMF
WB/IMF as neoliberal institutions implementing the ‘Washington Consensus’: it forces liberal principles
lack of accountability: organizational culture = homogonous workforce
origins/reasons regional development banks
dissatisfaction with WB lending among developing countries and scarcity of funding for regional programs
regional development banks offer more favorable conditions
more independent from western influence + more integrated + less political + more low-key
EIB
European investment bank
IMF ratification
1945
IMF obligations of members
- collaborate with the Fund and other members to assure orderly exchange arrangement
- avoid manipulating exchange rates
- surveillance by the IMF: designed to alert the collective as well as the country itself of impending crises
what do borrowing countries use their IMF loan for
to buy their own currency to drive up its value -> stability
IMF ‘‘arrangement’’
set of agreed-upon conditions for a specific loan
balance-of-payments problem
a country is coninually paying moer to foreigners than foreigners are spending
unsustainable in the long run
floating exchange rates -> transactions increase the supply of the local currency and thus drive down its value
IMF enforcement
loans are often disbursed in instalments: later payments are conditional on good performance
no authority to order states to change their policies
no authority to punish those who fail their commitments
noncompliance is often tolerated: belief that positive effects of the loan outweigh the problems of non-compliance/enforcement
case: Argentina
borrowed significantly from the IMF and WB (paid the WB back, IMF drama)
IMF funding to adopt a neoliberal economic model -> couldn’t pay back the IMF + national crises
IMF couldn’t force compliance through shaming: reputation was already lost
-> IMF new conditions for repayment -> immediate monetary crises subsided in 2003 -> 2006 repaid last of its debts to the IMF
still drama with private creditors
AIIB
Asian Infrastructure Investment Bank
seated in Beijing
established under Chinese leadership in 2015 by 57 states (also non-regional and non-state)
possible reasons for China to invent the bank
- economic competition China and US (gives China more legitimacy + AIIB more attractive than bilateral investment)
- dissatisfaction with WB structure
- reducing bilateral tensions in the region
- promote ‘silk road economic belt’
- infrastructure investments in Asia to overcome transport and connectivity barriers for export
what is important to keep in mind with China’s influence in the AIIB?
we can criticize China for using the AIIB as a tool but then we should also look at the role of US and EU in the World Bank
criticism AIIB
instrument of China to advance narrow Chinese interests and undermine US influence globally
Kaya, Kilby, Kay
2021
AIIB as an instrument for Chinese influence? supplementary versus remedial multilateralism
why would overt use of the AIIB lead to more costs for China than overt use of the WB lead to for the US?
because China already faces heightened scrutiny as a rising power and one-party state
supplementary multilateralism
actions of the multilateral institution supplement existing bilateral ties with the great power
remedial multilateralism
privileges countries underserved by bilateral ties and thereby denotes the use of a multilateral platform to shore up the gaps in the great power’s existing relations
- Can be used to extend a great power’s sphere of influence by making up for weak or non-existing bilateral ties
three ways in which AIIB’s loans could reflect Chinese influence
- selection of loan recipients
- size of AIIB loans
- speed of loan delivery
Kaya, Kilby Kay findings of Chinese influence in the AIIB
evidence for remedial multilateralism
no evidence for supplementary multilateralism
limits to Chinese influence in the AIIB
board decisions taken by simple majority
management of AIIB is international and professional: pressure from management and staff to uphold principles of multilateralism
substantial share of AIIB loans are co-financed with other MDBs
Inter-American Development Bank
1951
46 members
US 1/3 votes
Asian Development Bank
1966
48 members (inc. 19 non-regional)
Japan + US largest shareholders
Funds NGO projects
African Development Bank
1966
