Three Key International Economic Institutions

in the Era of Globalization: World Bank, IMF

and WTO

Venkatesh Athreya
Adviser, MSSRF, Chennai
&
Professor and Head(Retd.),
Department of Economics,
Bharathidasan University
 A Historical Perspective
• From the middle of the seventeenth century, a new economic
system emerged in Britain. This is the capitalist system which
now dominates the world.

• This system is driven by the pursuit of profit. It is therefore

inherently expansionary. This is obvious from its spread over
the entire world in a relatively short historical period from the
middle of the 17th Century to the end of the nineteenth Century.

• The emergence and spread of capitalism also led to the

creation of modern Nation States. On the other hand, the
expansion of capitalism led to the establishment of the colonial
system in which non-capitalist territories were seized by the
capitalist powers and exploited for the benefit of capitalists of
their countries.
 World Capitalism at the beginning of the 20th Century
• By 1900, the world had been carved up among the major imperial powers of
the world. A large part of the world’s population and territory was brought
under colonial rule of the imperial powers using brutal methods of
subjugation.

• The world market had also been carved up among the big capitalist
corporations that had their roots in Europe and North America.

• The first wave of financial globalization, involving the movement of finance

capital across the world, had taken place between 1870 and1914.

• But the first world war which broke out in 1914 over division of spoils among
the imperial powers and lasted for four years slowed down the global march
of the capitalist economic system.

• The thirty years that followed -1914 to 1945 – saw further setbacks to
capitalism, with the Russian Revolution of 1917 and the Great Depression of
1929 to 1939, followed by the second world war.
 The world capitalist System in 1945
• The end of the second world war saw three important changes: the weakening of the
traditional European imperial powers and Japan; the rise of a powerful non-capitalist
(Socialist) camp accounting for a sixth of the world’s territory and a third of its
population; and a global wave of massive decolonization.

• The Great Depression had taught the advanced capitalist countries the need for
coordination of economic policies among themselves to prevent what came to be
called ‘beggar-my-neighbour’ policies. The advanced capitalist powers organized a
meeting of several nations in July 1944 in Bretton Woods, New Hampshire in the
USA to create a set of institutions to manage the world capitalist economy in a
world of international capitalism and sovereign nation states.

• It was at this Conference that the International Monetary Fund (IMF) and the
International Bank for Reconstruction and Development (IBRD) were created. The
IBRD later came to be known popularly as the World Bank.

• Sometime later, an organization was created to promote international trade. It came

to be called the General Agreement on Tariffs and Trade (GATT). Many years later,
the GATT was transformed into a very different institution called the World Trade
Organization (WTO).
 The World Bank on Bretton Woods Institutions
(BWI)
• The World Bank and the IMF were both created in 1944 at a conference of
world leaders in Bretton Woods, New Hampshire, in the United States.
Originally called the United Nations Monetary and Financial Conference, the
Bretton Woods Conference—which took place July 1–22, 1944—drafted the
Articles of Agreement for IBRD and the IMF with the aim of placing the
international economy on a sound footing after World War II.

• As a result of their shared origin, the two entities— the IMF and the
expanded World Bank Group—are sometimes referred to collectively as the
Bretton Woods institutions.

• The Bank Group and the IMF work closely together, have similar
governance structures, have a similar relationship with the United Nations,
and have headquarters in close proximity in Washington, D.C.

• Although membership in the Bank Group’s institutions is open only to

countries that are already members of the IMF, the Bank Group and the IMF
remain separate institutions. Their work is complementary, but their
individual roles are quite different.
 The World Bank on BWI
• The Bank Group lends only to developing or transition economies,
whereas all member countries, rich or poor, can draw on the IMF’s
services and resources.

• The IMF’s loans address short-term economic problems: they provide

general support for a country’s balance of payments and international
reserves while the country takes policy action to address its
difficulties.

• The Bank Group is concerned mainly with longer-term issues: it seeks

to integrate countries into the wider world economy and to promote
economic growth that reduces poverty.

• The IMF focuses on the macroeconomic performance of economies,

as well as on macroeconomic and financial sector policy.

• The Bank Group’s focus extends further into the particular sectors of
a country’s economy, and its work includes specific development
projects as well as broader policy issues.
 The World Bank on BWI
• The Bank Group lends only to developing or transition economies,
whereas all member countries, rich or poor, can draw on the IMF’s
services and resources.

• The IMF’s loans address short-term economic problems: they provide

general support for a country’s balance of payments and international
reserves while the country takes policy action to address its
difficulties.

• The Bank Group is concerned mainly with longer-term issues: it seeks

to integrate countries into the wider world economy and to promote
economic growth that reduces poverty.

• The IMF focuses on the macroeconomic performance of economies,

as well as on macroeconomic and financial sector policy.

• The Bank Group’s focus extends further into the particular sectors of
a country’s economy, and its work includes specific development
projects as well as broader policy issues.
 World Bank
• Controlled by the G7 Countries

• President chosen by the US

• Agenda: Development Lending

• Key tool: Structural Adjustment

Programmes
 IMF
• Controlled by G7 Countries

• Managing Director chosen by EU

• Agenda: Short term BoP Lending

• Key tool: Conditionalities

 WTO
• Came into being out of GATT through a
nine year negotiations process, 1986-1994

• Democratic in principle, oligarchic and

opaque in practice

• Agenda: Trade in goods, services,

Agriculture, Investment, Intellectual
Property and many new items
 WTO
• Uruguay Round 1986-1994, WTO comes into being
1995 in Marrakesh

• Successive Ministerial Conferences in its first

decade: Singapore 1997; Seattle, USA, 1999; Doha,
2001; Cancun, Mexico, 2003; Hong Kong 2005.

• Changing Correlation of Forces: US-Europe

Hegemony challenged by BRICS and other
groupings, but inconsistently.
 WTO
• Inequitous Treaty: TRIPS, GATS, AoA, ATC,
‘Singapore’ Issues

• Initial Confusion among Developing Countries

• Emerging Consolidation with Contradictions

• Road Ahead
 The IMF-WB-WTO Trinity in Today’s World
• In the wake of the global financial and economic crisis under way
since 2008, all three institutions have lost some of their legitimacy
but continue to be very influential especially in relation to developing
countries

• The priorities and policies of the World Bank have undergone some
changes, away from the earlier ‘Washington Consensus’, but the
Bank still retains faith in its neoliberal world view.

• The IMF remains unrepentantly mired in neoliberal orthodoxy for the

most part.

• While the WTO leadership remains neoliberal and seeks to link all
policy issues to trade, the balance of powers within the WTO have
changed somewhat as a more multipolar world has emerged.