THE EFFECTS OF THE MONETARY INSTITUTIONS, “IMF” AND“WB”

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Universidad de Monterrey

División de ciencias sociales

Escritos Académicos

THE EFFECTS OF THE MONETARY INSTITUTIONS, “IMF” AND“WB”

Sergio Rojas Matricula: 256041

San Pedro Garza García a 8 de Diciembre del 2015

Abstract

For my term project I propose to research and write a report on the effects good or bad of the monetary institutions, say, “IMF” and “WB”.

I picked these two international institutions since they are the most important and have the most influence over the world but they are not always just or have the best solutions to the economic crisis, or to all country economic models. That’s why we are going to go deeper in these aspects, and hopping to cover four key subjects. Hoping at the end we can see if this economic model with this institutions are the best solutions or not. Key subjects are: How does the institution handle the economic crisis, How the countries ask for help to these institutions, What are the bases to enter or be part of these institutions, In what we analysed does these institutions help more in the economic crisis or promotes the inequality between countries.

The effects good or bad of the monetary institutions, say, “IMF” and “WB”.

First, it is important that we know how it is that these institutions and bodies work in order to understand the behaviour and what effects they have on the world.

In 1945, in negotiations at the end of the Second World War, was created the financial system of Bretton Woods composed of two institutions, the International Bank for reconstruction and development (IBRD) and the International Monetary Fund (IMF). The first, was order to help European Nations in the reconstruction of the cities during the civil war. It has gradually expanding its functions, creating more agencies that would work in parallel to this, becoming what we know today as the World Bank Group (WBG).

The World Bank has two goals: ending extreme poverty and promoting shared prosperity.

Ending extreme poverty, the Bank aims to reduce the percentage of people living on less than US$ 1.90 per day to 3% by the end of 2030.

To promote shared prosperity, the goal is to promote the growth of incomes of the population of all the countries in the bottom 40% of the income distribution.

The World Bank is a vital source of financial and technical assistance to the countries in development around the world. It is not a bank in the usual sense, but a unique organization which aims to reduce poverty and support development.

But it can deliver funding and loans. Many partners have requested support to the Bank to manage initiatives that address needs in a variety of sectors and developing regions. The World Bank operates as a cooperative composed of 188 Member countries. These countries or shareholders are represented by a Board of Governors, the highest body responsible for formulating policies in the institution. Members govern the World Bank Group through the Board of Governors and the Executive Board. These bodies take all the important decisions of the organization.

The five main shareholders: France, Germany, Japan, United Kingdom and United States. Each one is named an Executive Director and other Member countries are represented by the 20 remaining elected Executive Directors.

If a country wants to be a member of the Bank first must enter to the International Monetary Fund (IMF) and for a country to be a member of the IMF, He must enter with a contribution of money called "quota", the fee is based on a country's wealth and determines the power of vote within the Organization, whoever makes higher contributions have greater voting rights.

The Fund acts as a lender of last resort, disbursing its reserves immediately to any member in the event of emergency or natural disaster.

The International Monetary Fund (IMF), also known as "The Fund" is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty in the world.

Born in the Conference of Bretton Woods, in the USA, in 1944. In an effort to build a framework for economic cooperation and with these, be able to avoid the mistakes of the devaluations that contributed to the great depression of the 1930's.

It has as main objectives, to promote international monetary cooperation, facilitate the expansion and balanced growth of international trade, promote the stability of the change, and assist members experiencing difficulties in payments to the balance in the establishment of a multilateral payments system and provision of resources.

In the event of a crisis the IMF and WB they must act jointly in order to support the countries and their economies out of the crisis, for example, in October 2008 activated IMF emergency financing scheme for countries facing economic difficulties resulting from the global financial crisis. As of August 2010, it had lent about $200 billion in loans to a number of economies affected by the crisis. Those who were benefited most were Hungary, Romania and Ukraine. The 2010 Eurozone crisis also triggered extensive interventions by the IMF, including strong bailouts for countries such as Greece and Ireland.

Past interventions by the IMF include providing funds for countries caught up in the Asian financial crisis of 1997 and loans to help South America such as Argentina and Brazil,  to postpone the crisis of debt by default. The IMF can also grant emergency loans after natural disasters; these have included the 2004 Asian tsunami.

These institutions have two main ways to help countries, the first establishing the scheme of reducing poverty and service for growth in 1999. The scheme provides loans with conditions. A strategy document called a letter of intent, specifies the elements of a country's recovery plan. In return, loans are agreed as and when the targets laid down in the letter are met. The IMF may require reforms to promote good governance and to tackle corruption. The Fund argues that a good business climate is essential for growth and poverty reduction.

The World Bank funds specific infrastructure projects. One of its agencies, the International Development Association, focuses on the world poorest nations. The Bank has reiterated its support in completing the objectives of the Millennium Develop Goals of reducing poverty indicators by 2015.

The second way is with the aid program of debt relief that was launched by the IMF and the World Bank in 1996, it aims to reduce the debt of the poorest countries in Exchange of economic reforms. States are eligible if their debt is unsustainable and cannot be solved by traditional methods. Within the reforms that must be carried out to help them often includes the privatization.

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