bretton woods institutions and multilateral development banks 2018

1 The International Monetary Fund IMF 2 The World Bank 3 The General Agreement on Tariffs and Trade GATT in place of ITO  What kinds of specific reform measures are thinkable.. 4 Intern

Class 4 Bretton Woods Institutions and Multilateral Development Banks

1 The Birth of the Bretton Woods Institutions (Refer to Reference/Appendix 1)

 What did happen in the process of creating the Bretton Woods Institutions à-vis the International Trade Organization (ITO) and the United Nations (UN)?

vis-2 Impact of the Bretton Woods Institutions

 Have the Bretton Woods Institutions contributed to world economicstabilization and development?

3 Visions and Realities

 How have visions and realities of the Bretton Woods institutions deferred overtime?

(1) The International Monetary Fund (IMF)

(2) The World Bank

(3) The General Agreement on Tariffs and Trade (GATT in place of ITO)

 What kinds of specific reform measures are thinkable?

(2) The World Bank

 What kinds of specific reform measures are considered?

　 (Study Reference 1/Appendix 1 “Chapter 14 of Mahbub ul Haq’s Reflection on Human Development, 1995.”)

6 Reform Proposals for IMF and Multilateral Development Banks (Appendix 2)

(1) Meltzer Report (2000)

(2) Lawrence Summer’s Proposal (1999)

(Study Reference 2/Appendix 2 “A Comparison of Reform Proposals for the IMFand Multilateral Development Banks.”)

Bretton Woods Institutions Today

1 International Monetary Fund: IMF

Headquarters: 700 19th Street, N.W., Washington D.C 20431, U.S.A

Establishment: Established in December 1945

Operation started in March 1947

Purposes (Article I - Purposes):

(i) To promote international monetary cooperation;

(ii) To facilitate the expansion and balanced growth of international

trade;

(iii ) To promote exchange stability;

(iv) To assist in the establishment of a multilateral system of payments; and(v) To make its resources available (under adequate safeguards) to membersexperiencing balance of payment difficulties

Membership: 189 countries (as of 2017) Japan joined IMF in August 1952

Organization:

(1) Board of Governors

The Board of Governors is the highest decision-making body of the IMF It consists of

one governor and one alternate governor for each member country The governor

is appointed by the member country and is usually the minister of finance or thegovernor of the central bank All powers are vested in the Board of Governors.The Board of Governors may delegate to the Executive Board all except certainreserved powers The Board of Governors normally meets once a year at theIMF-World Bank Annual Meetings

(2) Executive Board

The Executive Board is composed of 25 Executive Directors and their Alternates

appointed (6) or elected (19) by member countries

The day-to-day work of the IMF is conducted at its Washington DC headquarters by its

24-member Executive Board; this work is guided by the IMFC and supported bythe IMF’s professional staff The Managing Director is the Head of IMF staff andChairman of the Executive Board

The Executive Board meets regularly and normally three times a week

(3) Managing Director

Ms Christine Lagarde from France is the Managing Director She succeeded Mr

Dominique Strauss-Kahn from France on July 5, 2011 The term is 5 years

(4) International Monetary and Financial Committee

The IMFC was established on September 30, 1999, by a resolution of the IMF Board of

Governors, to replace the Interim Committee of the Board of Governors on theInternational Monetary System (usually known simply as the Interim Committee),which had been established in 1974 As the Interim Committee did, the IMFCusually meets twice a year, in September or October before the IMT-World BankAnnual Meetings, and in March or April at what are referred to as the SpringMeetings

Like the Interim Committee, the IMFC has the responsibility of advising, and reporting

to, the Board of Governors on matters relating to the Board of Governors’functions supervising the management and adaptation of the internationalmonetary and financial system, including the operation of the adjustment process,and in this connection reviewing developments in global liquidity and the transfer

of resources to developing countries; considering proposals by the ExecutiveBoard to amend the articles of Agreement; and dealing with disturbances thatmight threaten the system

The IMFC has 24 members who are Governors of the IMF (generally ministers of

finance or central bank governors) The membership reflects the composition ofthe IMF’s Executive Board: each member country that appoints, and each group

of member countries that elects, an Executive Director appoints a member of theIMFC A number of international institutions, including the World Bank,participate as observers in the IMFC’s meeting

(5) Development Committee

The Joint Ministerial Committee of the Boards of Governors of the Bank and Fund on the

Transfer of Real Resources to Developing Countries, better known as theDevelopment Committee, was established in October 1974 to advise the Board ofGovernors of the IMF and World Bank on critical development issues and on thefinancial resources required to promote economic development in developingcountries Over the years, the Committee has interpreted its mandate to includetrade and global environmental issues in addition to traditional developmentmatters The Committee usually meets twice a year, just like the IMFC

The Development Committee has 24 members (usually ministers of finance or

development) who together represent the full membership of the IMF and WorldBank Each is appointed for periods of two years by one of the countries or groups

of countries that designates a member to the World Bank’s or the IMF’s ExecutiveBoard In addition, there is a chairman Altogether, there are 25 members in the

(ii) SDR Department Account

(iii) Poverty Reduction and Growth Facility and Exogenous Shocks Facility TrustAccount

(iv) PRGF-HIPC Trust and Related Accounts

(v) The Other Administered Accounts

(2) IMF Quotas

Quota subscriptions generate most of the IMF’s financial resources Each member ofthe IMF is assigned a quota, based broadly on its relative size in the worldeconomy A member’s quota determines its maximum financial commitment to theIMF and its voting power, and has a bearing on its access to IMF financing Amember must pay its subscription in full upon joining the Fund: up to 25% must bepaid in SDRs or widely accepted currencies (such as the U.S dollar, the euro, theyen, or the pound sterling), while the rest is paid in the member’s own currency.Total quotas as of February 2017 were SDR 475.4 billion (about US$668 billion)

Table 1 Quota and Votes of Major Countries as of 2017

(3) IMF Borrowing Arrangements

While quota subscriptions of member countries are its main source of financing, theIMF can activate supplementary borrowing arrangements if it believes thatresources might fall short of members’ needs Through the General Arrangements

to Borrow (GAB) and the New Arrangements to Borrow (NAB), a number ofmember countries stand ready to lend additional funds to the IMF

(i) GAB since 1962

GAB enables the IMF to borrow specified amounts of currencies from 11 industrialcountries (or their central banks), under certain circumstances, at market-relatedrates of interest The potential amount of credit available to the IMF under GABtotals SDR 17 billion (about $25 billion), with an additional SDR 1.5 billionavailable under an associated arrangement with Saudi Arabia

(ii) NAB since 1998

The Mexican financial crisis caused the creation of NAB NAB is a set of creditarrangements between the IMF and 26 members and institutions to providesupplementary resources to the IMF to forestall or cope with an impairment of theinternational monetary system or to deal with an exceptional threat to the stability

of that system

NAB does not replace GAB However, NAB would typically be the first andprincipal resource in the event of a need to provide supplementary resources tothe IMF The maximum amount or resources available to the IMF under bothborrowing arrangements is SDR 34 billion (about $50 billion)

Lending:

The core responsibility of the IMF is to provide loans to countries experiencingbalance of payment problems This financial assistance enables countries to rebuild theirinternational reserves; stabilize their currencies; continue paying for imports; andrestore conditions for strong economic growth Unlike development banks, the IMF

does not lend for specific projects.

(1) Concessional Facilities for LICs

► Extended Credit Facility (ECF)

ECF was introduced in January 2010 to succeed the Poverty Reduction and GrowthFacility PRGF) as the Fund’s main tool for providing medium-term support toLICs with protracted balance of payments problems Financing under the ECFcurrently carries a zero interest rate, with a grace period of 5½ years, and a finalmaturity of 10 years

► Standby Credit Facility (SCF)

SCF was introduced in January 2010 to provide financial assistance to LICs withshort-term balance of payments needs The SCF replaces the High-AccessComponent of the Exogenous Shocks Facility (ESF), and can be used in a widerange of circumstances, including on a precautionary basis Financing under theSCF currently carries a zero interest rate, with a grace period of 4 years, and afinal maturity of 8 years

► Rapid Credit Facility (RCF)

RCF was introduced in January 2010 to provide rapid financial assistance withlimited conditionality to LICs facing an urgent balance of payments need TheRCF streamlines the Fund’s emergency assistance for LICs, and can be usedflexibly in a wide range of circumstances Financing under the RFC currentlycarries a zero interest rate, has a grace period of 5½ years, and a final maturity of

10 years

(2) General Facilities

► Stand-By Arrangements (SBA)

The SBA is designed to help countries address short-term balance of paymentproblems The bulk of Fund assistance to middle-income countries is providedthrough SBAs The length of a SBA is typically 12 – 24 months, and repayment

is normally expected within 3¼ – 5 years SBAs may be provided on aprecautionary basis – where countries choose not to draw upon approved amounts

to retain the option to do so if conditions deteriorate – both within the normalaccess limits and in cases of exceptional access The SBA provides for flexibilitywith respect to phasing, with front-loaded access where appropriate

► Extended Fund Facility (EFF)

The EFF was established in 1974 to help countries address their long-term

balance of payments problems that require fundamental economic reforms

Arrangements under the EFF are thus longer than SBAs – usually 3 years

Repayment is normally expected within 4¼ – 10 years.

► Supplemental Reserve Facility (SRF) ⇒　Abolished in March 2009

SRF was introduced in 1997 to meet a need for very short-term financing on a large scale The motivation for the SRF was the sudden loss of market confidenceexperienced by emerging market economies in the 1990s, which led to massiveoutflows of capital and required financing on a much large scale than the IMF hadpreviously provided Countries are expected to repay loans within 2 – 2½ years,but may request an extension of up to an additional six months All SRF loanscarry a substantial surcharge of 3 – 5% points

► Compensatory Financing Facility (CFF)　⇒ Abolished in March 2009

CFF was established in 1963 to assist countries experiencing either a suddenshortfall in export earnings or an increase in the cost of cereal imports, oftencaused by fluctuating world commodity prices Financial terms are similar tothose applying to SBA, except that CFF loans carry no surcharge

► Emergency Assistance (EA)

EA was established in 1962 to assist countries that have experienced a natural disaster or are emerging from conflict Emergency loans are subject to the basic rate

of charge, although interest subsidies are available for some countries, subject toavailability Loans must be repaid within 3¼ – 5 years

► Flexible Credit Line (FCL)

FCL was introduced in 2009 to support countries with very strong fundamentals,policies, and track records of policy implementation and is particularly useful forcrisis prevention purposes FCL arrangements are approved for countries meetingpre-set qualification criteria The length of the FCL is 6 months or 1 year (with amid-term review) and the repayment period the same as for the SBA Access isdetermined on a case-by-case basis, is no subject to the normal access limits, and

is available in a single up-front disbursement rather than phased Disbursementsunder the FCL are not conditioned on implementation of specific policyunderstandings as is the case under the SBA There is flexibility to draw o thecredit line at the time it is approved, or it may be treated as precautionary

Table 2 General Terms of IMF Financial Assistance

2 International Bank for Reconstruction and Development: IBRD (also known as the World Bank)

Headquarters: 1818 H Street, N.W Washington D.C 20433, U.S.A

Establishment: Established in December 1945

Operations started in June 1946

Purposes:

(i) To support the long-term human and social development needs that private

creditors do not finance (ii) Preserve borrowers’ financial strength by providing support in crisis periods,

which is when poor people are most adversely affected;

(iii) To use the leverage of financing to promote key policy and institutional

reforms (such as safety nets or anticorruption reforms);

(iv) To create a favorable investment climate in order to catalyze the provision of

private capital;

(v) To provide financial support (in the form of grants made available from the

IBRD’s net income) in areas that are critical to the well-being of poorpeople in all countries

Membership: 189 member countries (as of 2017) Japan joined in 1952

Japan borrowed from the IBRD $822.9 million (31 loans between 1953 and

makers at the World Bank Generally, the governors are member countries’ministers of finance or ministers of development They meet once a year at theAnnual Meeting of the Board of Governors of the World Bank Group and theInternational Monetary Fund.

Because the governors only meet annually, they delegate specific duties to 24 Executive

Directors, who work on-site at the World Bank The five largest shareholders,France, Germany, Japan, the United Kingdom and the United States appoint anexecutive director, while other member countries are represented by 19 rotatedexecutive directors

(2) Board of Executive Directors:

The World Bank Group Board of Executive Directors are responsible for conducting the

day-to-day business of the World Bank The Boards are composed of 24 ExecuteDirectors, who are appointed or elected by member countries or by groups ofcountries, and the resident, who serves as its Chairman Regular meetings areusually held once or twice a week on Tuesdays and Thursdays

(3) President:

The present President of the World Bank is Mr Jim Yong Kim, who succeeded Mr

Robert B Zoellick in April 2012 The US President nominates the position Theterm can be five years and is renewable

(4) World Bank Group:

The World Bank Group consists of the International Bank for Reconstruction and

Development (IBRD or World Bank), the International Development Association(IDA), the International Finance Corporation (IFC), the Multilateral InvestmentGuarantee Agency (MIGA) and the International Center for Settlement ofInvestment Disputes (ICSID) The first four institutions maintain a Board ofDirectors The Executive Directors serving on these Boards are usually the same.Under the Articles of IDA and IFC, Executive Directors and Alternate Directors

of the Bank serve ex officio as Executive Directors and Alternates of IDA and

IFC, as long as the country that appoints them, or any one of the countries thathave elected them, is a member of IFC and IDA Furthermore, it is customary forthe Directors of MIGA to be the same individuals as the Executive Directors ofthe World Bank

(5) Development Committee: (Refer to the IMF)

(6) Staff: Approximately 10,000 (as of 2017)

　 Table 1 Subscribed Capital, Paid-in Capital and Voting Power of Major Countries

World Bank Commitments and Disbursements

IBRD Operational Summary, Fiscal Years 2012-16

IDA Operational Summary, Fiscal Years 2012-16

World Bank Lending by Theme, Fiscal Years 2012-16

millions of dollars

IBRD

IDA

Note: Numbers may not add to totals because of rounding