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INTERNATIONAL INSTITUTIONS

International economic institutions are an important feature of the world economy. Wheneconomists and political scientists try to

explain the increasing integration of nationaleconomists after World WarII, the stability

and reduced uncertainty created byinternational institutions is one of the key

explanations. Before looking at their impact,

we should define what we mean by an institution.

WHAT IS AN INSTITUTION?Most people probably think of a formal organization when they hear the word institution.

Economists tend to define institutions more broadly, however. For example, the New

Institutionalists, led by economist Douglas North, have argued that organizations are notinstitutions in themselves, although they may embody one. In this view, an institution is a

set of rules that govern behavior. It tells us what is permissible and what is not; it is a

constraint that limits us.

Institution. An institution is a set of rules of behavior. it sets limits, or constraints, onsocial, political, and economic interaction, and in so doing plays a determining role. It

may be informal (e.g., a manner, taboo, custom) or formal (e.g., a constitution or law).

Institutions can be formal or informal. A formal institution is a written set of rules that

explicitly states what is and is not allowed. The rules may be embodied in a club, an

association, or a legal system. An informal institution is a custom or tradition that tellspeople how to act in exactly in the same way that a law does, but without the legal

enforcement. For example, informal institutions include the rules of socializing, giftexchange, table manners, e-mail etiquetee ( netiquette), and so forth. in this chapter, the

term institution refers to both rules and organizations.

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THE ROLE OF INTERNATIONAL INSTITUTIONSThe organization with the greatest responsibility for resolving trade disagreements is theWorld Trade Organization (WTO). The WTO came in to existence in 1995 and was an

adaptation of General Agreements on Tariffs and Trade (GATT), which was created

shortly after World WarII. Resolving trade disputes is only one of the new roles played by international organizations. Various bodies also offer organized development

assistance, technical economic advice, emergency loans in a crisis situation, and other

services and assistance.

As we said earlier, these bodies are unique to our time. They perform services that no one

did before World WarII (development assistance) or services that were done by a single

country (lending in a crisis)-usually the worlds greatest military power. These bodiesexist today only through the mutual consent and cooperation of participating nations, and

with out that cooperation, they would dissolve. Their abilities, however, are limited. They

cannot prevent crises, and they cannot make poor countries rich. Once a crisis begins,

they are not always successful in containing it; when they do succeed, the costs aresometimes large. They also controversial, sometimes viewed as tools of the United States

or as a threat to national independence. They were very likely to grow in function,however, as concerns increase over problems that lack a purely national solution; for

example, global warming.

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world trade organization

The result is assurance. Consumers and producers know that they can enjoy secure

supplies and greater choice of the finished products, components, raw materials andservices that they use. Producers and exporters know that foreign markets will remain

open to them.

The result is also a more prosperous, peaceful and accountable economic world. Virtually

all decisions in the WTO are taken by consensus among all member countries and theyare ratified by members' parliaments. Trade friction is channelled into the WTO's dispute

settlement process where the focus is on interpreting agreements and commitments, and

how to ensure that countries' trade policies conform with them. That way, the risk ofdisputes spilling over into political or military conflict is reduced.

By lowering trade barriers, the WTOs system also breaks down other barriers between

peoples and nations.

At the heartof the system known as the multilateral trading system are the WTOs

agreements, negotiated and signed by a large majority of the worlds trading nations, andratified in their parliaments. These agreements are the legal ground-rules for international

commerce. Essentially, they are contracts, guaranteeing member countries important

trade rights. They also bind governments to keep their trade policies within agreed limitsto everybodys benefit.

The WTO...

... In brief

the World Trade Organization

(WTO) is the only international

organization dealing with the globalrules of trade between nations. Its

main function is to ensure that trade

flows as smoothly, predictably and

freely as possible.

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The agreements were negotiated and signed by governments. But their purpose is to help

producers of goods and services, exporters, and importers conduct their business.

The goalis to improve the welfare of the peoples of the member countries

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The organization

The WTOs overriding objective is to help trade flow smoothly, freely, fairly and

predictably.

does this by:

Administering trade agreements

Acting as a forum for trade negotiations

Settling trade disputes

Reviewing national trade policies

Assisting developing countries in trade policy issues, through technical assistanceand training programmes

Cooperating with other international organizations

Structure

The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30others are negotiating membership.

Decisions are made by the entire membership. This is typically by consensus. A majority

vote is also possible but it has never been used in the WTO, and was extremely rare underthe WTOs predecessor, GATT. The WTOs agreements have been ratified in all

members parliaments.The WTOs top level decision-making body is the Ministerial Conference which meetsat least once every two years.

Below this is the General Council (normally ambassadors and heads of delegation in

Geneva, but sometimes officials sent from members capitals) which meets several times

a year in the Geneva headquarters. The General Council also meets as the Trade PolicyReview Body and the Dispute Settlement Body.

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At the next level, the Goods Council, Services Council and Intellectual Property(TRIPS) Council report to the General Council.

Numerous specialized committees, working groups and working parties deal with theindividual agreements and other areas such as the environment, development,

membership applications and regional trade agreements.

Secretariat

The WTO Secretariat, based in Geneva, has around 600 staff and is headed by a director-

general. Its annual budget is roughly 160 million Swiss francs. It does not have branch

offices outside Geneva. Since decisions are taken by the members themselves, theSecretariat does not have the decision-

making role that other international

bureaucracies are given.

The Secretariats main duties are to

supply technical support for the variouscouncils and committees and the

ministerial conferences, to provide technical assistance for developing countries, toanalyze world trade, and to explain WTO affairs to the public and media.

The Secretariat also provides some forms of legal assistance in the dispute settlement

process and advises governments wishing to become members of the WTO.

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The multilateral trading systempast, present and future

The World Trade Organization came into being in 1995. One of the youngest of the

international organizations, the WTO is the successor to the General Agreement onTariffs and Trade (GATT) established in the wake of the Second World War

So while the WTO is still young, the multilateral trading system that was originally set up

under GATT is well over 50 years old.

The past 50 years have seen an exceptionalgrowth in world trade. Merchandise exports

grew on average by 6% annually. Total trade in

2000 was 22-times the level of 1950. GATTand the WTO have helped to create a strong

and prosperous trading system contributing to

unprecedented growth.

The system was developed through a series oftrade negotiations, or rounds, held under

GATT. The first rounds dealt mainly with tariff

reductions but later negotiations included other areas such as anti-dumping and non-tariffmeasures. The last round the 1986-94 Uruguay Round led to the WTOs creation.

The negotiations did not end there. Some continued after the end of the Uruguay Round.

In February 1997 agreement was reached on telecommunications services, with 69

governments agreeing to wide-ranging liberalization measures that went beyond those

agreed in the Uruguay Round.

In the same year 40 governments successfully concluded negotiations for tariff-free trade

in information technology products, and 70 members concluded a financial services deal

covering more than 95% of trade in banking, insurance, securities and financialinformation.

In 2000, new talks started on agriculture and services. These have now been incorporated

into a broader agenda launched at the fourth WTO Ministerial Conference in Doha,

Qatar, in November 2001.

The work programme, the Doha Development Agenda (DDA), adds negotiations andother work on non-agricultural tariffs, trade and environment, WTO rules such as anti-

dumping and subsidies, investment, competition policy, trade facilitation, transparency in

government procurement, intellectual property, and a range of issues raised bydeveloping countries as difficulties they face in implementing the present WTO

agreements.

The deadline for the negotiations is 1 January 2005

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The WTO agreementsHow can you ensure that trade is as fair as possible, and as free as is practical? By

negotiating rules and abiding by them.

The WTOs rules the agreements are theresult of negotiations between the members. The

current set were the outcome of the 198694

Uruguay Round negotiations which included a

major revision of the original General Agreementon Tariffs and Trade (GATT).

GATT is now the WTOs principal rule-book for

trade in goods. The Uruguay Round also created

new rules for dealing with trade in services,

relevant aspects of intellectual property, disputesettlement, and trade policy reviews. The complete set runs to some 30,000 pages

consisting of about 30 agreements and separate commitments (called schedules) made byindividual members in specific areas such as lower customs duty rates individual

members in specific areas such as lower customs duty rates and services market-opening.

Through these agreements, WTO members operate a non-discriminatory trading system

that spells out their rights and their obligations. Eachcountry receives guarantees that its exports will be

treated fairly and consistently in other countries

markets. Each promises to do the same for imports

into its own market. The system also gives developingcountries some flexibility in implementing their

commitments.

Goods

It all began with trade in goods. From 1947 to 1994,

GATT was the forum for negotiating lower customsduty rates and other trade barriers; the text of the

General Agreement spelt out important rules, particularly non-discrimination.

Since 1995, the updated GATT has become the WTOs umbrella agreement for trade ingoods. It has annexes dealing with specific sectors such as agriculture and textiles, andwith specific issues such as state trading, product standards, subsidies and actions taken

against dumping.

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ServicesBanks, insurance firms, telecommunications companies, tour

operators, hotel chains and transport companies looking to do

business abroad can now enjoy the same principles of freer and

fairer trade that originally only applied to trade in goods.

These principles appear in the new General Agreement on Trade

in Services (GATS). WTO members have also made individual

commitments under GATS stating which of their services sectors

they are willing to open to foreign competition, and how openthose markets are.

Intellectual propertyThe WTOs intellectual property agreement amounts

to rules for trade and investment in ideas and

creativity. The rules state how copyrights, patents,

trademarks, geographical names used to identify

products, industrial designs, integrated circuit layout-designs and undisclosed information such as trade

secrets intellectual property should be

protected when trade is involved.

Dispute settlementThe WTOs procedure for resolving trade quarrels under the Dispute Settlement

Understanding is vital for enforcing the rules and

therefore for ensuring that trade flows smoothly.

Countries bring disputes to the WTO if they thinktheir rights under the agreements are being

infringed. Judgements by specially-appointed

independent experts are based on interpretations ofthe agreements and individual countries

The system encourages countries to settle theirdifferences through consultation. Failing that, they

can follow a carefully mapped out, stage-by-stageprocedure that includes the possibility of a ruling by

a panel of experts, and the chance to appeal the

ruling on legal grounds. Confidence in the system is borne out by the number of casesbrought to the WTO around 300 cases in eight years compared to the 300 disputes

dealt with during the entire life of GATT (194794).

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Policy reviewThe Trade Policy Review Mechanisms purpose is to improve transparency, to create agreater understanding of the policies that countries are adopting, and to assess their

impact. Many members also see the reviews as constructive feedback on their policies.

All WTO members must undergo periodic scrutiny, each review containing reports by thecountry concerned and the WTO Secretariat.

Developing countriesDevelopment and trade

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Over three quarters of WTO members are developing or least-developed countries. All

WTO agreements contain special provision for them, including longer time periods to

implement agreements and commitments, measures to increase their trading opportunitiesand support to help them build the infrastructure for WTO work, handle disputes, and

implement technical standards.

The 2001 Ministerial Conference in Doha set out tasks, including negotiations, for a wide

range of issues concerning developing countries. Some people call the new negotiationsthe Doha Development Round.

Before that, in 1997, a high-level meeting on trade initiatives and technical assistance for

least-developed countries resulted in an integrated framework involving six

intergovernmental agencies, to help least-developed countries increase their ability totrade, and some additional preferential market access agreements.

A WTO committee on trade and development, assisted by a sub-committee on least-

developed countries, looks at developing countries special needs. Its responsibilityincludes implementation of the agreements, technical cooperation, and the increased

participation of developing countries in the global trading system

Technical assistance and trainingThe WTO organizes around 100 technical cooperation missions to developing countries

annually. It holds on average three trade policy courses each year in Geneva for

government officials. Regional seminars are held regularly in all regions of the worldwith a special emphasis on African countries. Training courses are also organized in

Geneva for officials from countries in transition from central planning to market

economies.

The WTO set up reference centres in over 100 trade ministries and regional organizations

in capitals of developing and least-developed countries, providing computers and internet

access to enable ministry officials to keep abreast of events in the WTO in Geneva

through online access to the WTOs immense database of official documents and othermaterial. Efforts are also being made to help countries that do not have permanent

representatives in Geneva.

Principles of WTO(

Single undertaking: Virtually every item of the negotiation is part of a whole and

indivisible package and cannot be agreed separately. Nothing is agreed until everythingis agreed.

Participation: The negotiations are open to all WTO members and to observer

governments negotiating or intending to negotiate membership. But decisions on the

outcomes are only taken by members.

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Transparency: The negotiations have to be transparent.

Special and differential treatment: The negotiations have to take fully into account the

principle of special and differential treatment for developing and least-developedcountries.

Sustainabledevelopment: The Trade and Development and Trade Environment identify

and debate developmental and environmental aspects of the negotiations to ensure that

sustainable development is appropriately reflected.

Subjects not negotiated: Elements of the work programme which do not involvenegotiations are also accorded a high priority. The General Council is to report on their

progress to the Fifth Ministerial Conference in 2003.

How do we change such important institutions as theglobal economy?

The same way one wins a new stoplight on a busy street, wins a pay raise, wins an

affirmative action law, or ends a warby raising social costs that the policy makers findso odious and dangerous that they feel they must give in lest the costs climb even higher.

What do elites care about even more than they care about these international agencies?

Not muchits true, but one thing is the overall stability of their material advantage andpower. Pursuing WTO agendas is something corporate and political elites want to do,

there is no denying that. On the other hand, if doing so polarizes populations into

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movements that threaten not only these policies but even the underlying requisites of

profit-making and governing, that is too high a price to pay. They do not want to awaken

a "sleeping giant"the populations that they govern and exploit.

So we raise social costs by educating a growing public regarding the WTO and other

global financial institutions and by channeling the resulting anger and aspirations intosocial movements that challenge the WTO and local governments business as usual.

What will make these movements most compelling is if they clearly embody the threat to

grow continuously

become steadily more militant

diversify in focus from the WTO to international trade

more broadly, to international relations, and finally to domesticeconomic policies and arrangements as well

international monetary fundsThe Indian Mountaineering Foundation (IMF) is an apex national body. It has the

objective

of organising, supporting and providing a base for expeditions for mountaineering,

skiing, rock climbing and trekking at high altitudes. It promotes, encourages, supportsand executes schemes for related adventure activities and environmental protection work

in the Himalaya. IMF co-ordinates climbing in the Indian Himalaya, organises national

and international conferences, training / environment-cleaning camps and climbing

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competitions. IMF is closely associated with the Ministries of Sports, Home, Defence,

Tourism and Environment of the Government of India. After obtaining the required

approvals, which are specially issued, foreigners can climb mountain peaks in India. IMF,formed in 1957, has rendered invaluable service to the cause of mountaineering. The

present President of Indian Mountaineering Foundation is Shri N N Vohra, former

Home/Defence Secretary and Principal Secretary to the Prime Minister of India who haslong years of high altitude trekking and climbing behind him.

The IMF co-ordinates climbing in the Himalaya, organises national and international

conferences, training/environment-cleaning camps and climbing competitions. The IMFregisters peaks for Indian and foreign expeditions, processes them with the Government

for clearances and arranges liaison officers and weather forecasts. It maintains contact

with the Indian Air Force for helicopter rescue and with other agencies for land search

and rescue. In its work, the IMF draws support from its diverse membership, affiliatedclubs and associations in India, listed tourism industry representatives, similar bodies

overseas and the Government of India. The IMF is an active member of Union

International Des Associations D'Alpinisme (UIAA), and projects Indian Mountain

Tourism Resources through that body world-wide. IMF is closely associated with theMinistries of Sports, Home, Defence, Tourism and Environment of the Government of

India.As per the Notification No. 11013/4/78-FI dated 9th January 1979, of the Foreigners

Order, issued by the Government of India, no foreigner or group of foreigners shall climb

or attempt to climb any mountain peak in India without obtaining the prior permission in

writing of the Central Government on an application made in that behalf through theIndian Mountaineering Foundation and without complying with such conditions,

including specification of route to be followed, accompaniment by a Liaison Officer, use

of photographic and wireless communication equipment, as may be laid down in thisbehalf.

Origin

IMF was formed in 1957 as the `Sponsoring Committee of the Cho Oyu Expedition, thesuccess of which on May 15, 1958, encouraged the Committee to sponsor more

expeditions. In 1959, it changed its name to the `Sponsoring Committee of EverestExpedition and in the following year `Sponsoring Committee for MountaineeringExpeditions. Finally, on January 15, 1961 a permanent organization was set up, in its role

as the national body, with headquarters in New Delhi and was registered as such on

November 3, 1961. Its building was inaugurated by Prime Minister Indira Gandhi in

1980.

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Objectives

The main objectives are to organize, support and provide a base for expeditions formountaineering, rock climbing, trekking at high altitudes and to promote, encourage,support and execute schemes for related adventure activities and environmental

protection work in the Himalaya.

What are the IMF and the World Bank?

In the aftermath of World War II, besides the United Nations, the important international

economic organizations created at the conference held at Bretton Woods were theInternational Monetary Fund (IMF) and the International Bank for Reconstruction and

Development (IBRD), now known as the World Bank. The IBRD- World Bank was

established to help finance the reconstruction of war-torn Europe and the development ofthe poorer countries of the world. The IMF mandate was to regulate an internationalmonetary system based on convertible currencies to facilitate global trade while leaving

sovereign governments in charge of their own monetary, fiscal, and international

investment policies. Significantly, the effort to establish the International TradeOrganization (ITO) ended in failure, leaving the "minimalist" General Agreement on

Tariffs and Trade (GATT) as its surviving remnant. But all that was more than 50 years

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ago. The IMF has now become the "point person" for efforts to "liberalize," or deregulate

the international economic system.

The IMF has prescribed the same medicine for troubled third world economies for twodecades now:

Monetary austerity: Tighten the money supply to raise internal interest rates to

whatever heights are needed to stabilize the value of the local currency

Fiscal austerity: Increase tax collections and reduce government spendingdramatically

Privatization: Sell off public enterprises to the private sector

Financial liberalization: Remove restrictions on the inflow and outflow of

international capital as well as restrictions on what foreign businesses and banksare allowed to buy, own, and operate.

Only when governments sign this "structural adjustment agreement" does the IMF agree

to lend enough to prevent default on international loans that are about to come due andotherwise would be unpayable. Arrange a restructuring of the countrys debt among

private international lenders that includes a pledge of new loans.

What is the effect of the IMF?The predictable consequences have always been disastrous. Tight monetary policy and

skyrocketing interest rates not only stop productive investment, stampeding savings intoshort-run financial investment instead of long-term productive investment, it keeps many

businesses from getting the kind of month-to-month loans needed to continue even

ordinary operations. This fosters unemployment and drops in production and thereforeincome. Fiscal austerityraising taxes and reducing government spendingfurther

depresses aggregate demand, also leading to reductions in output and increases in

unemployment. Likewise, if any of the government spending eliminated was actuallyimproving peoples lives, then reductions in those programs eliminates those benefits.

Privatization of public utilities, transport, and banks is always accompanied by layoffs.Whether productivity and efficiency is improved in the long run depends on how badly

the public enterprises were run in the first place, and if private operation proves to be animprovement.

One of the most glaring inefficiencies of "structural adjustment," even on its own terms,

has been that in its haste to reduce public sector budgets, the IMF has seldom taken thetime to try and distinguish between poorly run and well run public enterprises. In its

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crusade to privatize, the IMF routinely lumps efficient public enterprises together with

"white elephants" that do provide poor service to the public while paying bloated salaries

to relatives and political supporters of ruling political parties. The IMF never considersthe possibility that private replacement might be even worse.

Hasty removal of restrictions on international capital flows makes it easier for wealthycitizens and international investors to get their wealth out of the country, i.e., removal of

"capital controls" facilitates capital flight, further reducing productive investment, production, income, and employment. Removing capital controls further exposes the

local economy to the vicissitudes of global capital mobility, including the disease of

"contagion."

Role of the IMFThe IMF is a cooperative intergovernmental monetary and financial institution with near

universal membership. Its policies and activities are guided by its charter, known as theArticles of Agreement(the Articles), and are conducted under a decision-making structure

that has evolved over the years (see Box 1). The IMF is unique among intergovernmentalorganizations in its combination of regulatory, consultative, and financial functions,

which derive from the purposes for which it was established (see Box 2): to promote

international monetary cooperation; to facilitate the balanced growth of internationaltrade; to promote exchange rate stability; to assist in the establishment of a multilateral

system of payments and in the elimination of foreign exchange restrictions that hamperthe growth of world trade; to make its resources available to its members to correctbalance of payments imbalances without resorting to trade and payments restrictions; and

to provide a forum for consultation and collaboration on international monetary

problems. Thus, the IMF is concerned not only with the problems of individual countriesbut also with the working of the international monetary system as a whole. Its activities

focus on promoting policies and strategies through which its members can work together

to ensure a stable world financial system and sustainable economic growth.

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The Articles effectively place the IMF at the center of the international monetary system.

The IMF provides a forum for international monetary cooperation, and thus for an orderly

evolution of the system, and it subjects a wide area of international monetary affairs tocovenants of law, moral suasion, and understandings. The IMF must also stand ready to

deal with crisis situations, not only those affecting individual members but also those

representing threats to the international monetary system.

IMF policy and practice are constantly evolving in response to new challenges, mostrecently the further globalization of capital markets and the increased risk of financial

crises and their spillover effects. The work of the IMF in the immediate future, as

outlined by the Interim Committee at its meeting in April 1998 (the Spring 1998 InterimCommittee), will be shaped importantly by exploring ways to prevent, manage, and

resolve financial crises.

As an immediate response to the Asian financial crisis, in late 1997 the IMF established a

new credit facility--the Supplemental Reserve Facility (SRF)--to address potentially large

but short-term financing needs that emanate mainly from the capital account, reflecting aloss of market confidence. To make its financial assistance more expeditious, the IMF put

into use during the Asian financial crisis the rapid procedures of the EmergencyFinancing Mechanism that had been set up in the aftermath of the Mexican crisis in 1995

(see Chapter III).

world bankThe World Bank was founded in 1944, the same time as IMF. Currently, there are more

than 175 members. Members buy shares in the Bank and, similar to the quotas thatdetermine voting rights in the IMF, shareholding determines the weight of each member

in setting the Banks policies and practices. Originally, the World Bank was known as the

International Bank for Reconstruction and Development, or IBRD. The name reflectedthe fact that it was primarily created to assist in the reconstruction of the war-torn areas.

As the capital requirements for reconstruction grew, however, it soon became apparent

that the IBRD lacked sufficient funds to do the job, and in 1948, the United States createdthe parallel program known as the Marshall Plan to assist Europe.

By the 1950s, the field of development economics had begun to take off. Several leading

economists were able to make credible arguments that the worlds less economicallydeveloped regions could grow much faster if they could get around the constraints

imposed by a lack of investment capital, and the IBRD was encouraged to fill this role as

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a supplier of capital to developing economies. Today, the IBRD is one of five separate

subgroups that make up the World Bank. The role of the IBRD is to lend for specific

development projects, such as dams, highways, and schools, and to support majoradjustments in government policies that change the way they manage the economy. Other

subgroups in the World Bank are focused on the very poor, private sector development,

and loan guarantee programs. Only developing countries can borrow from the WorldBank.

international finance corporation[IFC]

The WORLD BANK gives loans to its member governments against its guarantees and

this was not palatable to foreign private sectors. In December 1957 the USA suggested

for a new corporation that may promote private investments in foreign countries. Thus,emerged the IFC, as an offshoot of world bank, as an autonomous international institution

design to stimulate growth in its developing member countries, and by investing in

productive private enterprises with private capital and management and without

government guarantee. The IFC is an arm of the World Bank that finances private sectorprojects in developing countries. It has been that a trend for has resulted in greater

economic efficienty and has had a positive impact on economic growth. In its annual

report in 1992, the IFC has warned the countries to go slow in their campaign forprivatizing in a hurry and should be a slow process in stages focusing on completing

smaller assets at the first step.

OBJECTIVES:

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To make investment in productive private enterprises in association with private

investors and without government guarantee of repayment;

It seeks to brings together investment opportunities, domestic and foreign private

capital and experienced management;

To stimulate the international flow of private capital;

To assist the growth of capital markets in less developed countries.

COMPOSITION:

All the members of the world bank are eligible to become members of the IFC, which is

an affiliate body of the world bank. Governors and Executive Directors of the world bankrepresenting member countries of the corporation serve the IFC in a similar capacity. The

President of the World Bank is the Chairman of the Board of Directors of the IFC. On therecommendation of the Chairman, the Board of Directors of IFC appoints its President.

Thus, the world bank controls the affairs of the IFC, but still it retains a separate entityand maintains a separate account.

In respect of three items, the IFC differs from the world bank.

IFC treats itself like a private investment firm consisting of a compact staff of

engineers, investment officers, accountants and lawyers. It also avails of the

assistance of outside consultants to the deal with market surveys and specialtechnical problems.

The IFC has the option of making a fixed interest loans to make investments withequity type features and directly deals with private business.

The role of IFC is that of a catalyst. It employs its limited funds in associationwith private business and invests capital in the expansion of private industrial

enterprises in the developing areas.

The capital of IFC is 100 million dollars or gold and its subscribed by members in

proportion to their subscription to the capital of the world bank. Its capital could be

increased by two thirds majority of the existing members. In June 1975 the corporation

shares capital was about 107 million US dollars subscribed by US 35 MD, UK 14 MD,France 6, Japan 2.77, Germany 3.65, India 4.43 and Brazil 3.60 million us dollars.

Besides this, the IFC could borrow from the World Bank for its lending operations four

times its subscribed capital.

CONCLUSION

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INDIA AND IFC:

The IFC fines that there is a macro economic frame work that should make investmentsmore attractive. The IBRD finds a shift towards market oriented economies through Asia.

The IFC points out that during 1992 even the sluggish economy of industrialized

countries would like to stimulate growth in developing countries. The foreign directinvestments to India has increased from 100 million dollars in fiscal year 1991 to 200

MD in 1992, and are expected to increase during the immediate next few years. Due to

the government and adjustment policies, there has been a surge of private investments inIndia. The IFC is pleased to note the interest India has taken in accelerating power

generation. The gestation period of planning and executive power projects would

eventually attract investors. The IFC would double its assistance to India to 400 million

dollars in 1993 and step up equally proportion of such investments. The IFC has alsopromised the major companies could launch their maiden issues in the international

market with its help. Thus, the contribution of IFC in the industrial growth of India is one

of great achievement.

international developmentassociation [IDA]

For a nation embarking up on accelerated economic growth and, the need for financial

institutions requires no mention. Since 1940 in many countries public and semipublic

financial institutions have sprung up to solve the problem of promoting and providingfinancial assistance to industries for modernization, diversification, reconstruction,

reorganization and expansion. Special financial and investment institutions have been

established and they are either within the country or outside the country. At the world banks annual meeting held at New Delhi in 1958. The USA suggested for the

establishment of a new international financial institution called International

Development Association [IDA]. The IDA is a subsidiary institution of the World Bank

like IFC. The IDA is nick named as SOFT LOAN WING from which the developingcountries could borrow hard currencies without the problem of repayment in the same

currency. The IDA is to be administrated by the world bank.

COMPOSITION:

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Any member of the world bank can became a member of IDA, provided the member is

prepared to subscribe to the share capital at the rate of 5 per cent of the existing world

banks share ownership. As on 30th June 1975, 125 of the world banks 144 countrieswere members of IDA. The organization of IDA is similar to that of WORLD BANK. It

has a Board of Directors and President. The members initial subscription to IDA totaled

about 1000 million dollars. The membership is divided in to two categories namely, 1.Developed countries which have paid their share in gold or in freely convertible

currencies and 2. Less developed countries, who pay 10 per cent of their subscription in

gold or convertible funds, and the remaining 90 per cent subscription to be paid in theirown currencies. The USA and UK are the major contributors and posses about one third

of voting power.

OBJECTIVES:

The main purpose of the IDA has been to provide finance to less developed member

countries on a soft loan basis imposing lower service charges that the conventional bank

loans. The annual report stressed on the point that primary purpose underlying theestablishment of IDA was the creation of a supplementary source of developmental

capital for countries whose balance of payments prospects would not justify theirincurring or continuing to incur, external debt entirely on conventional terms. The IDA

actually started its operation in November 1960. The main objects of IDA as laid down in

articles are:

To promote economic development;

To increase productivity;

To raise standard of living in less developed countries of the world;

To provide finance to meet the important development requirements of flexibleitems;

To provide funds to meet the balance of payments at concessional finance thanthose of conventional loans;

To supplement the financial operations of the world bank loans etc.

The IDA loans are development loans to developing countries and they are more flexible

than world bank loans and for a minimum period of 15 years. The IDA finances a certain

percentage of the cost of a project that is meant not only for meeting the foreign exchangepart of the project but also a part of the local currency. Projects like water supply,

housing, sanitary, construction of hospitals etc. get assistance from the world bank. The

IDA loans bear much lower interest rates than is charged by the world bank. In recentyears the IDA credits carried 3 to 4 percent of interest rates and such loans could be

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repaid in local currencies of the borrowing countries, so that no adverse effect is created

on balance of payments positions.

The IDA and INDIAIndia has been a major beneficiary from the IDA financial assistance. India has been a

member of IDA ever since its inception. To end of June 1975 India has received for its 71projects a sum of Rs.3442 and that is about 41 per cent of the credits approved by IDA to

all part of 11 countries.

The IDA has rendered a very useful service to India by making available enough foreign

exchange. Canal command areas of Rajastan and Chambal, Dairy development of

Madhya Pradesh; Sindri fertilizers, agricultural development of West Bengal, industrial

imports, agricultural credit and some of the non projects aids are the beneficiaries of IDAconcessional loans.

The most of the IDA funds meant for South Asian countries have still remained in the

pipe line not being used. Hence during September 1992 the IDA has warned thesecountries to the funds sanctioned, otherwise they might have to foreign the benefits. The

IDA credits to S.E.Asia for development stood at Rs.19146 billion dollars and unusedfinds stood at 4473 billion dollars. Mr. Joseph Wood, IDA Vice-President observed that

it is a surprise to know the South Asian countries are sitting on something not far short

of 9 billion dollars. In undisbursed IDA funds as soft money. He further said that

together with world bank finds, nearly 18 billion dollars still remaining undisbursed. TheIDA has permitted India to utilize the amount belated. Thus, India has benefited from the

IDA funds for its economic development programs.

Many specialized financial and investment institutions have been established in India as

an integral part of capital market to achieve the following objectives; and in this directionthe IDA has done much.

To develop professional company promotions;

To accelerate higher capital formation;

To provide replacement finance for established industries;

To make available long term finance for accelerated industrialization;

For a planned economic development with the available infrastructure and their

exploitation to the optimum point;

To provide sufficient finance for small business firms etc.Thus the IDAs contributions to the industrial and economic development of India in

association with the World Bank, International Finance Corporation have been highly

useful and commendable.

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What is the relation between capitalismand institutions like the WTO, IMF, andWorld Bank?Capitalism is an economic system defined by private ownership of the means ofproduction, corporate workplace structure, and market allocation. These defining featurescontour much of what can and will happen in capitalist economies. Some implications

are: that those who own means of production will accrue vast profits and hold most

power; that those who manage and otherwise monopolize daily decision-making will

have considerable income and power as well; and that those who only obey orders andcarry out labor defined by others will be overwhelmingly subordinate in income and in

power. Corporations will dominate economic and social life by creating a virtual

dictatorship of the owners and administrators of workplaces, and by corrupting politicalrelations with commercial values and pressures in pursuit of profits. Citizens behaviors

will be pushed by market competition toward individualist selfishness and outcomes will

bias from collective fulfillment toward private profit.Another mark of capitalism is the market-driven competitive pursuit of profit among

capitalists and the use of every means they can muster to defend and enlarge their

advantage relative to workers. To further both agendas, various institutions are

established. In the international realm these include the WTO, IMF, and World Bank,each a natural outgrowth of the desire of the most powerful capitalists to (a) dominate

their own economies without restraint and (b) extend their profit seeking as widely

internationally as they are able to, again, without restraint.

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International institutions andnational sovereignty

National sovereignty refers to the right of each nation to be free from outsideinterference. International Institutions complicate the issue of sovereignty by limiting the

range of permissible actions that a national government may take and by imposing

conditions for membership. For example, developing countries that have borrowed fromthe IMF sometimes complain bitterly about the changes they are required to make in their

domestic policies. In many advanced industrial economies, such as the United States,

some politicians have argued that entanglement in international institutions such as theWTO reduce U.S.sovereignty by giving outsiders power to make rules that limit

U.S.policies.

Opposition to internationalinstitution in the united states

IMF conditionality affects developing nations more than it does advanced industrialeconomies because rich nations almost always continue to enjoy access to private capital

markets and rarely need lenders of last resort. Nevertheless, in some rich nations, such as

the United States, there is a similar debate over the impact of international agreements onnational sovereignty. Specifically, some people worry that entanglement in international

agreements limits the range of policy options available and may force changes in

domestic policies in order to be in compliance with international agreements.

While it is undoubtedly true that that international agreements cause changes in national

domestic policies, the relevant consideration is whether or not the United States and other

nations derive benefits that exceed their costs. Some of the benefits are easy to identify:world markets are much more open today than they would have been without a GATT;

the debt crisis of the 1980s was contained and did not spread beyond the indebted

countries, thanks to the IMF; and the transition economies of Central and Eastern Europeare far more stable than they would have been without the technical assistance and loans

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of the IMF and World Bank. There is no way to prove what would have happened if the

international institutions did not exist today. Nevertheless, they are one of the primary

reasons for the fact that world trade has grown faster than world output since the end ofWorld WarII and that nations enjoy far greater benefits from economic integration than at

any time in the twentieth century.

International institutions and the endof the cold war

In the fall of 1989, the Berlin Wall was pulled down. Quickly thereafter, the Federal

Republic of Germany (West Germany) moved toward integration with its easterncounterpart. And on December 24, 1991, the Soviet Union ended its existence and was

replaced by fifteen independent republics. The end of the Cold War is probably the most

important event in world affairs since the end of World WarII. Its impact on globaleconomic institutions cannot be overestimated.

While less sudden than the dismantling of the Soviet Union, a second set of events is also

shaping future international economic relations. Prosperity in Japan and Europe, rapideconomic growth in several countries of East Asia, and the emergence of China as a

world economic colossus are generating several geographical centers of economic power.

In spite of the deep crisis that began in 1997, the long run outlook continues to be

positive for a number of Asian nations. It seems likely that the first fifty years of thetwenty-first century will not be dominated by the economic, political, and military

leadership of the United States to the extent of the last fifty years of the twentiethcentury.

A key question is whether or not the international economic institutions that emerged

under U.S. leadership after World WarII can survive a shift in global power to severalgeographic centers. Some fear that these institutions depend so greatly on U.S. leadership

that they cannot survive the relative growth of economic and political power in Asia and

Europe

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Why international institutions havesucceeded

Before discussing the post-Cold War viability of the IMF, World Bank, and WTO, it isuseful to clarify why these institutions succeeded in the first place. One line of reasoning

lists three key reasons for their success. First, the design of the institutions involved avery small number of countries. For example, the Bretton Woods agreements were signed

by twenty-nine nations, and most of the work was done by the United States and GreatBritain before the conference. By 1996, the IMF had 181 members. Similarly, the

original GATT agreement was signed by 23 members, but by mid-1996, the WTO

included 123 members plus another 37 official observer nations. Obviously, negotiationsare much easier when they need only accommodate the interests of 23 nations instead of

123.

Not only did the small number of countries make negotiations easier, it also made it

easier for the United States to bear the costs of leadership. In the first decades after the

end of World War II, there was a consistent willingness by the United States to share itsgains from economic stability. This was a major inducement to countries to move towarda more integrated and open world economic system. For example, rather than impose

punitive conditions on Germany and Japan after World War II (as happened after the

First World War), the United States created the Marshall Plan for Europe and the DodgePlan for Japan to asst with the economic and political reconstruction of each region.

Furthermore, the United States did not demand that foreign markets open in a way that

was symmetric to its own opening, choosing instead to serve as a model for othercountries. A good example of this is the way in which the United States made room for

surging Japanese imports in the 1960s and beyond. Finally, the United States has borne

the lions share of the cost of the collective defense of the noncommunist world.

Some economists argue that a second factor in the success of the post-World War II

institutions is that Keynesian, demand-management economic policies of the

governments of the industrial economies held together a domestic consensus in eachcountry, which permitted greater international openness. National governments put full

employment among their highest priorities. Consequently, when imposed caused job

losses, there was little fear that the displaced workers would stay unemployed for long. In

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addition, when taxes went to support foreign aid programs, it was easier to accept as long

as employment was high and the national economies were growing.

The third factor is that all nations began the postwar period with highly closed markets.

This enabled progress to be maintained for some years because they could focus on

general tariff reductions and did not have to deal with more contentious issues such asmarket structures, labour and environmental policies, and so forth.

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