The main international economic institutions are the IMF, the World Bank, and the WTO (Barkin, 2013). Each has an area of specialization and focus and can be complementary to the others. These three institutions are organizations that they, or their principles, were set up after the Second World War in the Bretton-Wood Conference (Ravenhill, 2016). This essay will be focusing on all three. The IMF is the International Monetary Fund that lends money to member-states with financial difficulties. The World Bank was originally set up to help reconstruction after the second world war, focusing on Western Europe. The World Bank also provides loans and grants to the governments of low- and middle-income countries pursuing capital projects. The WTO, the World Trade Organization, is the most influential of the three organizations for international trade. It sets the rules of international trade when there are no mutual or regional agreements that make trade even easier (Ravenhill, 2016). This essay will critically discuss the role of the IFM, World Bank, and the WTO and will then explain and analyze whether these international institutions are substantially more beneficial for the developed or the developing world.
The WTO, the World Trade Organization, is at the center of international trade systems involving 164 members that creates the non-discriminatory worldwide trade system (Thomas, 2018). Ravenhill (2016) describes the main goal of the WTO to be promoting trade, by internationalizing markets and by extending national markets. The WTO is non-discriminatory as there are no special advantages to countries with the exemption of regional trade agreements and lowers tariffs to non-industrialized countries and there is no special advantage for domestic goods (Ravenhill, 2016). The WTO aims to promote economic growth and as these tariffs have decreased, Thomas (2018) states that world trade has grown, at a steady pace. Yet, not all countries are happy with all imports as they might prefer to protect local industries, and as a result, there is a need to negotiate such rules. These negotiating rounds are very complicated and long; the last one started in 2001 and is uncompleted. The Doha Round is the most recent negotiating round, which has not yet concluded (Ravenhill, 2016). It aims to establish ‘lower trade barriers and revised trade rules’. It focuses on agricultural products and greater inclusion of developing countries in international trade, which comes with difficulties for reaching an agreement. The Doha Round focuses on meeting the concerns of the developing world. Researchers (Subramanian et al. 2008) discovered several key differences in how the WTO benefits developed and developing nations. One key difference they found is that the WTO boosts trade more for rich countries than for poor countries. Although this may seem unfair, it follows directly from the GATT’s structure. The GATT is the General Agreement on Tariffs and Trade, an international treaty that promotes trade and economic development by reducing tariffs and other restrictions. The WTO suspended the establishment of the General Agreement on Tariffs and Trade in 1995. Countries in the developing world often have fewer resources, human and technical, meaning may are unable to manage the 40-50 meetings held each week. This highlights why it is common for these countries to enter negotiations less prepared than the developed countries (Kwa, 1998). Kwa (1998) also explains that if developing countries want to dispute any settlements with the WTO it can be very costly and will usually need legal advice, which these countries may not have access to. Subramanian, et al. (2008) also highlight the case of China, a new WTO member that has seen explosive growth in the last 35 years and especially in the last decade. This analysis shows that the WTO may boost trade for developed countries more than in the developing world.
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The IMF was set up in 1944 with 39 members, now in 2021 with 190. The main roles of the IMF are to provide advice on the balance of payments policy, a method that countries use to monitor all international monetary transactions at a specific period (Heakal, 2021). It also acts as a financing agency providing short-term liquidity to countries encountering balance of payments problems and finally an agent for managing the Bretton Woods international monetary system, which was based on an adjustable peg exchange rate regime (Bird, 2004). Most commonly in developed countries, borrowing money from the IMF is seen as a last resort measure as loans come with conditions that mean that governments must adopt policies dictated by the IMF. The IMF themselves state that economic growth is the only way to improve living standards in developing countries and highlight that this is best achieved through globalization (The IMF staff, 2002). The IMF (2002) goes onto state that they are doing the most to help their members take advantage of the opportunities offered by integration into the world economy while minimizing the associated risks. However, they also recognize that, while much progress has been made in making globalization work better, much work still lies ahead (The IMF staff, 2002). The fund has started to become more heavily involved with developing countries, Bird (2004) states, rather than countries in transition. However, states that borrow money from the IMF are likely to face issues with financing their ‘welfare state’ or funding public goods more generally as there is less money from taxation for the government meaning less money to spend, meaning that developing countries may end further in debt then they began. One example of the IMF impacting developing countries negatively was when they failed to tackle the East Asian currency crisis (Africason, 2016). This crisis occurred in July 1997, affecting mostly developing countries in East Asia such as Thailand, Malaysia, Philippines, Singapore, Hong Kong, and Indonesia. Although, Indonesia can be called both a developed or developing country due to its conditions in the past, more current efforts to have its development indicator values be comparable to those of already developed nations is what makes it said to be a 'developing' country (Markedbyteachers.com). The depreciation of these countries’ currencies, meaning their currencies decreased in value, contributed to the fall in stock market prices, and the functioning of the financial institutions and movement of foreign capital were also badly harmed (Africason, 2016). The IMF encouraged these countries to increase their interest rates and cut public expenditure, but these suggestions eventually proved to be flawed. In 1998, this caused the whole East Asian region to deal with an extensive recession, defined as a general decline in economic activity, unemployment, and low growth rates. The IMF was expected to follow a debt rescheduling plan. But this scheme was not introduced at the claim of the United States and other advanced countries. This example highlights how the IMF can impact developing country’s negativity and be more beneficial for the developed world.
The World Bank was founded in the 1950s with a changed focus to reduce world poverty and help developing countries with 187 members. Unlike the IMF, the World Bank’s goals are more economic than financial, financial focusing entirely on the maximization of wealth and economic focusing on the optimization of valued goals (Lancetana, 2011). The bank provides loans for long-term infrastructure projects and aims to promote long-term economic development, as opposed to the IMFs short-term financial help. Ravenhill (2016) describes the two goals the World Bank aims to achieve by 2030: to end extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3% and to promote shared prosperity by fostering the income growth of the bottom 40% for every country. Since its founding in 1950, the World Bank moved its focus to developing countries, primarily in Africa, Asia, to a lesser extent in South America and East Europe after the collapse of the USSR. The World Bank (2020) goes into depth about its aims to reduce global wealth inequality. They state that a significant reduction in inequality is necessary, especially in countries with high rates of poverty, if the world wants to end extreme poverty. Data from 2012-2017, out of 91 economies, 74 has positive shared prosperity, meaning that growth was inclusive and the incomes of the poorest 40 percent of the population increased (The World Bank, 2020). Recently in 2016, the World Bank has decided to no longer distinguish between developing and developed countries, when presenting their data (Fernholz, 2016). Fernholz (2016) also states that “the change marks an evolution in thinking about the geographic distribution of poverty and prosperity”. This is valuable for both developed and developing countries as it will help minimize discrimination and means that this institution is equally beneficial for both. This change was brought about, party, due to the World Bank’s success in developing countries in the last several decades. Due to this, the World Bank has now stated that the organization will be focusing on ‘sustainable development goals’ for all countries around the world (Tamplin, 2016). One example which highlights how the World bank can benefit rural areas was a successful project founded in 2015, which aimed to increase productivity and incomes of farmers and fisherfolk in the Philippines (The World Bank, 2021). The World Bank (2021) goes onto describe the following accomplishments they achieved through this project. They provided agricultural assets and services to about 372,000 farmers and fisherfolk, they constructed and rehabilitated over 1,000 kilometers of farm-to-market roads- more are still underway- resulting in reduction of travel time by 33 percent and reduction in transport costs by 22 percent. The World Bank also provided potable water to roughly 6,600 households and another 15,700 will benefit once the remaining potable water supply systems are completed. They provided technical and funding assistance to some 66,100 beneficiaries of agri-enterprises, which resulted in an average of 113 percent increase in real household income (The World Bank, 2021).
To conclude, this essay has highlighted the key roles of the IMF, the World Bank, and the WTO. From the evidence presented in this assignment, it has been found that both the IMF and the WTO are more beneficial for developed countries than developing countries. The WTO boosts trade more for developed countries and the IMF may be unhelpful for developing countries which was shown when they gave faulty advice to the East Asian countries during their currency crisis in 1997. However, the World Bank has been valuable for developing countries as illustrated by how it has benefited farmers and fisherfolk in the Philippines. The World Bank has also stopped using the terms ‘developed’ and ‘developing’, which highlights how they want to treat these countries as equals.
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