world bank and imf

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Assignment on INTERNATIONAL MARKETING

WORLD BANK & IMF


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INTRODUCTION:

The United Nations Monetary and Financial Conference, commonly known

as the Bretton Woods conference, was a gathering of 730delegates from all 44 Allied nations at

the Mount Washington Hotel, situated in Bretton Woods, New Hampshire to regulate the

international monetary and financial order after the conclusion of World War II.

The Bretton Woods Conference took place in July 1944, but did not become operative until 1959,

when all the European currencies became convertible. Under this system, the IMF and the WORLD

BANK were established. The IMF was developed as a permanent international body. The summary

of agreements states, "The nations should consult and agree on international monetary changes

which affect each other. They should outlaw practices which are agreed to be harmful to world

prosperity, and they should assist each other to overcome short-term exchange difficulties." The

IBRD (WORLD BANK) was created to speed up post-war reconstruction, to aid political stability, and

to foster peace. This was to be fulfilled through the establishment of programs for reconstruction

and development.


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WORLD BANK:

World Bank is a term used to describe an international financial institution that provides leveraged

loans to developing countries for capital programs. The World Bank has a stated goal of reducing poverty.

The World Bank differs from the World Bank Group, in that the World Bank comprises only two

institutions: the International Bank for Reconstruction and Development (IBRD) and the International

Development Association (IDA), whereas the latter incorporates these two in addition to three more:

International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA),

and International Centre for Settlement of Investment Disputes (ICSID).

HISTORY:

The World Bank is one of five institutions created at the Bretton Woods Conference in 1944.

The International Monetary Fund, a related institution, is the second. Delegates from many countries

attended the Bretton Woods Conference. The most powerful countries in attendance were the United

States and United Kingdom which dominated negotiations.

Although both are based in Washington, D.C., the World Bank is by custom headed by an American, while

the IMF is led by a European. From its conception until 1967 the bank undertook a relatively low level of

lending. Fiscal conservatism and careful screening of loan applications was common. Bank staff attempted

to balance the priorities of providing loans for reconstruction and development with the need to instill

confidence in the bank.

Bank president John McCloy selected France to be the first recipient of World Bank aid; two other

applications from Poland and Chile were rejected. The loan was for $987 million, half the amount

requested and came with strict conditions. Staff from the World Bank monitored the use of the funds,

ensuring that the French government would present a balanced budget and give priority of debt

repayment to the World Bank over other governments. The United States State Department told the

French government that communist elements within the Cabinet needed to be removed. The French

Government complied with this diktat and removed the Communist coalition government. Within hours

the loan to France was approved.

The Marshall Plan of 1947 caused lending by the bank to change as many European countries received aid

that competed with World Bank loans.


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MAIN OBJECTIVES:

The World Bank sees the five key objectives necessary for economic growth and the creation of an

enabling business environment as:

I. Build capacity: Strengthening governments and educating government officials.II. Infrastructure creation: implementation of legal and judicial systems for the encouragement of

business, the protection of individual and property rights and the honoring of contracts.

III. Development of Financial Systems: the establishment of strong systems capable of supportingendeavors from micro credit to the financing of larger corporate ventures.

IV. Combating corruption: Support for countries' efforts at eradicating corruption.V. Research, Consultancy and Training: the World Bank provides platform for research on

development issues, consultancy and conduct training programs (web based, on line, tele-/video

conferencing and class room based) open for those who are interested from academia, students,

government and non-governmental organization (NGO) officers etc.

OTHER OBJECTIVES:

I. Eradicate Extreme Poverty and Hunger: From 1990 through 2004, the proportion of people livingin extreme poverty fell from almost a third to less than a fifth. Although results vary widely within

regions and countries, the trend indicates that the world as a whole can meet the goal of halving

the percentage of people living in poverty. Africa's poverty, however, is expected to rise, and most

of the 36 countries where 90% of the world's undernourished children live are in Africa. Less than a

quarter of countries are on track for achieving the goal of halving under-nutrition.

II. Achieve Universal Primary Education: The number of children in school in developing countriesincreased from 80% in 1991 to 88% in 2005. Still, about 72 million children of primary school age,

57% of them girls, were not being educated as of 2005.

III. Promote Gender Equality and Empower Women: The tide is turning slowly for women in the labormarket, yet far more women than men- worldwide more than 60% - are contributing but unpaidfamily workers. The World Bank Group Gender Action Plan was created to advance women's

economic empowerment and promote shared growth.

IV. Reduce Child Mortality: There is some improvement in survival rates globally; acceleratedimprovements are needed most urgently in South Asia and Sub-Saharan Africa. An estimated 10

million-plus child under five died in 2005; most of their deaths were from preventable causes.


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V. Improve Maternal Health: Almost all of the half million women who die during pregnancy orchildbirth every year live in Sub-Saharan Africa and Asia. There are numerous causes of maternal

death that require a variety of health care interventions to be made widely accessible.

VI. Combat HIV/AIDS, Malaria, and Other Diseases: Annual numbers of new HIV infections and AIDSdeaths have fallen, but the number of people living with HIV continues to grow. In the eight worst-

hit southern African countries, prevalence is above 15 percent. Treatment has increased globally,but still meets only 30 percent of needs (with wide variations across countries). AIDS remains the

leading cause of death in Sub-Saharan Africa (1.6 million deaths in 2007). There are 300 to 500

million cases of malaria each year, leading to more than 1 million deaths. Nearly all the cases and

more than 95 percent of the deaths occur in Sub-Saharan Africa.

VII. Ensure Environmental Sustainability: Deforestation remains a critical problem, particularly inregions of biological diversity, which continues to decline. Greenhouse gas emissions are increasing

faster than energy technology advancement.

VIII. Develop a Global Partnership for Development: Donor countries have renewed their commitmentDonors have to fulfill their pledges to match the current rate of core program development.

Emphasis is being placed on the Bank Group's collaboration with multilateral and local partners to

quicken progress toward the MDGs' realization.

GUIDING PRINCIPLES:

I. Bank properly assess the repayment prospects of the loans.II. Bank should lend only for specific projects which are economically and technically sound and of a

high priority nature.

III. The bank lends only to enable a country to meet the foreign exchange content of any project cost.It normally expects the borrowing country to mobilise its domestic resources.

IV. 4 The bank does not expect the borrowing country to spend the loan in a particular country, in factit encourages the borrowers to procure machinery and goods for bank financed projects in the

cheapest possible market consistent with satisfactory performance.V. 5. Bank policy to maintain continuing relation with borrowers with a view to check the progress of

projects and keep in touch with financial and economic developments in borrowing countries.


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IMF:

IMF established on December 27, 1945 with 29 countries and which began financial operations on March

1, 1947. It is an organisation of countries that seeks to promote international monetary cooperation,

facilitate the expansion of trade, and to contribute towards increased employment and improved

economic conditions in all member countries. IMF had a membership of 182 countries as on September 1,

2000. The IMF is the world's central organization for international monetary cooperation. It is an

organization in which almost all countries in the world work together to promote the common good.

HISTORY:

The IMF is governed by, and is accountable to, its member countries through its Board of Governors. Thereis one Governor from each member country, typically the finance minister or central bank governor. The

Governors usually meet once a year, in September or October, at the Annual Meetings of the IMF and the

World Bank.

I. 1944The Articles of Agreement of both the IMF and the World Bank are drawn up at the BrettonWoods Conference.

II. 1945The IMF's first 29 members sign the Articles of Agreement.III. 1947France is the first country to draw funds from the IMF, followed in the same year by the

Netherlands, Mexico, and the United Kingdom.

IV. 1952Members agree on procedures for annual consultations on exchange restrictions and forStand-By Arrangements, drawings, and charges. Belgium is the first country to enter into a Stand-By

Arrangement with the IMF but makes no drawing unit

V. 1962To ensure that it has enough cash on hand should an industrial country need a loan to cover abalance of payments problem, the IMF introduces the General Arrangements to Borrow. These

arrangements enable it to supplement its financial resources by borrowing from the governments

of a group of member

VI. 1969In response to the threat of a shortage of international liquidity, the Articles of Agreement areamended to create Special Drawing Rights.


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VII. 1971The United States suspends the convertibility of the dollar into gold, ending the par valuesystem of fixed exchange rates, under which countries defined their currencies in terms of U.S.

dollars or gold and were obligated to get IMF approval to change the "par value" by more than 10

percent.

VIII. 1973-74On December 23, 1973, oil-exporting countries announce a steep increase in crude oilprices to take effect on January 1, 1974. To help oil importers deal with anticipated current accountdeficits and inflation in the face of higher oil prices, the IMF sets up the first of two oil facilities.

IX. 1975The Extended Fund Facilityis established in 1974 to provide medium-term assistance todeveloping country members that need several years to address the economic weaknesses leading

to their balance of payments problems. In 1975, Kenya is the first country to benefit from an

Extended Fund Facility arrangement.

X. 1982The oil shocks of the 1970s, which forced many oil-importing countries to borrow fromcommercial banks, and the interest rate increases in industrial countries trying to control inflation

lead to an international debt crisis. Throughout the 1980s, the IMF plays a central role in helpingresolve the crisis.

XI. 1986The Structural Adjustment Facility, one of the predecessors of the Poverty Reduction andGrowth Facility, is established, enabling the IMF to lend at below market rates to poor countries..

XII. 1987To increase the resources available for concessional lending to developing member countries,the IMF introduces the EnhancedStructural Adjustment Facility.

XIII. 1992The Russian Federation and 13 of the 14 other states of the former Soviet Union join the IMF.XIV. 1995An $18 billion loan is negotiated for Mexico to help the country recover from a capital account

crisis.

XV. 1996The IMF and the World Bank jointly launch the Heavily Indebted Poor Countries (HIPC)Initiative with the aim of reducing the external debt of the world's poorest and heavily indebted

countries to sustainable levels in a reasonably short period.

XVI. 1997-98Financial crisis erupts in Thailand, followed by crises in other Southeast Asian countries.The IMF provides loans totaling more than $36 billion to Indonesia, Korea, and Thailand in support

of stabilization policies and structural reforms. The crisis spills over to countries in other areas, such

as Russia, whose currency is devalued. Russia defaults on its debt.

XVII. 1999The IMF replaces the EnhancedStructural Adjustment Facility with the Poverty Reduction andGrowth Facility, which gives explicit attention to poverty reduction, and the HIPC Initiative is

enhanced to provide faster, broader, and deeper debt relief.

XVIII. 2000The UN Millennium Development Goals are agreed by world leaders at the UN MillenniumSummit.


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XIX. 2001Argentina suffers a financial crisis and a deep recession, defaults on its debt, and is forced toabandon its currency board pegging the peso to the U.S. dollar.

XX. 2005The G-8 launch the Multilateral Debt Relief Initiative, and the IMF agrees to forgive 100percent of the $3.3 billion debt owed to it by 19 of the world's poorest countries.

PURPOSE OF THE IMF:

To ensure the stability of the international monetary systemthe system of exchange rates and

international payments that enables countries (and their citizens) to buy goods and services from each

other for sustainable economic growth and rising living standards.

I. To maintain stability and prevent crises in the international monetary system, the IMF reviewsnational, regional, and global economic and financial developments.

II. It provides advice to its 184 member countries, encouraging them to adopt policies that fostereconomic stability, reduce their vulnerability to economic and financial crises, and raise living

standards, and serves as a forum where they can discuss the national, regional, and global

consequences of their policies.

III. The IMF also makes financing temporarily available to member countries to help them addressbalance of payments problems.

IV. And it provides technical assistance and training to help countries build the expertise andinstitutions they need for economic stability and growth.

V. Shorten the duration and lessen the degree of disequilibrium in the international balances ofpayments of members.

VI. The IMF was conceived in July 1944, when representatives of 45 governments meeting in the townof Bretton Woods, New Hampshire, in the northeastern United States, agreed on a framework for

international economic cooperation.

VII.

They believed that such a framework was necessary to avoid a repetition of the disastrouseconomic policies that had contributed to the Great Depression of the 1930s.


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THE IMF S MAIN ACTIVITIES:

I. Monitoring national, global, and regional economic and financial developments and advisingmember countries on their economic policies ("surveillance");

II. Lending members hard currencies to support policy programs designed to correct balance ofpayments problems; and

III. Offering technical assistance in its areas of expertise, as well as training for government and centralbank officials.

IV. Most of the IMF's loans to low-income countries are made on concessional terms, under thePoverty Reduction and Growth Facility.

V. They are intended to ease the pain of the adjustments these countries need to make to bring theirspending into line with their income and to promote reforms that foster stronger, sustainable

growth and poverty reduction.

VI. An IMF loan also encourages other lenders and donors to provide additional financing, by signalingthat a country's policies are appropriate.

BALANCE OF PAYMENTS:

When two countries trade , financial transactions among businesses or consumers of different nations

occur. Products and services are exported and imported, monetary gifts are exchanged, investments are

made, cash payments are made and cash receipts received, and vacation and foreign travel occurs. In

short, over a period of time there is a constant flow of money into and out of a country. The system of

accounts that records a nations international financial transactions is called its balance of payments.

FINANCE FACILITIES AND POLICIES :

The IMF provides financial assistance to members to help them correct balance of payments problems in a

manner that promotes sustained growth.

I. Regular lending facilities: It makes its resources available to members is by selling to them thecurrencies of other members or SDRs in exchange for their own currencies.

II. Stand by Arrangements: Resolve balance of payment problems of a largely cyclical nature.III. Extended fund facility (EFF): Provides financial support to its members for long periods under the

EFF.


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IV. Special lending facility: Assistance for large short term financing need resulting from a sudden anddisruptive loss of mart confidence.

V. Contingent Credit Lines (CCL): It is intended to be a preventive measure solely for membersconcerned about their potential vulnerability to contagion.

VI. Compensatory Financing Facility (CFF): Provides times financing to members experiencing atemporary shortfall in export earnings.

VII. Concessional Lending Facility: To assist poor countries facing persistent balance of paymentsproblems.

VIII. Review of Facilities:IX. Other IMF policies and Procedures:

Emergency assistance

Emergency financing Mechanism

Conditionality

world bank and imf

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