IGOs established after the Second world war have controlled the rules of world trade and financial flows

The IMF, WB and WTO

• The Bretton Woods agreement (1944) created a system of rules for managing the international monetary system , based on linking currencies to the $US and gold and following a free trade agenda

• The USA had a disproportionate influence over how the world economic system was to be designed because it was the only Western country left with a large amount of financial resources after the war

• The agreement established the International Monetary Fund and what became the World Bank (both have HQ's in Washington DC) to stabilise global financial markets - after WW2 and the Great Depression caused many countries to be on the brink of bankruptcy (including the UK and many European countries). | Organisation | Founding Date | HQ | Role in World Trade | |---|---|---|---| | World Bank | 1944 | DC | To give advice, loans and grants for the reduction of poverty & the promotion of economic development
  Its main role is to offer long-term assistance rather than crisis support
  Member countries pay into a fund which is used to invest in developing countries. Richer countries contribute the most and in return have more influence in the WB's decision-making process | | IMF | 1944 | DC | To monitor the economic and financial development of countries and to lend money when they are facing financial difficulty. Help is provided to countries across the development spectrum
  Member countries pay into the IMF, which is then used to make loans to countries in crisis so that they can continue to operate | | WTO | 1995
  (previously 1947) | Geneva | To formulate trade policy and agreements and to settle disputes. Overall, the WTO aims to promote free trade on a global scale.
  Difficult problems for the WTO to deal w/ include:
  ● Wealthy countries failing to agree on how far trade in agriculture should be liberalised
  ● The fast growth of emerging economies including China • means it is harder to agree on fair policies for developing countries |

• These organisations have been vital in maintaining the dominance of Western capitalism, global economic management and trade policy

  • Because they were created and are regulated by Western countries, they can often favour developed countries over developing countries in terms of the help they Indeed, global borrowing rules and trade policies have been especially effective in delivering growth to the developed world.

Global Borrowing Rules

SUMMARY

• SAPs have made receiving countries follow specific routes to development privatisation
• HIPC schemes have the aim of ensuring that no country faces a debt burden it cannot manage - countries must meet certain criteria, commit to poverty reduction through policy changes and demonstrate a good track record over time
• The impact of SAPs and HIPC policies on the economies of the developing world is disputed The IMF and WB helped struggling countries only if they agreed to implement Structural Adjustment Policies (SAPS) as a condition of receiving loans. Critics argue that this means governments are effectively forced into SAPS. The policies are designed to help open up developing countries to trade and production in order to grow their economies and help them develop.

Structural Adjustment Programmes (SAPs)

They include:

• Opening up domestic markets to allow private investment
• Reducing the role of government through privatisation of industries and services
• Removing restrictions on capital so there are no limits on international investments
• Cutting government expenditure on infrastructure and welfare
• Devaluing currency to make exports cheaper Negatives:

SAPS are not always beneficial to the country that implements them…

• WB loans made to developing countries in the 1970's for large-scale development projects were suddenly hit by high interest rates in the 1980's. This caused substantial interest to be added to loans, which increased global debts.
  • Developing countries were mainly affected since the loans became unaffordable and debt quickly accumulated as they struggled to pay off the interest. This was not beneficial to their economy. In 2005, £30bn of debt owed by the 18 poorest countries in the world was written off in a deal brokered by the G7 countries.

The Highly Indebted Poor Countries Initiative (HIPC)

Introduced in 1996 by the IMF and WB in response to criticism over their lack of fair assistance and the spiralling debts of developing nations.

• The HIPC initiative aimed at writing the national debts of 36 of the world's least developed countries with the greatest debts, in return for
• By 2000, many NGOs (eg. Oxfam) demanded more action to reduce the debt burden of the most indebted countries
• In 2008, all debts owed to the WB and IMF by 18 HIPC were cancelled on the condition that each country showed financial management and a lack of corruption. The national governments were also compelled to spend any savings on education, welfare and poverty reduction

Trading Blocs

Egs. EU, NAFTA, ASEAN

• They seek to gave some form of free trade agreement and customs harmonisation and have facilitated closer political unity between member nations Different levels and types of trading blocs (examples)

Different levels and types of trading blocs

• Membership of financial IGOs (IMF, WB, WTO) is almost universal, but trading blocs have added regional trade
• Businesses can benefit from economies of scale when operating within these blocs as they have access to larger markets; so they can scale up production and manufacture bulk quantities in order to lower their unit costs and increase
• However, being part of a trade bloc can cause local markets in a member country to become flooded with cheap imports from another member country. This can damage local businesses and the nation's economy.

Advantages of Trade Bloc Membership

• Tariff-free access to other countries' markets eg. The EU provides members with free access to a market in excess of 500 million people.
• Free movement of products and people within the bloc.
• Standardisation of trade rules and regulations, facilitating easy trade between member countries.
• Protection for certain economic activities with the bloc eg. The EU's tariffs protect EU farmers from competition (very cheap food from other parts of the world)
• Pooled expertise in trade negotiations with countries outside the bloc.
• Financing and funding from a development budget (all member countries pay into this) which can be used to improve trading infrastructure and reduce inequalities within the bloc.
• The size of the trading bloc means it offers a large market to help negotiate favourable deals with other nations outside the bloc.

Disadvantage of Trade Bloc Membership

• Member nations are limited from trading independently outside the bloc, which may mean that they get fewer benefits than might otherwise be
• Richer nations have to contribute more to the bloc budget than they receive in bloc development
• Decision-making on important issues such as immigration may no longer be under the sovereign control of individual nations if the bloc has power over
• Some member nations may be perceived as getting a better deal from the trading bloc, resulting in unequal benefits for members. Eg. Mexico was perceived by the USA as taking US jobs away under the old NAFTA agreement and it also felt that Canada's dairy industry was unfairly protected from competition from US dairy producers