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CHAPTER 5 INTERNATIONAL FINANCIAL INSTITUTIONS

International financial institutions (IFIs) Are financial institutions that have been established (or chartered) by more than one country, and hence are subjects of international law. Their owners or shareholders are generally national governments, although other international institutions and other organisations occasionally figure as shareholders. The most prominent IFIs are creations of multiple nations, although some bilateral financial institutions (created by two countries) exist and are technically IFIs. Many of these are multilateral development banks. The best-known IFIs are the World Bank, the International Monetary Fund (IMF), and the regional development banks. Some of the IFIs are considered United Nations agencies.

INTERNATIONAL MONETARY FUND is an intergovernmental organization that oversees the global financial system by taking part in the macroeconomic policies of its established members, in particular those with an impact on exchange rate and the balance of payments. It was established as the institutional framework for the promotion of the world trade and economic growth, through order, stability and co-operation in international monetary affairs.

An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating the expansion and balanced growth of international trade. 3. Assisting in the establishment of a multilateral system of payments for current transactions.

History of IMF
The International Monetary Fund was conceived in July 1944 during the United Nations Monetary and Financial Conference. The representatives of 45 governments met in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire, United States, with the delegates to the conference agreeing on a framework for international economic cooperation. The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement.

Membership qualifications The application will be considered first by the IMFs executive board. After its consideration, the board will submit a report to the board of governors of the IMF with recommendations in the form of a membership resolution. These recommendations cover the amount of quota in the IMF, the form of payment of the subscription, and other customary terms and conditions of membership. After the board of governors has adopted the membership Resolution, the applicant state needs to take the legal steps required under its own law to enable it to sign the IMFs Articles of Agreement and to fulfill the obligations of IMF membership. QUOTA - in the IMF determines the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of Special Drawing Rights (SDRs). SPECIAL DRAWING RIGTHS ( SRDs) are a form of international money created by the IMF for international transactions amongst central banks which composed of a weighted average of the five leading international currencies : DOLLAR YEN GERMAN MARK FRENCH FRANC UK POUND STERLING Members of IMF Member state Argentina Australia Belarus Belgium Bolivia (Plurinational State of) Brazil Canada Chile China Date of admission 24 October 1945 1 November 1945 24 October 1945 27 December 1945 14 November 1945 24 October 1945 9 November 1945 24 October 1945 24 October 1945 Former members: Republic of China Former members: Union of Soviet Socialist Republics See also

Colombia Costa Rica Cuba Denmark Dominican Republic Ecuador Egypt El Salvador Ethiopia France Greece Guatemala Haiti Honduras India Iran (Islamic Republic of) Iraq Lebanon Liberia Luxembourg Mexico

5 November 1945 2 November 1945 24 October 1945 24 October 1945 24 October 1945 21 December 1945 24 October 1945 24 October 1945 13 November 1945 24 October 1945 25 October 1945 21 November 1945 24 October 1945 17 December 1945 30 October 1945 24 October 1945 21 December 1945 24 October 1945 2 November 1945 24 October 1945 7 November Former members: United Arab Republic

1945 Netherlands New Zealand Nicaragua Norway Panama Paraguay Peru Philippines Poland Russian Federation Saudi Arabia South Africa Syrian Arab Republic Turkey Ukraine United Kingdom of Great Britain and Northern Ireland United States of America Uruguay Venezuela (Bolivarian Republic of) 10 December 1945 24 October 1945 24 October 1945 27 November 1945 13 November 1945 24 October 1945 31 October 1945 24 October 1945 24 October 1945 24 October 1945 24 October 1945 7 November 1945 24 October 1945 24 October 1945 24 October 1945 24 October 1945 24 October 1945 18 December 1945 15 November 1945 Former members: Union of Soviet Socialist Republics Former members: United Arab Republic Former members: Union of Soviet Socialist Republics

WORD BANK The International Bank for Reconstruction and Development ( IBRD )

Is an international financial institution that provides loans to developing


countries for capital programmes. The World Bank's official goal is the reduction of poverty. Objectives of World Bank The World Bank was established to promote long-term foreign investment loans on reasonable terms. The, purposes of the Bank, as set forth in the 'Articles of Agreement are as follows: 1. To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purpose including; (a) The restoration of economies destroyed or disrupted by war; (b) The reconversion of productive facilities to peaceful needs; and (c) The encouragement of the development of productive facilities and resources in less developing countries; 2. To promote private investment by means of guarantee or participation in loans and other investments made by private investors. 3. When private capital is not available on reasonable terms, to supplement private investment by providing on suitable conditions finance for productive purpose out of its own capital funds raised by it and its other resources. 4. To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living, and conditions of labour in their territories. 5. To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first.

6. To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and in the immediate post-war years, to assist in bringing about a smooth transition from a wartime to peacetime economy.

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

INTERNATIONAL MONETARY FUND VS WORLD BANK

IMF
Purpose Activities Monetary institution

WORLD BANK
Development institution

Stabilisation of the international monetary system. Finance of temporary balance of payments deficits.

Promotion of economic growth and development in developing countries.

Source of funds

Official reserves and countries currencies

Capital quotas. Issues in international bond market

Eligible borrowers

All members

Developing countries

Outlook

Short-term

Long-term

Credit Horizon

3-5 years loans (maximum 10 years)

15-20 years loans (maximum 50 years)

Staff

2,300

9,500

BANK FOR INTERNATIONAL SETTLEMENTS (BIS) An international organization fostering the cooperation of central banks and international monetary policy makers. Acts as a bank for central banks, accepting deposits and furnishing short-term loans to
central banks of liquidity.

Sometimes BIS puts up short-term bridging finance for developing countries, pending
approval of loans from the IMF or World Bank.

The Banks main goal is to guarantee transparency and predictability of monetary policies among its 55 member central banks. Two (2) functions Regulates adequacy of capital -conducted for the purpose of preventing overvaluation of capital and equity assets. The bank requires from central banks to keep their capital and asset ratio above a certain predetermined international threshold, thus minimizing the possibility of speculative lending, resulting from insufficient underlying capital as well as different liability rules among countries. Encourages transparency of reserve requirements - This precautionary measure arises from the banks necessity to insure liquidity and limited liability to all industries and regions. Standardization of reserve policy is more difficult to achieve for the BIS than regulation of capital requirements, because reserve requirements are significantly dependent on industry or region specifications.