Tag: Global Financial Institutions

Overview United Nations Monetary and Financial Conference (1944): Commonly referred to as the Bretton Woods Conference. International Monetary Fund (IMF) Status: A specialized agency of the United Nations, operating independently. India: A founding member. Headquarters: Washington, D.C. Governance Structure Board of Governors Composed of one governor and one alternate governor from each member country. Responsibilities include approving: Quota increases Special Drawing Rights (SDR) allocations Amendments to the Articles of Agreement (AoA) Admission of new members Appointment of Executive Directors Ministerial Committees (2) International Monetary and Financial Committee (IMFC): Discusses issues of common concern affecting the global economy. Meets twice a year. Development Committee: Advises the Board of Governors of the IMF and World Bank on development issues. Roles and Functions Surveillance: Crisis prevention by monitoring global economic trends. Lending: Provides financial assistance to countries facing balance of payments (BoP) difficulties. Addressing Illicit Activities: Focuses on combating money laundering and terrorism financing. Special Drawing Rights (SDRs) Definition: The IMF's artificial currency unit and international reserve asset created in 1969. Currency Composition: USD > Euro > Renminbi > Japanese Yen > British Pound. Usage: Not traded in forex markets and not usable by private entities. Can be exchanged for national currencies but is neither a currency nor a claim on the IMF. Review Frequency: Reviewed every five years. IMF Quota System Payment Structure: Payable partially in SDRs and partially in the member's own currency. Reserve Tranche: Emergency funds accessible without obliging terms and conditions or specific repayment periods, unlike the credit tranche (three years). Acts as a first-resort facility for short-notice needs before formal loan requests. Guiding Functions: Subscription (obligated amount) Voting rights Loan access India's Position: 8th largest shareholder with 2.7% quota and 2.6% voting rights. Top 10 Members: BRIC (Brazil, Russia, India, China) + US, Japan, and four major EU members (Germany, UK, France, Italy). NAB and GAB General Arrangement to Borrow (GAB) and New Arrangement to Borrow (NAB) are credit arrangements between the International Monetary Fund (IMF) and a group of member countries or institutions. These arrangements provide supplementary resources to the IMF to address international financial problems. Example: In the 2012 Mexico Summit, India participated in the NAB to assist during the Eurozone crisis. IMF Lending and Facilities Does not lend for specific projects: The IMF focuses on providing financial assistance to stabilize economies rather than funding individual projects. Key Lending Facilities: Poverty Reduction and Growth Facility (PRGF): Designed for low-income countries (LICs). Provides concessional loans to support poverty reduction and economic growth. Exogenous Shocks Facility (ESF): Targets LICs impacted by global shocks (e.g., commodity price fluctuations or natural disasters). Stand-By Agreement (SBA): Offers non-concessional loans to address short-term balance of payments (BoP) crises. Extended Fund Facility (EFF): Requires structural economic reforms. Aims to support long-term financial stability and growth. Members under SBA may transition to EFF for extended support. Reports Published by the IMF World Economic Outlook (WEO): Analyzes global economic trends and forecasts. Global Financial Stability Report (GFSR): Evaluates financial market stability and risks. Published twice a year. Conditionalities IMF financial assistance comes with a set of required policies known as conditionalities. These policies ensure that the borrowing country implements economic reforms to stabilize its economy. Often referred to as the Washington Consensus, these conditions typically include fiscal discipline, trade liberalization, and structural adjustments. India and IMF Joined: 1945 Accepted Article VII: 1994 Adopts Special Data Dissemination Standard (SDDS): Ensures transparency in data dissemination practices. Chiang Mai Initiative Multilateral currency pooling arrangement: ASEAN + China + South Korea + Japan Launched: 2010 Never used: No crisis like the 1997 Asian financial crisis. BRICS Contingent Reserve Arrangement (CRA) Established: 2015, Operational: 2016 Formation: Treaty signed at the BRICS summit in Brazil, 2014. World Bank Group and World Bank President: Traditionally American Membership: Must be a member of the IMF. 5 Agencies: IBRD International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Centre for Settlement of Investment Disputes (ICSID) World Bank: Composed of IBRD + IDA, focused on developing countries (human development, agriculture, poverty, environment, infrastructure, governance). Role: Lends for specific projects, often linked to broader policy changes. IBRD Provides loans to middle-income developing countries. Supports infrastructure, education, environment, energy, healthcare, water, and sanitation projects. IDA Focuses on the world’s poorest countries, offering interest-free loans. Established in 1960, supports the 80 poorest countries. Key initiatives: HIPC (Heavily Indebted Poor Countries) and MDRI (Multilateral Debt Relief Initiative). Donors: Rich countries, meet every 3 years. Eligibility: Based on per capita income and poverty level, includes small islands and ‘blend countries’ (e.g., Pakistan, Nigeria). IFC Promotes private sector investment. Largest multilateral source of loan and equity financing for private sector projects in developing countries. India is a founding member. MIGA Promotes FDI in developing countries by insuring investors against political risks and advising governments. Covers only new investments: greenfield projects, new investments in expansion, modernization, or financial restructuring of existing projects. India: Member. ICSID Provides a facility for conciliation and arbitration of investment disputes between countries and investors. India: Not a member G-20 Established in 1999 to discuss key global economic issues. Members: 19 countries + EU. 3 North America, 2 South America (Argentina, Brazil), 4 Europe (Germany, France, Italy, UK), 1 Australia, 1 South Africa, 8 Asia (China, India, Russia, Japan, Turkey, Indonesia, Korea, Saudi Arabia). Includes EU, Managing Director of IMF, World Bank President, Chair of IMFC, and DC of IMF. Chairmanship: Rotates among regional groupings, no permanent secretariat. Permanent Invitees: Spain, Chair of ASEAN, Chair of African Union, Representative of New Partnership for Africa’s Development, and other countries invited by the presidency. Asian Development Bank (ADB) Established: 1966, HQ in Manila. Members: Not just Asian countries (includes UNESCAP members and non-regional developed countries). President: Traditionally Japanese. Voting Powers: Japan > USA > China > India > Australia. Largest Beneficiaries: China, India, Indonesia, Philippines, Pakistan. Loans: Ordinary Capital Resource (OCR) Asian Development Fund (ADF) Technical Assistance Innovation and Efficiency Fund (IIF). European Central Bank (ECB) Monetary authority of the Eurozone. Administers monetary policy for 19 EU Eurozone members. Established by the Maastricht Treaty in 1998. HQ: Frankfurt, Germany. OECD Established in 1961 to stimulate economic progress and world trade. Official UN observer. HQ: Paris. India: Member of the governing board of OECD’s Development Centre, observer in some OECD committees. New Development Bank (NDB) Also known as BRICS Bank, proposed by India at the 4th BRICS summit in 2012. Fortaleza Declaration, 2014. HQ: Shanghai. Equal shareholding and voting rights among members. Focus: Support for public and private projects, particularly renewable energy. Emphasis on BRICS countries over AIIB. Allows new members but BRICS shares must remain >55%. Currently, As of August 2024, the members of the New Development Bank (NDB) include: Founding members: Brazil, China, India, Russia, and South Africa New members: Bangladesh, Egypt, United Arab Emirates, Uruguay, and Algeria Asian Infrastructure Investment Bank (AIIB) Aim: Provide financial support for infrastructure development and regional connectivity projects in the Asia-Pacific region. Established: 2015, proposed by China in 2013. China’s Vote Share: 28%, India: 8%. For special purposes (e.g., membership approval, president selection), a 75% vote is required. Purpose: Asia’s response to the World Bank and the West-dominated Asian Development Bank (ADB). HQ: Beijing, does not have a permanent board of directors. Not Members: USA and Japan. India: Largest beneficiary.

Tag: Global Financial Institutions

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