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` oversees the international monetary system
` promotes exchange stability and orderly exchange relations among itsmember countries
` assists all members--both industrial and developing countries regardingBOPs.
` supplements the currency reserves through SDRs till date 21.4 billionSDRs have been issued
` draws its financial resources principally from the quota subscriptions of itsmember countries
` has at its disposal fully paid-in quotas now totaling SDR 145 billion(about $215 billion)
` has a staff of 2,300 drawn from 182 member countries
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` seeks to promote the economic development of the world's poorer
countries
` assists developing countries through long-term financing of
development projects and programs
` provides to the poorest developing countries whose per capita GNP is
less than $865 a year special financial assistance through the
International Development Association (IDA)
` encourages private enterprises in developing countries through its
affiliate, the International Finance Corporation (IFC)
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acquires most of its financial resources by borrowing on theinternational bond market
has an authorized capital of $184 billion, of which members
pay in about 10 percent
has a staff of 7,000 drawn from 180 member countries
Contd
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` March 31, 2009Rich countries across the world are insimultaneous recession, with their output falling sharplyin the last quarter of 2008. And of the 16 developingcountries that have quarterly data available, 15 have
shown a fourth-quarter GDP decline.
` As heads of governments convene in London this weekfor the G-20 summit, the World Bank has sharplymarked down its November 2008 forecast of4.4 percent
GDPgrowth in the developing world in 2009 to 2.1percent, noting that there may be a weak recovery in2010. However, the pace and timing of recovery remainhighly uncertain.
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` GlobalGDP growth, after a robust eight-year stretch, isnow set to contract by 1.7 percent this year, the World
Bank predicts. This is a historic contraction, with world
output set to decline for the first time since World War II.
` Even if global growth turns positive again in 2010, we
are not yet out of the woods, said Hans Timmer,
Manager, Global Trends in the World Banks
Development Prospects Group,We expect that the level
of GDP will remain well below potential, and so
economic distress will remain acute for the next two
years.
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` The International Monetary Fund (IMF) cautioned India that its
economy growing at a faster clip than the current level could
aggravate inflation.
` IMF Managing DirectorDominique Strauss-Kahn said if
economy grows faster than the current pace, it could create
some risk in current account deficit situation as well.
` Observing that no one is certain when another crisis will hit theglobal economy, Strauss-Kahn also advised the government to
use the higher tax collections for fiscal consolidation.
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Amid media reports that Planning Commission Deputy
Chairman Montek SinghAhluwalia may in the race for thetop-most position in IMF, Strauss- Kahn said he favoured
someone from outside US and Europe to head the multilateral
agencies --International Monetary Fund (IMF) and the
World Bank.
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MACROANDGROWTH
POLICIES IN THEWAKE OF THE CRISIS
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` In the years before the crisis, a consensus view of monetary
policy emerged.
` Certain aspects foreseen as consensus
` Segregation of monetary policy into various other policies
` The crisis and the policy response have raised questionsabout each of these elements of the consensus.
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Before crisis- As per consensus monetary policy
was to be primary tool of stabilization policy and
fiscal policy to play little role.
During crisis- All major countries used
discretionary fiscal measures
Consequence of loss of revenue from crisis
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` Financial sector led to crisis, brought world economy at
brink of collapse and caused unemployment
` Consequence resulted into formation of an agreement onneed for reform
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` The crisis revealed the tight links that financial globalization
has created across countries.
` Initially, large capital outflows created serious funding
problems in many economies.
` Now, we are seeing the tensions coming from large capital
inflows. Many emerging market countries are considering
and some are actually implementingcapital controls,blaming policies in advanced countries for generating
excessive and volatile capital flows.
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` The crisis was preceded by a long period of high growth, and
higher income inequality
` Decrease in household savings considered as root cause of
increase in income inequality
` Argument in relation to emergence of middle class in china
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` The world bank classifies all its member countries (185 of
them) and all economies with a population of 30,000 or more
(another 24; altogether 209) by various classification
` One of the most commonly referred to classifications is by per
capita income (GNI per capita)
` There are four classifications based on income - high income,
upper middle income, middle income and low income. Thecurrent basis of the classification is data from 2007.
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` Incomes below $935 fall under low income economies. $936 to
$3,705 falls under lower middle income economies. $3706 to $11,455of per capita income is classified as upper middle income economies
and above $11,455 of per capita GNI qualifies as a high income
economy
` At today's (Nov. 14, 2008) exchange rate (Rs. 49.46 to the USD), thatwould be - Below Rs. 46, 245 for low income, from there to Rs.
1,83,249 for lower middle income economies, and from there to Rs. 5,
66,564 for upper middle income economies and beyond that for high
income economies.
` The world Bank, further divides high income economies into two -
OECD economies and non- OECD economies. OECD is the
Organization for Economic Cooperation and development
Contd.
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` With the ongoing talk of "currency wars", reform of theinternational monetary system is now at the top of the G20 agenda
` A key issue is whether the current arrangements for globalliquidity provision can be improved upon. Precautionary saving in
the form of reserve accumulation is socially inefficient
` Bilateral swap lines
` New arrangements proposed-Allocation of SDRs and creation of
contingent liquidity window
` Another key issue is whether countries should be free to run largecurrent account imbalances, or whether there should bemultilateral rules of the game.
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` India's per capita income grew by 10.5 per cent to Rs
44,345 in 2009-10 against Rs 40,141 in the year-ago
period, according to government data
` The World Bank, however, pegs India's per capita
income at a much higher$1,180 per year. India ranks
a poor 161st in the world in terms of per capita
incomes.
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` The World Bank is the single largest source of money for
education programs for the poorest countries of the world
` In the 1990s, the Bank significantly boosted loans for
education, dispensing an average of US$1.9 billion for the
period 1991-1999, approximately 8.2% of its overall
lending, nearly double the 4.8% that the Bank allocated toeducation in the 1980s
` Education subsidies
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` But increased funding is not always matched by better results
` In 1995, the World Bank discovered that the failure rate for its
education loans was rising also, increasing from 11.8% of the
portfolio in 1992 to 17.5% in 1994
` In addition, there was a 25 percent increase in the number ofprojects whose implementation progress has been rated as
unsatisfactory or highly unsatisfactory - from 12.4% of the portfolio
in 1992 to 15.5%
` Many countries are suffering under huge debt burdens as well as
harsh economic policies like StructuralAdjustment Programs
(SAPs) imposed by the World Bank and International Monetary
Fund, which force them to slash education subsidies.
Contd
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` Criticism of IMFs policies
` In October 2008, former US President Bill Clinton joined this
chorus in a speech to the United nations World Food Day, which
criticized the World Bank and IMF for their policies on food and
agriculture
We need the World Bank, the IMF, all the big foundations, and all
the governments to admit that, for 30 years, we all blew it,
including me when I was President. We were wrong to believe that
food was like some other product in international trade, and we all
have to go back to a more responsible and sustainable form of
agriculture - Former US President Bill Clinton, Speech atUnited
Nations World Food Day, October 16, 2008
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` In 2008, a study by analysts from Cambridge and Yale
universities published on the open-access Public
Library of Science concluded that strict conditions on
the international loans by the IMF resulted inthousands of deaths in Eastern Europe by tuberculosis
as public health care had to be weakened.
` In the 21 countries to which the IMF had given loans,
tuberculosis deaths rose by 16.6%.
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` Monetarist approach advocated
` As such, adherents of supply- side economics generally findthemselves in open disagreement with the IMF.
`
IMF frequently advocates currency devaluation, criticized byproponents of supply-side economics as inflationary.
` Secondly they link higher taxes underausterity programmers" witheconomic contraction.
` Currency devaluation is recommended by the IMF to thegovernments of poor nations with struggling economies. Someeconomists claim these IMF policies are destructive to economicprosperity.
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Aanchal GargArpan Singhal
NikhilChaudhary