What is World bank and IMF

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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

What is World bank and IMF

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