Analyse the roles played by the World Trade Organization, International Monetary Fund, and World Bank in the world economy. Why do their actions often generate hostility, and is it deserved? Explain your answer.
One hundred and 157 member countries make up The World Trade Organisation(WTO) and came into effect January 1,1995 , it succeeded the General Agreement on Tariffs and Trade as per (Shenkar& Lou Ch8 p215).Global policy making is organised throughout the WTO, 95% of world trade up to July 2007 came from a 150 of WTO members. One of the five core functions that they have is to provide an assembly for liberalisation. For economic management to be effective the WTO confirmed a law with multilateral rules with its trading system. There are four other important functions that the organisation looks into, according to (Shenkar & Lou Ch8 pp216-217) getting rid of discrimination – fair treat to all member nations , combat various forms of trade barriers and protection such as dumping of goods and quantitative restrictions , setting and providing a platform for emerging issues like intellectual property , unfair trade practices and financial services and they function as a “united dispute-settlement” whereby the DSB has the responsibility for cases that are in dispute by member nations(A suite was against South Africa by Brazil due to poultry meat – 21st June 2012). The main aim is to ensure that trade flow freely and smoothly within the global rules set out by the organisation.
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According to (Shenkar & Lou Ch8 p219) the International Monetary Fund (IMF) main objective is to maintain and promote international monetary cooperation and to reduce the unstability of its member’s balance of payments. Together with the IMF the World Bank(WB) assist developing nations to raise the standard of living with funds from developed nations. There are ten thing that the WTO do for its members , help improve living standard , cut prices ;create and environment for better and closer relationships in trade by assisting countries with matters that involve trade dispute ; new trade opportunities are encourage through economic growth , thus creating employment ;increase productivity is done through the trading system from the organisation where its assist countries trading to one another by assisting in red tape issues , thereby making it easier for trade partners ; helps and protect member’s with a more balance view of trade policy ; exemptions are given to developing nations to increase productivity ; developing and weaker nations have the same rights as developed countries as all abide to the same rules. With all in place it is still not perfect, as The Metzler Report to the US Congress stated that they assumed the health system in Zambia had been reformed due to no queues, only to established later that people where not going to the clinics and hospitals, but dying at home, travelling to see a doctor is expensive, no proper equipment and modern health care in Zambia is expensive.
The International Monetary Fund (IMF) has a 188 member’s and the three main objectives are to monitor economic development and financial development where policies of one country can have an effect on other nations and they supervise the world economy. The IMF also provides loans to its members that have problems with their balance of payments. Two thirds of its technical support goes to low-middle income countries, do doing so it helps the IMF to build capacity in these countries for effective policy making. AS stated by (Shenkar & Lou Ch9 p243) they was a dollar crisis in 1977-1978 because of the increase of oil prices and this resulted in high inflation, than in 1982 it was the South and Central American crisis where the affected countries could not service their debt. The Asian financial crisis in June 1997 caused great concern with financial globalisation, whereby it had the potential to cause a meltdown, first affecting Thailand and then spreading to most parts of South East Asia, the Asian crisis had an effect on both the Russian and Brazilian economies (1998) where the ruble was devalued and Brazil followed. Korea was bailed out in 1997 (Shenkar & Lou ch9 p243) with an amount of $58.4 billion. After Russia devalued its ruble the Federal Reserve in the USA feared that a credit crunch was approaching and in quick session lowered interest rates three times in succession. In order to avoid countries getting into financial trouble, according to (Shenkar & Lou ch9 p243) the G7 which consist of Italy , USA , Japan , West Germany , Britain , France and Japan endorsed a plan (October 1998) that would allow the IMF to loan funds to countries to avoid them getting into financial difficulties.
The World Bank assist developing nations, by providing funds for upgrading health care, infrastructure, provide assistance to reduce poverty and assist government with reforms. In order for a country to become a member within the World bank , they have to join the IMF, the funds with the world bank is raised through the sale of AAA-bond and IBRD bonds purchased mostly by North American investors.
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Throughout the years the IMF, World Bank and WTO have urged countries to have sound economic policies, where these policies will promote growth with low inflation and a sustainable current account. They also government to reduce spending on unnecessary project, e.g. in South Africa the president of the republic is spending R240 million on his family home, whereas this fund could go education, as most of rural South Africa has not got proper school and there is a shortage of text books for the learners, it could also be used for the health sector, again rural areas do not have the best hospital or clinic. South Africa’s banking system is very strong as government have implemented the National Credit Act, where banks cannot lend recklessly to its clients and depositor’s funds are safe. During the 2009 recession local banks survived the crises compared to abroad as stringent measure from government where in place. The sad part of the IMF is the Africa has 45 members yet only two chairs. With the current global environment, the zero interest rate policy has helped low income countries, this enable these countries to reduce poverty and improve growth in certain sectors. The IMF, World Bank and WTO assisted many low income countries to be stable , not only economically but politically , South Africa was once a country that MNE’s did not want to associate with , due to apartheid , since the end of apartheid many MNE’s set up operations here , including McDonalds , international banks (HSBC, Citi). Zimbabwe’s economy is crippled due politically matters; the IMF boosted its economy in 2008 by granting it a loan of $510 million.
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