BFG 202
Money, Central Banking in
India and International
Financial Institutions - II
SPECIAL GROUP : D - Banking and Finance Group
M. Com (M 17) – Part I
Semester - II
YASHW
ANTRA
O CHA
VAN MAHARASHTRA OPEN UNIVERSITY
ASHWANTRA
ANTRAO
CHAV
Dnyangangotri, Near Gangapur Dam, Nashik 422 222, Maharashtra
Copyright © Yashwantrao Chavan Maharashtra
Open University, Nashik.
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YASHWANTRAO CHAVAN MAHARASHTRA OPEN UNIVERSITY
Vice-Chancellor : Dr. M. M. Salunkhe
Director (I/C), School of Commerce & Management : Dr. Prakash Deshmukh
State Level Advisory Committee
Dr. Pandit Palande
Hon. Vice Chancellor
Dr. B. R. Ambedkar University
Muaaffarpur, Bihar
Dr. Suhas Mahajan
Ex-Professor
Ness Wadia College of Commerce
Pune
Dr. V. V. Morajkar
Ex-Professor
B.Y.K. College, Nashik
Dr. Mahesh Kulkarni
Ex-Professor
B.Y.K. College, Nashik
Dr. J. F. Patil
Economist Kolhapur
Dr. Ashutosh Raravikar
Director, EDMU,
Ministry of Finance, New Delhi
Dr. A. G. Gosavi
Professor
Modern College,
Shivaji Nagar, Pune
Dr. Madhuri Sunil Deshpande
Professor
Swami Ramanand Teerth Marathwada
University, Nanded
Dr. Prakash Deshmukh
Director (I/C)
School of Commerce & Management
Y.C.M.O.U., Nashik
Dr. Parag Prakash Saraf
Director, Institute of Management
Science, Pimpri, Pune
Dr. S. V. Kuvalekar
Associate Professor and
Associate Dean (Training)(Finance )
National Institute of Bank Management,
Pune
Dr. Surendra Patole
Assistant Professor
School of Commerce & Management
Y.C.M.O.U., Nashik
Dr. Latika Ajitkumar Ajbani
Assistant Professor
School of Commerce & Management
Y.C.M.O.U., Nashik
Authors & Editors
Dr. Parag Prakash Saraf
Director, Institute of Management Science, Pimpri, Pune
Dr. Latika Ajitkumar Ajbani
Assistant Professor, School of Commerce & Management, Y.C.M.O.U., Nashik
Instructional Technology Editing & Programme Co-ordinator
Dr. Latika Ajitkumar Ajbani
Assistant Professor, School of Commerce & Management, Y.C.M.O.U., Nashik
Production
Shri. Anand Yadav
Manager, Print Production Centre
Y.C.M. Open University, Nashik - 422 222.
Copyright © Yashwantrao Chavan Maharashtra Open University, Nashik.
(First edition developed under DEC development grant)
q First Publication
:
September 2015
q Type Setting
:
Avinash R. Varpe (Sangamner, Mob.9960252514)
q Cover Print
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q Printed by
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q Publisher
:
Dr. Prakash Atkare, Registrar, Y.C.M.Open University, Nashik - 422 222.
INTRODUCTION
I am very please to placing the first and enlarge edition of this study material
on 'Money, Central Banking in India and International Financial Institutions' to the
students and practitioners of this subject. This book is design as per the revise
syllabus prescribed by the YCMOU Nashik from August 2015. It gives equal
importance to the theoretical aspects as well as to the practical case studies. Hence
this edition will be an ideal companion not only to the scholars but also to the average
students. I am sure that this present work a result of my sincere and dedicated
efforts would subserve the genuine interest of all the students concerned in enriching
their knowledge of this ever-growing Auditing discipline.
I have made a sincere attempt to make the subject easy to understand. For
this purpose. The theory on each topic is written in a simple and lucid language to
enable the students to grasp the essence of subject.
It gives me great pleasure to introduce you to the world of Money, Central
Banking in India and International Financial Institutions. This book has got knowledge
oriented and exam oriented approach. I am tried to cover all Banking Regulation
Act and provisions of it. I am very much thankful to Prof.Gopal Kalantri of Dhruv
Academy, Sangamner and Prof.Shubhangi Kulkarni of Sangamner College for their
co-operation. Ofcourse blessing of my parents Mr.Prakash Saraf & Mrs.Shubhada
Saraf is important for completion of this work...
So let's start this lovely journey of learning in a positive way.
Any suggestions will be appreciated.
I am confident, that students will welcome new edition of this book.
With knowledge, hard work, marvelous success is just around the corner.
All The Best!
- Dr.Parag Prakash Saraf
Index
Unit No. Unit Name
Page No.
1
INTERNATIONAL FINANCIAL INSTITUTE
9
2
INTERNATIONAL FINANCIAL INSTITUTE - 2
20
3
INTERNATIONAL FINANCIAL INSTITUTE
29
4
INTERNATIONAL MONETARY FUND
38
5
GOVERNANCE OF MEMBERS OF IMF
46
6
INTRODUCTION TO WORLD BANK
59
7
INTERNATIONAL FINANCE CORPORATION
71
8
INTERNATIONAL DEVELOPMENT
ASSOCIATION AND UNDP
79
MULTILATERAL INVESTMENT
GUARANTEE AGENCY
87
INTERNATIONAL CENTER FOR
SETTLEMENT OF DISPUTE
95
11
ASIAN DEVELOPMENT BANK
102
12
ADB AND INDIA
107
9
10
Money, Central Banking in India and
International Financial Institutions - II
1) INTERNATIONAL FINANCIAL INSTITUTE
Types of International Financial Institute, Types of
Financial Institutions and Their Roles, International Institute and
Law
2) INTERNATIONAL FINANCIAL INSTITUTE - 2
Bretton woods Institution, Objectives and working,
Objective of IMF, Functions of IMF
3) INTERNATIONAL FINANCIAL INSTITUTE
Europe Development Bank (CEB), BRICS, International
Investment Bank
4) INTERNATIONAL MONETARY FUND
An Overview of IMF, Objective of IMF, Functions of
IMF, ORGANISATION AND FINANCE, Fund of IMF, Fund
and Quota System, Special Drawing Rights (SDRs)
5) GOVERNANCE OF MEMBERS OF IMF
Governance of IMF, Board of Governors, Ministerial
Committees, The Executive Board, Governance Reform,
Executive Directors and Voting Rights, Members of IMF and
Votes
6) INTRODUCTION TO WORLD BANK
An Introduction to World Bank
7) INTERNATIONAL FINANCE CORPORATION
An Overview of IFC, Objectives and Working, Types
of Roles, Membership and Structure, Services, IFC in India,
Creating Opportunities
8) INTERNATIONAL DEVELOPMENT ASSOCIATION
AND UNDP
An overview of IDA, Objectives, Role and functions of
IDA, Members, Governance, IDA and Funding, IDA in News,
World Bank and UNDP
9) MULTILATERAL INVESTMENT GUARANTEE
AGENCY
An overview of MIGA, Stategy, Functions, Gvernance,
Membership, Products of MIGA, Investment Guarantees, MIGA
Funding
10) INTERNATIONAL CENTER FOR SETTLEMENT
OF DISPUTE
An Overview of ICSID, Membership, ICSID Activities,
Institutional Arrangements
11) ASIAN DEVELOPMENT BANK
12) ADB AND INDIA
UNIT - 1
INTERNATIONAL FINANCIAL INSTITUTE
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
Structure
1.1
Introduction
1.2
Objectives
1.3
Types of International Financial Institute
1.4
Types of Financial Institutions and Their Roles
1.5
International Institute and Law
1.6
Summary
1.7
Exercise & Questions
1.8
Further Reference Books
1.1 Introduction
The 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 organizations
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. The best known IFIs were established
after World War II to assist in the reconstruction of Europe and provide mechanisms
for international cooperation in managing the global financial system.
Today, the world's largest IFI is the European Investment Bank,with a
balance sheet size of Euros 512 billion in 2013.This compares to the two components
of the World Bank, the IBRD (assets of $358 billion in 2014) and the IDA (assets
of $183 billion in 2014).
CHECK YOUR
PROGRESS
Describe the Types of
International Financial
Institutes?
1.2 Objectives
At the end of this unit, you will be able to 1) Know the meaning of International financial institute.
2) Understand the classification of IFC.
3) Understand the types and roles of Financial institute
1.3 Types of International Financial Institute
1) Multilateral development bank
A multilateral development bank (MDB) is an institution, created by a
group of countries, that provides financing and professional advising for the purpose
of development.
MDBs have large memberships including both developed donor countries
and developing borrower countries. MDBs finance projects in the form of longterm loans at market rates, very-long-term loans (also known as credits) below
market rates, and through grants.
(9)
Money, Central Banking in
India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
The
l
l
l
l
l
l
l
l
l
l
following are usually classified as the main MDBs:
World Bank
International Fund for Agricultural Development (IFAD)
European Investment Bank (EIB)
Islamic Development Bank (IsDB)
Asian Development Bank (ADB)
European Bank for Reconstruction and Development (EBRD)
CAF - Development Bank of Latin America (CAF)
Inter-American Development Bank Group (IDB, IADB)
African Development Bank (AfDB)
Asian Infrastructure Investment Bank (AIIB)
2) "Sub-regional" multilateral development banks
There are also several "sub-regional" multilateral development banks. Their
membership typically includes only borrowing nations. The banks lend to their
members, borrowing from the international capital markets. Because there is
effectively shared responsibility for repayment, the banks can often borrow more
cheaply than could any one member nation. These banks include:
l
Caribbean Development Bank (CDB)
l
Central American Bank for Economic Integration (CABEI)
l
East African Development Bank (EADB)
l
West African Development Bank (BOAD)
l
Black Sea Trade and Development Bank (BSTDB)
l
Economic Cooperation Organization Trade and Development Bank (ETDB)
l
Eurasian Development Bank (EDB)
l
New Development Bank (NDB)
3) Multilateral Financial Institutions There are also several multilateral financial institutions (MFIs). MFIs are
similar to MDBs but they are sometimes separated since they have more limited
memberships and often focus on financing certain types of projects.
l
European Commission (EC)
l
International Finance Facility for Immunisation (IFFIm)
l
International Fund for Agricultural Development (IFAD)
l
Nordic Investment Bank (NIB)
l
OPEC Fund for International Development (OPEC Fund)
l
Nederlandse Financieringsmaatschappij voor Ontwikkelingslanden NV
(FMO)
l
International Investment Bank (IIB)
l
The Arab Bank for Economic Development in Africa (BADEA)
(10)
Money, Central Banking in
India and International
Financial Institutions - II
4) Bretton Woods institutions
The best-known IFIs were established after World War II to assist in the
reconstruction of Europe and provide mechanisms for international cooperation in
managing the global financial system . They include the World Bank, the IMF, and
theInternational Finance Corporation. Today the largest IFI in the world is the
European Investment Bank which lent 61 billion euros to global projects in 2011.
Founded Name
1944
IMF International
Monetary Fund
www Address
http://www.imf.org
1944
IBRD International
Bank for
Reconstruction
and Development
http://www.worldbank.org
1956
IFC International
Finance Corporation
IDA International
Development
Association
ICSID, International
Centre for
Settlement of
Investment Disputes
MIGA Multilateral
Investment
GuaranteeAgency
GATT General
Agreement on Tariffs
and Trade, basis for
the creation of World
Trade Organization
(WTO) in 1995
http://www.ifc.org
1960
1966
1988
30/10/47
Notes
Specialised
agency of
the UN
World Bank
Group,
Specialised
agency of
the UN
World Bank
Group
World Bank
Group
Washington,
DC
Washington,
DC
http://icsid.worldbank.org/
ICSID/Index.jsp
World Bank
Group
Washington,
DC
http://www.miga.org
World Bank
Group
Washington,
DC
http://www.wto.org/english/docs_
e/legal_e/06-gatt_e.htm http://wto.org
The GATT is Geneva for
not an
the WTO
organisation.
The WTO is
not a United
Nations agency
http://www.worldbank.org/ida
HQ
Washington,
DC
Washington,
DC
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
5) Regional development banks
The regional development banks consist of several regional institutions
that have functions similar to the World Bank group's activities, but with particular
focus on a specific region. Shareholders usually consist of the regional countries
plus the major donor countries. The best-known of these regional banks cover
regions that roughly correspond to United Nationsregional groupings, including the
Inter-American Development Bank, the Asian Development Bank; the African
Development Bank; the Central American Bank for Economic Integration; and
the European Bank for Reconstruction and Development. The Islamic Development
Bank is among the leading multilateral development banks. IsDB is the only
multilateral development bank after the World Bank that is global in terms of its
membership. 56 member countries of IsDB are spread over Asia, Africa, Europe
and Latin America.
Founded Name
www Address
Notes
HQ
1959
IDB Interamerican
Development Bank
http://www.IADB.org
1960
CABEI Central American http://www.cabei.org
Bank for Economic
Integration
Works in the Washington
Americas,
but primarily
for development
inLatin America
and theCaribbean
Central
Tegucigalpa
America
(11)
Money, Central Banking in
India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
1964
1973
NOTES
1966
1970
29/5/91
16/4/56
14/11/73
1975
AFDB African
Development Bank
IsDB Islamic
Development Bank
Group
http://www.afdb.org
Africa
http://www.isdb.org
ADB Asian
Development Bank
CAF - Development
Bank of Latin America
EBRD European Bank
for Reconstruction and
Development
CEB Council of Europe
Development Bank
BOAD Banque ouestafricaine developpement
West African
Development Bank
http://www.adb.org
56 Countries in Jeddah
Asia,
Africa, Europe,
and Latin
America
Asia
Manila
http://www.caf.com
Latin America Caracas
http://www.ebrd.com
http://www.coebank.org
http://www.boad.org
BDEAC Banque de
http://www.bdeac.org
développement des États
de l'Afrique Centrale,
DBCASDevelopment
Bank of Central
African States
Abidjan
London
Coordinated Paris
organisation
Union
Lomé
économique
et monétaire
ouest-africaine,
Cf.BCEAO
Banque centrale
des États de
l'Afrique de
l'Ouest
Communauté Brazzaville,
économique et Congo
monétaire de
l'Afrique centrale
(CEMAC),
Cf.BEAC
Banque des
États de l'Afrique
centrale
6) Bilateral development banks and agencies
A bilateral development bank is a financial institution set up by one individual
country to finance development projects in adeveloping country and its emerging
market, hence the term bilateral, as opposed to multilateral. Examples include:
l
The Netherlands Development Finance Company FMO,[5] headquarters in
the Hague; one of the largest bilateral development banks worldwide.
l
The DEG German Investment Corporation or Deutsche Investitions- und
entwicklungsgesellschaft,[6] headquartered inKöln, Germany.
l
The French Development AgencyAgence Française de Développement,[7]
and Caisse des dépôts, founded 1816, both headquartered in Paris, France.
(12)
Money, Central Banking in
India and International
Financial Institutions - II
7) Other regional financial institutions Financial institutions of neighboring countries established themselves
internationally to pursue and finance activities in areas of mutual interest; most of
them are central banks, followed by development and investment banks. The table
below lists some of them in chronological order of when they were founded or
listed as functioning as a legal entity. Some institutions were conceived and started
working informally 2 decades before their legal inception (e.g. the South East
Asian Central Banks Centre)
Founded Name
www Address
Notes
17/5/1930
http://www.bis.org
The bank of all Basle, Basel,
central banks, Bâle
60 members
Created by
Luxembourg
European
Union member
states to provide
long-term finance,
mainly in the EU
consists of
Dakar,
40 African
Senegal.
central banks
1958
2/15/1965
10/7/1970
BIS Bank of
International
Settlements
EIB European
Investment Bank
http://www.eib.org
AACB African
http://www.aacb.org/
Association of Central
Banks, ABCAAssociation
des Banques Centrales
Africaines
IIB International
http://www.iib.int
Investment Bank
8/1976
NIB Nordic Investment http://www.nib.int
Bank
3/2/1982
SEACEN South East
http://www.seacen.org
Asian Central Banks Centre
BSTDB Black Sea
http://www.bstdb.org
Trade and Development
Bank
24/1/1997
1998
ECB European
Central Bank
http://www.ecb.int
HQ
Consists of 9 Moscow,
member
Russia
countries from
3 continents
Lending
Helsinki,
operations
Finland
in its 8 member
countries and
emerging markets
on all continents.
19 Asian
Kuala Lumpur,
central banks Malaysia
11 member
Thessaloniki,
countries,
Greece
corresponding
to the
Organization of
the Black Sea
Economic
Cooperation
Central bank Frankfurt
of 18 EU
am Main
countries
that have
adopted the euro
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
CHECK YOUR
PROGRESS
Describe the Types of
Financial Institutions
and Their Roles?
1.4 Types of Financial Institutions and Their Roles
A financial institution is an establishment that conducts financial transactions
such as investments, loans and deposits. Almost everyone deals with financial
institutions on a regular basis. Everything from depositing money to taking out
loans and exchanging currencies must be done through financial institutions. Here
is an overview of some of the major categories of financial institutions and their
roles in the financial system.
(13)
Money, Central Banking in
India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
Commercial Banks
Commercial banks accept deposits and provide security and convenience
to their customers. Part of the original purpose of banks was to offer customers
safe keeping for their money. By keeping physical cash at home or in a wallet,
there are risks of loss due to theft and accidents, not to mention the loss of possible
income from interest. With banks, consumers no longer need to keep large amounts
of currency on hand; transactions can be handled with checks, debit cards or
credit cards, instead.
Commercial banks also make loans that individuals and businesses use to
buy goods or expand business operations, which in turn leads to more deposited
funds that make their way to banks. If banks can lend money at a higher interest
rate than they have to pay for funds and operating costs, they make money.
Banks also serve often under-appreciated roles as payment agents within
a country and between nations. Not only do banks issue debit cards that allow
account holders to pay for goods with the swipe of a card, they can also arrange
wire transfers with other institutions. Banks essentially underwrite financial
transactions by lending their reputation and credibility to the transaction; a check is
basically just a promissory note between two people, but without a bank's name
and information on that note, no merchant would accept it. As payment agents,
banks make commercial transactions much more convenient; it is not necessary to
carry around large amounts of physical currency when merchants will accept the
checks, debit cards or credit cards that banks provide.
Investment Banks
The stock market crash of 1929 and ensuing Great Depression caused the
United States government to increase financial market regulation. The Glass-Steagall
Act of 1933 resulted in the separation of investment banking from commercial
banking.
While investment banks may be called "banks," their operations are far
different than deposit-gathering commercial banks. An investment bank is a financial
intermediary that performs a variety of services for businesses and some
governments. These services include underwriting debt and equity offerings, acting
as an intermediary between an issuer of securities and the investing public, making
markets, facilitating mergers and other corporate reorganizations, and acting as a
broker for institutional clients. They may also provide research and financial advisory
services to companies. As a general rule, investment banks focus on initial public
offerings (IPOs) and large public and private share offerings. Traditionally,
investment banks do not deal with the general public. However, some of the big
names in investment banking, such as JP Morgan Chase, Bank of America and
Citigroup, also operate commercial banks. Other past and present investment banks
you may have heard of include Morgan Stanley, Goldman Sachs, Lehman Brothers
and First Boston.
Generally speaking, investment banks are subject to less regulation than
commercial banks. While investment banks operate under the supervision of
regulatory bodies, like the Securities and Exchange Commission, FINRA, and the
U.S. Treasury, there are typically fewer restrictions when it comes to maintaining
capital ratios or introducing new products.
(14)
Money, Central Banking in
India and International
Financial Institutions - II
InsuranceCompanies
Insurance companies pool risk by collecting premiums from a large group
of people who want to protect themselves and/or their loved ones against a particular
loss, such as a fire, car accident, illness, lawsuit, disability or death. Insurance
helps individuals and companies manage risk and preserve wealth. By insuring a
large number of people, insurance companies can operate profitably and at the
same time pay for claims that may arise. Insurance companies use statistical analysis
to project what their actual losses will be within a given class. They know that not
all insured individuals will suffer losses at the same time or at all.
Brokerages
A brokerage acts as an intermediary between buyers and sellers to facilitate
securities transactions. Brokerage companies are compensated via commission
after the transaction has been successfully completed. For example, when a trade
order for a stock is carried out, an individual often pays a transaction fee for the
brokerage company's efforts to execute the trade.
A brokerage can be either full service or discount. A full service brokerage
provides investment advice, portfolio management and trade execution. In exchange
for this high level of service, customers pay significant commissions on each trade.
Discount brokers allow investors to perform their own investment research and
make their own decisions. The brokerage still executes the investor's trades, but
since it doesn't provide the other services of a full-service brokerage, its trade
commissions are much smaller.
Investment Companies
An investment company is a corporation or a trust through which individuals
invest in diversified, professionally managed portfolios of securities by pooling their
funds with those of other investors. Rather than purchasing combinations of individual
stocks and bonds for a portfolio, an investor can purchase securities indirectly
through a package product like a mutual fund.
There are three fundamental types of investment companies: unit investment
trusts (UITs), face amount certificate companies and managed investment
companies. All three types have the following things in common :
l
An undivided interest in the fund proportional to the number of shares held
l
Diversification in a large number of securities
l
Professional management
l
Specific investment objectives
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
CHECK YOUR
PROGRESS
Write shortnote on
UIT?
Let's take a closer look at each type of investment company.
Unit Investment Trusts (UITs)
A unit investment trust, or UIT, is a company established under an indenture
or similar agreement. It has the following characteristics :
l
The management of the trust is supervised by a trustee.
l
Unit investment trusts sell a fixed number of shares to unit holders, who
receive a proportionate share of net income from the underlying trust.
l
The UIT security is redeemable and represents an undivided interest in a
specific portfolio of securities.
l
The portfolio is merely supervised, not managed, as it remains fixed for the
life of the trust. In other words, there is no day-to-day management of the
portfolio.
(15)
Money, Central Banking in
India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
Face Amount Certificates
A face amount certificate company issues debt certificates at a
predetermined rate of interest. Additional characteristics include :
l
Certificate holders may redeem their certificates for a fixed amount on a
specified date, or for a specific surrender value, before maturity.
l
Certificates can be purchased either in periodic installments or all at once
with a lump-sum payment.
l
Face amount certificate companies are almost nonexistent today.
Management Investment Companies
The most common type of investment company is the management
investment company, which actively manages a portfolio of securities to achieve
its investment objective. There are two types of management investment company:
closed-end and open-end. The primary differences between the two come down
to where investors buy and sell their shares - in the primary or secondary markets
- and the type of securities the investment company sells.
l
Closed-End Investment Companies: A closed-end investment company issues
shares in a one-time public offering. It does not continually offer new shares,
nor does it redeem its shares like an open-end investment company. Once
shares are issued, an investor may purchase them on the open market and
sell them in the same way. The market value of the closed-end fund's shares
will be based on supply and demand, much like other securities. Instead of
selling at net asset value, the shares can sell at a premium or at a discount to
the net asset value.
l
Open-End Investment Companies: Open-end investment companies, also
known as mutual funds, continuously issue new shares. These shares may
only be purchased from the investment company and sold back to the
investment company. Mutual funds are discussed in more detail in the Variable
Contracts section.
Nonbank Financial Institutions
The following institutions are not technically banks but provide some of
the same services as banks.
Savings and Loans
Savings and loan associations, also known as S&Ls or thrifts, resemble
banks in many respects. Most consumers don't know the differences between
commercial banks and S&Ls. By law, savings and loan companies must have 65%
or more of their lending in residential mortgages, though other types of lending is
allowed.
S&Ls emerged largely in response to the exclusivity of commercial banks.
There was a time when banks would only accept deposits from people of relatively
high wealth, with references, and would not lend to ordinary workers. Savings and
loans typically offered lower borrowing rates than commercial banks and higher
interest rates on deposits; the narrower profit margin was a byproduct of the fact
that such S&Ls were privately or mutually owned.
(16)
Money, Central Banking in
India and International
Financial Institutions - II
Credit Unions
Credit unions are another alternative to regular commercial banks. Credit
unions are almost always organized as not-for-profit cooperatives. Like banks and
S&Ls, credit unions can be chartered at the federal or state level. Like S&Ls,
credit unions typically offer higher rates on deposits and charge lower rates on
loans in comparison to commercial banks.
In exchange for a little added freedom, there is one particular restriction
on credit unions; membership is not open to the public, but rather restricted to a
particular membership group. In the past, this has meant that employees of certain
companies, members of certain churches, and so on, were the only ones allowed to
join a credit union. In recent years, though, these restrictions have been eased
considerably, very much over the objections of banks.
Shadow Banks
The housing bubble and subsequent credit crisis brought attention to what
is commonly called "the shadow banking system." This is a collection of investment
banks, hedge funds, insurers and other non-bank financial institutions that replicate
some of the activities of regulated banks, but do not operate in the same regulatory
environment.
The shadow banking system funneled a great deal of money into the U.S.
residential mortgage market during the bubble. Insurance companies would buy
mortgage bonds from investment banks, which would then use the proceeds to buy
more mortgages, so that they could issue more mortgage bonds. The banks would
use the money obtained from selling mortgages to write still more mortgages.
Many estimates of the size of the shadow banking system suggest that it
had grown to match the size of the traditional U.S. banking system by 2008.
Apart from the absence of regulation and reporting requirements, the nature
of the operations within the shadow banking system created several problems.
Specifically, many of these institutions "borrowed short" to "lend long." In other
words, they financed long-term commitments with short-term debt. This left these
institutions very vulnerable to increases in short-term rates and when those rates
rose, it forced many institutions to rush to liquidate investments and make margin
calls. Moreover, as these institutions were not part of the formal banking system,
they did not have access to the same emergency funding facilities.
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
CHECK YOUR
PROGRESS
Describe laws related
International Institute?
1.5 International Institute and Law
The roles of international financial institutions are regulated by the
international laws as they are operational in more than one country. The shareholders
or the owners of the international financial institutions are national governments of
the countries.
The international financial institutions (IFI) are getting involved in the
conflicting situations very easily due to various international laws. It is widely
believed that structural and political concerns of the countries cause obstacles to
the development of roles of international financial institutions. This is caused mainly
due to the international humanitarian laws. On the other hand, it is also believed
that the roles of international financial institutions in the international community
help them to make contribution to the enforcement and implementation of the
international humanitarian laws.
The involvement of IFI in international humanitarian law can also be helpful
to the United Nations in supporting its efforts to prevent violations of the international
humanitarian law.
It is also helpful to enforce the law against those who are suspected of
committing atrocities. The International Monetary Fund (IMF) and World Bank
are the specialized financial agencies of the United Nations that function as
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NOTES
independent international organizations. Their functionalities are not bound by the
UN decisions but are regulated by the UN Security Council resolutions.
The decisions made by the IFIs may be significantly influenced by the
international humanitarian law violations. The humanitarian law violations are licit
economic concern to the IFIs and that should not be excluded from its consideration
as political issues.
It is also argued that IFIs need to consider international humanitarian law
issues in some circumstances to fulfill their authorizations. The violations of rights
under humanitarian laws can give insight into how the governments will handle the
international obligations like loan agreements with the IMF or the World Bank. It is
also seen that human rights violations during the conflicts can affect the economic
growth of a country. It may also affect the state's ability to service its debts, financial
success of development programs and also the IFI's ability to supervise and manage
the projects. Having information about such humanitarian law violations will thus
help IFIs to ensure that they can fulfill their authorizations.
1.6 Summary
The 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.
Today, the world's largest IFI is the European Investment Bank, with a
balance sheet size of Euros 512 billion in 2013. This compares to the two components
of the World Bank, the IBRD (assets of $358 billion in 2014) and the IDA (assets
of $183 billion in 2014).
A financial institution is an establishment that conducts financial transactions
such as investments, loans and deposits. Almost everyone deals with financial
institutions on a regular basis. Everything from depositing money to taking out
loans and exchanging currencies must be done through financial institutions.
1.7 Exercise & Questions
Fill in the Blanks 1)
The -------------------- are financial institutions that have been established
(or chartered) by more than one country.
2)
A ------------------- is an institution, created by a group of countries, that
provides financing and professional advising for the purpose of development.
3)
A brokerage acts as an intermediary between buyers and sellers to facilitate
securities transactions.
4)
The ----------------- consist of several regional institutions that have functions
similar to the World Bank group's activities, but with particular focus on a
specific region.
Short answer Questions 1)
Write a short note on commercial bank.
2)
Write a short note on Investment bank.
3)
Write down the name of Bretton Woods Institution.
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Long Answer Questions 1)
Explain the Types of Financial Institute.
2)
Write a short note on multilateral development bank and Regional development
bank.
3)
Explain the law system for IFI.
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
1.8 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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Financial Institutions - II
UNIT - 2
INTERNATIONAL FINANCIAL
INSTITUTE - 2
Money, Central Banking in
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Financial Institutions - II
NOTES
Structure
2.1
Introduction
2.2
Objectives
2.3
Bretton woods Institution
2.4
Objectives and working
2.5
Objective of IMF
2.6
Functions of IMF
2.7
Summary
2.8
Exercise & Questions
2.9
Further Reference Books
2.1 Introduction
The World Bank came into existence in 1944 at the Bretton Woods
conference. Its formal name is the International Bank for Reconstruction and
Development (IBRD), which clearly states its primary purpose of financing economic
development. The World Bank's first loans were extended during the late 1940s to
finance the reconstruction of the war-ravaged economies of Western Europe. When
these nations recovered some measure of economic self-sufficiency, the World
Bank turned its attention to assisting the world's poorer nations. Over the time,
additional organizations have been set up under the umbrella of the World Bank.
As of today, the World Bank today is a group of five international organizations
responsible for providing finance to different countries. The group and its affiliates
headquartered in Washington. The World Bank group Consist 1) International bank for Reconstruction and Development (IBRD - 1945).
2) International Financial Corporation (IFC- 1956).
3) International Development Association (IDA- 1960).
4) Multilateral Investment guarantee agency (MIGA-1988).
5) International center for settlement of investment disputes (ICSID-1966).
The World Bank has one central purpose: to promote economic and social
progress in developing countries by helping raise productivity so that their people
may live a better and fuller life.
IMF is one of the two institutions that were established as a result of the
Brettonwoods conference in1944, the other institution was the World Bank.
IMF aims at promoting international monetary co-operation with a view to
achieve certain mutually agreed international economic goals. It is also lender of
short term funds to member countries, mainly to adjust deficit of Balance of payment.
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IMF was organized in 1946 and commenced its operation in March 1947.
The IMF is an autonomous organization affiliated to the UNO. Starting from the
initial membership of 31 countries at the time of inception, the fund now has
membership of 188 countries. It is financed by the participating countries, with
each country's contribution fixed terms of quotas.
2.2 Objectives
INTERNATIONAL
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NOTES
At the end of this unit, you will be able to 1) Understand the history of World Bank group
2) Understand the Objectives of Bretton Wood Institutions.
3) Know the Objectives of Bretton Wood Institutions.
2.3 Bretton woods Institution
1) World Bank The World Bank is also known as International bank for reconstruction
and development, was result of Bretton woods conference. The main objective
behind setting up this international organization were to aid the task of reconstruction
of the war affected economies of Europe and assist in the development of the
underdeveloped nations of the world Bank. The World Bank is entrusted with the
task of economic growth and widening of the scope of international trade.
CHECK YOUR
PROGRESS
Briefly describe
Bretton
Woods
Institution?
The current primary focus of the World Bank centers on six strategic
themes:
1. The poorest countries. Poverty reduction and sustainable growth in the
poorest countries, especially in Africa.
2. Postconflict and fragile states. Solutions to the special challenges of
postconflict countries and fragile states.
3. Middle-income countries. Development solutions with customized services
as well as financing for middle-income countries.
4. Global public goods. Addressing regional and global issues that cross
national borders, such as climate change, infectious diseases, and trade.
5. The Arab world. Greater development and opportunity in the Arab world.
6. Knowledge and learning. Leveraging the best global knowledge to support
development."To Meet Global Challenges, Six Strategic Themes," The
World Bank provides low-interest loans, interest-free credits, and grants
to developing countries. There's always a government (or "sovereign")
guarantee of repayment subject to general conditions. The World Bank is
directed to make loans for projects but never to fund a trade deficit.
These loans must have a reasonable likelihood of being repaid. The IDA
was created to offer an alternative loan option. IDA loans are free of
interest and offered for several decades, with a ten-year grace period
before the country receiving the loan needs to begin repayment. These
loans are often called soft loans.
Since it issued its first bonds in 1947, the IBRD generates funds for its
development work through the international capital markets (which Chapter 7
"Foreign Exchange and the Global Capital Markets"covers).
The World Bank issues bonds, typically about $25 billion a year. These
bonds are rated AAA (the highest possible rating) because they are backed by
member states' shared capital and by borrowers' sovereign guarantees. Because
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NOTES
of the AAA credit rating, the World Bank is able to borrow at relatively low interest
rates.
This provides a cheaper funding source for developing countries, as most
developing countries have considerably low credit ratings. The World Bank charges
a fee of about 1 percent to cover its administrative overheads.
Objectives:
The following objectives are assigned by the World Bank:
1. To provide long-run capital to member countries for economic
reconstruction and development.
2. To induce long-run capital investment for assuring Balance of Payments
(BoP) equilibrium and balanced development of international trade.
3. To provide guarantee for loans granted to small and large units and other
projects of member countries.
CHECK YOUR
PROGRESS
What is IDA?
4. To ensure the implementation of development projects so as to bring
about a smooth transference from a war-time to peace economy.
5. To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then
IBRD provides loans for productive activities on considerate conditions.
2) International Development Association The International Development Association (IDA) is an international
financial institution which offers concessional loans and grants to the world's poorest
developing countries.
The IDA is a member of the World Bank Group and is headquartered in
Washington, D.C., United States.
It was established in 1960 to complement the existing International Bank
for Reconstruction and Development by lending to developing countries which
suffer from the lowest gross national income, from troubled creditworthiness, or
from the lowest per capita income.
An overview of IDA Despite the launch of the IFC in 1956, developing countries persisted in
demanding the creation of a new concessional financing mechanism and the idea
gained traction within the IBRD.
Then-President of the IBRD Eugene R. Black, Sr. began circulating the
notion of an International Development Association.
Democratic Senator Mike Monroney of Oklahoma supported the idea of
concessional lending and entertained the idea of the IBRD conducting such lending.
As Chairman of the Senate Subcommittee on International Finance,
Monroney proposed a resolution recommending a study of the potential establishment
of an International Development Association to be affiliated with the IBRD.
Monroney's proposal was favorably received within the United States.
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The resolution passed the senate in 1958, and then-U.S. Treasury
SecretaryRobert B. Anderson encouraged other countries to conduct similar studies.
In 1959, the World Bank's Board of Governors approved a U.S.-born
resolution calling for the drafting of the articles of agreement.
By the end of January 1960, fifteen countries signed the articles of
agreement which established the International Development Association.
The association launched in September of that same year with an initial
budget of $913 million ($7.1 billion in 2012 dollars)
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NOTES
The International Development Association (IDA) is an international
financial institution which offers concessional loans and grants to the world's poorest
developing countries.
The IDA is a member of the World Bank Group and is headquartered in
Washington, D.C., United States.
It was established in 1960 to complement the existing International Bank
for Reconstruction and Development by lending to developing countries which
suffer from the lowest gross national income, from troubled creditworthiness, or
from the lowest per capita income.
The association shares the World Bank's mission of reducing poverty and
aims to provide affordable development financing to countries whose credit risk is
so prohibitive that they cannot afford to borrow commercially or from the Bank's
other programs.
The IDA's stated aim is to assist the poorest nations in growing more
quickly, equitably, and sustainably to reduce poverty.
The IDA is the single largest provider of funds to economic and human
development projects in the world's poorest nations.
Objectives:
The following are the principal objectives of the IDA:
1. To provide development finance on easy terms to less developed member
countries.
2. To promote economic development, increase productivity and thus, raise
the standards of living in the underdeveloped areas.
Working:
Thus, IDA is looked upon as a means of furthering the development activities
of the World Bank and as a supplementary to the Bank's activities. Under its
charter, the IDA is to support projects which are calculated to contribute to the
development of the country concerned, whether they are directly productive or
not.
The IDA credits would be called development credits to distinguish them
from conventional loans, and these would be repayable mostly in the currency lent
rather than in the currency of the borrower. Since IDA charges nominal rates of
interest on its loans, it has also been nicknamed the "Soft-Loan Window."
IDA has granted a number of credits to India for her development schemes.
The grant of credits for development projects given by IDA to India has been in
the nature of a continuous flow. But for the funds that have been made available
by IDA to India, our development pace would have been considerably slower.
In fine, it may be said that the IDA is expected to make a distinct contribution
to the economic development of backward nations, furthering their development
projects and supplementing the activities of the World Bank. Moreover, unlike the
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NOTES
CHECK YOUR
PROGRESS
Describe objectives
and working of IFC?
World Bank loans which are meant to cover only the foreign exchange costs, the
IDA loans can be utilised to finance both foreign exchange and local currency
costs.
3) International Finance Corporation The International Finance Corporation (IFC) is an international financial
institution that offers investment, advisory, and asset management services to
encourage private sector development in developing countries. The IFC is a member
of the World Bank Group and is headquartered in Washington, D.C., United States.
It was established in 1956 as the private sector arm of the World Bank Group to
advance economic development by investing in strictly for-profit and commercial
projects that purport to reduce poverty and promote development.[1][2][3] The
IFC's stated aim is to create opportunities for people to escape poverty and achieve
better living standards by mobilizing financial resources for private enterprise,
promoting accessible and competitive markets, supporting businesses and other
private sector entities, and creating jobs and delivering necessary services to those
who are poverty-stricken or otherwise vulnerable.[4] Since 2009, the IFC has
focused on a set of development goals that its projects are expected to target. Its
goals are to increase sustainable agriculture opportunities, improve health and
education, increase access to financing for microfinance and business clients,
advance infrastructure, help small businesses grow revenues, and invest in climate
health.[5]
The IFC is owned and governed by its member countries, but has its own
executive leadership and staff that conduct its normal business operations. It is a
corporation whose shareholders are member governments that provide paid-in capital
and which have the right to vote on its matters. Originally more financially integrated
with the World Bank Group, the IFC was established separately and eventually
became authorized to operate as a financially autonomous entity and make
independent investment decisions. It offers an array of debt and equity financing
services and helps companies face their risk exposures, while refraining from
participating in a management capacity. The corporation also offers advice to
companies on making decisions, evaluating their impact on the environment and
society, and being responsible. It advises governments on building infrastructure
and partnerships to further support private sector development.
2.4 Objectives and working
International Finance Corporation (I.F.C.): Objectives and Working!
The International Finance Corporation was established in July 1956, with
the specific subject of providing finance to the private sector.
Though it is affiliated to the World Bank, it is a separate legal entity with
separate fund and functions. Members of the World Bank are eligible for its
membership.
Objectives:
IFC's objective is to assist economic development by encouraging the growth
of productive private enterprise in its member nations, particularly in the
underdeveloped areas.
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Thus, it laid down the following objectives:
1. To invest in productive private enterprises, in association with private
investors, and without government guarantee of repayment, in cases where
sufficient private capital is not available on reasonable terms.
INTERNATIONAL
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2. To serve as a clearing house to bring together investment opportunities,
private capital (both foreign and domestic) and experienced management.
NOTES
3. To help in stimulating the productive investment of private capital, both
domestic and foreign.
Working:
The IFC considers only such investment proposals whose objective is the
establishment, expansion or improvement of productive private enterprises which
will contribute to the development of the economy of the country concerned.
Industrial, agricultural, financial, commercial, and other private enterprises are eligible
for IFC financing, provided their operations are productive in character.
The IFC is authorised to invest its funds in many forms it deems appropriate,
with the exception of capital stocks and shares. It does not have a policy of uniform
interest rates for its investments. The interest rate is to be negotiated in each case
in the light of all relevant factors, including the risks involved and any right to
participation in profits, etc.
IFC makes investments only when it is satisfied that the enterprise has or
will have experience and competent management and it looks to that management
to conduct the business of the enterprise. It does not itself assume responsibility of
managing the enterprise.
In India the IFC has so far made six investment commitments totaling
over $ 7 million.
However, the actual working of the IFC has been rather slow. That there
is great scope for its work is quite evident from its resources and investment
portfolios. It is hoped that IFC will in future be more fully able to play a dynamic
investor's role in the economic development of the poor nations.
4) International monetary Fund An Overview of IMF During the 1930s, the Great Depression resulted in failing economies. The
fall of the gold standard led countries to raise trade barriers, devalue their currencies
to compete against one another for export markets and curtail usage of foreign
exchange by their citizens. All these factors led to declining world trade, high
unemployment, and plummeting living standards in many countries. In 1944, the
Bretton Woods Agreement established a new international monetary system. The
creation of the International Monetary Fund (IMF) and the World Bank were two
of its most enduring legacies.
The World Bank and the IMF, often called the Bretton Woods Institutions,
are twin intergovernmental pillars supporting the structure of the world's economic
and financial order. Both have taken on expanding roles, and there have been
renewed calls for additional expansion of their responsibilities, particularly in the
continuing absence of a single global monetary agreement. The two institutions
may seem to have confusing or overlapping functions. However, while some
similarities exist (see the following figure), they are two distinct organizations with
different roles.
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NOTES
The IMF, also known as the Fund, was conceived at a UN conference in
Bretton Woods, New Hampshire, United States, in July 1944. The 44 countries at
that conference sought to build a framework for economic cooperation to avoid a
repetition of the competitive devaluations that had contributed to the Great
Depression of the 1930s.
The fundamental object of the IMF was the avoidance of competitive
devaluation and exchange control that had characterized the era of 1930s. It was
set up to administer a "code of fair practice", in the field of foreign exchange and to
make short-term loans to member nations experiencing temporary deficits in their
balance of payments, to enable them to meet these payments without resorting to
devaluation or exchange control, while at the same time following' international
policies to maintain domestic income and employment at high levels.
CHECK YOUR
PROGRESS
Give objectives and
functions of IMF?
IMF's fundamental mission is to ensure the stability of the international
monetary system. It does so in three ways: keeping track of the global economy
and the economies of member countries; lending to countries with balance of
payments difficulties; and giving practical help to members.
l
Membership: 188 countries
l
Headquarters: Washington, D.C.
l
Executive Board: 24 Directors each representing a single country or a group
of countries
l
Staff: Approximately 2,600 from 147 countries
l
Total quotas: US$327 billion (as of 3/13/15)
l
Additional pledged or committed resources: US$ 885 billion
l
Committed amounts under current lending arrangements (as of 3/13/15):
US$163 billion, of which US$137 billion have not been drawn (see table).
l
Biggest borrowers (amounts outstanding as of 3/13/15): Portugal, Greece,
Ireland, Ukraine
l
Biggest precautionary loans (amount agreed as of 3/13/15): Mexico, Poland,
Colombia, Morocco
l
Surveillance consultations: 122 consultations in 2013 and 129 in 2014
l
Technical assistance: 274 person years in FY2013 and 285 in FY2014
2.5 Objective of IMF
l
l
l
l
l
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Promote international monetary cooperation;
Facilitate the expansion and balanced growth of international trade;
Promote exchange stability;
Assist in the establishment of a multilateral system of payments.
Make resources available (with adequate safeguards) to members
experiencing balance of payments difficulties
2.6 Functions of IMF
The following are the major functions of the IMF:
1. It functions as a short-term credit institution.
2. It provides machinery for the orderly adjustments of exchange rates.
3. It is a reservoir of the currencies of all the member countries from which
a borrower nation can borrow the currency of other nations.
4. It is a sort of lending institution in foreign exchange. However, it grants
loans for financing current transactions only and not capital transactions.
5. It also provides machinery for altering sometimes the par value of the
currency of a member country. In this way, it tries to provide for an
orderly adjustment of exchange rates, which will improve the long-term
balance of payments position of member countries.
6. It also provides machinery for international consultations.
INTERNATIONAL
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NOTES
2.7 Summary
Today, The World Bank consists of two main bodies, the International
Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA), established in 1960. The World Bank is part of
the broader World Bank Group, which consists of five interrelated institutions: the
IBRD; the IDA; the International Finance Corporation (IFC), which was established
in 1956; the Multilateral Investment Guarantee Agency (MIGA), which was
established in 1988; and the International Centre for Settlement of Investment
Disputes (ICSID), which was established in 1966. These additional members of
the World Bank Group have specific purposes as well. The IDA typically provides
interest-free loans to countries with sovereign guarantees. The IFC provides loans,
equity, risk-management tools, and structured finance. Its goal is to facilitate
sustainable development by improving investments in the private sector. The MIGA
focuses on improving the foreign direct investment of developing countries. The
ICSID provides a means for dispute resolution between governments and private
investors with the end goal of enhancing the flow of capital.
IMF's fundamental mission is to ensure the stability of the international
monetary system. It does so in three ways: keeping track of the global economy
and the economies of member countries; lending to countries with balance of
payments difficulties; and giving practical help to members.
2.8 Exercise & Questions
Fill in the blanks 1)
The World Bank is also known as International bank for reconstruction and
development, was result of --------------.
2)
--------- fundamental mission is to ensure the stability of the international
monetary system.
3)
IDA established in the year -----------.
4)
The International Finance Corporation was established in -------.
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NOTES
Short Answer Questions 1)
Write a short note on Bretton Wood Group.
2)
Explain the objective of IMF.
3)
Explain the objective of IDA.
4)
Distinguish between IMF and IBRD.
Long Answer Questions 1)
Explain the Objective and role of IFC.
2)
Explain the Objective and Role of IMF.
2.9 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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UNIT - 3
INTERNATIONAL FINANCIAL INSTITUTE
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
Structure
3.1
Introduction
3.2
Objectives
3.3
Europe Development Bank (CEB)
3.4
BRICS
3.5
International Investment Bank
3.6
Summary
3.7
Exercise & Questions
3.8
Further Reference Books
3.1 Introduction
The 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 organizations
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.
3.2 Objectives
A t the end of this unit, you will be able to 1) Understand the working of Europe Development Bank (CEB) 2) Understand the working of BRICS
3) Understand the working of Investment bank.
3.3 Europe Development Bank (CEB)
The Council of Europe Development Bank (CEB) is a multilateral
development bank with an exclusively social mandate.
Through the provision of financing and technical expertise for projects
with a high social impact in its member states, it actively promotes social cohesion
and strengthens social integration in Europe.
The CEB represents a major instrument of the policy of solidarity in Europe.
It participates in financing social projects, responds to emergency situations and
contributes to improving the living conditions of the most disadvantaged population
groups.
The CEB contributes to the implementation of socially oriented investment
projects through four sectoral lines of action, namely:
l strengthening social integration
l managing the environment
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CHECK YOUR
PROGRESS
Describe briefly
CEB?
l supporting public infrastructure with a social vocation
l supporting micro-, small and medium-sized enterprises (MSMEs)
The CEB carries out its mission within the strategic framework of a formal
"Development Plan" that describes the logic underpinning its action and sets forth
guidelines for the activity in the medium term in relation to the operational context
within which the Bank operates. The current Development Plan covers the period
2014-2016.
History
The CEB has its origins in the political upheavals that Europe experienced
following the Second World War, leading to a flood of refugees and displaced
persons into Western Europe.
The oldest European multilateral development bank, the CEB was
established in 1956 by eight Member States of the Council of Europe on the basis
of a partial agreement in order to bring solutions to the problems of refugees.
Signed on 16 April 1956 by eight countries, the Bank is the first of the Partial
Agreements to have been concluded.
Key dates in the history of the CEB
1956: the CEB was created in the form of a Resettlement Fund with a capital of
less than 7 million US dollars.
1960s-1980s: over the decades, the CEB steadily increased its membership,
financial resources and scope of action in line with changes in social priorities.
Born in the aftermath of a divided Europe, the CEB experienced particular impetus
with the reunification of the European continent after the fall of the Berlin Wall.
More specifically, three Council of Europe Summits of Heads of State and
Government, helped shape what the Bank is today.
1989: the Vienna Summit signalled a wave of new members from the countries of
Central, Eastern, and then South-Eastern Europe joining the Bank, which at the
time was still a Fund.
1997: the Strasbourg Summit widened the CEB's mandate to include strengthening
social cohesion, alongside the priorities set out in its Articles of Agreement.
2005: the Warsaw Summit, whilst continuing to support the Bank's traditional
mission, also invited the CEB to contribute in its own way to the development of a
free, democratic and more inclusive European society.
Since 2008, the protracted crisis in Europe and its impact on the lives of populations
have made the CEB's mandate and action as a social development bank more
relevant than ever.
Relations with the Council of Europe
Working to strengthen social cohesion in accordance with its mandate,
through its lending activity the Bank promotes the values and principles of the
Council of Europe. It is nevertheless a separate legal entity and financially
independent.
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As evidence of these institutional links, the Secretary General of the Council
of Europe issues an opinion on admissibility in terms of compliance with the Council
of Europe's political and social objectives for all the projects that the Bank submits
to its Administrative Council for approval.
Governing Board
The powers of the Governing Board are described in Article IX of the
Articles of Agreement. It consists of a Chairperson and one representative for
each member state.
The Governing Board sets out the general orientations for the Bank's activity,
lays down the conditions for Bank membership by other states, decides on capital
increases, approves the annual report, the accounts and the Bank's general balance
sheet. It elects its own Chairperson and the Chairperson of the Administrative
Council and appoints the Governor and the members of the Auditing Board.
INTERNATIONAL
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NOTES
The CEB and the European Union (EU)
Among the CEB's 41 members, 26 are EU members and 8 are official or
potential candidates for accession to the EU, creating a common field of action.
Through its cooperation with the EU, the CEB pursues three major
objectives
l
To promote social development and to further the social agenda in Europe
l
To ensure better technical and financial viability for social projects financed
by the Bank in favour of its member states
l
To help CEB member states absorb EU funds in the social sectors
The Regional Housing Programme (RHP) is the cornerstone of a regional
initiative named the Sarajevo Process, which aims at ending the protracted
displacement of refugees and internally displaced persons in the Western Balkans
stemming from the conflicts in the region in the 90s.
With an estimated cost of • 584 million, the RHP seeks to provide housing
solutions to 74 000 individuals in Bosnia and Herzegovina, Croatia, Montenegro
and Serbia (Partner Countries). A number of donors, including the European Union
and the U.S., have pledged • 268 million.
The CEB plays a critical role in the RHP. It manages the RHP Fund, the
multilateral fund which holds Donor contributions. The Bank also helps the Partner
Countries in the implementation of the programme. Finally, it facilitates coordination
between the various RHP stakeholders.
Apart from the RHP, the main cooperation initiatives with the EU aim at
blending of the Bank's loans with EU grants, either for technical assistance or in
the form of investment grants.
Socially responsible lending in a variety of sectors
In 2014, the CEB approved 28 loan applications totalling • 2 065 million for
projects and programmes in the social field. Of these, as many as 21 loan
applications, representing 64% of all approvals, were in favour of the Bank's target
group countries.
The most significant operations include:
l
projects in health and education, which help create the conditions for more
sustainable and socially-balanced growth
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l
the provision of decent and affordable housing for people on low incomes
l
the support granted to vulnerable populations of refugees and displaced persons
(see the role played by the Bank in the Régional Housing Programme)
l
tailored loans and leasing products in favour of micro, small and mediumsized enterprises (MSMEs) in order to address job challenges
l
the financing of investments for a more attractive, inclusive and sustainable
living environment
l
projects in the public administration and judicial field, including building prisons
with a humane face.
3.4 BRICS
CHECK YOUR
PROGRESS
What is BRICS?
History
The term "BRIC" was coined in 2001 by then-chairman of Goldman Sachs
Asset Management, Jim O'Neill, in his publication Building Better Global Economic
BRICs. The foreign ministers of the initial four BRIC states (Brazil, Russia, India,
and China) met in New York City in September 2006 at the margins of the General
Debate of the UN General Assembly, beginning a series of high-level meetings. A
full-scale diplomatic meeting was held in Yekaterinburg, Russia, on 16 June 2009.
BRICS is the acronym for an association of five major emerging national
economies: Brazil, Russia, India, China and South Africa. The grouping was originally
known as "BRIC" before the inclusion of South Africa in 2010. The BRICS members
are all developing or newly industrialised countries, but they are distinguished by
their large, fast-growing economies and significant influence on regional and global
affairs; all five are G-20 members. Since 2009, the BRICS nations have met annually
at formal summits. Russia currently holds the chair of the BRICS group, and hosted
the group's seventh summit in July 2015.
As of 2015, the five BRICS countries represent over 3 billion people, or
42% of the world population; all five members are in the top 25 of the world by
population, and four are in the top 10. The five nations have a combined nominal
GDP of US$16.039 trillion, equivalent to approximately 20% of the gross world
product, and an estimated US$4 trillion in combined foreign reserves. The BRICS
have received both praise and criticism from numerous commentators. Bilateral
relations among BRICS nations have mainly been conducted on the basis of noninterference, equality, and mutual benefit (win-win).
Main areas and topics of dialogue between the BRICS
Beyond the Summits and meetings of Foreign Ministers, dialogue within
BRICS encompasses several instances, including Ministers and senior government
officials, businessmen and academics.
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Finance and Central Banks
The BRICS Finance Ministers met for the first time in November 2008 in
São Paulo, in response to the global economic and financial crisis, following a
recommendation made by Brazil at the Yekaterinburg meeting of Foreign Ministers.
A month before the meeting of São Paulo, the collapse of Lehman Brothers
had triggered the crisis, which led to the convening of the first of a series of meetings
of the G-20 Heads of State and Government. In that context, the BRICS countries
would deepen their cooperation on the international economic agenda.
Since then, the Finance Ministers of BRICS meet regularly at the margins
of the G- 20 meetings and of the biannual IMF and World Bank meetings, as well
as at the margins of BRICS Summits, together with the Governors of Central
Banks.
Trade
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
The Trade Ministers of the BRICS traditionally meet on the eve of the
Summits. They also meet at the margins of WTO Ministerial meetings.
The Contact Group for Economic and Trade Issues (CGETI), which reports
to the Ministers of Trade, is responsible for proposing institutional framework and
concrete measures to expand cooperation on economic and trade issues amongst
the BRICS.
Business Forum and Council
Since 2010, on Brazil´s initiative, the BRICS Business Forum meets on the
eve of the Summits, aiming at expanding and diversifying trade and mutual
investments, including through the identification of new business opportunities. It is
the Brazilian intention to include in the Forum the areas of small and medium
enterprises and tourism.
In 2013, the BRICS Business Council was established, with a view to
making recommendations on issues of trade and investment, among others related
to the business environment. The Council consists of five CEOs of companies of
each country. The Brazilian representatives are Vale, Weg, Gerdau, Banco do
Brasil and Marcopolo (head of the Brazilian chapter). Members of the Council
shall submit their recommendations to the leaders at the BRICS Summit.
Financial Forum
Cooperation between BRICS National Development Banks began in 2010,
during the Second Summit (Brasilia, 2010). Since then, the Presidents of the National
Bank for Economic and Social Development (BNDES), the Vnesheconombank,
the Export-Import Bank of India, the China Development Bank Corporation and
the Development Bank of Southern Africa have met in parallel with the BRICS
Summits. Such meetings are called the BRICS Financial Forum. So far, the BRICS
Development Banks have signed eight agreements on financial cooperation.
Academic Forum and Think Tanks Council
Since 2010, the Academic Forum of the BRICS meets annually, prior to
the Summits, with the participation of a large number of distinguished professors
from the five countries. It constitutes an important instance of civil society
participation in the BRICS process. The meetings have provided original
brainstorming from the member countries on the challenges and opportunities that
they face.
The BRICS Think Tanks Council, established in 2013, consists of the
following institutions: Institute of Applied Economic Research (Brazil); National
Committee for BRICS Research (Russia); Observer Research Foundation (India)
; China Center for Contemporary World Studies (China) ; and Human Sciences
Research Council (South Africa) . The Council is responsible for sharing and
disseminating information; research, policy analysis and prospective studies; and
capacity-building. Recommendations of both the Forum and the Council shall be
addressed to the leaders. Both the Academic Forum and the Think Tanks Council
met in Rio de Janeiro in March 2014.
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Health
The BRICS Health Ministers meet regularly since 2011, including at the
margins of meetings of the World Health Organization (WHO). Besides
coordination on issues on the WHO agenda, the group is considering the possibility
of establishing a Technological Cooperation Network. One of the goals of this
initiative would be to promote the transfer of, and access to, technologies that
would allow increased availability and lower prices of medicines in developing
countries. Three ministerial communiqués (Beijing, New Delhi and Cape Town)
mention the intention to establish the network. The BRICS Framework for the
Collaboration in Strategic Health Projects was adopted in 2013.
Science and Technology
After several annual meetings of senior officials held since 2011, the BRICS
Ministers of Science and Technology met for the first time in February 2014, in
Kleinmond. In the next ministerial meeting, during the Brazilian pro tempore
Chairmanship, a memorandum of understanding in the area is expected to be signed,
aiming to establish a strategic framework for cooperation on science and technology.
The memorandum will foster the promotion of partnerships with other stakeholders
in the developing world, based on the experiences and complementarities of the
BRICS. The areas of oceanographic and polar research, including the Antarctic
continent, are particularly promising.
Security
The BRICS High Representatives Responsible for Security have been
meeting since 2009. The latest meeting (Cape Town, December 2013) allowed the
exchange of views on cybersecurity, counterterrorism, transportation security, and
regional crises. A Working Group on Cybersecurity was established; among other
objectives, it will assess developments in the field of cybersecurity in international
fora and coordinate a BRICS approach in those instances.
Agriculture
The BRICS Ministers of Agriculture and Agrarian Development met for
the first time in 2010, in Moscow. The following year, in Chengdu, the Action Plan
2012-2016 was approved, providing guidance to the cooperation among the five
countries in the agricultural field. A Working Group of Agricultural Experts was
also established, tasked with preparatory meetings prior to the Ministerial gatherings.
Statistics
Since 2010, the BRICS Joint Statistical Publication is launched annually,
on the occasion of the BRICS Summit. Experts from the member countries meet
regularly with a view to preparing this document. The 2014 edition of the Joint
Statistical Publication was prepared by the Brazilian Institute of Geography and
Statistics (IBGE) and was launched during the VI Summit.
3.5 International Investment Bank
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The International Investment Bank (IIB) is a multilateral institution for
development that promotes social and economic development, prosperity, and
economic cooperation between its member states.
Main directions for its activities are the support of the small and medium-
sized businesses and participation in financing socially significant infrastructure
projects.
The Bank provides loans primarily through leading domestic publicly owned
financial institutions, development banks, export and import banks and agencies, or
lends in partnership with other international institutions for development.
The IIB was founded on the basis of an intergovernmental Agreement
establishing the International Investment Bank and its Statutes. The Agreement
was signed by all the member states of the Bank on July 10?1970 , and registered
with the United Nations Secretariat under registration number 11417.
The Council of the Bank is its highest authority and is composed of the
member states' representatives to the IIB. The Board is its executive body where
members are appointed by the Council. Audit of the Bank's activities is carried out
by the Audit Commission that comprises the representatives of the IIB's member
states appointed by the Council.
The Bank is an international intergovernmental organisation, that enjoys
tax-free and regulation-free status, as well as the support of its member states'
governmental bodies.
The members of the Bank are Republic of Bulgaria, Hungary, Socialist
Republic of Vietnam, Republic of Cuba, Mongolia, Russian Federation, Romania,
Slovak Republic and the Czech Republic.
The headquarters of the Bank is in Moscow. In April, 2015, the IIB opened
its first European regional office in Bratislava, Slovakia.
The Bank is rated Baa1 (outlook stable) by Moody's, BBB- (outlook stable)
by Fitch and A (outlook stable) by Dagong (outlook stable). In 2014, the Bank for
the first time entered debt capital markets. For the moment being the IIB has
issued bonds in Russian Federation, Slovak Republic and Romania.
The IIB's own funds reach EUR 400 million as of June 30, 2015. Its paidin capital amounts to EUR 303 million as of December 28, 2015. In accordance
with the Resolution of the Council of 6 June 2013, the Bank's paid-in capital will be
increased to EUR 341 million.
Strategic planning is at the core of the IIB's operations enabling the Bank
to increase efficiency and pursue its mission as a multilateral development institution.
Small and medium-sized enterprises
In accordance with the IIB Development Strategy, the mission of the Bank
is to promote social and economic development, prosperity and economic cooperation
between member states.
SME sector is a priority for all the member states and is regarded as a
catalyst for economic growth, innovation and progress. The increase of SMEs
contribution to GDP is one of the priorities for the IIB member states' economic
development.
SMEs are a leading sector of a market economy determining economic
growth rates, structure and quality of GDP, as well as employment growth. This
sector forms a basis for modern market infrastructure, for it primarily generates a
competitive economic environment.
The SME sector creates an intricate network for enterprises, which operate
generally in local markets and are directly connected with mass consumers of
goods and services. This, together with small sizes of such enterprises, their
technological, production, and managerial flexibility, allows to respond in a timely
manner to changing market conditions.
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
CHECK YOUR
PROGRESS
Describe IIB?
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NOTES
Taking into account the above, the IIB focuses its activities on co-operation
with leading international and nationalfinancial institutions in implementing joint
projects related to the support of the SME sector.
Club of export agencies
The International Investment Bank and Export Credit Agencies of Russia
and four East European countries of the member states of the Bank signed a
Multilateral Memorandum on Cooperation. The Participants of the Memorandum
are - Bulgarian Export Insurance Agency BAEZ, OJSC "Russian Agency for Export
Credit and Investment Insurance", EximBank S.A. Romania, Export Guarantee
and Insurance Corporation EGAP (the Czech Republic), Export-Import Bank of
the Slovak Republic. Later, the Hungarian Export-Import Bank (Exim) also acceded
to the Memorandum.
According to the document, its participants pool efforts to support and
develop foreign trade operations in the countries-participants of the Memorandum.
The arrangements are not only limited by the export-import operations between
the six countries, but also presume the promotion of products and services of the
national producers in the third countries, especially on the markets of other members
states of the IIB. The model of cooperation presupposes that national agencies will
carry out the insurance coverage of the projects in the interest of the relevant
member states and the International Investment Bank will provide financing through
its own funds as well as attracting resources from its partners.
The Memorandum also provides regular consultations and exchange of
experience including the issues of state regulation of foreign trade operations. At
the signing ceremony the Chairman of the Board of IIB NikolayKosov said: "The
support and development of export-import operations is one of the main components
of the renewed Bank strategy, from now on we will cooperate more efficiently
with all the participants of the Memorandum. The signing of the document
demonstrates the integration role of the IIB that is becoming more essential in the
context of the crisis of confidence which can be supposed in global and European
international relations". The Head of the IIB expressed confidence that the
Memorandum will be interesting for the non European members of the Bank, which
have already built strong trade ties with Central and Eastern Europe and also for
such countries as Hungary and Belorussia with whom the IIB actively cooperates
on the issues of cooperation development.
According to the General Director of OJSC "EXIAR" Peter Fradkov, to
completely ensure that the Russian business gain full support in the implementation
of multilateral international projects it is necessary to develop a system of relations
and cooperation of the Export Credit Agencies with the other countries, international
credit organizations and banks. The Agency already cooperates with export credit
agencies of the Italian Republic, the French Republic, the Federal Republic of
Germany, People's Republic of China, the Slovak Republic, and the Netherlands.
The signing of this Memorandum will allow developing cooperation with other
countries in the sphere of export operations.
Infrastructure projects
Along with providing SME support in its member states, funding socially
significant infrastructure projects is also one of the Bank's priorities. The IIB intends
to participate in such projects in concert with national and international institutions
for development. At present a number of projects in Mongolia, Vietnam and Russia
are under consideration.
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3.6 Summary
The Council of Europe Development Bank (CEB) is a multilateral
development bank with an exclusively social mandate.
Through the provision of financing and technical expertise for projects
with a high social impact in its member states, it actively promotes social cohesion
and strengthens social integration in Europe.
The term "BRIC" was coined in 2001 by then-chairman of Goldman Sachs
Asset Management, Jim O'Neill, in his publication Building Better Global Economic
BRICs. The foreign ministers of the initial four BRIC states (Brazil, Russia, India,
and China) met in New York City in September 2006 at the margins of the General
Debate of the UN General Assembly, beginning a series of high-level meetings. A
full-scale diplomatic meeting was held in Yekaterinburg, Russia, on 16 June 2009.
The International Investment Bank (IIB) is a multilateral institution for
development that promotes social and economic development, prosperity, and
economic cooperation between its member states.
INTERNATIONAL
FINANCIAL INSTITUTE
NOTES
3.7 Exercise & Questions
A)
Explain the working of Europe Development Bank.
B)
Explain the History and working of BRICS.
C)
Explain the areas on which International Investment Bank is work.
3.8 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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UNIT - 4
INTERNATIONAL MONETARY FUND
Money, Central Banking in
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NOTES
Structure
4.1
Introduction
4.2
Objectives
4.3
An Overview of IMF
4.4
Objective of IMF
4.5
Functions of IMF
4.6
ORGANISATION AND FINANCE
4.7
Fund of IMF
4.8
Fund and Quota System
4.9
Special Drawing Rights (SDRs)
4.10
Summary
4.11
Exercise & Questions
4.12
Further Reference Books
4.1 Introduction
IMF is one of the two institutions that were established as a result of the
Brettonwoods conference in1944, the other institution was the World Bank.
IMF aims at promoting international monetary co-operation with a view to
achieve certain mutually agreed international economic goals. It is also lender of
short term funds to member countries, mainly to adjust deficit of Balance of payment.
IMF was organized in 1946 and commenced its operation in March 1947.
The IMF is an autonomous organization affiliated to the UNO. Starting from the
initial membership of 31 countries at the time of inception, the fund now has
membership of 188 countries. It is financed by the participating countries, with
each country's contribution fixed terms of quotas.
4.2 Objectives
At the end of this unit, you will be able to:
1) Know the history of formation of IMF
2) Know the objectives of IMF
3) Understand the Functions of IMF
4) Know the organization of IMF
5) Understand the quota system of IMF.
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4.3 An Overview of IMF
During the 1930s, the Great Depression resulted in failing economies. The
fall of the gold standard led countries to raise trade barriers, devalue their currencies
to compete against one another for export markets and curtail usage of foreign
exchange by their citizens. All these factors led to declining world trade, high
unemployment, and plummeting living standards in many countries. In 1944, the
Bretton Woods Agreement established a new international monetary system. The
creation of the International Monetary Fund (IMF) and the World Bank were two
of its most enduring legacies.
The World Bank and the IMF, often called the Bretton Woods Institutions,
are twin intergovernmental pillars supporting the structure of the world's economic
and financial order. Both have taken on expanding roles, and there have been
renewed calls for additional expansion of their responsibilities, particularly in the
continuing absence of a single global monetary agreement. The two institutions
may seem to have confusing or overlapping functions. However, while some
similarities exist (see the following figure), they are two distinct organizations with
different roles.
The IMF, also known as the Fund, was conceived at a UN conference in
Bretton Woods, New Hampshire, United States, in July 1944. The 44 countries at
that conference sought to build a framework for economic cooperation to avoid a
repetition of the competitive devaluations that had contributed to the Great
Depression of the 1930s.
The fundamental object of the IMF was the avoidance of competitive
devaluation and exchange control that had characterized the era of 1930s. It was
set up to administer a "code of fair practice", in the field of foreign exchange and to
make short-term loans to member nations experiencing temporary deficits in their
balance of payments, to enable them to meet these payments without resorting to
devaluation or exchange control, while at the same time following' international
policies to maintain domestic income and employment at high levels.
IMF's fundamental mission is to ensure the stability of the international
monetary system. It does so in three ways: keeping track of the global economy
and the economies of member countries; lending to countries with balance of
payments difficulties; and giving practical help to members.
l
Membership: 188 countries
l
Headquarters: Washington, D.C.
l
Executive Board: 24 Directors each representing a single country or a group
of countries
l
Staff: Approximately 2,600 from 147 countries
l
Total quotas: US$327 billion (as of 3/13/15)
l
Additional pledged or committed resources: US$ 885 billion
l
Committed amounts under current lending arrangements (as of 3/13/15):
US$163 billion, of which US$137 billion have not been drawn (see table).
l
Biggest borrowers (amounts outstanding as of 3/13/15): Portugal, Greece,
Ireland, Ukraine
l
Biggest precautionary loans (amount agreed as of 3/13/15): Mexico, Poland,
Colombia, Morocco
l
Surveillance consultations: 122 consultations in 2013 and 129 in 2014
l
Technical assistance: 274 person years in FY2013 and 285 in FY2014
INTERNATIONAL
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NOTES
CHECK YOUR
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Briefly Describe
IMF?
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4.4 Objective of IMF
-
Promote international monetary cooperation;
-
Facilitate the expansion and balanced growth of international trade;
-
Promote exchange stability;
-
Assist in the establishment of a multilateral system of payments.
-
Make resources available (with adequate safeguards) to members
experiencing balance of payments difficulties
4.5 Functions of IMF
CHECK YOUR
PROGRESS
Give Functions of
IMF?
l The following are the major functions of the IMF :
1.
It functions as a short-term credit institution.
2.
It provides machinery for the orderly adjustments of exchange rates.
3.
It is a reservoir of the currencies of all the member countries from which a
borrower nation can borrow the currency of other nations.
4.
It is a sort of lending institution in foreign exchange. However, it grants loans
for financing current transactions only and not capital transactions.
5.
It also provides machinery for altering sometimes the par value of the currency
of a member country. In this way, it tries to provide for an orderly adjustment
of exchange rates, which will improve the long-term balance of payments
position of member countries.
6.
It also provides machinery for international consultations.
4.6 ORGANISATION AND FINANCE
IMF has a management team and 17 departments that carry out its country,
policy, analytical, and technical work. One department is charged with managing
the IMF's resources. This section also explains where the IMF gets its resources
and how they are used.
Management
The IMF has a Managing Director, who is head of the staff and Chairperson
of the Executive Board. The Managing Director is appointed by the Executive
Board for a renewable term of five years and is assisted by a First Deputy Managing
Director and three Deputy Managing Directors.
Staff
The IMF's employees come from all over the world; they are responsible
to the IMF and not to the authorities of the countries of which they are citizens.
The IMF staff is organized mainly into area; functional; and information, liaison,
and support responsibilities.
IMF Resources
Most resources for IMF loans are provided by member countries, primarily
through their payment of quotas.
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Quotas
Quota subscriptions are a central component of the IMF's financial
resources. Each member country of the IMF is assigned a quota, based broadly on
its relative position in the world economy.
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NOTES
Special Drawing Rights (SDR)
The SDR is an international reserve asset, created by the IMF in 1969 to
supplement its member countries' official reserves.
Gold
Gold remains an important asset in the reserve holdings of several countries,
and the IMF is still one of the world's largest official holders of gold.
Borrowing arrangements
While quota subscriptions of member countries are the IMF's main source
of financing, the Fund can supplement its quota resources through borrowing if it
believes that they might fall short of members' needs.
WORK
IMF's fundamental mission is to ensure the stability of the international
monetary system. It does so in three ways: keeping track of the global economy
and the economies of member countries; lending to countries with balance of
payments difficulties; and giving practical help to members.
Surveillance
The IMF oversees the international monetary system and monitors the
economic and financial policies of its 188 member countries. As part of this process,
which takes place both at the global level and in individual countries, the IMF
highlights possible risks to stability and advises on needed policy adjustments.
Lending
A core responsibility of the IMF is to provide loans to member countries
experiencing actual or potential balance of payments problems. This financial
assistance enables countries to rebuild their international reserves, stabilize their
currencies, continue paying for imports, and restore conditions for strong economic
growth, while undertaking policies to correct underlying problems. Unlike
development banks, the IMF does not lend for specific projects.
Technical Assistance
The IMF helps its member countries design economic policies and manage
their financial affairs more effectively by strengthening their human and institutional
capacity through technical assistance and training. The IMF aims to exploit synergies
between technical assistance and training-which it calls capacity development-to
maximize their effectiveness.
4.7 Fund of IMF
1 - Management of Fund
The twelve member executive committee manages the affairs of IMF.
Five members are the representatives of U.K, U.S.A, China, France and India.
The remaining are elected by the other members countries. Its head office in in
U.S.A.
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2 - Source Of IMF :The initial capital of IMF was 8.5 billion dollar which was contributed by
the 49 members. The quota of each member country was fixed in proportion to the
national income and volume of foreign trade. Every country was required to pay in
the form of gold and domestic currency.
3 - FUNCTIONS OF IMF FUND 1. Merchant Of Currencies :IMF main function is to purchase and sell the member countries currencies.
CHECK YOUR
PROGRESS
What is Fund and
Quota System?
2. Helpful For The Debtor Countries :If any country is facing adverse balance of payment and facing the difficulty
to get the currency of creditor country, it can get short term credit from the fund to
clear the debt. The IMF allows the debtor country to purchase foreign currency in
exchange for its own currency upto 75% of its quota plus an addition 25% each
year. The maximum limit of the quota is 200% in special circumstances.
3. Declared Of Scarce Currency :If the demand of any particular country currency increases and its stock with the
fund falls below 75% of its quota, the IMF can declare it scare. But IMF also tries
to increase its supply by these methods.
a. Purchasing :- IMF purchases the scare currency by gold.
b. Borrowing :- IMF borrows from those countries scare currency who
has surplus amount.
c. Permission :- IMF allows the debtor countries to impose restrictions
on the imports of creditor country.
d. To promote exchange stability :- The main aim of IMF is to promote
exchange stability among the member countries. So it advises the member countries
to conduct exchange transactions at agreed rates. On the other hand one country
can change the parity of the currency without the consent of the IMF but it should
not be more than 10%. If the changes are on large scale and IMF feels that
according the circumstances of the country these are essential then it allows. The
country can not change the exchange rate if IMF does not allow.
e. Temporary aid for the devalued currency :- When the devaluation
policy is indispensable or any country then IMF provides loan to correct the balance
of payment of that country.
f. To avoid exchange depreciation :- IMF is very useful to avoid the
competitive exchange depreciation which took place before world war 2.
4.8 Fund and Quota System
The Fund is an autonomous organisation affiliated to the UNO. IMF's
constitution represents a departure in the formation of an international organisation.
It is financed by the participating countries, with each country's contribution fixed
in terms of quotas according to the relative importance of its prevailing national
income and international trade.
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Thus, the quota assigned to a country is determined by its contribution to
the capital of the Fund. The quotas of all the countries taken together constitute the
total financial resources of the Fund. Moreover, the contributed quota of a country
determines its borrowing rights and voting strength.
India being one of the largest quota-holders (600 million dollars) has the
honour of having a permanent seat on the Board of Executive Directors. Each
member nation of the IMF is required to subscribe its quota partly in gold and
partly in its own currency.
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NOTES
Specifically, a member nation must contribute gold equal to 25 per cent of
its quota or 10 per cent of its gold stock and U.S. dollar holdings, whichever is less.
The portion of subscription paid in a nation's own currency is generally paid in the
form of deposit balance in favour of the IMF held in the nation's central bank.
Thus, the Fund gets a pool of foreign currencies to lend, together with gold enables
it to acquire additional amounts of currencies whenever its initial supply of some
currencies becomes depleted.
The lending operations of the Fund technically take the form of sale of
currency. Any member nation running short of foreign currency may buy the required
currency from the Fund, paying for it in its own currency.
Since each member contributes gold to the extent of 25 per cent of its
quota, the Fund freely permits a member to draw up to the amount of its gold
contribution. Additional drawings are permitted only after certain careful and strict
scrutinizes. Since the purpose of the Fund is to make temporary and long-term
loans, it expects repayment of loans within 3 to 5 years.
The Fund has also laid down provisions relating to exchange stability. At
the same time, the Fund started functioning; members were required to declare the
par values of their currencies in terms of gold as a common denominator or in
terms of U.S. dollar.
Thus, under IMF arrangements, gold retains its role in determining the
relative values of currencies of different nations. And once the par values of different
currencies are fixed, it is quite easy to determine the exchange rate between any
two member nations.
However, if at any time a member country feels there is a fundamental
disequilibrium in its balance of payments position, it may propose a change in the
par value of its currency, i.e., its devaluation.
But devaluation is allowed or even advised by the IMF for the purpose of
correcting a fundamental disequilibrium and not for undue competition or for other
advantages. Thus, the decision to devalue should not be taken unilaterally by the
member concerned, but only after consultation with the Fund.
The Fund has also laid down that member countries should not adopt a
system of multiple exchange rates. That is to say, there should not be two or more
rates between the currency of one member country and that of any other member
country. This was necessary to prevent countries deviating from the principle of
fixed exchange rates. Secondly, it was laid down that a member country should not
purchase or sell gold internationally at prices other than those indicated by the par
values.
In essence, these provisions were laid down in order to secure the chief
advantage of the gold standard system, viz., exchange stability. At the same time,
the exchange rates are not rigidly fixed as in the case of gold standard and exchange
depreciation or devaluation is permissible only for correcting a fundamental
disequilibrium in the balance of payments of a country. Similarly, the Fund may ask
a member enjoying a persistent surplus position to revalue its currency and set
things right.
(43)
Money, Central Banking in
India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
With a view to eliminate or minimise exchange control tactics, the Fund
laid down that there should be no restrictions in ordinary trade and other current
transactions. Although the Fund laid down that exchange controls and other
restrictions should not be used for normal current transactions, it allows their use at
all times to control international capital movements, especially capital flights.
Moreover, exchange controls are expressly permitted in the case of
currencies which may be declared "scarce" by the Fund. It is also permitted during
the "transition period." Thus, the elements of exchange control have been incorporated
in the provision of the Fund.
In short, the IMF may be described as a bank of central banks of different
countries, because it collects the resource of the various central banks in the same
way in which a country's central bank collects cash reserves of all the commercial
banks, assists them in times of emergency.
However, while a central bank can control the credit policy of its member
banks, the Fund cannot control the domestic economic and monetary policies of
member nations. It only seeks to maintain a multiple payments system through an
orderly adjustment of the exchange rates.
4.9 Special Drawing Rights (SDRs)
A Special Drawing Right (SDR) is basically an international monetary
reserve asset. SDRs were created in 1969 by the IMF in response to the Triffin
Paradox. The Triffin Paradox stated that the more US dollars were used as a base
reserve currency, the less faith that countries had in the ability of the US government
to convert those dollars to gold. The world was still using the Bretton Woods system,
and the initial expectation was that SDRs would replace the US dollar as the global
monetary reserve currency, thus solving the Triffin Paradox. Bretton Woods collapsed
a few years later, but the concept of an SDR solidified. Today the value of an SDR
consists of the value of four of the IMF's biggest members' currencies-the US
dollar, the British pound, the Japanese yen, and the euro-but the currencies do not
hold equal weight. SDRs are quoted in terms of US dollars. The basket, or group
of currencies, is reviewed every five years by the IMF executive board and is
based on the currency's role in international trade and finance. The following chart
shows the current valuation in percentages of the four currencies.
Currency
Weighting
US dollar
44 percent
Euro
34 percent
Japanese yen
11 percent
British pound
11 percent
The SDR is not a currency, but some refer to it as a form of IMF currency.
It does not constitute a claim on the IMF, which only serves to provide a mechanism
for buying, selling, and exchanging SDRs. Countries are allocated SDRs, which
are included in the member country's reserves. SDRs can be exchanged between
countries along with currencies. The SDR serves as the unit of account of the IMF
and some other international organizations, and countries borrow from the IMF in
SDRs in times of economic need.
4.10 Summary
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Money, Central Banking in
India and International
Financial Institutions - II
IMF is one of the two institutions that were established as a result of the
Brettonwoods conference in1944, the other institution was the World Bank. IMF
was organized in 1946 and commenced its operation in March 1947.It functions as
a short-term credit institution.
IMF has a management team and 17 departments that carry out its country,
policy, analytical, and technical work.The Managing Director is appointed by the
Executive Board for a renewable term of five years and is assisted by a First
Deputy Managing Director and three Deputy Managing Directors.
The Fund is an autonomous organization affiliated to the UNO. IMF's
constitution represents a departure in the formation of an international organization.
It is financed by the participating countries, with each country's contribution fixed
in terms of quotas according to the relative importance of its prevailing national
income and international trade.
A Special Drawing Right (SDR) is basically an international monetary
reserve asset. SDRs were created in 1969 by the IMF. The SDR is not a currency,
but some refer to it as a form of IMF currency. It does not constitute a claim on the
IMF, which only serves to provide a mechanism for buying, selling, and exchanging
SDRs.
INTERNATIONAL
MONETARY FUND
NOTES
4.11 Exercise & Questions
Fill in the blanks 1)
---------- fundamental mission is to ensure the stability of the international
monetary system.
2)
The IMF has a ---------, who is head of the staff and Chairperson of the
Executive Board.
3)
----------- subscriptions are a central component of the IMF's financial
resources.
4)
The SDR is an international reserve asset, created by the IMF in ------.
Short Answer Questions 1)
Write down any for objective of IMF.
2)
Write a short note on a history of IMF.
3)
Write a short note on SDR.
4)
Explain the organization structure of IMF.
Long Answer Questions1)
Explain the functions of IMF.
2)
Explain the quota system of IMF.
3)
Explain the functions of IMF fund.
4)
Explain the organization structure and Finance Management of IMF.
4.12 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
(45)
Money, Central Banking in
India and International
Financial Institutions - II
UNIT - 5
GOVERNANCE OF MEMBERS OF IMF
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
Structure
CHECK YOUR
PROGRESS
Describe Governance
of IMF?
5.1
Introduction
5.2
Objectives
5.3
Governance of IMF
5.4
Board of Governors
5.5
Ministerial Committees
5.6
The Executive Board
5.7
Governance Reform
5.8
Executive Directors and Voting Rights
5.9
Members of IMF and Votes
5.10
Summary
5.11
Exercise & Questions
5.12
Further Reference Books
5.1 Introduction
IMF was organized in 1946 and commenced its operation in March 1947.
The IMF is an autonomous organization affiliated to the UNO. Starting from the
initial membership of 31 countries at the time of inception, the fund now has
membership of 188 countries. It is financed by the participating countries, with
each country's contribution fixed terms of quotas.
In last chapter we learned quota based system and management of Fund
of IMF.
All powers of the IMF are vested in its Board of Governors, on which all
member states are represented. Each member state appoints one governor and
one alternate governor, who may vote when the principal governor is absent.
Each governor is entitled to cast all the votes allotted to his country as a
unit. On certain matters, however, voting power varies according to the use made
of the Fund's resources by the respective member.
IMF decisions are made by a simple majority of the votes cast, unless
otherwise stipulated in the constitution.
5.2 Objectives
At the end of this unit, you will be able to 1) Understand the organization structure of India.
2) Know the provision of voting rights.
5.3 Governance of IMF
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Money, Central Banking in
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Financial Institutions - II
1) Board of Governor The Board of Governors, the highest decision-making body of the IMF,
consists of one governor and one alternate governor for each member country.
2) Appointment of Governor The governor is appointed by the member country and is usually the minister
of finance or the governor of the central bank.
3) Powers of Governor All powers of the IMF are vested in the Board of Governors. The Board
of Governors may delegate to the Executive Board all except certain reserved
powers.
4) Meeting The Board of Governors normally meets once a year.
The IMF's mandate and governance have evolved along with changes in
the global economy, allowing the organization to retain a central role within the
international financial architecture.
5.4 Board of Governors
1) Board of Governor The Board of Governors is the highest decision-making body of the IMF.
It consists of one governor and one alternate governor for each member country.
The governor is appointed by the member country and is usually the minister of
finance or the head of the central bank.
GOVERNANCE OF
MEMBERS OF IMF
NOTES
CHECK YOUR
PROGRESS
Describe Board of
Governance?
2) Powers While the Board of Governors has delegated most of its powers to the
IMF's Executive Board, it retains the right to approve quota increases, special
drawing right (SDR) allocations, the admittance of new members, compulsory
withdrawal of members, and amendments to the Articles of Agreement and ByLaws.
3) Executive director and Voting The Board of Governors also elects or appoints executive directors and is
the ultimate arbiter on issues related to the interpretation of the IMF's Articles of
Agreement. Voting by the Board of Governors usually takes place by mail-in ballot.
4) Meeting The Boards of Governors of the IMF and the World Bank Group normally
meet once a year, during the IMF-World Bank Spring and Annual Meetings, to
discuss the work of their respective institutions.
The Meetings, which take place in September or October, have customarily
been held in Washington for two consecutive years and in another member country
in the third year.
The Annual Meetings usually include two days of plenary sessions, during
which Governors consult with one another and present their countries' views on
current issues in international economics and finance.
During the Meetings, the Boards of Governors also make decisions on
how current international monetary issues should be addressed and approve
corresponding resolutions.
The Annual Meetings are chaired by a Governor of the World Bank and
the IMF, with the chairmanship rotating among the membership each year.
Every two years, at the time of the Annual Meetings, the Governors of the Bank
and the Fund elect Executive Directors to their respective Executive Boards.
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Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
5.5 Ministerial Committees
The IMF Board of Governors is advised by two ministerial committees,
the International Monetary and Financial Committee (IMFC) and theDevelopment.
NOTES
CHECK YOUR
PROGRESS
Describe Ministerial
Committees?
1) International Monetary and Financial Committee a) Members The IMFC has 24 members, drawn from the pool of 187 governors. Its
structure mirrors that of the Executive Board and its 24 constituencies. As such,
the IMFC represents all the member countries of the Fund.
b) Meeting The IMFC meets twice a year, during the spring and Annual Meetings.
The Committee discusses matters of common concern affecting the global economy
and also advises the IMF on the direction its work. At the end of the Meetings, the
Committee issues a joint communiqué summarizing its views. C) Programme These communiqués provide guidance for the IMF's work program during
the six months leading up to the next spring or Annual Meetings.
D) Voting There is no formal voting at the IMFC, which operates by consensus.
2) Development Committee The Development Committee is a joint committee, tasked with advising
the Boards of Governors of the IMF and the World Bank on issues related to
economic development in emerging and developing countries.
The committee has 24 members (usually ministers of finance or
development). It represents the full membership of the IMF and the World Bank
and mainly serves as a forum for building intergovernmental consensus on critical
development issues.
5.6 The Executive Board
1) Members The IMF's 24-member Executive Board takes care of the daily business
of the IMF. Together, these 24 board members represent all 188 countries.
2) Number of Members Large economies, such as the United States and China, have their own
seat at the table but most countries are grouped in constituencies representing 4 or
more countries. The largest constituency includes 24 countries.
3) Decision and Discussion The Board discusses everything from the IMF staff's annual health checks
of member countries' economies to economic policy issues relevant to the global
economy. The board normally makes decisions based on consensus but sometimes
formal votes are taken. At the end of most formal discussions, the Board issues
what is known as a summing up, which summarizes its views. Informal discussions
may be held to discuss complex policy issues still at a preliminary stage.
5.7 Governance Reform
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India and International
Financial Institutions - II
To be effective, the IMF must be seen as representing the interests of all
its 188 member countries. For this reason, it is crucial that its governance structure
reflect today's world economy. In 2010, the IMF agreed wide-ranging governance
reforms to reflect the increasing importance of emerging market countries. The
reforms also ensure that smaller developing countries will retain their influence in
the IMF.
On December 15, 2010, the Board of Governors of the International
Monetary Fund (IMF) approved a package of far-reaching reforms of the Fund's
quotas and governance. These reforms represent a major realignment in the ranking
of quota shares that better reflects global economic realities, and a strengthening in
the Fund's legitimacy and effectiveness.
GOVERNANCE OF
MEMBERS OF IMF
NOTES
This completes the 14th General Review of Quotas with an unprecedented
doubling of quotas and a major realignment of quota shares-a shift of more than 6
percent from over-represented to under-represented members and a more than 6
percent quota shift to dynamic emerging market and developing countries.
l
The reforms also protect the quota shares and voting power of the poorest
members.
l
The Board of Governors also supported an amendment to the Articles of
Agreement that would facilitate a move to a more representative, all-elected
Executive Board.
Members will make best efforts to complete their domestic approval
processes of these reforms by the Annual Meeting of the Board of Governors in
October 2012.
The 2010 reforms build on an earlier set of reforms that were approved by
the Board of Governors in April 2008 and came into effect on March 3, 2011, with
the acceptance of the 'Voice and Participation' amendment to the Articles of
Agreement by 117 member countries representing 85 percent of the total voting
power. (The requirement for amendments to the Articles to enter into force is
acceptance of at least three-fifths of member, representing 85 percent of the total
voting power.)
The 2008 reforms strengthen the representation of dynamic economies,
many of which are emerging market countries, through ad hoc quota increases for
54 member countries.
They also enhance the voice and participation of low-income countries
through (i) An almost tripling of basic votes-the first increase since the IMF's creation
in 1945,
(ii) A mechanism that, going forward, will keep constant the ratio of basic
votes to total IMF voting power, and (iii) enabling Executive Directors
representing 7 or more members to each appoint a second Alternate
Executive Director following the 2012 regular elections of Executive
Director.
For the 14th General Review and associated reforms to also come into
effect, (i) The proposed amendment to the Articles of Agreement on reform of the
Executive Board needs to be accepted by at least three-fifths of IMF members
representing 85 percent of the total voting power, and
(ii) Members representing at least 70 percent of the total quotas on
November 5, 2010 must consent in writing to their quota increases. Many member
countries will need the approval of domestic legislatures to accept the proposed
amendments to the Articles of Agreement.
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Money, Central Banking in
India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
CHECK YOUR
PROGRESS
Give Shortnote on
Voting rights of
Executive directors?
5.8 Executive Directors and Voting Rights
1) Executive Directors The Executive Board (the Board) is responsible for conducting the dayto-day business of the IMF. It is composed of 24 Directors, who are appointed or
elected by member countries or by groups of countries, and the Managing Director,
who serves as its Chairman. The Board usually meets several times each week. It
carries out its work largely on the basis of papers prepared by IMF management
and staff.
2 - Appointment of Governor All powers of the IMF are vested in its Board of Governors, on which all
member states are represented. Each member state appoints one governor and
one alternate governor, who may vote when the principal governor is absent.
A government customarily appoints its minister of finance, the president of
its central bank, or another high-ranking official as its governor.
For example, in December 2002, the United States governor was Secretary
of the Treasury Paul O'Neill, and the alternate, Federal Reserve Board Chairman
Alan Greenspan.
3) Voting Rights The principle that applies in most international bodies-one nation, one votedoes not apply in the IMF Board of Governors.
Multiple votes are assigned to IMF member states, more votes being
assigned to those subscribing larger quotas to the Fund's resources.
Each member has 250 votes plus 1 additional vote for each SDR 100,000
of its quota.
The total number of votes of all IMF members was 2,172,621 on 12
December 2002, of which the United States held about 17.1%, Germany and Japan
about 6% each, and the United Kingdom and France about 5% each.
Each governor is entitled to cast all the votes allotted to his country as a
unit. On certain matters, however, voting power varies according to the use made
of the Fund's resources by the respective member.
IMF decisions are made by a simple majority of the votes cast, unless
otherwise stipulated in the constitution.
The Board of Governors regularly meets once a year. It may also be
convened for other than annual meetings.
Except for such basic matters as admission of new members, quota
changes, and the like, the Board of Governors delegates most of its powers to the
Executive Directors of the Fund.
The Board of Governors has an advisory committee, the International
Monetary and Financial Committee (IMFC), formerly known as the Interim
Committee, which meets twice a year. Its composition reflects that of the Executive
Board; each country that appoints, and each group that elects, an Executive Director,
also appoints a member to the IMFC. These members are governors of the Fund,
ministers, or others of comparable rank.
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Money, Central Banking in
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Financial Institutions - II
GOVERNANCE OF
MEMBERS OF IMF
5.9 Members of IMF and Votes
No.
Country
Percentage of Vote in Total
1
Australia
1.31
2
Argentina
0.87
3
Belgium
1.87
4
Brazil
1.86
5
China
3.81
6
France
4.29
7
India
2.34
8
Netherland
2.08
9
United Kingdom
4.29
10
USA
16.74
NOTES
The International Monetary Fund (IMF) is an organization of 188 countries,
working to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth,
and reduce poverty around the world.
Membership of the IMF
(Date of entry into force: December 27, 1945)
Chronological List
(188 Member Countries)
Member
Effective Date of Membership
Belgium1
December 27, 1945
Bolivia1
December 27, 1945
Canada1
December 27, 1945
China1
December 27, 1945
Colombia1
December 27, 1945
(Czechoslovakia)1,2,3
(December 27, 1945)
Egypt1
December 27, 1945
Ethiopia1
December 27, 1945
France1
December 27, 1945
Greece1
December 27, 1945
Honduras1
December 27, 1945
Iceland1
December 27, 1945
India1
December 27, 1945
Iraq1
December 27, 1945
Luxembourg1
December 27, 1945
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India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
(52)
Money, Central Banking in
India and International
Financial Institutions - II
Netherlands1
December 27, 1945
Norway1
December 27, 1945
Philippines1
December 27, 1945
South Africa1
December 27, 1945
United Kingdom1
December 27, 1945
United States1
December 27, 1945
(Yugoslavia)1,4,5
(December 27, 1945)
Dominican Republic1
December 28, 1945
Ecuador1
December 28, 1945
Guatemala1
December 28, 1945
Paraguay1
December 28, 1945
Iran, Islamic Republic of (Iran)1
December 29, 1945
Chile1
December 31, 1945
Mexico1
December 31, 1945
Peru1
December 31, 1945
Costa Rica1
January 8, 1946
(Poland)1, 6
(January 10, 1946)
Brazil1
January 14, 1946
Uruguay1
March 11, 1946
(Cuba)1, 7
(March 14, 1946)
El Salvador8
March 14, 1946
Nicaragua8
March 14, 1946
Panama8
March 14, 1946
Denmark8
March 30, 1946
Venezuela, RepúblicaBolivariana de8
December 30, 1946
Turkey
March 11, 1947
Italy
March 27, 1947
Syrian Arab Republic (Syria)
April 10, 1947
Lebanon
April 14, 1947
Australia
August 5, 1947
Finland
January 14, 1948
Austria
August 27, 1948
Thailand (Siam)
May 3, 1949
Pakistan
July 11, 1950
Sri Lanka (Ceylon)
August 29, 1950
Sweden
August 31, 1951
Myanmar (Burma)
January 3, 1952
Japan
August 13, 1952
Germany
August 14, 1952
Jordan
August 29, 1952
Haiti
September 8, 1953
(Indonesia)9
(April 15, 1954)
Israel
July 12, 1954
Afghanistan, Islamic Rep. of (Afghanistan)
July 14, 1955
Korea
August 26, 1955
Argentina
September 20, 1956
Vietnam (Viet Nam)
September 21, 1956
Ireland
August 8, 1957
Saudi Arabia
August 26, 1957
Sudan
September 5, 1957
Ghana
September 20, 1957
Malaysia (Malaya)
March 7, 1958
Tunisia
April 14, 1958
Morocco
April 25, 1958
Spain
September 15, 1958
Libya
September 17, 1958
Portugal
March 29, 1961
Nigeria
March 30, 1961
Lao People's Democratic Republic (Laos)
July 5, 1961
New Zealand
August 31, 1961
Nepal
September 6, 1961
Cyprus
December 21, 1961
Liberia
March 28, 1962
Togo
August 1, 1962
Senegal
August 31, 1962
Somalia
August 31, 1962
Sierra Leone
September 10, 1962
Tanzania (Tanganyika)
September 10, 1962
Kuwait
September 13, 1962
Jamaica
February 21, 1963
Côte d'Ivoire (Ivory Coast)
March 11, 1963
Niger
April 24, 1963
Burkina Faso (Upper Volta)
May 2, 1963
Cameroon
July 10, 1963
Central African Republic
July 10, 1963
Chad
July 10, 1963
GOVERNANCE OF
MEMBERS OF IMF
NOTES
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Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
Congo, Republic of
July 10, 1963
Benin (Dahomey)
July 10, 1963
Gabon
September 10, 1963
Mauritania
September 10, 1963
Trinidad and Tobago
September 16, 1963
Madagascar (Malagasy Republic)
September 25, 1963
Algeria
September 26, 1963
Mali
September 27, 1963
Uganda
September 27, 1963
Burundi
September 28, 1963
Congo, Democratic Republic of the (Zaïre)
September 28, 1963
Guinea
September 28, 1963
Rwanda
September 30, 1963
Kenya
February 3, 1964
Malawi
July 19, 1965
Zambia
September 23, 1965
Singapore
August 3, 1966
Guyana
September 26, 1966
Indonesia9
February 21, 1967
Gambia, The
September 21, 1967
Botswana
July 24, 1968
Lesotho
July 25, 1968
Malta
September 11, 1968
Mauritius
September 23, 1968
Swaziland
September 22, 1969
(Yemen, People's Democratic
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Money, Central Banking in
India and International
Financial Institutions - II
Republic of (Southern Yemen))10
(September 29, 1969)
Equatorial Guinea
December 22, 1969
Cambodia
December 31, 1969
(Yemen Arab Republic)10
(May 22, 1970)
Barbados
December 29, 1970
Fiji
May 28, 1971
Oman
December 23, 1971
Samoa (Western Samoa)
December 28, 1971
Bangladesh
August 17, 1972
Bahrain
September 7, 1972
Qatar
September 8, 1972
United Arab Emirates
September 22, 1972
Romania
December 15, 1972
Bahamas, The
August 21, 1973
Grenada
August 27, 1975
Papua New Guinea
October 9, 1975
Comoros
September 21, 1976
Guinea-Bissau
March 24, 1977
Seychelles
June 30, 1977
São Tomé and Príncipe
September 30, 1977
Maldives
January 13, 1978
Suriname
April 27, 1978
Solomon Islands
September 22, 1978
Cape Verde
November 20, 1978
Dominica
December 12, 1978
Djibouti
December 29, 1978
St. Lucia
November 15, 1979
St. Vincent and the Grenadines
December 28, 1979
Zimbabwe
September 29, 1980
Bhutan
September 28, 1981
Vanuatu
September 28, 1981
Antigua and Barbuda
February 25, 1982
Belize
March 16, 1982
Hungary
May 6, 1982
St. Kitts and Nevis
August 15, 1984
Mozambique
September 24, 1984
Tonga
September 13, 1985
Kiribati
June 3, 1986
Poland1,6
June 12, 1986
Angola
September 19, 1989
Yemen, Republic of10
May 22, 1990 7
(Czechoslovakia)1,2,3
(September 20, 1990)
Bulgaria
September 25, 1990
Namibia
September 25, 1990
Mongolia
February 14, 1991
Albania
October 15, 1991
Lithuania
April 29, 1992
Georgia
May 5, 1992
Kyrgyz Republic (Kyrgyzstan)
May 8, 1992
Latvia
May 19, 1992
GOVERNANCE OF
MEMBERS OF IMF
NOTES
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India and International
Financial Institutions - II
Money, Central Banking in
India and International
Financial Institutions - II
NOTES
(56)
Money, Central Banking in
India and International
Financial Institutions - II
Marshall Islands
May 21, 1992
Estonia
May 26, 1992
Armenia
May 28, 1992
Switzerland
May 29, 1992
Russian Federation
June 1, 1992
Belarus
July 10, 1992
Kazakhstan
July 15, 1992
Moldova
August 12, 1992
Ukraine
September 3, 1992
Azerbaijan
September 18, 1992
Uzbekistan
September 21, 1992
Turkmenistan
September 22, 1992
San Marino
September 23, 1992
Bosnia and Herzegovina5
December 14, 1992
Croatia5
December 14, 1992
Macedonia, former Yugoslav Republic of5
December 14, 1992
Slovenia5
December 14, 1992
Serbia5
December 14, 1992
Czech Republic3
January 1, 1993
Slovak Republic3
January 1, 1993
Tajikistan
April 27, 1993
Micronesia, Federated States of
June 24, 1993
Eritrea
July 6, 1994
Brunei Darussalam
October 10, 1995
Palau
December 16, 1997
Timor-Leste (East Timor)
July 23, 2002
Montenegro5
January 18, 2007
Kosovo
June 29, 2009
Tuvalu
June 24, 2010
South Sudan
April 18, 2012
1
"Original members" (Article II, Section 1), which signed the Articles of
Agreement by December 31, 1945. Costa Rica, Poland, Brazil, Uruguay, and
Cuba signed the Articles by that date but their membership became effective
upon deposit of their respective instruments of acceptance.
2
Czechoslovakia became a member of the Fund on December 27, 1945 and
ceased to be a member, effective December 31, 1954; Czechoslovakia was
readmitted as a member of the Fund on September 20, 1990, and ceased to be
a member, effective January 1, 1993.
3
The Czech Republic and the Slovak Republic succeeded to the membership
of Czechoslovakia on January 1, 1993.
4
The Socialist Federal Republic of Yugoslavia ceased to be a member, effective
December 14, 1992.
5
Croatia (on January 15, 1993), Slovenia (on January 15, 1993), the former
Yugoslav Republic of Macedonia (on April 21, 1993), Bosnia and Herzegovina
(on December 20, 1995), and the Federal Republic of Yugoslavia (on December
20, 2000) succeeded to the membership in the Fund of the former Socialist
Federal Republic of Yugoslavia, in each case, effective December 14, 1992.
The Federal Republic of Yugoslavia was later renamed Serbia and Montenegro.
In June 2006, Serbia and Montenegro separated to become the Republic of
Serbia and the Republic of Montenegro. Serbia succeeded to the membership
of Serbia and Montenegro.
6
Poland became a member of the Fund on January 10, 1946 and withdrew
from membership, effective March 14, 1950; Poland was readmitted as a
member of the Fund on June 12, 1986.
7
Cuba withdrew from the Fund, effective April 2, 1964.
8
Countries that joined the Fund under the provisions for original members as
extended to December 31, 1946 by Board of Governors Resolution IM-9.
9
Indonesia became a member of the Fund on April 15, 1954 and withdrew
from membership, effective August 17, 1965; Indonesia was readmitted as a
member of the Fund on February 21, 1967.
GOVERNANCE OF
MEMBERS OF IMF
NOTES
10 The Republic of Yemen succeeded to the membership of the Yemen Arab
Republic and of the People's Democratic Republic of Yemen on May 22,
1990.
5.10 Summary
The Board of Governors, the highest decision-making body of the IMF,
consists of one governor and one alternate governor for each member country.
The governor is appointed by the member country and is usually the minister
of finance or the governor of the central bank.
The Annual Meetings usually include two days of plenary sessions, during
which Governors consult with one another and present their countries' views on
current issues in international economics and finance.
India is a member of IMF since 27 December 1945.
5.11 Exercise & Questions
Fill in the blanks 1)
The ------------ is highest decision-making body of the IMF.
2)
The IMFC has--------- members.
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Financial Institutions - II
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Financial Institutions - II
NOTES
3)
The Board of Governors regularly meets --------- a year.
4)
India is a member of IMF since --------------.
Short answer Questions 1)
Write a short note on Governance of IMF.
2)
Explain the structure and provisions of ministerial committee.
3)
Write down any five names of founder members of IMF.
4)
Write down the name of any five members of IMF and their votes in
Percentage.
Long Answer Questions 1)
Explain the governance structure of IMF.
2)
Explain the provisions of Governance reform of IMF.
3)
Explain the provisions of voting rights of executive directors of IMF.
5.12 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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UNIT - 6
INTRODUCTION TO WORLD BANK
INTRODUCTION TO
WORLD BANK
NOTES
Structure
6.1
Introduction
6.2
Objectives
6.3
An Introduction to World Bank
6.4
Summary
6.5
Exercise & Questions
6.6
Further Reference Books
6.1 Introduction
The World Bank is also known as International bank for reconstruction
and development, was result of Bretton woods conference. The main objective
behind setting up this international organization were to aid the task of reconstruction
of the war affected economies of Europe and assist in the development of the
underdeveloped nations of the world Bank. The World Bank is entrusted with the
task of economic growth and widening of the scope of international trade.
CHECK YOUR
PROGRESS
Briefly Describe
World Bank?
6.2 Objectives
At the end of this unit, you will be able to:
1) Know the meaning of World Bank.
2) Know the history of World Bank.
3) Understand the functions of World Bank.
4) Understand the organization structure of World Bank.
6.3 An Introduction to World Bank
The World Bank came into existence in 1944 at the Bretton Woods
conference. Its formal name is the International Bank for Reconstruction and
Development (IBRD), which clearly states its primary purpose of financing economic
development. The World Bank's first loans were extended during the late 1940s to
finance the reconstruction of the war-ravaged economies of Western Europe. When
these nations recovered some measure of economic self-sufficiency, the World
Bank turned its attention to assisting the world's poorer nations.
The World Bank has one central purpose: to promote economic and social
progress in developing countries by helping raise productivity so that their people
may live a better and fuller life:
[In 2009,] the World Bank provided $46.9 billion for 303 projects in
developing countries worldwide, with our financial and/or technical expertise aimed
at helping those countries reduce poverty.
The Bank is currently involved in more than 1,800 projects in virtually
every sector and developing country. The projects are as diverse as providing
microcredit in Bosnia and Herzegovina, raising AIDS-prevention awareness in
Guinea, supporting education of girls in Bangladesh, improving health care delivery
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in Mexico, and helping East Timor rebuild upon independence and India rebuild
Gujarat after a devastating earthquake. "Projects," .
Today, The World Bank consists of two main bodies, the International
Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA), established in 1960. The World Bank is part of
the broader World Bank Group, which consists of five interrelated institutions: the
IBRD; the IDA; the International Finance Corporation (IFC), which was established
in 1956; the Multilateral Investment Guarantee Agency (MIGA), which was
established in 1988; and the International Centre for Settlement of Investment
Disputes (ICSID), which was established in 1966. These additional members of
the World Bank Group have specific purposes as well. The IDA typically provides
interest-free loans to countries with sovereign guarantees. The IFC provides loans,
equity, risk-management tools, and structured finance. Its goal is to facilitate
sustainable development by improving investments in the private sector. The MIGA
focuses on improving the foreign direct investment of developing countries. The
ICSID provides a means for dispute resolution between governments and private
investors with the end goal of enhancing the flow of capital.
The current primary focus of the World Bank centers on six strategic
themes:
1. The poorest countries. Poverty reduction and sustainable growth in the
poorest countries, especially in Africa.
2. Postconflict and fragile states. Solutions to the special challenges of
postconflict countries and fragile states.
3. Middle-income countries. Development solutions with customized services
as well as financing for middle-income countries.
4. Global public goods. Addressing regional and global issues that cross national
borders, such as climate change, infectious diseases, and trade.
5. The Arab world. Greater development and opportunity in the Arab world.
6. Knowledge and learning. Leveraging the best global knowledge to support
development."To Meet Global Challenges, Six Strategic Themes," The World
Bank provides low-interest loans, interest-free credits, and grants to developing
countries. There's always a government (or "sovereign") guarantee of
repayment subject to general conditions. The World Bank is directed to make
loans for projects but never to fund a trade deficit. These loans must have a
reasonable likelihood of being repaid. The IDA was created to offer an
alternative loan option. IDA loans are free of interest and offered for several
decades, with a ten-year grace period before the country receiving the loan
needs to begin repayment. These loans are often called soft loans.
Since it issued its first bonds in 1947, the IBRD generates funds for its
development work through the international capital markets (which Chapter 7
"Foreign Exchange and the Global Capital Markets"covers).
The World Bank issues bonds, typically about $25 billion a year. These
bonds are rated AAA (the highest possible rating) because they are backed by
member states' shared capital and by borrowers' sovereign guarantees. Because
of the AAA credit rating, the World Bank is able to borrow at relatively low interest
rates.
This provides a cheaper funding source for developing countries, as most
developing countries have considerably low credit ratings. The World Bank charges
a fee of about 1 percent to cover its administrative overheads.
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Objectives:
The following objectives are assigned by the World Bank:
1. To provide long-run capital to member countries for economic reconstruction
and development.
2. To induce long-run capital investment for assuring Balance of Payments (BoP)
equilibrium and balanced development of international trade.
3. To provide guarantee for loans granted to small and large units and other
projects of member countries.
4. To ensure the implementation of development projects so as to bring about a
smooth transference from a war-time to peace economy.
5. To promote capital investment in member countries by the following ways;
(a) To provide guarantee on private loans or capital investment.
(b) If private capital is not available even after providing guarantee, then IBRD
provides loans for productive activities on considerate conditions.
Functions:
World Bank is playing main role of providing loans for development works
to member countries, especially to underdeveloped countries. The World Bank
provides long-term loans for various development projects of 5 to 20 years duration.
INTRODUCTION TO
WORLD BANK
NOTES
CHECK YOUR
PROGRESS
Describe functions of
World Bank?
The main functions can be explained with the help of the following points:
1. World Bank provides various technical services to the member countries. For
this purpose, the Bank has established "The Economic Development Institute"
and a Staff College in Washington.
2. Bank can grant loans to a member country up to 20% of its share in the paidup capital.
3. The quantities of loans, interest rate and terms and conditions are determined
by the Bank itself.
4. Generally, Bank grants loans for a particular project duly submitted to the
Bank by the member country.
5. The debtor nation has to repay either in reserve currencies or in the currency
in which the loan was sanctioned.
6. Bank also provides loan to private investors belonging to member countries on
its own guarantee, but for this loan private investors have to seek prior
permission from those counties where this amount will be collected
Functions:
The principal functions of the IBRD are set forth in Article I of the
agreement as follows:
1. To assist in the reconstruction and development of the territories of its members
by facilitating the investment of capital for productive purposes.
2. To promote private foreign investment by means of guarantee of participation
in loans and other investments made by private investors and when private
capital is not available on reasonable terms, to make loans for productive
purposes out of its own resources or from funds borrowed by it.
3. To promote the long-term balanced growth of international trade and the
maintenance of equilibrium in balance of payments by encouraging international
investment for the development of the productive resources of members.
4. To arrange loans made or guaranteed by it in relation to international loans
through other channels so that more useful and urgent projects, large and
small alike, will be dealt with first. It appears that the World Bank was created
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NOTES
CHECK YOUR
PROGRESS
Describe Organization
and Structure of
World Bank?
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to promote and not to replace private foreign investment. The Bank considers
its role to be a marginal one, to supplement and assist foreign investment in
the member countries.
A little consideration will show that the objectives of the IMF and IBRD
are complementary. Both aim at increasing the level of national income and standard
of living of the member nations. Both serve as lending institutions, the IMF for
short-term and the IBRD for long-term capital. Both aim at promoting the balanced
growth of international trade.
Organization and Structure:
The organization of the bank consists of the Board of Governors, the Board
of Executive Directors and the Advisory Committee, the Loan Committee and the
president and other staff members. All the powers of the bank are vested in the
Board of Governors which is the supreme policy making body of the bank.
The board consists of one Governor and one Alternative Governor appointed
for five years by each member country. Each Governor has the voting power
which is related to the financial contribution of the Government which he represents.
The Board of Executive Directors consists of 21 members, 6 of them are
appointed by the six largest shareholders, namely the USA, the UK, West Germany,
France, Japan and India. The rest of the 15 members are elected by the remaining
countries.
Each Executive Director holds voting power in proportion to the shares
held by his Government. The board of Executive Directors meets regularly once a
month to carry on the routine working of the bank.
The president of the bank is pointed by the Board of Executive Directors.
He is the Chief Executive of the Bank and he is responsible for the conduct of the
day-to-day business of the bank. The Advisory committees appointed by the Board
of Directors.
It consists of 7 members who are expects in different branches of banking.
There is also another body known as the Loan Committee. This committee is
consulted by the bank before any loan is extended to a member country.
Membership
There are 184 member countries that are shareholders in the IBRD, which
is the primary arm of the WBG. To become a member, however, a country must
first join the International Monetary Fund (IMF).
The size of the World Bank's shareholders, like that of the IMF's
shareholders, depends on the size of a country's economy.
Thus, the cost of a subscription to the World Bank is a factor of the quota
paid to the IMF.
There is an obligatory subscription fee, which is equivalent to 88.29% of
the quota that a country has to pay to the IMF. In addition, a country is obligated to
buy 195 World Bank shares (US$120,635 per share, reflecting a capital increase
made in 1988). Of these 195 shares, 0.60% must be paid in cash in U.S. dollars
while 5.40% can be paid in a country's local currency, in U.S. dollars, or in nonnegotiable non-interest bearing notes.
The balance of the 195 shares is left as "callable capital," meaning the
World Bank reserves the right to ask for the monetary value of these shares when
and if necessary.
A country can subscribe a further 250 shares, which do not require payment
at the time of membership but are left as "callable capital."
The president of the World Bank comes from the largest shareholder,
which is the United States, and members are represented by a Board of Governors.
Throughout the year, however, powers are delegated to a board of 24
executive directors (EDs). The five largest shareholders - the U.S., U.K., France,
Germany and Japan - each have an individual ED, and the additional 19 EDs
represent the rest of the member states as groups of constituencies. Of these 19,
however, China, Russia and Saudi Arabia have opted to be single country
constituencies, which mean that they each have one representative within the 19
EDs.
This decision is based on the fact that these countries have large, influential
economies, which requires that their interests be voiced individually rather than
diluted within a group. The World Bank gets its funding from rich countries as well
as from the issuance of bonds on the world's capital markets.
INTRODUCTION TO
WORLD BANK
NOTES
International Bank for Reconstruction and Development
Country / Date of Membership
Afghanistan, Jul 14, 1995
Albania, Oct 15, 1991
Algeria, Sep 26, 1963
Angola, Sep 19, 1989
Antigua and Barbuda, Sep 22, 1983
Argentina, Sep 20, 1956
Armenia, Sep 16, 1992
Australia, Aug 5, 1947
Austria, Aug 27, 1948
Azerbaijan, Sep 18, 1992
Bahamas, The Aug 21, 1973
Bahrain, Sep 15, 1972
Bangladesh, Aug 17, 1972
Barbados, Sep 12, 1974
Belarus, Jul 10, 1992
Belgium, Dec 27, 1945
Belize, Mar 19, 1982
Benin, Jul 10, 1963
Bhutan, Sep 28, 1981
Bolivia, Dec 27, 1945
Bosnia and Herzegovina, Feb 25, 1993
Botswana, Jul 24, 1968
Brazil, Jan 14, 1946
Brunei Darussalam, Oct 10, 1995
Bulgaria, Sep 25, 1990
Burkina Faso, May 2, 1963
Burundi, Sep 28, 1963
Cabo Verde, Nov 20, 1978
Cambodia, Jul 22, 1970
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Cameroon, Jul 10, 1963
Canada, Dec 27, 1945
Central African Republic, Jul 10, 1963
Chad, Jul 10, 1963
Chile, Dec 31, 1945
China, Dec 27, 1945
Colombia, Dec 24, 1946
Comoros, Oct 28, 1976
Congo, Democratic Republic of, Sep 28, 1963
Congo, Republic of, Jul 10, 1963
Costa Rica, Jan 8, 1946
Cote d'Ivoire, Mar 11, 1963
Croatia, Feb 25, 1993
Cyprus, Dec 21, 1961
Czech Republic, Jan 1, 1993
Denmark, Mar 30, 1946
Djibouti, Oct 1, 1980
Dominica, Sep 29, 1980
Dominican Republic, Sep 18, 1961
Ecuador, Dec 28, 1945
Egypt, Arab Republic of, Dec 27, 1945
El Salvador, Mar 14, 1946
Equatorial Guinea, Jul 1, 1970
Eritrea, Jul 6, 1994
Estonia, Jun 23, 1992
Ethiopia, Dec 27, 1945
Fiji, May 28, 1971
Finland, Jan 14, 1948
France, Dec 27, 1945
Gabon, Sep 10, 1963
Gambia, The, Oct 18, 1967
Georgia, Aug 7, 1992
Germany, Aug 14, 1952
Ghana, Sep 20, 1957
Greece, Dec 27, 1945
Grenada, Aug 27, 1975
Guatemala, Dec 28, 1945
Guinea, Sep 28, 1963
Guinea-Bissau, Mar 24, 1977
Guyana, Sep 26, 1966
Haiti, Sep 8, 1953
Honduras, Dec 27, 1945
Hungary, Jul 7, 1982
Iceland, Dec 27, 1945
India, Dec 27, 1945
Indonesia, Apr 13, 1967
Iran, Islamic Republic of, Dec 29, 1945
Iraq, Dec 27, 1945
Ireland, Aug 8, 1957
Israel, Jul 12, 1954
Italy, Mar 27, 1947
Jamaica, Feb 21, 1963
Japan, Aug 13, 1952
Jordan, Aug 29, 1952
Kazakhstan, Jul 23, 1992
Kenya, Feb 3, 1964
Kiribati, Sep 29, 1986
Korea, Republic of, Aug 26, 1955
Kosovo, Jun 29, 2009
Kuwait, Sep 13, 1962
Kyrgyz Republic, Sep 18, 1992
Lao People's Democratic Republic, Jul 5, 1961
Latvia, Aug 11, 1992
Lebanon, Apr 14, 1947
Lesotho, Jul 25, 1968
Country / Date of Membership
Liberia, Mar 28, 1962
Libya, Sep 17, 1958
Lithuania, Jul 6, 1992
Luxembourg, Dec 27, 1945
Macedonia, FYR of, Feb 25, 1993
Madagascar, Sep 25, 1963
Malawi, Jul 19, 1965
Malaysia, Mar 7, 1958
Maldives, Jan 13, 1978
Mali, Sep 27, 1963
Malta, Sep 26, 1983
Marshall Islands, May 21, 1992
Mauritania, Sep 10, 1963
Mauritius, Sep 23, 1968
Mexico, Dec 31, 1945
Micronesia, Federated States of, Jun 24, 1993
Moldova, Aug 12, 1992
Mongolia, Feb 14, 1991
Montenegro, Jan 18, 2007
Morocco, Apr 25, 1958
Mozambique, Sep 24, 1984
Myanmar, Jan 3, 1952
Namibia, Sep 25, 1990
Nepal, Sep 6, 1961
Netherlands, Dec 27, 1945
INTRODUCTION TO
WORLD BANK
NOTES
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New Zealand, Aug 31, 1961
Nicaragua, Mar 14, 1946
Niger, Apr 24, 1963
Nigeria, Mar 30, 1961
Norway, Dec 27, 1945
Oman, Dec 23, 1971
Pakistan, Jul 11, 1950
Palau, Dec 16, 1997
Panama, Mar 14, 1946
Papua New Guinea, Oct 9, 1975
Paraguay, Dec 28, 1945
Peru, Dec 31, 1945
Philippines, Dec 27, 1945
Poland, Jun 27, 1986
Portugal, Mar 29, 1961
Qatar, Sep 25, 1972
Romania, Dec 15, 1972
Russian Federation, Jun 16, 1992
Rwanda, Sep 30, 1963
Samoa, Jun 28, 1974
San Marino, Sep 21, 2000
Sao Tome and Principe, Sep 30, 1977
Saudi Arabia, Aug 26, 1957
Senegal, Aug 31, 1962
Serbia, Feb 25, 1993
Seychelles, Sep 29, 1980
Sierra Leone, Sep 10, 1962
Singapore, Aug 3, 1966
Slovak Republic, Jan 1, 1993
Slovenia, Feb 25, 1993
Solomon Islands, Sep 22, 1978
Somalia, Aug 31, 1962
South Africa, Dec 27, 1945
South Sudan, Apr 18, 2012
Spain, Sep 15, 1958
Sri Lanka, Aug 29, 1950
St. Kitts and Nevis, Aug 15, 1984
St. Lucia, Jun 27, 1980
St. Vincent and the Grenadines, Aug 31, 1982
Sudan, Sep 5, 1957
Suriname, Jun 27, 1978
Swaziland, Sep 22, 1969
Sweden, Aug 31, 1951
Switzerland, May 29, 1992
Syrian Arab Republic, Apr 10, 1947
Tajikistan, Jun 4, 1993
Tanzania, Sep 10, 1962
Thailand, May 3, 1949
Timor-Leste, Jul 23, 2002
Togo, Aug 1, 1962
Tonga, Sep 13, 1985
Trinidad and Tobago, Sep 16, 1963
Tunisia, Apr 14, 1958
Turkey, Mar 11, 1947
Turkmenistan, Sep 22, 1992
Tuvalu, Jun 24, 2010
Uganda, Sep 27, 1963
Ukraine, Sep 3, 1992
United Arab Emirates, Sep 22, 1972
United Kingdom, Dec 27, 1945
United States, Dec 27, 1945
Uruguay, Mar 11, 1946
Uzbekistan, Sep 21, 1992
Vanuatu, Sep 28, 1981
Venezuela, RepublicaBolivariana de, Dec 30, 1946
Vietnam, Sep 21, 1956
Yemen, Republic of, Oct 3, 1969
Zambia, Sep 23, 1965
Zimbabwe, Sep 29, 1980
INTRODUCTION TO
WORLD BANK
NOTES
World Bank and India India's involvement with the World Bank dates back to its earliest days.
India was one of the 17 countries which met in Atlantic City, USA in June 1944 to
prepare the agenda for the Bretton Woods conference, and one of the 44 countries
which signed the final Agreement that established the Bank.
In fact, the name "International Bank for Reconstruction and Development"
[IBRD] was first suggested by India to the drafting committee.
The Indian delegation was led by Sir Jeremy Raisman, Finance Member
of the Government of India and included Sir C. D. Deshmukh (Governor of the
Reserve Bank of India, later to become India's Finance Minister), Sir Theodore
Gregory (the first Economic Advisor to the Government of India), Sir R.K.
ShanmukhanChetty (later independent India's first Finance Minister), Mr. A.D.
Shroff (one of the architects of the Bombay Plan) and Mr B.K. Madan (later
India's Executive Director in IMF).
Fund From World Bank The Bank lending to India started in 1949, when the first loan of $34 million
was approved for the Indian Railways.
The first decade of the Bank's lending to India (1949 - 1959) saw just
about 20 loans for a total amount of $611 million.
During the years 1960-69, overall lending to India from the Bank rose to
$1.8 billion, about three times the level in the previous decade.
Between 1970-79, there was a large increase in the absolute volume of
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IDA lending and the IDA share in total Bank assistance reached a high of 80% in
this decade.
However, in the 1980s, India's share in total IDA lending declined to 25%
and was updated by the more expensive WB lending.
The volume of the WB lending rose to $14.7 billion during 1980-89, almost
10 times the level of $1.5 billion in the previous decade.
From 1949 to June 2000, the Bank has extended about 215 loans and 292
development credits to India, totaling approximately US$26.2 billion from the IBRD
and US$27.2 billion equivalent from IDA. As of June 30, 2000, the Bank's lending
portfolio of ongoing projects for India comprised 79 projects amounting to about
US$11.5 billion.
India is also among the Bank's top annual borrowers. In FY, 2000, lending
commitments reached about US$1.8 billion (US$866.5 million equivalent in IDA
credits and US$934.3 million in IBRD loans) for eleven projects.
The sectoral allocation of the existing portfolio is concentrated in rural
development (23 percent of total commitments), education and health (23 percent
combined) and infrastructure, including energy (20 percent).
Focusing on Reforming States
As the reform agenda has shifted to the states over the past few years,
the Bank Group has reoriented its strategy to focus mainly on those states that
have chosen to embark on a comprehensive program of economic reforms. These
include some of the poorer states with the worst social indicators.
State-level operations are not new to the Bank in India. In the past, however,
selection of state projects was done largely on project and sector grounds rather
than on the basis of the overall policy stance of the state itself. The Bank is now
developing comprehensive assistance programs for reforming states.
All Bank loans to the states will continue to be channeled through the
central government, and then on-lent to the states. In support of this strategy, the
Bank is undertaking fiscal studies of the major states in collaboration with local
research institutions.
India will have a larger say in the affairs of the World Bank as it has
become the seventh largest shareholder in the multilateral lender with 2.91% voting
rights.
The International Monetary Fund and
the World Bank at a Glance
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International Monetary Fund
- oversees the international monetary
system
- promotes exchange stability and
orderly exchange relations among
its member countries
- assists all members--both industrial
and developing countries--that find
themselves in temporary balance of
payments difficulties by providing
short- to medium-term credits
- supplements the currency reserves
of its members through the
allocation of SDRs (special drawing
rights); to date SDR 21.4 billion has
been issued to member countries in
World Bank
- 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)
-
-
-
proportion to their quotas
- acquires most of its financial
draws its financial resources
resources by borrowing on the
principally from the quota
international bond market
subscriptions of its member - has an authorized capital of $184
countries
billion, of which members pay in about
has at its disposal fully paid-in quotas
10 percent
now totaling SDR 145 billion (about - has a staff of 7,000 drawn from 180
$215 billion)
member countries
has a staff of 2,300 drawn from 182
member countries
INTRODUCTION TO
WORLD BANK
NOTES
6.4 Summary
The World Bank is also known as International bank for reconstruction
and development, was result of Bretton woods conference.
Today, The World Bank consists of two main bodies, the International
Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA), established in 1960. The World Bank is part of
the broader World Bank Group, which consists of five interrelated institutions: the
IBRD; the IDA; the International Finance Corporation (IFC), which was established
in 1956; the Multilateral Investment Guarantee Agency (MIGA), which was
established in 1988; and the International Centre for Settlement of Investment
Disputes (ICSID), which was established in 1966.
The World Bank is entrusted with the task of economic growth and widening
of the scope of international trade.
The organization of the bank consists of the Board of Governors, the Board
of Executive Directors and the Advisory Committee, the Loan Committee and the
president and other staff members.
The president of the World Bank comes from the largest shareholder,
which is the United States, and members are represented by a Board of Governors.
6.5 Exercise & Questions
Fill in the blanks 1)
World Bank Is also known as ----------------------.
2)
The World Bank came into existence in ------------ at the Bretton Woods
conference.
3)
The --------- of the World Bank comes from the largest shareholder.
4)
There are ---------- member countries that are shareholders in the IBRD,
which is the primary arm of the WBG.
Very
1)
2)
3)
4)
5)
Short Answer QuestionsWrite down any three objectives of World Bank.
Explain the role of World Bank in developing countries.
Distinguish between IMF and World Bank.
Write a short note on World Bank Group.
The World Bank is also known as International bank for reconstruction and
development. Discuss.
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Money, Central Banking in
India and International
Financial Institutions - II
NOTES
Long Answer Questions1)
Explain the functions of World Bank.
2)
Explain the organization structure of World Bank.
3)
Explain the role of World Bank in the development of India.
6.6 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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UNIT - 7
INTERNATIONAL FINANCE
CORPORATION
INTERNATIONAL
FINANCE
CORPORATION
NOTES
Structure
7.1
Introduction
7.2
Objectives
7.3
An Overview of IFC
7.4
Objectives and Working
7.5
Types of Roles
7.6
Membership and Structure
7.7
Services
7.8
IFC in India
7.9
Creating Opportunities
7.10
Summary
7.11
Exercise & Questions
7.12
Further Reference Books
7.1 Introduction
Over the time, additional organizations have been set up under the umbrella
of the World Bank. As of today, the World Bank today is a group of five international
organizations responsible for providing finance to different countries. The group
and its affiliates headquartered in Washington. The World Bank group Consist 1) International bank for Reconstruction and Development (IBRD - 1945).
2) International Financial Corporation (IFC- 1956).
3) International Development Association (IDA- 1960).
4) Multilateral Investment guarantee agency (MIGA-1988).
5) International center for settlement of investment disputes (ICSID-1966).
Developing countries grew increasingly frustrated with not being able to
afford IBRD lending and perceived the Marshall Plan as a comparatively generous
gift to European nations. In the late 1940s and early 1950s, developing countries
began calling for the United Nations (UN) to create a development agency that
would offer technical support and concessional financing, with a particular desire
that the agency adhere to other UN bodies' convention of each country having one
vote as opposed to a weighted vote. However, the United States ultimately opposed
proposals of that nature. As the United States grew more concerned over the
culmination of the Cold War, it made a concession in 1954 at the behest of its
Department of State by backing the conception of the International Finance
Corporation (IFC).
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7.2 Objectives
At the end of this unit, you will be able to 1) Understand the objective of IFC
2) Understand the role of IFC
3) Understand the organization structure of IFC
7.3 An Overview of IFC
The International Finance Corporation (IFC) is an international financial
institution that offers investment, advisory, and asset management services to
encourage private sector development in developing countries. The IFC is a member
of the World Bank Group and is headquartered in Washington, D.C., United States.
It was established in 1956 as the private sector arm of the World Bank Group to
advance economic development by investing in strictly for-profit and commercial
projects that purport to reduce poverty and promote development. The IFC's stated
aim is to create opportunities for people to escape poverty and achieve better living
standards by mobilizing financial resources for private enterprise, promoting
accessible and competitive markets, supporting businesses and other private sector
entities, and creating jobs and delivering necessary services to those who are
poverty-stricken or otherwise vulnerable. Since 2009, the IFC has focused on a set
of development goals that its projects are expected to target. Its goals are to increase
sustainable agriculture opportunities, improve health and education, increase access
to financing for microfinance and business clients, advance infrastructure, help
small businesses grow revenues, and invest in climate health.
The IFC is owned and governed by its member countries, but has its own
executive leadership and staff that conduct its normal business operations. It is a
corporation whose shareholders are member governments that provide paid-in capital
and which have the right to vote on its matters. Originally more financially integrated
with the World Bank Group, the IFC was established separately and eventually
became authorized to operate as a financially autonomous entity and make
independent investment decisions. It offers an array of debt and equity financing
services and helps companies face their risk exposures, while refraining from
participating in a management capacity. The corporation also offers advice to
companies on making decisions, evaluating their impact on the environment and
society, and being responsible. It advises governments on building infrastructure
and partnerships to further support private sector development.
7.4 Objectives and Working
International Finance Corporation (I.F.C.): Objectives and Working!
The International Finance Corporation was established in July 1956, with
the specific subject of providing finance to the private sector.
Though it is affiliated to the World Bank, it is a separate legal entity with
separate fund and functions. Members of the World Bank are eligible for its
membership.
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Objectives:
IFC's objective is to assist economic development by encouraging the growth
of productive private enterprise in its member nations, particularly in the
underdeveloped areas.
Thus, it laid down the following objectives :
1.
To invest in productive private enterprises, in association with private investors,
and without government guarantee of repayment, in cases where sufficient
private capital is not available on reasonable terms.
2.
To serve as a clearing house to bring together investment opportunities, private
capital (both foreign and domestic) and experienced management.
3.
To help in stimulating the productive investment of private capital, both
domestic and foreign.
Working:
The IFC considers only such investment proposals whose objective is the
establishment, expansion or improvement of productive private enterprises which
will contribute to the development of the economy of the country concerned.
Industrial, agricultural, financial, commercial, and other private enterprises are eligible
for IFC financing, provided their operations are productive in character.
The IFC is authorised to invest its funds in many forms it deems appropriate,
with the exception of capital stocks and shares. It does not have a policy of uniform
interest rates for its investments. The interest rate is to be negotiated in each case
in the light of all relevant factors, including the risks involved and any right to
participation in profits, etc.
IFC makes investments only when it is satisfied that the enterprise has or
will have experience and competent management and it looks to that management
to conduct the business of the enterprise. It does not itself assume responsibility of
managing the enterprise.
In India the IFC has so far made six investment commitments totaling
over $ 7 million.
However, the actual working of the IFC has been rather slow. That there
is great scope for its work is quite evident from its resources and investment
portfolios. It is hoped that IFC will in future be more fully able to play a dynamic
investor's role in the economic development of the poor nations.
INTERNATIONAL
FINANCE
CORPORATION
NOTES
CHECK YOUR
PROGRESS
What are the Types of
IFC and give their
Roles?
7.5 Types of Roles
IFC seeks talented people in several job categories. Below are descriptions
of some of the many challenging and rewarding roles we offer.
Investment Services
Providing a broad array of financial products - loans, equity, trade finance,
structured finance, and syndications - to promote development in emerging economies
and frontier markets. Investment professionals focus on identifying investment
opportunities, executing transactions and actively managing portfolio projects.
Career opportunities include :
l Investment Analyst
l Investment Officer
l Industry Specialist
Advisory Services
Offering advice, problem solving, and training to companies, industries,
and governments, all aimed at helping private sector enterprises unlocking investment
and overcoming obstacles to growth. Advisory Services are offered in four main
business lines:
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Access to Finance
Investment Climate
Sustainable Business
Public-Private Partnership
Career opportunities include:
l Private Sector Development Officer
l Operations Officer
l Evaluation/Monitoring Officer
Corporate Support
Sustaining our core business through a variety of functions including:
CHECK YOUR
PROGRESS
Describe the Rules of
Membership and
Structure of IFC?
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Portfolio/Risk management
Financial/Treasury operations
Human resources
Information technology
Legal
Communications
The International Finance Corporation is the member of the World Bank
Group that promotes the growth of the private sector in less developed member
countries. The IFC's principal activity is helping finance individual private enterprise
projects that contribute to the economic development of the country or region
where the project is located. The IFC is the World Bank Group's investment bank
for developing countries. It lends directly to private companies and makes equity
investments in them, without guarantees from governments, and attracts other
sources of funds for private-sector projects. IFC also provides advisory services
and technical assistance to governments and businesses.
7.6 Membership and Structure
Membership
Membership in the IFC is open to all members of IBRD. As of late 2002,
IFC had 175 member states.
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Structure
The structure of IFC is similar to that of the IBRD. IFC's Board of
Governors consists of those governors of the Bank (IBRD) whose countries are
also members of IFC. Its Board of Directors is composed of all the Executive
Directors of the Bank. The annual meeting of the IFC Board of Governors is held
in conjunction with the annual meeting of the Board of Governors of the IBRD.
IFC headquarters are at 2121 Pennsylvania Ave. N.W., Washington, D.C., 20433.
The first president of the IFC was Robert L. Garner, formerly vice-president
of the IBRD. Since 1961, the president of the Bank also has been the president of
the Corporation. The immediate direction of the Corporation is the responsibility of
the executive vice-president, Peter Woicke, whose term became effective 1 January
1999. IFC has more than 2000 staff, 70% of whom work in Washington, and 30%
of whom are stationed in over 80 IFC field offices.
Governance
The IFC is governed by its Board of Governors which meets annually and
consists of one governor per member country (most often the country's finance
minister or treasury secretary).[1] Each member typically appoints one governor
and also one alternate.[10] Although corporate authority rests with the Board of
Governors, the governors delegate most of their corporate powers and their authority
over daily matters such as lending and business operations to the Board of Directors.
The IFC's Board of Directors consists of 25 executive directors who meet regularly
and work at the IFC's headquarters, and is chaired by the President of the World
Bank Group. The executive directors collectively represent all 184 member countries.
When the IFC's Board of Directors votes on matters brought before it, each executive
director's vote is weighted according to the total share capital of the member
countries represented by that director. The IFC's Executive Vice President and
CEO oversees its overall direction and daily operations. As of October 2012, JinYong Cai serves as the Executive Vice President and CEO of the IFC. President
of the World Bank Group Jim Yong Kim appointed Jin-Yong Cai to serve as the
new Executive Vice President and CEO of the IFC. Cai is a Chinese citizen who
formerly served as a managing director for Goldman Sachs and has over 20 years
of financial sector experience.
Although the IFC coordinates its activities in many areas with the other
World Bank Group institutions, it generally operates independently as it is a separate
entity with legal and financial autonomy, established by its own Articles of
Agreement. The corporation operates with a staff of over 3,400 employees, of
which half are stationed in field offices across its member nations.
INTERNATIONAL
FINANCE
CORPORATION
NOTES
CHECK YOUR
PROGRESS
Describe different
Services provided by
IFC?
7.7 Services
Investment services
The IFC's investment services consist of loans, equity, trade finance,
syndicated loans, structured and securitized finance, client risk management services,
treasury services, and liquidity management.[10] In its fiscal year 2010, the IFC
invested $12.7 billion in 528 projects across 103 countries. Of that total investment
commitment, approximately 39% ($4.9 billion) was invested into 255 projects across
58 member nations of the World Bank's International Development Association
(IDA).[10]
The IFC makes loans to businesses and private projects generally with
maturities of seven to twelve years.[10] It determines a suitable repayment schedule
and grace period for each loan individually to meet borrowers' currency and cash
flow requirements. The IFC may provide longer-term loans or extend grace periods
if a project is deemed to warrant it. Leasing companies and financial intermediaries
may also receive loans from the IFC. Though loans have traditionally been
denominated in hard currencies, the IFC has endeavored to structure loan products
in local currencies.[16] Its disbursement portfolio included loans denominated in 25
local currencies in 2010, and 45 local currencies in 2011, funded largely through
swap markets. Local financial markets development is one of IFC's strategic focus
areas. In line with its AAA rating, it has strict concentration, liquidity, asset-liability
and other policies. The IFC committed to approximately $5.7 billion in new loans in
2010, and $5 billion in 2011.
Advisory services
In addition to its investment activities the IFC provides a range of advisory
services to support corporate decisionmaking regarding business, environment, social
impact, and sustainability. The IFC's corporate advice targets governance,
managerial capacity, scalability, and corporate responsibility. It prioritizes the
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encouragement of reforms that improve the trade friendliness and ease of doing
business in an effort to advise countries on fostering a suitable investment climate.
It also offers advice to governments on infrastructure development and publicprivate partnerships. The IFC attempts to guide businesses toward more sustainable
practices particularly with regards to having good governance, supporting women
in business, and proactively combating climate change.
Asset Management Company
The IFC established IFC Asset Management Company LLC (IFC AMC)
in 2009 as a wholly owned subsidiary to manage all capital funds to be invested in
emerging markets. The AMC manages capital mobilized by the IFC as well as by
third parties such as sovereign or pension funds, and other development financing
organizations. Despite being owned by the IFC, the AMC has investment decision
autonomy and is charged with a fiduciary responsibility to the four individual funds
under its management. It also aims to mobilize additional capital for IFC investments
as it can make certain types of investments which the IFC cannot. As of 2011, the
AMC managed the IFC Capitalization Fund (Equity) Fund, L.P., the IFC
Capitalization (Subordinated Debt) Fund, L.P., the IFC African, Latin American,
and Caribbean Fund, L.P., and the Africa Capitalization Fund, Ltd. The IFC
Capitalization (Equity) Fund holds $1.3 billion in equity, while the IFC Capitalization
(Subordinated Debt) Fund is valued at $1.7 billion. The IFC African, Latin American,
and Caribbean Fund (referred to as the IFC ALAC Fund) was created in 2010 and
is worth $1 billion. As of March 2012, the ALAC Fund has invested a total of
$349.1 million into twelve businesses. The Africa Capitalization Fund was set up in
2011 to invest in commercial banks in both Northern and Sub-Saharan Africa and
its commitments totaled $181.8 million in March 2012. As of 2012, Gavin E.R.
Wilson serves as CEO of the AMC.
7.8 IFC in India
Since 1956, IFC has invested in 346 companies in India, providing over
$10.3 billion in financing for its own account and $2.9 billion in mobilization from
external resources.
As of June 30, 2014, IFC's committed portfolio in India stood at $4.7 billion,
making India IFC's largest portfolio exposure.
The most acute needs for energy, water, roads, phone connections,
healthcare, education, sanitation, waste management, access to financial services,
are among those who live in low-income, rural and semi-urban parts of the country.
To grow opportunities for the underserved, IFC concentrates on lowincome, rural, and fragile regions while
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building infrastructure and assisting public-private-partnerships;
facilitating renewable energy generation; promoting cleaner production,
energy and water efficiency;
supporting agriculture for improved food security;
creating growth opportunities for small businesses;
reforming investment climate;
developing public-private partnerships;
encouraging low-income housing; and
making affordable healthcare efficient and accessible.
Through these strategic interventions in the region, IFC aims to bring
economic opportunities to underserved communities where needs are greatest,
particularly in the low income states of India; help address climate change impacts;
and encourage global and regional integration including sxpromoting trade and
investments within and from South Asia.
INTERNATIONAL
FINANCE
CORPORATION
NOTES
7.9 Creating Opportunities
With over a billion of the world's poor living in South Asia, IFC helps create
opportunities towards improving lives of people in the region. By leveraging our
global expertise and presence, we offer and provide investment services to
developing countries in South Asia achieve sustainable growth. Through innovative
solutions, IFC has continued to address acute needs for energy, food, water, health
care, education, and access to financial services.
In FY14, IFC's investment commitments in South Asia totaled $2.1 billion,
including $420 million mobilized from other investors.
In South Asia, some of IFC's recent major investments include Gujarat
Pipavav Port and NSL Renewable Power. IFC's loan to Gujarat Pipavav Port will
support expansion of existing container and bulk cargo handling facilities, enabling
better infrastructure services, creating more jobs and boosting economic activity.
With bulk of financing mobilized from other investors, the investment in Pipavav
Port will also help the company diversify sources of raising funds in future. IFC's
investment in NSL Renewable is enabling the company to develop a robust portfolio
of wind and hydropower projects, helping expand access to clean energy.
CHECK YOUR
PROGRESS
D e s c r i b e
opportunities created
by IFC?
IFC's initiatives in low income states of India and in other frontier markets
of South Asia are strategic to IFC's goal of promoting inclusive growth. IFC is
working closely with various state governments of low income states such as
Rajasthan, Odisha, and Bihar to improve the investment climate for private sector.
With solar sector in Rajasthan offering huge potential, IFC has provided debt funding
to companies like Mahindra Solar One for setting up a solar project that will help
expand access to clean energy. In Odisha, IFC has invested in OCL India Limited,
a cement manufacturer, to support expansion of its plant in the state.
We have also made critical investments in microfinance institutions like
Utkarsh, Bandhan, Ujjivan and Equitas that have operations spread across low
income states of Uttar Pradesh, West Bengal, Rajasthan, and Bihar among others.
To support lower-income housing, IFC helped establish India's first mortgage
insurance company through a public-private partnership with the housing finance
regulator and other partners. We also supported in launching Bangladesh's firstever alternative dispute resolution center, the Bangladesh International Arbitration
Center. IFC also helped Nepal register the Pashmina trademark with 40 countries,
resulting in a 50 percent increase in exports.
7.10 Summary
IFC is focused both on helping reduce the impact of the crisis on the poor
and looking ahead to the post-crisis world. It realises that while official assistance
is clearly vital, public sector money alone is not enough to turn the corner. The
recovery strategy needs to encourage the role of private business. As the flow of
credit resumes, developing countries can become a key force for a larger global
rebound.
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Over the longer term, today's high demand for IFC's private sector financing
will likely grow even faster as developing countries account for a larger share of
the global economy, public resources remain constrained, and a young and
increasingly urban population in poor countries insists on higher-quality health
services, education and infrastructure.
There is much to do. IFC can accomplish more working in partnership
than alone. It is thus collaborating with the World Bank, the regional development
banks and others in coordinated rapid-response initiatives for central and eastern
Europe, Africa and Latin America and the Caribbean, in each case drawing from
a rich knowledge base that will lead to increased lending and investments.
Trade is just one sector in which IFC has rapidly brought to market such
targeted new crisis response initiatives. Others include the IFC Capitalization Fund,
the Infrastructure Crisis Facility, the Microfinance Enhancement Facility and
expanded Advisory Services. They come as part of a coordinated response to the
most challenging economic conditions yet seen.
IFC will continue to adapt to meet these challenges and work toward a
world where economic development is sustainable and inclusive.
7.11 Exercise & Questions
1)
2)
3)
4)
5)
Write a short note on a overview of IFC.
Explain the working and objective of IFC.
Explain the role of IFC.
Explain the different services provided by IFC.
Explain the organization structure of IFC.
7.12 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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UNIT - 8
INTERNATIONAL DEVELOPMENT
ASSOCIATION AND UNDP
INTERNATIONAL
DEVELOPMENT
ASSOCIATION AND
UNDP
NOTES
Structure
8.1
Introduction
8.2
Objectives
8.3
An overview of IDA
8.4
Objectives
8.5
Role and functions of IDA
8.6
Members
8.7
Governance
8.8
IDA and Funding
8.9
IDA in News
8.10
World Bank and UNDP
8.11
Summary
8.12
Exercise & Questions
8.13
Further Reference Books
8.1 Introduction
Over the time, additional organizations have been set up under the umbrella
of the World Bank. As of today, the World Bank today is a group of five international
organizations responsible for providing finance to different countries. The group
and its affiliates headquartered in Washington. The World Bank group Consist 1) International bank for Reconstruction and Development (IBRD - 1945).
2) International Financial Corporation (IFC- 1956).
3) International Development Association (IDA- 1960).
4) Multilateral Investment guarantee agency (MIGA-1988).
5) International center for settlement of investment disputes (ICSID-1966).
The International Development Association (IDA) is an international
financial institution which offers concessional loans and grants to the world's poorest
developing countries.
The IDA is a member of the World Bank Group and is headquartered in
Washington, D.C., United States.
It was established in 1960 to complement the existing International Bank
for Reconstruction and Development by lending to developing countries which
suffer from the lowest gross national income, from troubled creditworthiness, or
from the lowest per capita income.
8.2 Objectives
At end of this unit, you will be able to 1) Understand the objective of IDA
2) Understand the working of IDA
3) Know the organization of IDA
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CHECK YOUR
PROGRESS
Describe briefly IDA?
8.3 An overview of IDA
Despite the launch of the IFC in 1956, developing countries persisted in
demanding the creation of a new concessional financing mechanism and the idea
gained traction within the IBRD.
Then-President of the IBRD Eugene R. Black, Sr. began circulating the
notion of an International Development Association.
Democratic Senator Mike Monroney of Oklahoma supported the idea of
concessional lending and entertained the idea of the IBRD conducting such lending.
As Chairman of the Senate Subcommittee on International Finance,
Monroney proposed a resolution recommending a study of the potential establishment
of an International Development Association to be affiliated with the IBRD.
Monroney's proposal was favorably received within the United States.
The resolution passed the senate in 1958, and then-U.S. Treasury
SecretaryRobert B. Anderson encouraged other countries to conduct similar studies.
In 1959, the World Bank's Board of Governors approved a U.S.-born
resolution calling for the drafting of the articles of agreement.
By the end of January 1960, fifteen countries signed the articles of
agreement which established the International Development Association.
The association launched in September of that same year with an initial
budget of $913 million ($7.1 billion in 2012 dollars)
The International Development Association (IDA) is an international
financial institution which offers concessional loans and grants to the world's poorest
developing countries.
The IDA is a member of the World Bank Group and is headquartered in
Washington, D.C., United States.
It was established in 1960 to complement the existing International Bank
for Reconstruction and Development by lending to developing countries which
suffer from the lowest gross national income, from troubled creditworthiness, or
from the lowest per capita income.
The association shares the World Bank's mission of reducing poverty and
aims to provide affordable development financing to countries whose credit risk is
so prohibitive that they cannot afford to borrow commercially or from the Bank's
other programs.
The IDA's stated aim is to assist the poorest nations in growing more
quickly, equitably, and sustainably to reduce poverty.
The IDA is the single largest provider of funds to economic and human
development projects in the world's poorest nations.
8.4 Objectives
The following are the principal objectives of the IDA:
1. To provide development finance on easy terms to less developed member
countries.
2. To promote economic development, increase productivity and thus, raise
the standards of living in the underdeveloped areas.
Working:
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Thus, IDA is looked upon as a means of furthering the development activities
of the World Bank and as a supplementary to the Bank's activities. Under its
charter, the IDA is to support projects which are calculated to contribute to the
development of the country concerned, whether they are directly productive or
not.
The IDA credits would be called development credits to distinguish them
from conventional loans, and these would be repayable mostly in the currency lent
rather than in the currency of the borrower. Since IDA charges nominal rates of
interest on its loans, it has also been nicknamed the "Soft-Loan Window."
IDA has granted a number of credits to India for her development schemes.
The grant of credits for development projects given by IDA to India has been in
the nature of a continuous flow. But for the funds that have been made available
by IDA to India, our development pace would have been considerably slower.
In fine, it may be said that the IDA is expected to make a distinct contribution
to the economic development of backward nations, furthering their development
projects and supplementing the activities of the World Bank. Moreover, unlike the
World Bank loans which are meant to cover only the foreign exchange costs, the
IDA loans can be utilised to finance both foreign exchange and local currency
costs.
8.5 Role and functions of IDA
INTERNATIONAL
DEVELOPMENT
ASSOCIATION AND
UNDP
NOTES
CHECK YOUR
PROGRESS
Describe Role and
functions of IDA?
FUNCTIONS OF IDA :
1. To provide long term credit to poor countries at soft terms.
2. To co-ordinate with IBRD in co-financing.
3. To create supplementary source of capital for member countries.
4. To increase the productivity.
5. To promote economic growth of member developing countries.
IDA has its own financial resources but it is closely connected with the
world bank. Executive Directors of IBRD and IDA are same.
Role of IDA Role of the World Bank's International Development Association
The Monterrey Consensus, in addition to framing commitments for increased
ODA, "codified" the call for development effectiveness. This call was reinforced
in July 2002, when donors to the Bank's International Development Association
(IDA)-the world's primary source of confessional (near-zero-interest) finance for
development in the low-income countries-made replenishment contingent on the
establishment of a results-based measurement system for IDA programs. IDA
provides assistance to the world's 82 poorest countries, 39 of which are in Africa.
It is the single largest source of donor funds for basic social services in the poorest
countries.
Donors agreed in March 2005 to a 14th replenishment of IDA worth $33
million in new resources over three years. Now the 15th replenishment of IDA is
on the horizon, with donors expected to decide on contributions for the next threeyear cycle by December 2007. IDA is at a watershed, in part because of debt
relief contributions-- IDA is providing $54 billion in debt relief to poor countries:
$18 billion under the Heavily Indebted Poor Countries (HIPC) Initiative and $36
billion under the Multilateral Debt Relief Initiative (MDRI).This represents one
third of IDA's total resources and it lowers available credit reflows. Without additional
resources, IDA would need to cut its financial support for poor countries currently
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benefiting from debt relief. For this reason, a generous replenishment of IDA is
crucial.
Through its leadership on harmonization and alignment, IDA also leverages
the assistance of other donors in support of country-owned programs and projects.
These efforts are forging stronger partnerships between aid providers and recipient
countries.
Given its unique capabilities and its track-record, IDA serves as a
cornerstone of the international aid system in many poor countries. IDA's platform
ensures that aid is less fragmented, more predictable, and increasingly resultsfocused, which is fundamental to countries seeking to achieve the MDGs.
8.6 Members
CHECK YOUR
PROGRESS
Describe membership
rule and Governance
of IDA?
The IDA has 173 member countries which pay contributions every three
years as replenishments of its capital.
The IDA lends to 81 borrowing countries, nearly half of which are in
Africa.
Membership in the IDA is available only to countries who are members of
the World Bank, particularly the IBRD.
Throughout its lifetime, 36 borrowing countries have graduated from the
association, although a number of these countries have relapsed as borrowers
after not sustaining their graduate status.
To be eligible for support from the IDA, countries are assessed by their
poverty and their lack of creditworthiness for commercial and IBRD borrowing.
The association assesses countries based on their per capita income, lack
of access to private capital markets, and policy performance in implementing progrowth and anti-poverty economic or social reforms.
As of 2012, to borrow from the IDA's concessional lending programs, a
country's gross national income (GNI) per capita must not exceed $1,175 (in 2010
dollars).
8.7 Governance
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1) The IDA is governed by the World Bank's Board of Governors which
meets annually and consists of one governor per member country (most
often the country's finance minister or treasury secretary).
2) The Board of Governors delegates most of its authority over daily matters
such as lending and operations to the Board of Directors.
3) The Board of Directors consists of 25 executive directors and is chaired
by the President of the World Bank Group.
4) The executive directors collectively represent all 187 member states of
the World Bank, although decisions regarding IDA matters concern only
the IDA's member states.
5) The president oversees the IDA's overall direction and daily operations.
6) As of July 2012, Jim Yong Kim serves as the President of the World
Bank Group.
7) The association and IBRD operate with a staff of approximately 10,000
employees.
8.8 IDA and Funding
1) The IDA is the single largest provider of funds to economic and human
development projects in the world's poorest nations.
2) From 2000 to 2010, it financed projects which Recruited and trained 3 million teachers,
Immunized 310 million children,
Funded $792 million in loans to 120,000 small and medium enterprises,
Built or restored 118,000 kilometers of paved roads,
Built or restored 1,600 bridges, and
Expanded access to improved water to 113 million people and improved
sanitation facilities to 5.8 million people.
3) The IDA has issued a total $238 billion USD in loans and grants since its
launch in 1960.
4) Thirty-six of the association's borrowing countries have graduated from
their eligibility for its concessional lending. However, eight of these
countries have relapsed and have not re-graduated.
IDA Financing
IDA funds are allocated to the recipient countries in relation to their income
levels and record of success in managing their economies and their ongoing IDA
projects. IDA's lending terms are highly concessional, meaning that IDA credits
carry no or low interest charges.
FY15 Top 10 IDA Borrowers
Bangladesh
India
Ethiopia
Pakistan
Kenya
Nigeria
Tanzania
Vietnam
Myanmar
Ghana
INTERNATIONAL
DEVELOPMENT
ASSOCIATION AND
UNDP
NOTES
CHECK YOUR
PROGRESS
What are the Rules of
Funding of IDA?
$million
1,924
1,687
1,395
1,351
1,305
975
883
784
700
680
The lending terms are determined with reference to recipient countries'
risk of debt distress, the level of GNI per capita, and creditworthiness for the
International Bank for Reconstruction and Development (IBRD) borrowing.
Recipients with a high risk of debt distress receive 100 percent of their financial
assistance in the form of grants and those with a medium risk of debt distress
receive 50 percent in the form of grants. Other recipients receive IDA credits on
regular or blend and hard-terms with 38-year and 25-year maturities respectively.
In fiscal year 2015 (which ended June 30, 2015), IDA commitments totaled
$19 billion (including IDA guarantees), of which 13 percent was provided on grant
terms. New commitments in FY15 comprised 191 new operations. Since 1960,
IDA has provided $312 billion to 112 countries. Annual commitments have increased
steadily and averaged about $19 billion over the last three years.
IDA-financed operations address primary education, basic health services,
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clean water and sanitation, environmental safeguards, business climate
improvements, infrastructure and institutional reforms. These projects pave the
way toward economic growth, job creation, higher incomes and better living
conditions.
NOTES
IDA emphasizes broad-based growth, including:
l
Sound economic policies, rural development, private business, and sustainable
environmental practices
l
Investment in people, in education and health, especially in the struggle against
HIV/AIDS, malaria, and TB
l
Expansion of borrower capacity to provide basic services and ensure
accountability for public resources
l
Recovery from civil strife, armed conflict, and natural disaster
l
Promotion of trade and regional integration
IDA Lending by Sector
Infrastructure
Social
Public Admin. and Law
Agriculture
Industry and Trade
Finance
% of total1
31
30
20
12
3
3
IDA carries out analytical studies to build the knowledge base that allows
intelligent design of policies to reduce poverty. IDA advises governments on ways
to broaden the base of economic growth and protect the poor from economic
shocks.
IDA also coordinates donor assistance to provide relief for poor countries
that cannot manage their debt-service burden. IDA has developed a system for
allocating grants based on countries' risk of debt distress, designed to help countries
ensure debt obligations are met (debt sustainability).
8.9 IDA in News
The IDA is evaluated by the Bank's Independent Evaluation Group.
In 2009, the group identified weaknesses in the set of controls used to
protect against fraud and corruption in projects supported by IDA lending.
In 2011, the group recommended the Bank provide recognition and
incentives to staff and management for implementing activities which implement
the Paris Declaration on Aid Effectiveness principles of harmonization and alignment,
promote greater use of sector-wide approaches to coordination, and explain the
reasons why when a country's financial management system is not used so that
the client country may address those shortcomings.
It also recommended that the Bank collaborate with development partners
to strengthen country-level leadership of development assistance coordination by
offering greater financial and technical support.
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Development economists, such as William Easterly, have conducted
research which ranked the IDA as featuring the most transparency and best
practices among donors of development aid.
Researchers from the Center for Global Development expect that the
IDA's collection of eligible borrowing countries will decrease by half by the year
2025 (marking the 65th anniversary of the association's establishment) due to
graduations and that remaining borrowers will consist primarily of African countries
and will face substantial population declines.
INTERNATIONAL
DEVELOPMENT
ASSOCIATION AND
UNDP
NOTES
These changes will imply a need for the association to carefully examine
its financial models and business operations to determine an appropriate strategy
going forward. The center recommended that the World Bank leadership begin
discussing the long-term future of the IDA.
8.10 World Bank and UNDP
Over the years, the World Bank has collaborated with the United Nations
in nearly every region and sector, deepening this engagement since the adoption of
the Millennium Development Goals (MDGs) by the international community.
This strategic relationship liaises through the Bank's offices in New York
and Geneva, in a proactive and forward-looking manner, coordinating positions as
necessary with a Bank-wide network of managers and staff engaged in UN matters.
The World Bank office in New York focuses on three different levels:
l
Intergovernmental, interacting with diplomatic missions represented in New
York and the bodies governing the UN General Assembly, Economic and
Social Council (ECOSOC), and Security Council
l
Interagency bodies, such as the Chief Executives Board (CEB) led by the
Secretary-General and the UN Development Group (UNDG), in which the
Bank is an observer member
l
Institutional, with the UN Secretary-General, UN Secretariat and various
UN Funds and Programs, e.g., UN Development Programme (UNDP), UN
Population Fund (UNFPA) and UN Children's Fund (UNICEF)
This substantive diplomatic dialogue assures and promotes the strengthening
and cooperation on development issues of mutual concern, including key thematic
areas: fragile states, climate change and human development issues.
The New York office also represents Bank management in key UN
meetings and forges strategic alliances while providing intelligence to the Bank's
staff; assists with the interaction between senior Bank managers and high-level
UN officials, and facilitates participation in UN events, conferences, roundtables
and summits.
Our work is to ensure the Bank's position as a key advocate for development
in the UN setting, the accuracy of its views included in the UN agenda, and also
the correct understanding of the UN policies and operations and their incorporation,
when appropriate, into the work of the Bank in support of development.
The World Bank has approved a $ 1.5 billion loan for the ambitious clean
India campaign to support the government in its efforts to ensure all citizens in
rural areas have access to improved sanitation and end the practice of open
defecation by 2019.
As per World Bank statistics, of the 2.4 billion people who lack access to
improved sanitation globally, more than 750 million live in India, with 80 per cent
living in rural areas.
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NOTES
More than 500 million of the rural population in India continues to defecate
in the open, suffering from preventable deaths, illness, stunting, harassment and
economic losses.
The loan will be used for Swachh Bharat Mission (SBM) Support Operation
Project.
8.11 Summary
The IDA is a member of the World Bank Group and is headquartered in
Washington, D.C., United States.
It was established in 1960 to complement the existing International Bank
for Reconstruction and Development by lending to developing countries which
suffer from the lowest gross national income, from troubled creditworthiness, or
from the lowest per capita income.
The IDA has 173 member countries which pay contributions every three
years as replenishments of its capital.
The IDA lends to 81 borrowing countries, nearly half of which are in
Africa.
The IDA is the single largest provider of funds to economic and human
development projects in the world's poorest nations.
The IDA is governed by the World Bank's Board of Governors which
meets annually and consists of one governor per member country (most often the
country's finance minister or treasury secretary).
8.12 Exercise & Questions
1)
2)
3)
4)
5)
Explain the objective of IDA.
Explain the role of IDA.
Explain the working of IDA.
Explain the governance of IDA.
Discuss, world bank and UNDP work together.
8.13 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
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UNIT - 9
MULTILATERAL INVESTMENT
GUARANTEE AGENCY
MULTILATERAL
INVESTMENT
GUARANTEE AGENCY
NOTES
Structure
9.1
Introduction
9.2
Objectives
9.3
An overview of MIGA
9.4
Stategy
9.5
Functions
9.6
Gvernance
9.7
Membership
9.8
Products of MIGA
9.9
Investment Guarantees
9.10
MIGA Funding
9.11
Summary
912
Exercise & Questions
9.13
Further Reference Books
9.1 Introduction
Today, The World Bank consists of two main bodies, the International
Bank for Reconstruction and Development (IBRD) and the International
Development Association (IDA), established in 1960. The World Bank is part of
the broader World Bank Group, which consists of five interrelated institutions: the
IBRD; the IDA; the International Finance Corporation (IFC), which was established
in 1956; the Multilateral Investment Guarantee Agency (MIGA), which was
established in 1988; and the International Centre for Settlement of Investment
Disputes (ICSID), which was established in 1966. These additional members of
the World Bank Group have specific purposes as well. The IDA typically provides
interest-free loans to countries with sovereign guarantees. The IFC provides loans,
equity, risk-management tools, and structured finance. Its goal is to facilitate
sustainable development by improving investments in the private sector. The MIGA
focuses on improving the foreign direct investment of developing countries. The
ICSID provides a means for dispute resolution between governments and private
investors with the end goal of enhancing the flow of capital.
MIGA established in 1988 by the World Bank and based in Washington,
D.C. The goal of Multilateral Investment Guarantee Agency (MIGA) is to promote
investment in developing countries. The organization offers a variety of services in
order to encourage foreign directinvestment, including risk insurance against foreign
exchange restrictions, outbreak of conflicts or wars, imposed spending limits and
related restrictions on company assets.
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Money, Central Banking in
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NOTES
9.2 Objectives
At the end of this unit, you will be able to 1) Know the history and purpose of MIGA
2) Understand the functions of MIGA
3) Know the governance and members of MIGA
4) Know the products and work of MIGA
9.3 An overview of MIGA
CHECK YOUR
PROGRESS
Describe briefly
MIGA?
In September 1985, the Board of Governors of the World Bank endorsed
the Convention establishing the Multilateral Investment Guarantee Agency. MIGA
was established and became operational on April 12, 1988 under the leadership of
then-Executive Vice President Yoshio Terasawa, becoming the fifth member
institution of the World Bank Group. MIGA initially had $1 billion ($1.94 billion in
2012 dollars in capital and 29 member states. All members of the International
Bank for Reconstruction and Development (IBRD) were eligible to become
members of the agency. MIGA was established as an effort to complement existing
sources of non-commercial risk insurance for investments in developing countries,
and thereby improve investor confidence. The agency's mandate to be apolitical
has been said to be an advantage over private and national risk insurance markets.
By serving as a multilateral guarantor, the agency reduces the likelihood of
confrontations among the investor's country and the host country.
DEFINITION of 'Multilateral Investment Guarantee Agency - MIGA'
An organization established in 1988 by the World Bank and based in
Washington, D.C. The goal of Multilateral Investment Guarantee Agency (MIGA)
is to promote investment in developing countries. The organization offers a variety
of services in order to encourage foreign direct.
MIGA is a member of the World Bank Group. Mission of MIGA is to
promote foreign direct investment (FDI) into developing countries to help support
economic growth, reduce poverty, and improve people's lives.
The Multilateral Investment Guarantee Agency (MIGA) is an international
financial institution which offers political risk insurance and credit enhancement
guarantees. Such guarantees help investors protect foreign direct investments
against political and non-commercial risks in developing countries.
It targets projects that endeavor to create new jobs, develop infrastructure,
generate new tax revenues, and take advantage of natural resources through
sustainable policies and programs.[3]
MIGA is owned and governed by its member states, but has its own
executive leadership and staff which carry out its daily operations. Its shareholders
are member governments which provide paid-in capital and have the right to vote
on its matters. It insures long-term debt and equity investments as well as other
assets and contracts with long-term periods. The agency is assessed by the World
Bank's Independent Evaluation Group each year.
9.4 Stategy
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MIGA's operational strategy plays important role for attracting investors
and private insurers into difficult operating environments. MIGA focus on insuring
investments in the areas where they can make the greatest difference
l
Countries eligible for assistance from the International Development
Association (the world's poorest countries)
l
Fragile and conflict-affected environments
l
Transformational Projects - large scale and significant investments, with the
potential for bringing about transformational change in the host country
l
Energy Efficiency and Climate Change - complex energy and infrastructure
projects that improve energy capacity as well as transportation projects that
have a positive impact on pollution control (such as mass transport)
l
Middle Income Countries where we can have strong impact
MULTILATERAL
INVESTMENT
GUARANTEE AGENCY
NOTES
MIGA offers comparative advantages in all of these areas-from unique
package of products and ability to restore the business community's confidence,
ongoing collaboration with the public and private insurance market help to increase
the amount of insurance.
As a multilateral development agency, MIGA only supports investments
that are developmentally sound and meet high social and environmental standards.
MIGA applies a comprehensive set of social and environmental performance
standards to all projects and offers extensive expertise in working with investors to
ensure compliance to these standards.
CHECK YOUR
PROGRESS
Describe functions of
MIGA?
9.5 Functions
Functions of MIGA
MIGA is a member of the World Bank Group and membership is open to
all World Bank members. The MIGA was created in 1988 to promote foreign
direct investment into emerging economies to improve people's lives and reduce
poverty. MIGA fulfills this mandate and contributes to development by offering
political risk insurance to investors and lenders, and by helping developing countries
attract and retain private investment.
MIGA provides investment guarantees against non-commercial risks to
eligible foreign investors for qualified investments in developing member countries.
MIGA's coverage is against the following risks, transfer restriction, expropriation,
breach of contract, war and civil disturbance. MIGA insures new cross-border
investments originating in any MIGA member country, destined for other developing
member country.
Projects supported by MIGA have widespread benefits:
- Local jobs were created
- Tax revenue was generated
- Skills and technological know-how were transferred.
- Local communities often receive significant secondary benefits through
improved infrastructure, including roads, electricity, hospitals, schools and
clean water.
- Foreign Direct Investment supported by MIGA also encourages similar
local investments and spurs the growth of local businesses that supply
related goods and services. As a result, developing countries have a greater
chance to break the cycle of poverty.
- Since its inception MIGA has issued more than 500 guarantees for projects
in 78 developing countries.
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-
NOTES
-
CHECK YOUR
PROGRESS
Describe Governance
of MIGA?
The total coverage issued exceeds $9 billion, bringing the estimated amount
of foreign direct investment facilitated since inception to more than $41
billion.
MIGA's technical assistance services also play an integral role in catalyzing
foreign direct investment by helping developing countries around the world
define and implement strategies to promote investment.
MIGA develops and deploys tools and technologies to support the spread
of information on investment opportunities.
The agency uses its legal services to further smooth possible impediments
to investment. Through its dispute mediation program, MIGA helps
government and investors resolve their differences and ultimately improve
the country's investment climate.
MIGA compliments the activities of other investment insurers and works
with partners through its coinsurance and reinsurance programs to expand
the capacity of the political risk insurance industry's income. To date, MIGA
has officially established 18 such partnerships.
9.6 Governance
MIGA is governed by its Council of Governors which represents its member
countries.
The Council of Governors holds corporate authority, but primarily delegates
such powers to MIGA's Board of Directors.
The Board of Directors consists of 25 directors and votes on matters
brought before MIGA.
Each director's vote is weighted in accordance with the total share capital
of the member nations that director represents.
MIGA's board is stationed at its Washington, D.C. headquarters where it
meets regularly and oversees the agency's activities.
The agency's Executive Vice President directs its overall strategy and
manages its daily operations.
As of 15 July 2013, Keiko Honda serves as Executive Vice President of
MIGA.
Shareholders of MIGA A Council of Governors and a Board of Directors representing our member
countries guide the programs and activities of MIGA. MIGA's corporate powers
are vested in the Council of Governors, which delegates most of its powers to a
Board of Directors. Voting power is weighted according to the share of capital
each director represents. The directors meet regularly at the World Bank Group
headquarters in Washington, DC, where they review and decide on investment
projects and oversee general management policies.
Team of MIGA People have extensive experience in political risk insurance, with
backgrounds including banking and capital markets, environmental and social
sustainability, project finance and sector specialties, and international law and dispute
settlement are the team members of MIGA.
9.7 Membership
(90)
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Multilateral Investment Guarantee Agency member states.
MIGA is owned by its 181 member governments, consisting of 156
developing and 25 industrialized countries.
The members are composed of 180 United Nations member states plus
Kosovo.
Membership in MIGA is available only to countries who are members of
the World Bank, particularly the International Bank for Reconstruction and
Development.
As of 2015, the seven World Bank member states that are not MIGA
members are Brunei, Kiribati, Marshall Islands, San Marino, Somalia, Tonga, and
Tuvalu. (The UN states that are non-members of the World Bank, and thus MIGA,
are Andorra, Cuba, Liechtenstein, Monaco, Nauru, and North Korea.)
The Holy See and Palestine are also non-MIGA members.
Bhutan is the most recent country to have joined MIGA, having done so in
December 2014.
MULTILATERAL
INVESTMENT
GUARANTEE AGENCY
NOTES
9.8 Products of MIGA
MIGA fulfill mission by providing political risk insurance guarantees to
private sector investors and lenders.
MIGA's guarantees protect investments against-non-commercial risks and
can help investors obtain access to funding sources with improved financial terms
and conditions.
Unique strength is derived from standing as a member of the World Bank
Group and structure as an international organization with shareholders including
most countries of the world.
Since inception in 1988, MIGA has issued more than $28 billion in political
risk insurance for projects in a wide variety of sectors, covering all regions of the
world.
MIGA conduct research and share knowledge as part of our mandate to
support foreign direct investment into emerging markets. This underscores MIGA's
position as a thought leader and source of pertinent information for the political risk
insurance community.
Investors and lenders in today's dynamic investment climate understand
the potential benefits of investing in emerging markets. They also understand the
critical importance of addressing the political risks that may accompany an
investment in such markets. MIGA can help investors and lenders deal with this
risks by insuringeligible projects against losses relating to:
l Currency inconvertibility and transfer restriction
l Expropriation
l War, terrorism, and civil disturbance
l Breach of contract
l Non-honoring of financial obligations
CHECK YOUR
PROGRESS
Describe products of
MIGA?
MIGA provides political risk insurance (guarantees) for projects in a broad
range of sectors in developing member countries, covering all regions of the world.
MIGA guarantees offer much more than just the assurance that losses
will be recovered. Our insurance also benefits investors and lenders by:
l
Deterring harmful actions - MIGA's status as a member of the World Bank
Group and its relationship with shareholder governments provides additional
leverage in protecting investments.
l
Resolving disputes - As an honest broker, MIGA intervenes at the first sign
of trouble to resolve potential investment disputes before they reach claim
status, helping to maintain investments and keep revenues flowing. If MIGA
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is unable to prevent a claim, our strong balance sheet allows us to make
prompt payments.
Money, Central Banking in
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Financial Institutions - II
NOTES
CHECK YOUR
PROGRESS
What is Investment
Guarantee of MIGA?
(92)
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l
Accessing funding - Our guarantees can help investors obtain project finance
from banks and equity partners.
l
Lowering borrowing costs - MIGA-guaranteed loans may help reduce riskcapital ratings of projects.
l
Increasing tenors - The agency can provide insurance coverage for up to 15
years (in some cases 20), which may increase the tenor of loans available to
investors.Providing extensive country knowledge - MIGA applies decades
of experience, global reach, and knowledge of developing countries to each
transaction.
l
Providing environmental and social expertise - MIGA helps investors and
lenders ensure that projects comply with what are considered to be the world's
best social and environmental safeguards.
9.9 Investment Guarantees
MIGA offers insurance to cover five types of non-commercial risks :
currency inconvertibility and transfer restriction; government expropriation;
war, terrorism, and civil disturbance; breaches of contract; and the non-honoring
of financial obligations.
MIGA will cover investments such as equity, loans, shareholder loans, and
shareholder loan guarantees.
The agency may also insure investments such as management contracts,
asset securitization, bonds, leasing activities, franchise agreements, and license
agreements.
The agency generally offers insurance coverage lasting up to 15 years
with a possible five-year extension depending on a given project's nature and
circumstances.]
When an event occurs that is protected by the insurance, MIGA can exercise
the investor's rights against the host country through subrogation to recover expenses
associated with covering the claim.
However, the agency's convention does not require member governments
to treat foreign investments in any special way.
As a multilateral institution, MIGA is also in a position to attempt to sort
out potential disputes before they ever turn into insurance claims.
The agency's Small Investment Program aims to promote FDI into
specifically small and medium enterprises.
The program offers standard MIGA coverage types except it does not
cover breaches of contract.
Under the program, small and medium enterprises may take advantage of
discounted insurance premiums and no application fees, which are not available to
larger investors.
To qualify an investment for the Small Investment Program, MIGA defines
small and medium enterprise projects as having 300 or fewer employees, total
assets not to exceed $15 million and annual revenues not to exceed $15 million.
MIGA limits the request amount for the investment guarantee to $10 million,
and will guarantee only up to 10 years with a possible 5-year extension.
9.10 MIGA Funding
1)
MIGA's inaugural investment guarantees were issued in 1990 to cover $1.04
billion ($1.83 billion in 2012 dollars) worth of foreign direct investment (FDI)
comprising four individual projects.
2)
The agency also issued its first reinsurance contracts signed in collaboration
with Export Development Canada and the United States' Overseas Private
Investment Corporation (OPIC).
3)
That same year, MIGA held a conference in Ghana to promote investment.
4)
The agency joined the Berne Union, an international community of export
credit and investment insurance providers in 1994.
5)
In 1997, MIGA issued the inaugural contract under its Cooperative
Underwriting Program to support an energy project in Indonesia.
6)
In collaboration with the European Union Investment Trust Fund for Bosnia
and Herzegovina, the agency set up a fund for investment guarantees
amounting to $12 million ($17 million in 2012 dollars]).
7)
The agency also established the West Bank and Gaza Investment Guarantee
Trust Fund with a capacity of $20 million ($29 million in 2012 dollars)
8)
In 1998 the Council of Governors of MIGA adopted a resolution establishing
a general capital increase of $850 million ($1.2 billion in 2012 dollars) and
transferring a grant of $150 million ($212 million in 2012 dollars) from the
IBRD.
9)
MIGA exceeded $1 billion ($1.4 billion in 2012 dollars) in investment guarantees
within a single year for the first time in 1999.
10)
The agency also approved an Environmental Assessment and Disclosure
Policy and began attempting to implement such standards for new projects.
11)
In 2000 MIGA paid its first insurance claim since the agency's founding.
12)
In 2001 MIGA's issuance of new investment guarantees grew to $2 billion.
13)
The agency launched its Small Investment Program in 2005 in an effort to
promote investment among small and medium enterprises.
14)
That same year, MIGA set up its Afghanistan Investment Guarantee Facility
in an effort to promote FDI into Afghanistan.
15)
In 2007 MIGA issued investment guarantees for a Djibouti port, marking its
first support in the form of Islamic finance. The agency also launched PRICenter.com as a portal for information on political risk management and
investment insurance, which also contains its FDI information services.
16)
In 2009, the Board of Directors enacted changes to MIGA's operating
procedures and authorized coverage for default of sovereign financial
obligations.
17)
The agency also launched an annual publication titled World Investment and
Political Risk which reports on trends in worldwide investment and corporate
perceptions of prospects and risk, as well as shifts in the political risk insurance
industry.
Although once dominated by large public and multilateral underwriters,
private insurance firms accounted for approximately half of the political risk insurance
market in 2007.
MULTILATERAL
INVESTMENT
GUARANTEE AGENCY
NOTES
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NOTES
As a result, MIGA has paid closer attention to exceptionally risky countries
that have little appeal to foreign investors, and has insured projects among nations
in the global south.
MIGA conducted a survey in 2010 which showed that political risk is the
most important deterrent of long-term foreign direct investment in developing
countries, even more than economic uncertainty and poor public infrastructure.
MIGA's Council of Governors amended the agency's convention in 2010
in an attempt to improve the organization's effectiveness by expanding the range
of investments eligible for political risk insurance.
9.11 Summary
MIGA established in 1988 by the World Bank and based in Washington,
D.C. The goal of Multilateral Investment Guarantee Agency (MIGA) is to promote
investment in developing countries. The organization offers a variety of services in
order to encourage foreign direct investment, including risk insurance against foreign
exchange restrictions, outbreak of conflicts or wars, imposed spending limits and
related restrictions on company assets.
MIGA can help investors and lenders deal with this risks by insuringeligible
projects against losses relating to:
l
l
l
l
l
Currency inconvertibility and transfer restriction
Expropriation
War, terrorism, and civil disturbance
Breach of contract
Non-honoring of financial obligations
MIGA provides political risk insurance (guarantees) for projects in a broad range
of sectors in developing member countries, covering all regions of the world.
912 Exercise & Questions
1)
2)
3)
4)
5)
Explain the strategy of MIGA.
Explain the functions of MIGA.
Explain the governance of MIGA.
Explain the different products of MIGA.
Write a short note on funding of MIGA.
9.13 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
(94)
Money, Central Banking in
India and International
Financial Institutions - II
UNIT - 10
INTERNATIONAL CENTER FOR
SETTLEMENT OF DISPUTE
INTERNATIONAL
CENTER FOR
SETTLEMENT OF
DISPUTE
NOTES
Structure
10.1
Introduction
10.2
Objectives
10.3
An Overview of ICSID
10.4
Membership
10.5
ICSID Activities
10.6
Institutional Arrangements
10.7
Summary
10.8
Exercise & Questions
10.9
Further Reference Books
10.1 Introduction
CHECK YOUR
PROGRESS
Describe briefly
ICSID?
Over the time, additional organizations have been set up under the umbrella
of the World Bank. As of today, the World Bank today is a group of five international
organizations responsible for providing finance to different countries. The group
and its affiliates headquartered in Washington. The World Bank group Consist 1) International bank for Reconstruction and Development (IBRD - 1945).
2) International Financial Corporation (IFC- 1956).
3) International Development Association (IDA- 1960).
4) Multilateral Investment guarantee agency (MIGA-1988).
5) International center for settlement of investment disputes (ICSID-1966).
10.2 Objectives
At the end of this unit you will be able to 1) Know the history of ICSID.
2) Understand the organization structure of ICSID.
3) Understand the role and working of ICSID.
10.3 An Overview of ICSID
1. BackgroundHistory
In the 1950s and 1960s, the Organization for European Economic
Cooperation (now the Organisation for Economic Co-operation and Development)
had made several attempts to create a framework for protecting international
investments, but its efforts revealed conflicting views on how to provide
compensation for the expropriation of foreign direct investment. In 1961, then-
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NOTES
General Counsel of the International Bank for Reconstruction and Development
(IBRD) Aron Broches developed the idea for a multilateral agreement on a process
for resolving individual investment disputes on a case by case basis as opposed to
imposing outcomes based on standards. Broches held conferences to consult legal
experts from all parts of the world, including Europe, Africa, and Asia, to discuss
and compose a preliminary agreement. The IBRD staff wrote an official draft of
the agreement and consulted with legal representatives of the IBRD's board of
directors to finalize the draft and have it approved. The board of directors approved
the final draft of the agreement, titled Convention on the Settlement of Investment
Disputes between States and Nationals of Other States, and the Bank president
disseminated the convention to its member states for signature on 18 March 1965.
Twenty states immediately ratified the convention. The convention establishing the
ICSID entered into force on 14 October 1966.
The 1965 Convention on the Settlement of Investment Disputes between
States and Nationals of Other States, promoted by and signed under the auspices
of the World Bank, is a milestone in the move towards the establishment of an
international legal framework protecting and promoting the flow of foreign investment
between developed and developing countries. In particular, the Convention set up
the International Centre for the Settlement of Investment Disputes between a
Contracting State and nationals of another Contracting State (ICSID), thus providing
for the first time an international and highly delocalized institutional machinery for
the settlement of disputes arising out of investments, which already constitute a
significant part of international economic activities.
ICSID is to be placed in the context of a broader, more ambitious, and so
far highly successful effort by the World Bank to set up an international investorfriendly legal environment. This long lasting effort has achieved other laudable
results, such as the establishment of the Multilateral Investment Guarantee Agency,
which provides an extremely valuable protection against investment risk in
developing countries, that of the International Finance Corporation, which helps
finance private sector's investment projects in those same countries, and more
generally the adoption of policies and operative directives and guidelines which,
even in the more traditional lending activities of the World Bank, have successfully
aimed at introducing international minimum standards of protection of foreign
investment and free market oriented economic and social reforms.
To summarize the role, the aims, and the overall structure of ICSID, no
words can be better than Delhaume's, perhaps the leading authority on this topic:
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"ICSID is an organization closely associated with the World Bank....Like
the World Bank, the paramount objective of ICSID is to promote a climate of
mutual confidence between states and investors favorable to increasing the flow
of resources to developing countries under reasonable conditions. ICSID, therefore,
cannot be viewed solely as a dispute settlement machinery. It must be regarded
instead as an instrument of international policy for the promotion of economic
development...[ICSID] constitutes a self-contained machinery operating in total
independence from domestic legal systems. In the context of ICSID, the sole role
of domestic courts is one of judicial assistance intended to facilitate the recognition
of ICSID awards and to increase their effectiveness...[ICSID arbitration] is intended
to maintain a careful balance between the interests of investors and those of
Contracting States. The Washington Convention gives investors direct access to
an international forum and enables investors to provide in an investment agreement
that disputes will be decided under rules of international law. In exchange, the
Washington Convention protects Contracting States from other forms of foreign
international litigation...the investor cannot bring suit in a non-ICSID forum whether
in the investor's state or elsewhere."[88]
10.4 Membership
ICSID's 159 member states which have signed the center's convention
include 158 United Nations member states plus Kosovo. Of these member states,
only 151 are "contracting member states", that is they have ratified the contract.
Former members are Bolivia, Ecuador (withdrew 2009), and Venezuela, which
withdrew in 2012. All ICSID contracting member states, whether or not they are
parties to a given dispute, are required by the ICSID Convention to recognize and
enforce ICSID arbitral awards.
INTERNATIONAL
CENTER FOR
SETTLEMENT OF
DISPUTE
NOTES
Organizational Structure
ICSID has a simple organizational structure consisting of an Administrative
Council and a Secretariat.
Administrative Council
The Administrative Council is the governing body of ICSID. It is comprised
of one representative of each of the ICSID Contracting States. The Administrative
Council convenes annually in conjunction with the joint World Bank/International
Monetary Fund annual meetings. All representatives have equal voting powers.
The President of the World Bank is ex officio Chairman of the ICSID Administrative
Council but has no vote.
Principal functions of the Administrative Council include the election of
the Secretary-General and the Deputy Secretary-General, the adoption of regulations
and rules for the institution and conduct of ICSID proceedings, the adoption of the
ICSID budget, and the approval of the annual report on the operation of ICSID.
CHECK YOUR
PROGRESS
Describe rules of
membership
of
ICSID?
Secretariat
The Secretariat consists of a Secretary-General, a Deputy SecretaryGeneral and staff. The Secretary-General is the legal representative of ICSID, the
registrar of ICSID proceedings and the principal officer of the Centre. The Deputy
Secretary-General is responsible for the day to day operation of the Secretariat
and acts for the Secretary-General in the event of his/her absence or inability to
exercise duties and during any vacancy in the office of Secretary-General.
Currently, Ms. Meg Kinnear serves as Secretary-General and Mr. Nassib
G. Ziadé serves as Deputy Secretary-General.
Principal functions of the Secretariat include providing institutional support
for the initiation and conduct of ICSID proceedings; assistance in the constitution
of conciliation commissions, arbitral tribunals and ad hoc committees and supporting
their operations; and administering the proceedings and finances of each case.
The Secretariat also provides support to the Administrative Council and ensures
the functioning of ICSID as an international institution and a center for publication
of information and scholarship.
The Secretariat maintains the ICSID Panels of Conciliators and of
Arbitrators to which each Contracting State may designate four persons and the
Chairman of the Administrative Council may designate 10 persons. The ICSID
Panels provide a source from which the parties to ICSID proceedings may select
conciliators and arbitrators. Further, in the event the Chairman of the Administrative
Council is called upon to appoint conciliators, arbitrators or ad hoc committee
members in ICSID proceedings, his appointees must be drawn from the Panels.
The Secretariat's administrative costs are financed out of the World Bank's
budget; the costs of ICSID proceedings are borne by the disputing parties.
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NOTES
CHECK YOUR
PROGRESS
Give briefly different
ICSID activities?
(98)
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10.5 ICSID Activities
Pursuant to the Convention, ICSID provides facilities for the conciliation
and arbitration of disputes between member countries and investors who qualify
as nationals of other member countries. Recourse to ICSID conciliation and
arbitration is entirely voluntary.
However, once the parties have consented to arbitration under the ICSID
Convention, neither can unilaterally withdraw its consent. Moreover, all ICSID
Contracting States, whether or not parties to the dispute, are required by the
Convention to recognize and enforce ICSID arbitral awards.
Besides this original role, the Centre has since 1978 had a set of Additional
Facility Rules authorizing the ICSID Secretariat to administer certain types of
proceedings between States and foreign nationals which fall outside the scope of
the Convention.
These include conciliation and arbitration proceedings where either the
State party or the home State of the foreign national is not a member of ICSID.
Additional Facility conciliation and arbitration are also available for cases where
the dispute is not an investment dispute provided it relates to a transaction which
has "features that distinguishes it from an ordinary commercial transaction."
The Additional Facility Rules further allow ICSID to administer a type of
proceedings not provided for in the Convention, namely fact-finding proceedings to
which any State and foreign national may have recourse if they wish to institute an
inquiry "to examine and report on facts."
A third activity of ICSID in the field of the settlement of disputes has
consisted in the Secretary- General of ICSID accepting to act as the appointing
authority of arbitrators for ad hoc (i.e., non- institutional) arbitration proceedings.
This is most commonly done in the context of arrangements for arbitration
under the Arbitration Rules of the United Nations Commission on International
Trade Law (UNCITRAL), which are specially designed for ad hoc proceedings.
Provisions on ICSID arbitration are commonly found in investment contracts
between governments of member countries and investors from other member
countries. Advance consents by governments to submit investment disputes to
ICSID arbitration can also be found in about twenty investment laws and in over
900 bilateral investment treaties.
Arbitration under the auspices of ICSID is similarly one of the main
mechanisms for the settlement of investment disputes under four recent multilateral
trade and investment treaties (the North American Free Trade Agreement, the
Energy Charter Treaty, the Cartagena Free Trade Agreement and the Colonia
Investment Protocol of Mercosur).
In addition to these activities, ICSID also carries on advisory and research
activities, publishing Investment Laws of the World and of Investment Treaties
and collaborates with other World Bank Group units. Since April 1986, the Centre
has published a semi-annual law journal entitled ICSID Review- Foreign Investment
Law Journal.
Dispute Settlements Facilities:
ICSID does not conciliate or arbitrate disputes; it provides the institutional
and procedural framework for independent conciliation commissions and arbitral
tribunals constituted in each case to resolve the dispute.
ICSID has three sets of procedural rules that may govern the initiation and
conduct of proceedings under its auspices. These are: (a) the ICSID Convention,
Regulations and Rules (b) the ICSID Additional Facility Rules and (c) Other Dispute
Settlement Activities of the Centre.
(a) ICSID Convention, Regulations and Rules:
The ICSID Convention provides the basic procedural framework for
conciliation and arbitration of investment disputes arising between member countries
and investors that qualify as nationals of other member countries. This framework
is supplemented by detailed Regulations and Rules adopted by the ICSID
Administrative Council pursuant to the Convention.
A principal feature of conciliation and arbitration under the ICSID
Convention is that they are based on a treaty establishing an autonomous and selfcontained system for the institution, conduct and conclusion of such proceedings.
Arbitration and conciliation under the Convention are entirely voluntary,
but once the parties have given their consent, neither may unilaterally withdraw it.
A further distinctive feature is that an arbitral award rendered pursuant to the
Convention may not be set aside by the courts of any Contracting State and is only
subject to the post-award remedies provided for in the Convention. The Convention
also requires that all Contracting States, whether or not parties to the dispute,
recognize and enforce ICSID Convention arbitral awards.
INTERNATIONAL
CENTER FOR
SETTLEMENT OF
DISPUTE
NOTES
There are several essential jurisdictional conditions for access to
arbitration or conciliation under the ICSID Convention :
i. The dispute must be between an ICSID Contracting State and an individual
or company that qualifies as a national of another ICSID Contracting
State. (ICSID Contracting States may designate constituent subdivisions
and agencies to become parties to ICSID proceedings).
ii. The dispute must qualify as a legal dispute arising directly out of an
investment.
iii. The disputing parties must have consented in writing to the submission of
their dispute to ICSID arbitration or conciliation.
Under the ICSID Convention, the Secretary-General is vested with the
limited power to "screen" requests for institution of ICSID conciliation and arbitration
proceedings and to refuse registration, if on the basis of the information provided in
request, the Secretary-General finds that the disputes is manifestly outside the
jurisdiction of the Centre.
(b) ICSID Additional Facility Rules:
Besides providing facilities for conciliation and arbitration under the ICSID
Convention, the Centre has since 1978 had a set of Additional Facility Rules
authorizing the ICSID Secretariat to administer certain types of proceedings between
States and foreign nationals which fall outside the scope of the Convention.
These include:
i. Conciliation and arbitration proceedings for the settlement of disputes
arising directly out of an investment where either the State party or the
home State of the foreign national is not an ICSID Contracting State.
ii. Conciliation and arbitration proceedings between parties at least one of
which is a Contracting State or a national of a Contracting State for the
settlement of disputes that do not directly arise out of an investment.
iii. Fact-finding proceedings.
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(c) Other Dispute Settlement Activities of the Centre:
Additional activities of ICSID in the field of the settlement of disputes
have included the Secretary- General of ICSID accepting to act as the appointing
authority of arbitrators in ad hoc (i.e., non- institutional) arbitration proceedings.
This is most commonly done in the context of arrangements for arbitration
under the Arbitration Rules of the United Nations Commission on International
Trade Law (UNCITRAL), which are specially designed for ad hoc proceedings.
At the request of the parties and the tribunal concerned, ICSID may also agree to
provide administrative services for proceedings handled under the UNCITRAL
Arbitration Rules.
The services rendered by the Centre in such proceedings may range from
limited assistance with the organization of hearings and fund-holding to full
secretariat services in the administration of the case concerned.
CHECK YOUR
PROGRESS
Give Institutional
Arrangements of
ICSID?
10.6 Institutional Arrangements
As a general rule, ICSID proceedings are held at the Centre's headquarters
in Washington, D.C. However, parties may agree to hold their proceeding at any
other place, subject to certain conditions.
The ICSID Convention contains provisions that facilitate advance
stipulations for such other venues when the place chosen is the seat of an institution
with which the Centre has an arrangement for this purpose.
ICSID has to date concluded such arrangements with the following
institutions:
1. Permanent Court of Arbitration at The Hague;
2. Regional Arbitration Centres of the Asian-African Legal Consultative
Committee at Cairo, at Kuala Lumpur and at Lagos;
3. Australian Commercial Disputes Centre at Sydney;
4. Australian Centre for International Commercial Arbitration at Melbourne;
5. Singapore International Arbitration Centre;
6. Gulf Cooperation Council Commercial Arbitration Centre at Bahrain;
7. German Institution of Arbitration.
10.7 Summary
The 1965 Convention on the Settlement of Investment Disputes between
States and Nationals of Other States, promoted by and signed under the auspices
of the World Bank, is a milestone in the move towards the establishment of an
international legal framework protecting and promoting the flow of foreign investment
between developed and developing countries.
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ICSID's 159 member states which have signed the center's convention
include 158 United Nations member states plus Kosovo. Of these member states,
only 151 are "contracting member states", that is they have ratified the contract.
Former members are Bolivia, Ecuador (withdrew 2009), and Venezuela, which
withdrew in 2012. All ICSID contracting member states, whether or not they are
parties to a given dispute, are required by the ICSID Convention to recognize and
enforce ICSID arbitral awards.
The ICSID Convention provides the basic procedural framework for
conciliation and arbitration of investment disputes arising between member countries
and investors that qualify as nationals of other member countries. This framework
is supplemented by detailed Regulations and Rules adopted by the ICSID
Administrative Council pursuant to the Convention.
INTERNATIONAL
CENTER FOR
SETTLEMENT OF
DISPUTE
NOTES
10.8 Exercise & Questions
1)
Explain the background and objective of ICSID.
2)
Explain the organization structure of ICSID.
3)
Explain the rules and regulations of ICSID.
4)
Explain the provisions of ICSID activates.
10.9 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
(101)
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UNIT - 11
ASIAN DEVELOPMENT BANK
Money, Central Banking in
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Financial Institutions - II
NOTES
Structure
CHECK YOUR
PROGRESS
Briefly
ADB?
describe
11.1
Introduction
11.2
Objectives
11.3
Summary
11.4
Exercise & Questions
11.5
Further Reference Books
11.1 Introduction
Apart from World Bank group, there are three other international lending
agencies. Inter American development bank, African development fund and Asian
development bank. ADB is a development bank started in 1966 under the agies of
ECAFE. Its membership consists of countries from Asian region as well as from
other regions. To promote investment in the ECAFE region through public and
private capital.ADB finances principally specific projects in the region.
The ADB defines itself as a social development organization that is
dedicated to reducing poverty in Asia and the Pacific through inclusive economic
growth, environmentally sustainable growth, and regional integration.
The ADB was modeled closely on the World Bank, and has a similar
weighted voting system where votes are distributed in proportion with members'
capital subscriptions.
11.2 Objectives
At the end of this unit, you will be able to 1) Know the objectives of ADB
2) Understand the operations of ADB
3) Understand the organization of ADB
History of ADB -
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The concept of a regional bank was formally proposed, as an institution
for developing intra-regional trade, at a trade conference organized by the Economic
Commission for Asia and the Far East (ECAFE) in 1963 by a young Thai banker,
Paul Sithi-Amnuai. (ESCAP, United Nations Publication March 2007, "The first
parliament of Asia" pp. 65). The United States was initially opposed to the creation
of another regional development bank following the establishment of the InterAmerican Development Bank in 1959. However, with the escalation if the Vietnam
War, President Lyndon Johnson was persuaded to support the establishment of the
ADB in 1964 in an effort the mollify Senator J. William Fulbright (Chairman of the
Senate Foreign Relations Committee) who argued that the War would not only
bleed American blood and treasure, but would also be very bad for America's
image in Asia. President Johnson pressed retired World Bank President Eugene
Black into organizing and establishing the new institution.
ASIAN DEVELOPMENT
BANK
NOTES
In the process, Secretary of State Dean Rusk urged that Japan play an
important role in the ADB. He argued that the biggest danger to American foreign
policy in Asia was Japan's inability to integrate into the Asian society of nations
following the animosities of WWII. Indeed, there was sharp Asian opposition to
Japan's participation in the institution. After considerable diplomatic effort, Japan
was eventually accepted into the organization by the majority of the participating
nations, and Tokyo was selected as the site of the bank's headquarters. The
Presidency was to rotate between the various countries of Asia. However, at the
eleventh hour in a meeting of the delegates in Manila, President Ferdinand Marcos
delivered a stinging tirade against the establishment of the ADB with Japanese
participation. He threatened to personally travel to every Asian capital and scuttle
the project. Eugene Black, with the assistance of President Johnson was finally
able to mollify President Ramos with the promise to locate the ADB in Manila. (In
fact, Ramos eagerly volunteered to house the ADB in the newly constructed building
on prestigious Roxas Boulevard, which had been designated for the Foreign
Ministry.) As a concession to the Japanese, they were given the inaugural Presidency
of the institution - a position they have tenaciously held onto ever since.
Once the ADB was founded in 1966, Japan took up the Presidency and
some other crucial "reserve positions" such as the directorship of the all powerful
administration department known as BPMSD (Budget, Personnel, and Management
Systems Department) through which they manage the institution. By the end of
1972, Japan had contributed $173.7 million (22.6% of the total) to the ordinary
capital resources and $122.6 million (59.6% of the total) to the special funds. In
contrast, the United States contributed only $1.25 million to the special fund.
The Asian Development Bank (ADB) is a bank established on 19
December 1966, which is headquartered in Mandaluyong, a suburb of Manila,
Philippines, and maintains 31 field offices around the world. To 6promote social
and economic development in Asia. The bank admits the members of the United
Nations Ec0onomic and Social Commission for Asia and the Pacific (UNESCAP,
formerly the Economic Commission for Asia and the Far East or ECAFE) and
non-regional developed countries. From 31 members at its establishment, ADB
now has 67 members, of which 48 are from within Asia and the Pacific and 19
outside. The ADB was modeled closely on the World Bank, and has a similar
weighted voting system where votes are distributed in proportion with members'
capital subscriptions. ADB releases an annual report that summarizes its operations,
budget and other materials for review by the public.
Since its founding in 1966, ADB has been driven by an inspiration and
dedication to improving people's lives in Asia and the Pacific. By targeting our
investments wisely, in partnership with our developing member countries and other
stakeholders, we can alleviate poverty and help create a world in which everyone
can share in the benefits of sustained and inclusive growth.
Whether it is through investment in infrastructure, health care services,
financial and public administration systems, or helping nations prepare for the impact
of climate change or better manage their natural resources, ADB is committed to
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NOTES
helping developing member countries evolve into thriving, modern economies that
are well integrated with each other and the world.
The main devices for assistance are loans, grants, policy dialogue, technical
assistance and equity investments.
We are at the forefront of development thinking and practice, spreading
information through regional forums, a growing online presence and the publication
of specialized papers, serials and books.
Economists, sociologists, engineers, gender experts and environmental
scientists are amongst the hundreds of professions at the bank working together to
reduce poverty, and ensure growth across the Asia and Pacific region is sustainable
and inclusive.
Organisation of ADB -
CHECK YOUR
PROGRESS
Give organzation and
operation of ADB?
The highest policy-making body of the bank is the Board of Governors,
composed of one representative from each member state. The Board of Governors,
in turn, elect among themselves the twelve members of the Board of Directors and
their deputy. Eight of the twelve members come from regional (Asia-Pacific)
members while the others come from non-regional members.
The Board of Governors also elect the bank's president, who is the
chairperson of the Board of Directors and manages ADB. The president has a
term of office lasting five years, and may be reelected. Traditionally, and because
Japan is one of the largest shareholders of the bank, the president has always been
Japanese.
The most recent president was TakehikoNakao, who succeededHaruhiko
Kuroda in 2013.
The headquarters of the bank is at 6 ADB Avenue, Mandaluyong, Metro
Manila, Philippines,and it has 25 field offices in Asia and the Pacific and
representative offices in Washington, Frankfurt, Tokyo and Sydney. The bank
employs about 3,000 people, representing 60 of its 67 members.
Operations of ADB The ADB defines itself as a social development organization that is
dedicated to reducing poverty in Asia and the Pacific through inclusive economic
growth, environmentally sustainable growth, and regional integration. This is carried
out throughinvestments - in the form of loans, grants and information sharing - in
infrastructure, health care services, financial and public administration systems,
helping nations prepare for the impact of climate change or better manage their
natural resources, as well as other areas.
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l
ADB aims for an Asia and Pacific free from poverty. While it has achieved
a significant reduction in extreme poverty, the region remains home to a
majority of the world's extremely poor.
l
With $22.93 billion in approved financing in 2014 and 2,997 employees from
60 of its 67 members, ADB in partnership with member governments,
independent specialists and other financial institutions is focused on delivering
projects that create economic and development impact.
l
Economists, sociologists, engineers, gender experts and environmental
scientists are amongst the hundreds of professions at the bank working
together to reduce poverty.
l
Environmental sustainability is a core strategy of ADB's work as it is the
poor that are most severely affected. Environmental damage and resource
depletion are already impeding the region's development and reducing the
quality of life.
l
ADB is active in creating the framework for the private sector to be involved
in investing in new projects that underpin development and improve the lives
of the 1.4 billion people in the region who live on less than $2 a day.
l
Since 2000, the Asian Development Fund has transformed the region with
the construction of thousands of schools, bridges, health clinics and roads,
providing opportunities for people to lift themselves out of poverty.
ASIAN DEVELOPMENT
BANK
NOTES
Asian Development Fund operations completed during 2011-2014 has helped
ADB's poorest member countries deliver results in many areas. It has:
l
built or upgraded educational facilities for the benefit of over 17 million
students, and trained over 1 million teachers with quality or competency
standards. More than 28 million students were educated and trained under
improved quality assurance systems;
l
built or upgraded 25,000 km of roads which saw over 10 million vehicle-km
of daily use on average in the first full year of operation;
l
provided more than 1 million households with access to clean water by installing
or rehabilitating 15,000 km of water supply pipes, and upgraded sanitation in
293,000 households. Almost 2 million hectares of land have been improved
as a result of irrigation, drainage, and flood management initiatives;
l
installed 230 megawatts of new generating capacity, and built or upgraded
11,300 kilometers (km) of transmission and distribution lines; and
l
reduced greenhouse gas emissions by 600,000 tons of carbon dioxide
equivalent per year by promoting more efficient and cleaner energy
operations.
11.3 Summary
The Asian Development Bank (ADB) is a bank established on 19
December 1966, which is headquartered in Mandaluyong, a suburb of Manila,
Philippines, and maintains 31 field offices around the world.
The ADB defines itself as a social development organization that is
dedicated to reducing poverty in Asia and the Pacific through inclusive economic
growth, environmentally sustainable growth, and regional integration.
The ADB was modeled closely on the World Bank, and has a similar
weighted voting system where votes are distributed in proportion with members'
capital subscriptions.
11.4 Exercise & Questions
1)
2)
3)
Explain the objective of ADB.
Explain the organization structure of ADB.
Explain the operation of ADB.
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NOTES
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11.5 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
UNIT - 12
ADB AND INDIA
ADB AND INDIA
NOTES
Structure
12.1
Introduction
12.2
Objective
12.3
Summary
12.4
Exercise & Questions
12.5
Further Reference Books
12.1 Introduction
The Asian Development Bank (ADB) is a bank established on 19
December 1966, which is headquartered in Mandaluyong, a suburb of Manila,
Philippines, and maintains 31 field offices around the world.
The ADB defines itself as a social development organization that is
dedicated to reducing poverty in Asia and the Pacific through inclusive economic
growth, environmentally sustainable growth, and regional integration.
The ADB was modeled closely on the World Bank, and has a similar
weighted voting system where votes are distributed in proportion with members'
capital subscriptions.
Lending - The ADB offers "hard" loans on commercial terms primarily to
middle income countries in Asia and "soft" loans with lower interest rates to poorer
countries in the region. Based on a new policy, both types of loans will be sourced
starting January 2017 from the bank's ordinary capital resources (OCR), which
functions as its general operational fund.
CHECK YOUR
PROGRESS
Describe objectives of
ADB?
12.2 Objective
At the end of this unit, you will be able to 1) Understand the Assistance of ADB
2) Understand the working of different departments.
Assistant by ADB Lending - The ADB offers "hard" loans on commercial terms primarily to
middle income countries in Asia and "soft" loans with lower interest rates to poorer
countries in the region. Based on a new policy, both types of loans will be sourced
starting January 2017 from the bank's ordinary capital resources (OCR), which
functions as its general operational fund.
In 2014, ADB lent $11.2 billion to its member governments - known as
"sovereign" lending - and invested another $1.7 billion in private enterprises, as part
of its "nonsovereign" operations. ADB's operations in 2014, including grants and
other assistance, totaled $22.93 billion.
ADB obtains its funding by issuing bonds on the world's capital markets. It
also relies on the contributions of member countries, retained earnings from lending
operations, and the repayment of loans.
Private Sector Investments
ADB provides direct financial assistance, in the form of equity investments
in private companies, to projects that have clear social benefits beyond the financial
(107)
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Financial Institutions - II
NOTES
rate of return. ADB's participation is usually limited but it leverages a large amount
of funds from commercial sources to finance these projects.[30]
Cofinancing ADB partners with other development organizations on some projects to
increase the amount of funding available. In 2014, $9.2 billion-or nearly half-of
ADB's $22.9 billion in operations were financed by other organizations.[31]
Funds and Resources More than 50 financing partnership facilities, trust funds, and other funds totaling several billion each year - are administered by ADB and put toward projects
that promote social and economic development in Asia and the Pacific.[32]
Access to Information ADB has an information disclosure policy that presumes all information
that is produced by the institution should be disclosed to the public unless there is a
specific reason to keep it confidential. The police calls for accountability and
transparency in operations and the timely response to requests for information and
documents.[33] ADB does not disclose information that jeopardizes personal privacy,
safety and security, certain financial and commercial information, as well as other
exceptions.
Focus Areas Eighty percent of ADB's lending is concentrated in five operational areas.
(108)
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l
Education - Most developing countries in Asia and the Pacific have earned
high marks for a dramatic rise in primary education enrollment rates in the
last three decades, but daunting challenges remain, threatening economic
and social growth.
l
Environment, Climate Change, and Disaster Risk Management Environmental sustainability is a prerequisite for economic growth and poverty
reduction in Asia and the Pacific.
l
Finance Sector Development - The financial system is the lifeline of a
country's economy. It creates prosperity that can be shared throughout society
and benefit the poorest and most vulnerable people. Financial sector and
capital market development, including microfinance, small and medium-sized
enterprises, and regulatory reforms, is vital to decreasing poverty in Asia and
the Pacific.
l
Infrastructure, including transportand communications,energy, water supply
and sanitation,and urban development.
l
Regional Cooperation and Integration - Regional cooperation and integration
(RCI) is a process by which national economies become more regionally
connected. It plays a critical role in accelerating economic growth, reducing
poverty and economic disparity, raising productivity and employment, and
strengthening institutions.
ADB and India India was a founding member of the Asian Development Bank (ADB),
and is now its fourth-largest shareholder. India holds around 224,010 shares in the
ADB and the percentage of votes that the country holds in ADB is 5.374%. ADB
commenced its operations in India in 1986, and has approved 189 sovereign loans
amounting to $31.3 billion during 1986-2014. As of 31 December 2014, the portfolio
included 86 ongoing sovereign loans amounting to $11.5 billion.
ADB assistance to India has matured over the years to support the
Government of India's evolving priorities. ADB's country partnership strategy (CPS),
2013-2017 for India aims to support the government's Twelfth Five-Year Plan
priorities of "faster, more inclusive, and sustainable growth." In line with the
government's guiding principle that multilateral development partners add value
beyond tangible investments, ADB builds in innovations and best practices in project
design and implementation.
India's Executive Director to the Asian Development Bank is Mr. Ashok
K. Lahiri and the alternate Executive Director is Nima Wangdi. The Country
Director of ADB for India is Tadashi Kondo.
The Asian Development Bank has provided India with large amounts of
loans in various sectors such as infrastructure, energy, financial, health, agriculture,
and industry.
l
In the sector of trade and industry the loan provided amounts to US$ 185.90
million
l
In the sector of nutrition, health, and social protection the loan provided
amounts to US$ 20.00 million
l
In the sector of energy the loan provided amounts to US$ 5,125.80 million
l
In the sector of natural resources and agriculture the loan provided amounts
to US$ 46.11 million
l
In the sector of finance the loan provided amounts to US$ 2,460.00 million
l
In the sector of communication and transportation the loan provided amounts
to US$ 4,979.20 million
l
In the sector of waste management, waste supply, and sanitation the loan
provided amounts to US$ 501.20 million
l
In the sector of economic management and law the loan provided amounts
to US$ 850.00 million
l
In the multi sector the loan provided amounts to US$ 2,280.00 million.
ADB AND INDIA
NOTES
CHECK YOUR
PROGRESS
Describe different
Departments of
ADB?
Departments of ADB ADB Library
Supports the information needs of ADB staff, using a collection of more
than 77,000 titles that include books, journals, newspapers, commercial databases,
Internet-based publications, and newswires. The library is open to external
researchers, provided advanced notice is given through written request to the Head,
Information Resources and Services, or authorized library staff.
l Email contact form.
l ADB Library Online Catalogue
Budget, Personnel and Management Systems Department (BPMSD)
Provides advice and services in budget, staff position management, human
resources, staff development, benefits, and compensation
Controller's Department (CTL)
Maintains accounting policy and systems, prepares financial reports, and
authorizes loan, technical assistance, grants, disbursements, and other payments
Central and West Asia Department (CWRD)
Covers operations in Afghanistan, Armenia, Azerbaijan, Georgia,
(109)
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Financial Institutions - II
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Kazakhstan, Kyrgyz Republic, Pakistan, Tajikistan, Turkmenistan, and Uzbekistan
Department of External Relations (DER)
Provides leadership, resources and strategies for communicating with
internal and external audiences
East Asia Department (EARD)
Covers operations in the People's Republic of China; Hong Kong, China;
Republic of Korea; Mongolia; and Taipei,China
Economic Research and Regional Cooperation Department (ERCD)
Conducts rigorous data analysis and strong database development and
management
Independent Evaluation Department (IED)
Helps ADB continuously improve its development effectiveness and
accountability to stakeholders
Office of the Auditor General (OAG)
Undertakes financial, administrative, and information systems audits,
assistance to external auditors, liaison with international organizations and
anticorruption
Office of Anticorruption and Integrity (OAI)
Is the designated focal point of contact for allegations of fraud or corruption
pertaining to ADB-financed activities or staff members
Office of Administrative Services (OAS)
Provides administrative support to help management and staff enhance
workplace effectiveness
Office of Cofinancing Operations (OCO)
Acts as ADB's focal point for planning, promoting, and arranging
cofinancing for ADB projects
Office of the Compliance Review Panel (OCRP)
Provides support to ADB's independent Compliance Review Panel which,
upon request by affected persons, investigates ADB's compliance with its operational
policies and procedures in the formulation, processing, or implementation of an
ADB-financed project.
Office of the General Counsel (OGC)
Handles all legal aspects of operations and activities, including providing
legal advice
Office of Information Systems and Technology (OIST)
Manages ADB's automated information systems and telecommunications
services
(110)
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Office of the Ombudsperson (OOMP)
Provides ADB staff with a confidential, impartial, off-the-record and
independent setting to discuss and resolve work related concerns and issues. While
maintaining staff confidentiality, OOMP also alerts Management to trends and
concerns about the workplace that should be addressed, providing them with
information and feedback on immediate and systemic issues and thus serves as an
early warning system and as a catalyst for change in ADB's working environment.
Office of Public-Private Partnership (OPPP)
Responsible for coordinating and supporting ADB's public-private
partnership operations, and for providing transaction advisory services to developing
members.
ADB AND INDIA
NOTES
Office of Risk Management (ORM)
Responsible for policy, system, and operational risk; credit risk assessment;
credit portfolio monitoring; corporate recovery; and market and treasury risk
Office of the Secretary (SEC)
Provides advice and counsel to the Board of Governors, Board of Directors,
and Management
Office of the Special Project Facilitator (OSPF)
Responsible for actively responding to the concerns of people affected by
ADB-assisted projects through fair, transparent, and consensus-based approaches
Operations Services and Financial Management Department (OSFMD)
Responsible for planning, monitoring, and coordinating project processing
and administration work programs, procurement reviews, and consultant recruitment
Pacific Department (PARD)
Covers operations in Cook Islands, Republic of Fiji, Kiribati, Marshall
Islands, Federated States of Micronesia, Nauru, Palau, Papua New Guinea, Samoa,
Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu
Private Sector Operations Department (PSOD)
Provides direct assistance to private sector projects with clear development
impact
South Asia Department (SARD)
Covers operations in Bangladesh, Bhutan, India, Maldives, Nepal, and Sri
Lanka
Southeast Asia Department (SERD)
Covers operations in Brunei Darussalam, Cambodia, Indonesia, Lao
People's Democratic Republic, Malaysia, Myanmar, Philippines, Singapore, Thailand,
and Viet Nam
Strategy and Policy Department (SPD)
Provides ADB with a strategic planning perspective and direction, ensures
policy and operations coordination, and maintains institutional relations with the
international development community, especially on matters relating to resource
mobilization
Sustainable Development and Climate Change Department (SDCC)
Provides leadership, innovation, and knowledge sharing for ADB's sector
and thematic work.
Treasury Department (TD)
Responsible for mobilizing funds for operations and planning, as well as
managing ADB's finances.
(111)
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Strategy 2020
ADB's long-term strategic framework promotes three complementary
agendas on inclusive economic growth, environmentally sustainable growth, and
regional integration.
l
Strategy 2020: The Long-Term Strategic Framework of the Asian Development
Bank 2008-2020
l
Strategy 2020 midterm review
l
Corporate results framework
l
Key accomplishments under Strategy 2020
Core Operational Areas
80% of ADB lending is in five core operational areas, identified as
comparative strengths of ADB.
l Infrastructure
CHECK YOUR
PROGRESS
l
Water Operational Plan 2011-2020
l Energy Policy
l Sustainable Transport Initiative Operational Plan
What is Strategy
2020?
l Urban Operational Plan 2012-2020
l Toward E-Development in Asia and the Pacific: A Strategic Approach
for Information and Communication Technology
l
Education by 2020: A Sector Operations Plan
l
Environment
l Environment Operational Directions 2013-2020
l Addressing Climate Change in Asia and the Pacific: Priorities for Action
l Operational Plan for Integrated Disaster Risk Management 2014-2020
l
Regional Cooperation and Integration Strategy
l
Financial Sector Operational Plan
Other Operational Areas
l
Operational Plan for Health, 2015-2020
l
Operational Plan for Sustainable Food Security in Asia and the Pacific
l
Private Sector Development: A Revised Strategic Framework
l
Revised Capacity Development Action Plan
l
Gender Equality and Women's Empowerment Operational Plan, 2013-2020
l
Knowledge Management Directions and Action Plan (2013-2015)
l
Cooperation Arrangements for Development Partnerships
Regional/Country Partnership Strategies
The regional cooperation strategy outlines how an ADB-defined region or
subregion can work together to foster economic growth and cooperation.
l
Regional Cooperation Strategy and Programs
The country partnership strategy is ADB's primary platform for designing
operations to deliver development results at the country level.
(112)
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l
Country Partnership Strategies
l
Country Partnership Strategy Updates
l
Country Operations Business Plans
Operations Manual
The operations manual of ADB collects operational policies known as
"Bank policies." The manual also includes operational procedures that spell out
procedural requirements and guidance on the implementation of policies.
ADB AND INDIA
NOTES
12.3 Summary
Lending - The ADB offers "hard" loans on commercial terms primarily to
middle income countries in Asia and "soft" loans with lower interest rates to poorer
countries in the region. Based on a new policy, both types of loans will be sourced
starting January 2017 from the bank's ordinary capital resources (OCR), which
functions as its general operational fund.
India was a founding member of the Asian Development Bank (ADB),
and is now its fourth-largest shareholder. India holds around 224,010 shares in the
ADB and the percentage of votes that the country holds in ADB is 5.374%. ADB
commenced its operations in India in 1986, and has approved 189 sovereign loans.
amounting to $31.3 billion during 1986-2014. As of 31 December 2014, the portfolio
included 86 ongoing sovereign loans amounting to $11.5 billion.
12.4 Exercise & Questions
1)
Explain the working of different departments of ADB.
2)
Explain the relation of India with ADB.
3)
Explain the strategy 2020of ADB.
12.5 Further Reference Books
l Indian Financial System
- Dr. S Gurusamy
l Central Banking for Emerging Market Economies
- A. Vasudevan
l Money & Banking : Theory with Indian Banking
- Hajela T.N.
l International Financial Institutions and Indian Banking
- Autar Krishen and Mihir Chatterjee
(113)
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Financial Institutions - II