Economics 151
International Economic Issues
International Economic Institutions
• Three global organizations play major role
in international economic relations:
– International Monetary Fund (IMF)
– World Bank (WB)
– World Trade Organization (WTO)
• WTO is successor to GATT (General
Agreement on Tariffs and Trade)
Bretton Woods Conference, 1944
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Bretton Woods, New Hampshire
44 nations participated, led by U.S., U.K.
Established IMF, World Bank
GATT started up soon thereafter
International Monetary Fund
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Over 180 members
Oversees exchange rate policies
Monitors international payments imbalances
Provides temporary loans for balance-ofpayments financing
International Monetary Fund
• Main function: help countries overcome
international payments crisis
• Crisis occurs when country runs out of foreign
exchange reserves – a major currency or gold
that can be used to pay for imports and
international borrowings
• IMF conditionality – requirement for the
borrowing member to carry out economic
reforms in exchange for a loan
Global Financial Crises and the IMF
IMF bailouts for troubled economies
• Mexico (1995)
• Thailand, Indonesia, Korea (1997)
• Russia, Brazil (1998)
• Turkey (2001)
• Argentina (2001-present)
World Bank
• Founded as the International Bank for
Reconstruction and Development (IBRD)
• Over 180 members
World Bank
• Main functions: provide loans to developing
countries for projects aimed at:
– poverty reduction
– improvement of health and education systems
– infrastructure for private sector development
(bridges, dams, etc.)
GATT
• GATT was beginning of large-scale
multilateral trade negotiations
• First “round” in 1947 in Geneva - Eight
rounds altogether through 1993
GATT
• Five Key Principles in GATT:
1. trade barriers should be lowered in general and
quotas should be eliminated
2. trade barriers should be applied on MFN basis
– no discrimination among trading partners
3. national treatment – imported goods treated
same as domestic goods
GATT
• Five Key Principles in GATT
4. tariff concessions, once made, cannot be
rescinded without compensating trade partners,
and new barriers cannot be erected in place of
lowered tariffs
5. trade disputes to be settled by consultation
GATT
Major GATT Negotiating Rounds
• First Round, Geneva, 1947, 21% Average Cut in
Tariffs
• Kennedy (6th) Round, Geneva, 1964-67, 36%
Average Cut in Tariffs
• Tokyo (7th) Round, Geneva, 1974-79, 30%
Average Cut in Tariffs
• Uruguay (8th) Round, Geneva, 1986-93, 33%
Average Cut in Tariffs
Uruguay Round, 1986-93
• Over 100 Nations Participated
• Very Contentious Because Issues Went Far
Beyond Tariff Reduction
– Nontariff Barriers, Intellectual Property Rights,
Services Trade, Agriculture Polices, Improving
How GATT Functions
• Created WTO as successor to GATT,
beginning in 1995
World Trade Organization
• WTO continues with all five key
principles of GATT
• WTO continues two main roles of GATT
1. enforcing existing trade agreements and
2. serving as forum for new talks to liberalize
trade
World Trade Organization
• Over 140 Countries Belong - More Seek
to Join
• Member Countries Account for Over 90
Percent of World Trade
• Membership Requires Acceptance of All
Agreements and Rules From Uruguay
Round