What Do We Need in our
International Financial Institutions?
Nicholas C. Hope
Director
Stanford Center for International Development
Aug, 3, 2012
What Do We Need in our
International Financial Institutions (IFIs)?
Outline:
1. Why are they there?
2. The Big Three:
 The International Monetary Fund (IMF)
 The World Bank Group (WBG)
 The World Trade Organization (WTO)
3. Issues in International Governance
4. What should IFIs do in the 21st Century?
Some Statements to Motivate Discussion
What are your perceptions, if any, of the IFIs?
Essential contributors to international financial stability,
economic growth and development
 Irrelevant relics of a past era
 Undemocratic preservers of the (inequitable?) international
status quo
 Inefficient bureaucracies unaccountable for their, largely
ineffective, actions

Are they needed in their current forms? If they should be replaced,
with what ?
1. Why are they there?
The Bretton Woods Institutions (IMF, World Bank,
GATT/WTO) designed in the mid-1940s to avoid a repetition
of the 1930s:
 Rules of the game – ensure acceptable policies to deal with
balance-of-payments problems
 Facilitate trade and capital movements
 Assist in post-war recovery (unlike 1920s)
 Promote growth in lagging economies
My view: they have served us well
Century's Growth in Real World
GDP per Capita
1. Why are they there?
Worldwide Growth in Real GDP/Capita, 1000–Present (%)
95
75
55
35
15
-5
11th
12th
13th
14th
15th
16th
17th
18th
19th
20th
Century
Source: Reproduced from Economic Growth in the 1990s: Learning from a Decade of Reform, Page 1; Original source: DeLong
2000.
1. Why are they there?
The BWIs (and the others – are there too many?) have
contributed to an era of unprecedented global prosperity.
Continuing in the new century, despite recent, severe
economic problems (esp. for OECD)
A major contribution of BWIs and UN system: compilation of
vast quantities of standardized date on countries’ economic
and social performance; leadership in analysis of the data
Despite which, many perceive them largely as failures
2. The Big Three: The International Monetary Fund (IMF)
Enjoys almost universal membership: 188 countries, with 98% of the
World’s population (notably excludes: Cuba, Myanmar – could change
soon [?], North Korea)
Still has the original mandate, somewhat expanded: surveillance of the
international monetary system and the global economy
Aims to foster global monetary cooperation, facilitate international trade,
maintain financial stability, promote high employment and sustainable
economic growth, and reduce poverty (a more recent and possibly
controversial addition) – inclusive growth
Has played a crucial role in virtually all international financial
disturbances since its inception; important examples: post-OPEC- shock
financing (including Trust Fund) in the 1970s; the wide-spread debt crisis
of the 1980s; the East Asian problems of 1997-98 (note the criticism); the
current problems, in which EU member countries are more prominent
beneficiaries than poor countries
2. The Big Three:
IMF Quotas (major shareholders; percent of total)
1974-2012
25
Percentage of Total
20
15
10
5
0
1974
1982
United States
United Kingdom
1991
Japan
China
Source: IMF, UNdata (http:// data.un.org), as of July 1, 2012
1997
Germany
India
2002
2010
France
Russian Federation
2. The Big Three:
IMF Members’ Quotas and Voting Power, 2012
QUOTA
Member
Millions –
Special Drawing
Rights
VOTES
% of Total
Number
% of Total
U.S.
42,122.4
17.69
421,964
16.75
Japan
15,628.5
6.56
157,022
6.23
Germany
14,565.5
6.12
146,392
5.81
France
10,738.5
4.51
108,122
4.29
U.K.
10,738.5
4.51
108,122
4.29
China
9,525.9
4.00 (up from 3.72)
95,996
3.81 (up from 3.65)
Italy
7,882.3
3.31
79,560
3.16
Saudi Arabia
6,985.5
2.93
70,592
2.80
Canada
6,369.2
2.67
64,429
2.56
Russian Federation
5,945.4
2.50
60,191
2.39
India
5,821.5
2.44 (up from 1.91)
58,952
2.34 (up from 1.88)
Netherlands
5,162.4
2.17
52,361
2.08
Source: IMF Members’ Quotas and Voting Power, and IMF Board of Governors, IMF, July 10, 2012
http://www.imf.org/external/np/sec/memdir/members.htm
2. The Big Three:
Some Current Issues/Concerns for the IMF
Before the financial turmoil that erupted in 2008, the Fund’s budget
was in such poor shape that staff cuts were imposed. Not the first time
that good times had sidelined the IMF to the point that it was
handicapped in responding to crises. Issues:
In practice, how effective is the Fund in dealing with global
imbalances? Does the fund have leverage over the G-7; G-20?

How effectively is the Fund mitigating the effects of the recent global
financial turmoil?

How should responsibility be shared between surplus and deficit
countries to moderate global imbalances?

To what extent does the Fund’s advice (e.g. to embrace greater
flexibility of exchange rates and freer capital movements) align with
members’ own interests?

2. The Big Three:
Some Current Issues/Concerns for the IMF
The Asian continent, generally, and China in particular now have a
larger voice in the governance of the IMF? What further changes are
desirable in IMF quotas? How are changes in voting rights likely to affect
IMF policies and programs?

How well-adapted to the circumstances of individual countries are the
Fund’s programs? Are they well-designed to assist countries to restore
the confidence of domestic and foreign investors and creditors? For
example, were the Fund’s responses to the East Asian crisis/the recent
financial turmoil appropriate? If not, what should have been done
differently?

Should Asia (and other regions) have an independent capacity to
respond to regional disturbances (Chiang Mai)? Would regional
organizations that could assist distressed countries remove the pressure
on some to accumulate massive “war chests’ of international reserves,
with the associated global imbalances?

2. The Big Three: The IMF’s Commitments to Europe
As of 5/21/12:
Loans committed: US$247 billion, of which US$189 billion have not been drawn
Biggest borrowers: Greece, Portugal, Ireland
Biggest precautionary loans: Mexico, Poland, Colombia
Member
Date of
Arrangement
Expiration
Total
Amount
Agreed
Undrawn
Balance
IMF Credit
Outstanding
Under GRA
Extended Arrangements (EFF) (In Thousands of SDRs)
Greece
March 15, 2012
March 14, 2016
23,785,300
22,386,200
18,940,900
Ireland
Dec 16, 2010
Dec 15, 2013
19,465,800
4,438,375
15,027,425
Portugal
May 20, 2011
May 19, 2014
23,742,000
7,796,000
15,946,000
Note: GRA is General Resources Accounts
Source: IMF Lending Arrangements, as of July 10, 2012
2. The Big Three: The World Bank Group (WBG)
What is today’s “World Bank Group?”
 International Bank for Reconstruction and Development (IBRD - 1944), International Development Association (IDA --1960) the
“World Bank”
 International Finance Corporation (IFC -- 1956), International
Center for the Settlement of Investment Disputes (ICSID -- 1966),
and Multilateral Investment Guarantee Agency (MIGA -- 1988)
How is it funded? What does it do?
 Shareholders; creditors; donors – their functions
 Its services -- economic analysis; policy advice; loans, credits
and grants; technical assistance; guarantees; insurance; equity
(IFC); donor coordination; arbitration
2. The Big Three: The World Bank Group (WBG)
How big is the “World Bank”?
In FY2011, the WBG committed $52.6 billion in loans, grants, equity
investments, and guarantees to its members and to private businesses in
member countries. (FY2010: $72.9 billion and FY 2009: $58.8 billion ).
 188 members/owners -- IBRD; link to IMF. (172 members of IDA).
 Joint commitments of IBRD and IDA amounted to $43 billion in
FY2011. ( $26.7 billion in 132 operations from IBRD; $16.2 billion in
228 operations from IDA). For comparison: $58.7 billion in FY 2010,
$46.9 billion in FY2009 , $24.7 billion in FY2008; $23.6 billion in
FY2006; $20.1 billion in FY2004)
Note: $29 billion in FY1999 (EA crisis); $15 billion in FY2000! World
Bank lending responds to crises; complements IMF, others. In good
times, countries much less interested in WBG support.
Cumulative Lending (FY2011): IBRD (US$ 550 bill.), IDA (US$ 237 bill.)
2. The Big Three: The World Bank Group (WBG)
10%
FY08
US$ 24.7 billion
6%
8%
FY11
US$ 43 billion
20%
11%
5%
4%
14%
17%
20%
2%
6%
20%
6%
7%
FY10
US$ 58.75 billion 15%
4%
7%
16%
8%
22%
17%
19%
16%
2%
12%
Source: The World Bank Group, 2011 Annual Report
1%5%
Agriculture, fishing and forestry
Education
Energy and mining
Finance
Health and other social services
Industry and trade
Information and communications
Public administration, law, and justice
Transportation
Water, sanitation, and flood protection
2. The Big Three: The World Bank Group (WBG)
US$ billion
WB Lending By Sector
65
60
55
50
45
40
35
30
25
20
15
10
5
0
FY05
FY06
FY07
Agriculture, fishing and forestry
Energy and mining
Health and other social services
Information and communications
Transportation
Sector Total
Source: The World Bank Group, 2011 Annual Report
FY08
FY09
FY10
FY11
Education
Finance
Industry and trade
Public administration, law, and justice
Water, sanitation, and flood protection
2. The Big Three: The World Bank Group (WBG)
IFC
 184 member countries
 Has committed more than $38 billion of its funds, plus $7.5 billion in
syndications for 1,490 companies in 122 countries
 In FY2008, IFC committed $11.4 billion and mobilized an additional
$4.8 billion, to finance 372 investment projects in 85 countries.
 In FY2009, IFC’s new commitments totaled $10.5 billion; the portfolio
became less concentrated on a country basis, with the top ten countries
representing 48% (down from 51%). In FY2011, IFC committed $12.18
billion, slightly lower than $12.66 billion in FY2010.
ICSID
 243 concluded cases (as of July 10, 2012)
 149 pending cases (as of July 10, 2012)
MIGA
 Since its inception in 1988, MIGA has issued guarantees worth more
than $21 billion for more than 600 projects in 100 developing countries.
In FY2011, MIGA issued $2.1 billion in guarantees, up from $1.5 billion
in FY2010 and $1.4 billion in FY2009.
2. The Big Three: The World Bank Group (WBG)
The World Bank Project Cycle (note that the other multilateral
development agencies – and many bilateral ones have adopted [some]
similar procedures)
A lengthy process: from conception to evaluation could take a decade
or more. Key steps:
 Country Assistance Strategy (and/or poverty reduction strategy)
 Identification
 Preparation
 Appraisal
 Negotiation and Approval
 Implementation/Supervision
 Completion—ICR
 Evaluation—OED
Issue: Are WBG procedures too intrusive, costly, and time consuming?
Do countries exclude the Bank from projects as a result?
2. The Big Three: The World Bank Group (WBG)
In recent years the World Bank has cooperated with many partner
agencies in striving to attain the Millennium Development
Goals (MDGs), which set specific targets for:
1.
2.
3.
4.
5.
6.
7.
8.
Reducing poverty
Advancing educational attainment
Raising the status of women
Reducing child mortality
Improving maternal health
Combating HIV/ AIDS, malaria and other diseases
Ensuring environmental sustainability
Enhancing development cooperation
2. The Big Three: The World Bank Group (WBG)
Increasingly, since the mid-1990s the WBG has emphasized its
commitment to and role in transferring knowledge to its
developing country members. For some middle-income countries,
which have been able to access the international capital markets
with less “bureaucracy” than involved in borrowing from the WB,
the availability of Bank expertise has been the main attraction of
membership. The WBG offers:





Analysis and advice on economic management
Technical expertise
Information technology skills; the “digital divide”
Assistance in establishing global distance learning
Advice on how to improve governance
2. The Big Three:
Some Current Issues/Concerns for the WBG
The World Bank’s critics emphasize:
 failures rather than successes (more countries remain poor after
decades of development assistance than have ascended to developed
country ranks);
 the priorities are always wrong! Though development takes time,
there’s not a lot of patience with strategies that don’t work wonders.
Some issues:
 Should the Bank do some things well rather than attempting to solve
all problems?
 Would countries borrow from the Bank if they could access more
trouble-free capital?
 Do countries value the WBG’s economic and other advice?
 Are the Bank’s approaches influenced too much by its major
shareholders?
2. The Big Three: The World Trade Organization (WTO)
The GATT proved an effective, if administratively cumbersome,
organization that succeeded in its primary tasks – liberalization of
the global trading regime, and arbitration of international trade
disputes.
The successor organization, the WTO (1995), has similar objectives,
but to date has been unsuccessful in achieving a major, multilateral
reduction in trade barriers.
Its lack of success in the Doha round has contributed to a
proliferation of regional trade agreements (RTAs). They have the
disadvantage of creating potential for inefficient diversion of trade
and investment; but a potential advantage is that their exclusionary
nature might eventually force countries to agree on multilateral
measures. “Some movement might be better in the long run than no
movement.”
2. The Big Three: The World Trade Organization (WTO)
Despite difficulties in reducing trade barriers further, the WTO is
playing a constructive role; bringing in important new members;
effectively mediating some disputes; codifying behaviors. Issues:
To what extent can major developing economies contribute
positively in concluding multilateral trade agreements? How
important for developing/developed countries was the agricultural
safeguards issue that sank Doha?
 Should the focus of multilateral trade agreements be restricted
mainly to issues affecting merchandise trade? Is it premature to seek
freer trade in services and in conditions for international investment?
 Is the international interest well-served by the current and
prospective proliferation of regional and bilateral free trade
agreements?
 How effectively can the WTO mediate trade disputes involving, for
example, China and the U.S.? How does it cooperate with the IMF?

3. Issues in International Governance
Given that international institutions play an indispensable role in
the management of the complex interactions that arise in
international trade, payments, investment and aid, how should
they be governed in future to enable them to discharge their
functions more effectively?
One country, one vote – the UN, but note the Security Council
 Consensus of members – WTO, others
 Votes weighted by population – China, India, US
 Votes weighted by income/economic standing – US, Japan,
China
 More complex weighting systems – quotas in the IMF, MDBs
(income, trade, contributions)

3. Issues in International Governance
Important decisions are taken as well in regional organizations
(APEC, ASEAN, ASEAN+3) and more or less comprehensive
economic arrangements (EU, NAFTA). These decisions have
international implications; how is the international perspective
represented?
For economic and financial issues, the G-7 (now the G-7+1+1 and
onlookers) has been the key forum for important decisions to
harmonize economic policies internationally that eliminate global
imbalances and deal with pressing problems. These decisions
materially affect the prospects of other countries: how should
their voices be heard?
3. Issues in International Governance
Since 1950, the position of the US on international economic issues
has been very influential, and in many areas (trade reform, capital
mobility and investment conditions, the role of the IMF) the US
position effectively has determined (dictated?) the outcome. In the
21st Century, with a presumed decline in the economic dominance
of the US, how will important decisions be made?
Will the G-20 replace the G-7 as the major international forum
promoting economic policy change?
 Is it sufficiently representative (G-24)?
 Is it too unwieldy for effective decision making? If so, what
alternatives might serve instead?

3. Issues in International Governance: leadership

WTO
From Michael Moore (who served as Prime Minister of New Zealand) to Pascal Lamy,
a French political advisor, a businessman, and a former European Commissioner for
Trade. How has he done?

IMF
From Dominique Strauss-Kahn to compatriot Christine Lagarde on July 5, 2011. She
was Minister of Finance, and before that Minister of Agriculture and Fishing and
Minister of Trade in the government of Dominique de Villepin. How is she doing?

World Bank
From Robert Bruce Zoellick (how did he do?) to Korean-American Jim Yong Kim.
Kim promised to immediately focus on helping poor countries navigate a fragile
global economy. Jim Yong Kim was President of Dartmouth College from 2009 to
2012,; former Chair of the Department of Global Health and Social Medicine
at Harvard Medical School; co-founder and executive director of Partners in Health
and director of WHO’s HIV/AIDS department in 2004. How will he do?
Implications? Time for change?
4. What should IFIs do in the 21st Century?
Have raised issues – let’s discuss.
Do we need IFIs?
What should they do? Advise, lend, coordinate, arbitrate?
Have they changed since 2000?
John Lipsky – Fund lending (much more) with “appropriate
conditions”
 Bob Zoellick – recently at Hoover, Bank now “views
countries as clients” [!!!!]
 Is the WTO’s main role destined to be dispute resolution
Are they expected to do too much? Who sets the agenda?
