Economics 151International 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

• 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

• Over 180 members

• Oversees exchange rate policies

• Monitors international payments imbalances

• Provides temporary loans for balance-of-payments 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 GATT4. 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rescinded without compensating trade partners, and new barriers cannot be erected in place of lowered tariffs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