International Organisations Lecture 5 - United Nations - UPSC Exam

United Nations

Lets Look at PYQs

PYQ: Which of the following organizations brings out the publication known as ‘World Economic Outlook’? (CSP-2014)

a) The International Monetary Fund
b) The United Nations Development Programme
c) The World Economic Forum
d) The World Bank

PYQ: How is the United Nations Monetary and financial Conference wherein the agreements were signed to set up IBRD, GATT and IMF, commonly known? (CSP-2008)

a) Bandung Conference
b) Bretton Woods Conference
c) Versailles Conference
d) Yalta Conference

PYQ: India’s ranking in the ‘Ease of Doing Business Index’ is sometimes seen in the news. Which of the following has declared that ranking? (CSP-2016)

a) Organization for Economic Cooperation and Development (OECD)
b) World Economic Forum
c) World Bank
d) World Trade Organization (WTO)

PYQ: ‘Global Financial Stability Report’ is prepared by the (CSP-2016)

a) European Central Bank
b) International Monetary Fund
c) International Bank for Reconstruction and Development
d) Organization for Economic Cooperation and Development

IMF

IMF was conceived at a UN conference in Bretton Woods in July 1944.
Why was IMF created?
- 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 1929.

IMF

IMF focuses on fostering global monetary cooperation, securing financial stability, facilitating and promoting international trade, employment, and economic growth around the world. The IMF is a specialized agency of the United Nations.
Members: 190 countries
Headquarters: Washington DC
Mandate: The IMF’s mandate was updated in 2012 to include all macroeconomic and financial sector issues that bear on global stability.
- The Prime responsibility of the IMF is to provide loans to member countries experiencing actual or potential BoP (balance of payments) problems.
IMF does not lend for specific projects but World bank does..!!

IMF

IMF – Structure

Board Of Governors:
- The Board of Governors, the highest decision-making body of the IMF, consists of one governor and one alternate governor for each member country.
- Each member of the Board of Governors is appointed by his/her respective member country.
- India’s Union Finance Minister is the Ex Officio Governor on the IMF’s Board of Governors.
- It Appoints executive directors to the Executive Board. Also delegates work to it.
- The Board of Governors normally meets once a year. Each member has vote as per their quotas.

IMF – Structure

Executive Board:
- The Executive Board (the Board) is responsible for conducting the day-to-day business of the IMF. It is composed of 24 Directors, who are elected by member countries or by groups of countries, and the Managing Director, who serves as its Chairman.
- Board members also have vote value as per the group quotas.

IMF

What is this Quota system?
- IMF quotas are distributed according to a four-pronged formula based on
  1. Member country’s GDP
  2. Economic openness
  3. Economic variability
  4. International reserves
- Unlike the General Assembly of the United Nations, where each country has one vote, decision making at the IMF was designed to reflect the relative positions of its member countries in the global economy. India’s quota is 2.75% and China’s is 6.4%, while the U.S.’s quota is 17.43 %
- Note: Many of the crucial decision in IMF requires 85% supermajority and US vote share give it unique veto power.

IMF

Special Drawing Rights (SDR)
- The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves.
- SDRs are supplementary Foreign Exchange Reserves which are defined and maintained by IMF.
- When there was a shortfall of highly preferred foreign exchange reserve assets like US Dollars and Gold, SDRs were created. SDR is denoted by code XDR.
- IMF allocates Special Drawing Rights (SDR) to different countries. IMF reviews a group of key international currencies over a time period of 5 years and then decides the value of Special Drawing Rights.

IMF

Special Drawing Rights (SDR)
- IMF uses a basket of currencies to determine SDR value. The weightage of currencies are given below.
- SDR value keep changing on daily basis..!!

IMF

Special Drawing Rights (SDR) – Facts
- SDR is an International Reserve Asset. It is part of almost all countries’ forex.
- There is no market of SDR. Although, SDR is used by some banks, organizations as unit for accounting.
- If a country wants to sell SDR, it will notify SDR department of IMF. Trading can be through Voluntary Trading Agreements (VTA).
- SDRs can be used to settle loan payments.
- Private parties cannot hold Special Drawing Rights (SDR).
- IMF can create SDR anytime to inject liquidity.
- SDRs are called Paper gold. Technically they can replace US dollar..!!

IMF

Reserve Tranche or Gold Tranche
- Reserve tranche is the component of a member country’s quota with the IMF that is in the form of gold or foreign currency.
- For any member country, out of the total quota, 25% should be paid in the form of foreign currency or gold. Hence this is called as reserve tranche or gold tranche.
- The remaining 75% can be in domestic currencies and it is called credit tranche.
- 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.

IMF

Publications:
- World economic outlook (WEO)
- Global Financial stability report (GFSR)
- Fiscal Monitor

World Bank Group

The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries.

1. International Bank for Reconstruction and Development (IBRD) 1944
2. International Development Association (IDA) 1944
3. International Finance Corporation (IFC) 1956
4. Multilateral Investment Guarantee Agency (MIGA) 1988
5. International Centre for Settlement of Investment Disputes (ICSID) 1966

World Bank Group

India is a member of IBRD, IDA, IFC & MIGA. India is a founder member of IBRD, IDA & IFC. India became member of MIGA in 1994.
- India has not joined ICSID. India prefers bilateral resolution or resolution through Indian judiciary. India claims that the ICSID’s functioning and structure are biased towards the developed countries.
- Although in recent times India open to multilateral or regional grouing arbitration mechanisms. India has set up the BRICS Arbitration Centre (BRICS Centre) with BRICS nations. It will be available for BRICS & other developing countries.

World Bank

UN and World Bank Group
- IBRD, IFC and IDA are Specialized Agencies of the UN.
- ICSID and MIGA are not Specialized Agencies UN.
- IBRD and IDA are collectively known as World Bank, that provides loans to countries for capital programs. They were created at the 1944 Bretton Woods Conference, along with the International Monetary Fund (IMF).

IBRD

IBRD is a global development cooperative It is the largest development bank in the world.
IBRD is owned by 189-member countries and It is headquartered in Washington, D.C.
It was established in 1944 with the mission of financing the reconstruction of European nations devastated by World War II.
Today it supports the World Bank Group’s mission by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries.
Each member state of IBRD should also be a member of the International Monetary Fund (IMF) and only members of IBRD are allowed to join other institutions within the Bank.

IBRD

IDA

International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries.
IDA was established in 1960. It aims to reduce poverty by providing zero to low-interest loans and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.
IDA is one of the largest sources of assistance for the world’s 74 poorest countries.
37 countries have graduated, and many have become IDA donors, including China, Chile, India, South Korea, and Turkey.

World Bank

Publications:

1. Global Economic Prospect (GEP) Report
2. Ease of Doing Business report
3. World Development Report
4. World Remittances Report
5. Universal Health Coverage Index
6. Ease of Living Index

IFC

International finance corporation is a member of the World Bank Group. IFC advances economic development and improves the lives of people by encouraging the growth of the private sector in developing countries.
IFC achieves this by creating new markets, mobilizing other investors, and sharing expertise.
IFC was founded in 1956 on a bold idea: that the private sector has the potential to transform developing countries.
- Since then IFC has expanded to more than 100 countries, coining the term “emerging markets” and pioneering new markets and products like sustainable bonds.

IFC

IFC Strategy
- Investing in companies
- Mobilizing capital from other lenders
- Advising businesses and governments
- Creating Markets

MIGA

The idea for a multilateral political risk insurance provider was floated long before MIGA’s establishment—in fact as far back as 1948. But it was not until 1988 that this idea started to become a reality.
On April 12, 1988 an international convention established Multilateral investment guarantee agency the newest member of the World Bank Group. India joined MIGA in 1994.
MIGA opened for business as a legally separate and financially independent entity. Membership was open to all IBRD members.
MIGA’s original 29 members were: Bahrain, Bangladesh, Barbados, Canada, Chile, Cyprus, Denmark, Ecuador, Egypt, Germany, Grenada, Indonesia, Jamaica, Japan, Jordan, Korea, Kuwait, Lesotho, Malawi, Netherlands, Nigeria, Pakistan, Samoa, Saudi Arabia, Senegal, Sweden, Switzerland, United Kingdom, and United States.

MIGA

MIGA was created to complement public and private sources of investment insurance against non-commercial risks in developing countries.
MIGA’s multilateral character and joint sponsorship by developed and developing countries were seen as significantly enhancing confidence among cross-border investors.
MIGA’s mission is straightforward
- To promote foreign direct investment into developing countries
- To support economic growth
- To reduce poverty
- To improve people’s lives

MIGA

ICSID

International centre for settlement of investment disputes is the world’s leading institution devoted to international investment dispute settlement.
ICSID was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). Member States agree on ICSID as a forum for investor-State dispute settlement.
ICSID provides for settlement of disputes by conciliation, arbitration or fact-finding. More than 700 such cases have been administered by ICSID to date.

India & World Bank

World Bank projects/Contribution towards India
- Indus Waters Treaty
- Technical Education Quality Improvement Programme (TEQIP)
- Sarva Shikha Abhiyan
- PM Gram Sadak Yojana
- Ganga Rejuvenation
- National Hydrology Project
- Meghalaya Community-Led Landscape Management Project
- Uttarakhand Health Systems Development Project
- Tamil Nadu Health System Reform Program etc