Financial IGOs
Geography: Edexcel A Level, topic 10.2.2
IGOs and World Trade
Three IGOs established after the Second World War have controlled the rules of world trade and financial flows.
The institutions
- The main three institutions are:
- The World Trade Organisation (WTO).
- The International Monetary Fund (IMF).
- The World Bank (WB).
Aims of the institutions
- The three IGOs have helped to maintain the dominance of 'western' capitalism as the dominant paradigm in the globalised economy.
- They support free trade and economic development.
- They initially established a fixed exchange rate system based on gold and the dollar, aiming to help increase international FDI and capital flows.
- Increasing the funding and capital available to developing countries helped them to develop and grow.
The World Trade Organisation
The WTO aims to reduce the trade barriers between different countries.
Global agreements
- The WTO tries to get all countries internationally to agree to the same terms that help to create free trade.
- The latest round of talks began in Doha in 2001, but have not yet been concluded.
Tariffs
- According to the WTO 'tariffs give a price advantage to local producers'. They are effectively a tax on imports.
- The WTO tries to reduce barriers to trade (like tariffs). The WTO tries to persuade nations to reduce their tariffs on a range of goods and services.
The IMF and World Bank
The International Monetary Fund (IMF) promotes global economic and financial stability. The World Bank lends money to fund development.
The IMF
- The IMF encourages developing countries to accept foreign direct investment (FDI) and open up their economies to free trade.
- The IMF is often criticised for promoting a 'western' model of economic development that works in the interests of developed nations and TNCs.
- In 1976, Britain had to borrow $3.9bn from the IMF when it faced an inflationary crisis.
- In 2018, Argentina accepted a $50bn loan from the IMF after their currency, the Argentinian peso, weakened materially.
The World Bank
- The World Bank lends money to the developing world to fund economic development and reduce poverty.
- The World Bank has helped developing countries develop connections with the global economy.
- It is sometimes criticised for having policies that prioritise economic development over social development.
Financial IGOs and the Developing World
Since the 1970s, tougher rules and strict conditions have been applied for large-scale lending, especially for developing countries. These have included the SAP and HIPC schemes:
SAPs
- SAP stands for Structural Adjustment Programmes. They are usually made up of loans from the IMF and World Bank.
- SAPs have made countries that receive lending follow specific routes to development, such as privatisation.
- Africa Action, an NGO, is critical of SAPs, claiming that the assumption that the market leads to benefits for the rich and poor is flawed.
- Ghana launched its structural adjustment plan in 1983. The IMF and World Bank say it is one of the most successful SAPs in Africa.
HIPC schemes
- HIPC stands for Heavily Indebted Poor Countries. There are 37 nations in this group, including Ghana, Ethiopia, Afghanistan and Senegal.
- HIPC schemes aim to make sure that no country faces an unmanageable debt burden (amount of debt).
- Under HIPC schemes, countries must reduce poverty over time and meet other criteria. If they meet all of these criteria, then they may have all their external debt cancelled.
- Chad achieved this in 2015.
- Some people argue that SAPs and HIPCs mean the sovereignty of these nations is questionable - are they perhaps neo-colonial?
Test yourself on Financial IGOs
The WB, WTO and IMF support what?
What did the Bretton Woods institutions establish initially?
How much was the loan that Argentina accepted in 2018 from the IMF after their currency, the Argentinian peso, weakened?
How large was the loan that Britain accepted from the IMF in 1976?
How many Heavily Indebted Poor Countries are there?