Lesson 4 of 8 · 13 min
The IMF, the World Bank and the WTO
Three institutions underpin international economic cooperation: the IMF keeps the international monetary system stable and lends to countries in balance of payments trouble, the World Bank fights poverty in developing countries, and the WTO sets and enforces the rules of global trade.
In short
- Born from the 1930s lesson that trade barriers and competitive devaluations are self-defeating; Bretton Woods (1944) created the World Bank and the IMF.
- IMF: stability of the international monetary system (exchange rates and international payments); lends foreign currency temporarily, under strict conditions, to members with balance of payments problems; surveillance and advice. Investor view: contains country risk and global systemic risk (contagion).
- World Bank: help developing countries fight poverty and achieve environmentally sound growth. IBRD lends at low rates funded by AAA bonds; IDA gives interest-free loans and grants to the poorest. Investor view: builds the infrastructure for local financial markets; IBRD bonds are top-rated supranational debt.
- WTO (1995): legal and institutional foundation of the multilateral trading system; the only global body regulating cross-border trade. Replaced GATT as an institution; GATT was the only multilateral trade instrument from 1948 to 1995.
- WTO functions: administer agreements, host negotiations, settle disputes, review trade policies, help developing countries, research. Investor view: makes multinational corporations and global sector investing possible.
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