What are the IMF and WTO?
The only such worldwide organisation dealing with the laws and policies governing cross-border trade between nations is the World Trade Organisation or WTO. Following the ratification of the Marrakesh Agreement on April 15, 1994, it was founded on January 1, 1995.
The 190 nations that make up the International Monetary Fund (IMF) function for sustainable wealth and success. It accomplishes this by supporting economic policies that facilitate monetary collaboration and economic stability to boost productivity, job creation, and economic well-being. The International Monetary Fund is classified as in charge of all its member nations.
What are the Functions of WTO and IMF?
The Functions of WTO include the following:
To aid in and serve as a venue for trade talks.
Enforce rules and provisions about the trade policy review mechanism and administer rules and procedures.
Work along with other international organisations like the World Bank, the IMF, etc.
To offer member nations technical help in trade-related matters and to give them a forum on which to vote on future trade and tariff initiatives.
To keep a global trade database and offer tools for the execution, management, and operation of both bilateral and multilateral trade deals.
The Functions of IMF include the following:
The IMF's primary significant role is upholding exchange stability and discouraging exchange rate swings.
By buying or lending foreign currencies to its members, the Fund assists its member nations in reducing or eliminating the short-term balance of payments equilibrium.
The IMF functions as the mechanism for calculating the par values of the national currencies of its members.
The IMF plays a crucial role in advising its member nations on various financial and economic issues, aiding in stabilising their economies.
The IMF maintains several borrowing and credit facilities to assist the member nations in resolving imbalances in their balance of payments.
The Role of IMF and WTO in International Trade
The Role of IMF
Economic observation and monitoring: The IMF prepares reports on the economies of its member nations and identifies potential danger zones (such as imbalanced economies with significant current account deficits or excessive debt levels).
Loans to underdeveloped countries: $300 billion in loanable funds are available from the IMF for loans to nations experiencing financial crises. This is contributed by the member nations, each of which made an initial deposit. The IMF may be willing to provide loans as a component of a financial realignment in times of financial or economic crisis.
Dependent loans/structural transformation: The IMF often requires that certain requirements be completed before granting loans; Price controls are removed, deficit reduction measures are implemented, tightening monetary policy is used to reduce inflation, and tariff barriers are removed to promote free trade.
Technical aid and economic education: The IMF produces many reports and publications to promote local economies.
The Role of WTO
Tribunal - The World Trade Organisation serves as a commerce tribunal where members can protest about other members who disobey the rules of international trade. Over 400 grievances have been submitted by WTO members since 1995.
Monitor - The WTO routinely examines the trade policy of its members. These evaluations determine whether WTO members follow WTO regulations and calculate the effect of home policy on global commerce.
Trainer - About 26% of training activities in 2011 were conducted in Africa.
Optimal Utilisation of the World's Resources - The WTO accords must include special clauses for the least-developed economies to ensure the best possible use of the world's resources. These are a few examples of such initiatives with greater trade opportunities, longer deadlines for implementing obligations, and assistance with developing the legal infrastructure.
Objectives of WTO and IMF
The objectives of IMF include the following:
The Fund's primary goal is to create worldwide monetary collaboration among its diverse members by creating a permanent institution that offers the tools for collaboration and consultation on various global monetary topics and difficulties.
By preserving an orderly exchange system among its members and preventing unneeded competitive exchange devaluations, the Fund also aims to ensure stability in foreign exchange prices.
Another significant goal of the IMF is to advance global commerce and help it experience the necessary development and balanced growth.
Eliminating or loosening exchange controls that were implemented by virtually every nation before the Second World War as a method of purposefully fixing the rate of exchange at a specific level is another significant goal of the Fund.
The Objectives of WTO Include the Following:
Achieving gradual liberalisation of trade in offerings, as required by the GATS, while ensuring flexibility for developing nations and respecting their needs, especially those of small & mid-service providers in developing nations. This is done with a commitment to uphold "the existing structure and principles of the GATS."
Conclusion
Intergovernmental organisations (IGOs) have always been crucial in the world economy. These organisations, which are made up of a collection of member states, are often established through the passage of a treaty. Individual IGOs' objectives vary according to their affiliation and role. The Worldwide Monetary Fund, the World Bank, and the United Nations are some of the most prevalent and well-known IGOs (IMF).
FAQs on IMF and WTO: Their Roles in International Trade
1. What is the primary role of the International Monetary Fund (IMF) in the global economy?
The primary role of the International Monetary Fund (IMF) is to ensure the stability of the international monetary system. It achieves this by promoting international monetary cooperation, facilitating the balanced growth of international trade, encouraging exchange rate stability, and providing temporary financial assistance to member countries facing balance of payments problems.
2. What is the main function of the World Trade Organisation (WTO) in international trade?
The main function of the World Trade Organisation (WTO) is to deal with the global rules of trade between nations. Its key purpose is to ensure that trade flows as smoothly, predictably, and freely as possible by administering trade agreements, acting as a forum for trade negotiations, settling trade disputes, and assisting developing countries with trade policy issues.
3. What is the key difference between the IMF and the WTO?
The key difference lies in their core focus. The IMF deals with the international monetary system and provides financial assistance to correct balance of payments issues, focusing on macroeconomic and financial stability. In contrast, the WTO focuses on the rules of trade in goods, services, and intellectual property, aiming to liberalise international trade and resolve trade disputes.
4. How does the IMF assist member countries, for example, during an economic crisis?
During an economic crisis, the IMF provides assistance in three main ways:
- Financial Assistance: It offers loans to member countries experiencing actual or potential balance of payments problems.
- Technical Assistance: It provides expertise and training to help countries manage their economies more effectively, covering areas like fiscal policy, monetary policy, and financial system regulation.
- Surveillance: It monitors the economic and financial policies of its 190 member countries, highlighting possible risks to stability and advising on policy adjustments.
5. What are the major benefits of a country being a member of the WTO?
Membership in the WTO offers several benefits, including:
- Dispute Resolution: Access to a formal, legally binding process for resolving trade disputes constructively.
- Lower Trade Barriers: Reduced tariffs and non-tariff barriers lead to lower costs for consumers and producers.
- Increased Market Access: Gaining access to the markets of all other WTO members on more favourable terms.
- Predictability and Stability: The system of rules makes the global trading environment more stable and predictable, encouraging investment.
6. How are the roles of the IMF and the World Bank different, despite their similar origins?
Although both were established at the Bretton Woods conference in 1944, their roles are distinct. The IMF focuses on global macroeconomic stability, managing the international monetary system and providing short-to-medium-term loans for balance of payments problems. The World Bank, on the other hand, is a development institution. Its primary goal is to reduce poverty by providing long-term loans and grants for specific development projects, such as infrastructure, education, and health, primarily in developing countries.
7. Why is the principle of 'non-discrimination' so important for the functioning of the WTO?
The principle of non-discrimination is fundamental to the WTO because it ensures fairness and equality in international trade. It is expressed through two key policies:
- Most-Favoured-Nation (MFN): This requires a country to grant the same trade advantages (e.g., the same low tariff) to all other WTO members. This prevents countries from favouring one trading partner over another.
- National Treatment: This rule states that imported goods and locally-produced goods must be treated equally after the foreign goods have entered the market. This prevents domestic protectionism through internal taxes or regulations.
Together, these policies create a level playing field and promote freer, more predictable trade for everyone.
8. How do the IMF and WTO contribute to the process of globalisation?
Both organisations are key drivers of globalisation. The WTO promotes it by reducing barriers to trade, which increases the flow of goods and services across borders. The IMF supports globalisation by ensuring a stable financial environment that allows international transactions and investments to occur smoothly. By providing loans and policy advice, the IMF helps countries integrate into the global economy and manage the economic challenges that come with increased interconnectedness.
