IMF vs World Bank: Structure, Functions & Key Differences | UPSC Economics

[00:00:00]welcome to the next lecture of international institutions under the unit of inter International institutions we are going to cover IMF World bank then we will cover the bricks the bricks Bank uh the bricks bank has been renamed as the new development bank then we will discuss the aib Asia infrastructure and Investment Bank then we will discuss some other International organizations like WTO the structure of WTO G gats stps Etc we will discuss then we will discuss the agreement on agriculture toha round then we will discuss the national food Security Act issue that is going on in WTO so all these things we will discuss in this particular unit so now we will discuss first we will discuss IMF so when IMF and World Bank IMF and World Bank they are regarded as the Britain Woods twins because a meeting was held in 1944 and these two institutions they were established so WTO and IMF they were the outcome of World War II because when this world war to uh stop after that there a need was felt of the international institutions a lot of uh destruction took place in World War II so to redevelop for the development Redevelopment of the war ravaged countries this IMF and World Bank they were established so IMF there are major functions of IM what was the role of the IMF so what's first function of IMF is it is the international monetary cooperation so whatever different different countries we have so they should cooperate in the terms of monetary terms so that is what one of the function of IMF then to promote the exchange rate stability for example whether $1 equals to 40 rupees and then it becomes 50 rupees and then it becomes 30 rupees so to promote exchange rate stability is one more function of the IMF so maybe IMF will subscribe IMF will guide this particular country how to make the exchange rate stable then to eliminate the restrictions to eliminate the restrictions is also one of the trade barriers the elimination of the trade barriers is also the function of wpo but here restrictions means this conversion the financial restrictions the exchange rate restrictions so this is one of the function of the IMF and to establish a multilateral system of payments it's not like all the exchanges all the trade should be done only in dollar you should provide multiple options it can be done in SDR then few countries like India and Japan you know the international why uh dollar is regarded as International currency because even if you want to do a trade India wants to do a trade with Sri Lanka or India wants to do a trade with China or maybe to kazakistan whatever trade you want to do you have to pay in dollar only so few countries just like India and Japan we have signed the currency swap agreement it means we will accept the currency of Japan and Japan will accept our currency so that currency swap agreement all these other other options should be there it should not be the dictate of us say that only dollar can be used so to establish multilateral system of payments and then in case of Bop crisis India also faced in 1991 the Bop crisis balance of payment in case of balance of payment crisis means this is India my export is less and my import is more so if I'm importing more Commodities whenever you import you have to pay in dollar but I don't have the dollar so from where you will get the dollar either you file bankruptcy or you will stop importing the Commodities that is not possible because oil be import because we don't have the natural oil reserves so whatever import you have to do you have to do in dollar you have to pay in dollar so from where you can get the dollar take the dollar take Loan in the terms of dollar but who will give you the loan no other country will give you the loan because your financial condition is not good so IMF will give you the loan so in case of balance of payment crisis in detail we will cover in the Bop unit that Bop crisis whenever Bop crisis will take place IMF will give you the loan but in case of Economics there is no free lunch when there is no free lunch so IMF will give you the amount IMF will give you the loan not a problem but IMF will dictate that you have to fulfill all these criteria then only I will give you the loan so these International organizations or this Britain wood twins they will give you the loan but they will put some restrictions over it so these are the functions of the IMF then the second thing is we will discuss about how can you become a member of IMF what are the conditions that you have to fulfill how IMF is going to decide the subscribed amount the subscription fees the admission fees for example so if you want to become a member IMF itself there is a governance Board of IMF having 24 directors so these 24 directors they will decide the Kota what will be the Kota of India and how they will decide they will decide through multiple ways what is your contribution what's the contribution of your GDP in the world how much trade barriers you have have what is the stability of your currency so any number of parameters are there on the basis of these parameters IMF board this governance board will decide the Cod of the country and accordingly they will decide the subscription amount so this is being decided by the IMF only your subscription amount if the GDP the contribution of India's GDP in the world increases is so might be IMF will increase your Kota so Kota is being decided by the IMF board so you will pay the subscription amount so in what form you will pay the subscription amount usually it is being paid in the terms of Dollar Plus some percentage some percentage you can pay in the local currency as well so when you will pay the subscription subscription amount you will become the member of IMF by default not all the countries they are the member of IMF so at present there are 189 members earlier 188 members noru is the last member noru is a country noru is the last member and now we have total 189 countries in IMF same 189 countries are there in World Bank also so IMF is going uh IMF board is going to decide your Kota at present recently very recently the IMF board has increased the share of the Kota or the voting rights of India from 2.4% to 2.7% and India became at the ninth position USA again the papa USA is having more than 17% of the Voting Rights so India is at the ninth position voting power has just increased from 2.4% to 2.7% in detail we'll discuss in the reforms then you will get the Kota and after this Kota you will also be eligible for the loan and what will be the value of this loan the loan amount is 200% of this subscription amount NW and 600% is total suppose your subscription amount is 100 rupees so at Max in one year you can take a loan of 200 rupees so suppose in 2016 you took a loan of 200 2017 also you can take a loan of 200 2018 also you can take a loan of 200 but in 2019 unless and until you repay out of the 600 you cannot take any other any more loan so this is what 200% is annually 200% of the subscription amount and 600% is the total loan then you will also get SDR so SDR is a virtual currency special drawing rights so they are being issued by IMF when you will become a member of the IMF so SDR is nothing but it will be 200% of your subscription amount then we have one more thing that is known as Reserve Tren so Reserve trenche is nothing but it is a certain percentage of your eligibility it is roughly 25% whatever amount of loan that you can take almost 25% of that particular loan amount you can Avail without even the permission of IMF otherwise in this case you have to take the permission of IMF but 25% comes under your discretionary power your means India whatever the member country so 25% you can withdraw from the IMF without even taking the permission of IMF and it's not like in very short amount of time you have to return it no it's not that the case so you can withdraw it as as per your wish and that is why there is a restriction so 25% of the eligible loan will be in at the discretion of India and India can take it as for the wishes so this is known as Reserve Tren then we have Forex when I'm saying the Forex of India is $350 billion what exactly this Forex means this Forex means these four things it means the foreign exchange the foreign currency after this foreign currency gold then SDR and this Reserve Tren chain so these four components they are known as the Forex so by adding these four things we have a Forex reserve of $350 billion so this is what how you can become a member of IMF and what four benefits that you will get if you becomes the member of the IMF then the recent reforms what was the need of the reform and what all steps what all re reforms recently accepted by the IMF the first thing is the governance governance means we have a board governance of board executive board so there are 24 members the thing is the five permanent member of United Nations security Council UNC we have the five we can say all we can say the five winners of World War II what are these five members of UNC they like we have USA then we have after USA we have UK then we have France then we have Russia and then we have the China so these are the five permanent members of United Nation Security Council so the provision is these five countries they will nominate there will not be any election of these five members so five out of 24 they were being nominated by these five permanent members of United Nation Security Council UNC I think in the structure of UNC will be covered in the poity section so India is also saying that we should also become a member of UNC then coffee and non plan is there different different options are there at present there are five permanent member and 10 temporary members for uh they are being elected for two two years anyways so five members were being nominated by the five UNC permanent members so at present after this reforms this has been abolished but the thing is if you want to change it if the five members who are being nominated by this what you need is you need 70% of the Voting Rights if 70% members 70% voting of IMF will decide that you need reforms in the governance then only it can be done and only the G7 countries they have 40% voting rights but anyways this has been accepted recently then the Kota system if you want to reform the Kota system actually the need or the demand of change in Quota system it has been arrived after the recent recession of 2018 after recession of 2008 the say the bargaining power of the developing countries which means which means China which means India which means Brazil somehow we can say Russia also not that good but still they are good in comparison to the European countries so all these big China China is the second largest economy of the world in PPP terms China is the world's largest country but the share the voting of the China is at sixth position so China the world's largest economy in PPP terms is at the sixth position so these developing countries they want that this quota system it should be reformed but the problem is if you want to reform the Kota system you need 85% of the vote and USA alone we discussed this Papa alone they USA is having more than 177% of the voting right so unless and until USA agrees to reform the Kota system system of IMF this cannot be reformed so we can say there is a dictation of the developed countries in IR similarly there is also a dictation of developed countries in World Bank also and whenever any International Organization will not be sync with the present circumstances so the role of that international organization is going to diminish the similar thing happened in case of League of Nations after World War I League of Nations came but because League of nation was not in sync with that particular condition that 1930 depression the rise of Hitler and all this things it was not in sync with that particular uh Milow the environment and that is white vanish similar thing happens everywhere if whatever International Organization will not be in sync will not accept the present circumstances of the world that the relevance of that organization is is going to diminish the same thing happened with IMF and World Bank the role of these two organization is diminishing slowly and new new Regional Banks just like we have bricks Bank bricks bank has been renamed as new development bank so the say of bricks bank is going to increase because in bricks Bank we have five major countries we have Brazil Russia India China and South Africa they bricks they contribute the the this group of nation they contribut 20% GDP of the world and 40% of the population so it's a huge chunk of with respect to the Politics as well as with respect to the economics you cannot ignore these guys if you will ignore it and if the World Bank and IM they will start they will continue dictating their terms so their role is going to diminish that is what happened in case of United Nation also when the say of United Nation when the the UNC it stopped working or was not working because of that Russia versus USA angle so the role the significance of UNC has decreased otherwise this full Arab world the Syria crisis Syria is facing millions of people have died since 2011 that Arab Spring same thing happened anyways that is from the international point of view after this IMF the next International institution we will discuss is World Bank World Bank again Britain Woods twin establish in 1947 World Bank is not only a single Bank it is a group of five countries it is a family the first one is ibrd so ibrd is the oldest one it was established in 1945 by by default all the countries they are member of World Bank we have 189 members of World Bank so ibr was established in 1945 and what was the purpose of setting up of ibr was that whatever the B ravaged countries their development was required at that time or that was the purpose of setting up of ibrd and World Bank is world without poverty that is the tagline so World Bank wants to remove the poverty from the world just like IMF IMF wants to for that multilateral institutions is there Bop crisis just like the functions of IM similarly the role the significance of World Bank according to the role or the functions of World Bank they have set up five different institutions so ibrd earlier the role was the development of War ravaged countries now because after 6 70 years majority of the development has been done so now it has shifted to Poverty elevation Family Planning health and all these things so now the focus has changed and ibrd gives the loan at very very low interest rate 1 or 2% for 8 to 10 years they will give you the loan but the rate of interest is very less and you know after that nuclear bomb attack in Japan Japan took loan from ibrd Japan took a lot of loan from ibrd but finally after even 10 12 years Japan is a big contributor Japan donates a lot of money in the IB then the second one is IDM International IB is International Bank for uh sorry ID is International Development agency so it was established in 1960 and what is the role of International Development agency as the name shows it is for the infrastructure purpose if suppose tomorrow you want to build a big highway from Jammu Kashmir to kanyakumari so for that you can take a loan from Ida but the problem is Ida will give you the loan and the return time majority time is even 40 years but Ida will give you the loan only and only if if the country's per capita income is less than $865 so India borrowed a lot but now because our per capita income is roughly $1,500 so now we cannot Avail a loan from ID but we borrowed more than $90 billion loan from idea then the third one is IFC International Finance Corporation established in 1956 so International Finance Corporation it means it is going to finance something so IFC is going to finance the private institutions the private companies so they private companies can take a loan from IFC so the rate of interest is high but less than the rate of interest which is available in the market so market rate will be more you will get a loan from International Finance Corporation it means any any private agency any private company can take a loan they will give you the loan as well as they will give you some advice also then we have the MGA multilateral investment guarantee agency so it means suppose Africa is there why any an infosis wants to invest in Africa why infosis will invest when infosis knows that there can there are lots of political risk there is lot risk related to the war any out of this Congo Burundi and all this they fight with each other so why infosis why any private investment will go there in the Africa or the poor country so this migga will give you the insurance so migga will give Insurance to the private investor for noncommercial risk non-commercial risk means it's not like tomorrow infosis wants to go and invest in Africa and they file bankruptcy because of the inefficiency of the working of enforces in that case you will not get the insurance but suppose to tomorrow infosis wants to invest in Congo in Nigeria and Nigeria is facing a problem of Boko Haram so that external war is there so in that case some political risk is there so that insurance will be provided by migga then the fourth one icsid Miga is the latest one was established in 1988 then we have icsid so icsid it's it's a type of adjudicating the cases Suppose there are two countries are there and there is some issue so icsid is going to adjudicate the cases the recommendations or the decisions of the icsid they are binding on the two parties if they have agreed for the arbitration but India is not a member of ICS ID icsid is International Center for settlement of investment disputes so there are some investment disputes that will be settled by this body but India is not a member why India is not a member because India has already signed baa bilateral investment and protection agreement with more than 70 or 80 countries so bilaterally we are solving the issues with the countries rather than having a independent body which is under the World Bank so India is not a member of icsid so let's Reise what is the role of all these institutions ibrd is for the earlier the role was for ra War rag countries now it is for the development for the agriculture for the health for the poverty for the family planning this is what the present role is oldest one 1945 then we have International Development agency Ida earlier we were getting a loan from Ida but now we don't we can't take a loan from Ida because our per capita income is is mode then we have IFC International Finance Corporation IFC will land to the private companies the rate of interest is more but they will get uh the rate of interest will be less than the market rate then we have MGA multilateral investment guarantee agency so they will give you the insurance they will give the insurance to the private companies for non-commercial risk like war and all these things then we have ycc that is International Center International Center for settlement of and investment disputes established in 1966 the oldest one is ibrd 45 latest one is migga 1988 then we will discuss about the difference between IMF and World Bank IMF is here and this is what we have the World Bank so IMF is a Cooperative institution and World Bank is a development institutions there are no subsidiaries of there are five subsidiaries of the World Bank these are the five subsidiaries of the World Bank IMF is a consequence of 1930 Great Depression whereas World Bank is a consequence of World War 1 and World War 2 then in case of IMF the repayment time is less it's 3 to 5 years in case of World Bank it is as high as 40 years in case of Ida but roughly we can say it repayment time is more than 10 years then any country any member can take a loan but in this case few conditions are there just like Ida has put some conditions so if you become a member of IMF you can take a loan from IMF but that is not the scenario in case of World Bank because World Bank gives you loan at low interest rate World Bank will give only to the