International Economic Organizations

The World Bank is one of the world’s largest sources of financial and technical assistance for developing countries. Its primary mission is to fight global poverty and promote shared prosperity.

• Simple Analogy: Think of the World Bank as a long-term project-finance lender for countries. It provides funds for specific, large-scale projects aimed at development.
• Origin: It was created in 1944 at the Bretton Woods Conference in the USA, initially to help rebuild Europe after World War II.

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The World Bank Group Structure

The term “World Bank” typically refers to two main institutions within a larger organization called the World Bank Group. You must know these two:

1. International Bank for Reconstruction and Development (IBRD)

• Who it helps: Lends to governments of middle-income and creditworthy low-income countries.
• What it funds: Finances development projects across various sectors.
• How it gets money: The IBRD raises most of its funds on the world’s financial markets by selling World Bank bonds.

2. International Development Association (IDA)

• Who it helps: This is the Bank’s fund for the world’s poorest countries.
• What it provides: It gives interest-free loans (known as “credits”) and grants for projects and programs that boost economic growth and improve living conditions.
• How it gets money: The IDA is primarily funded by contributions from the governments of its wealthier member countries.

The World Bank Group has three other institutions (IFC, MIGA, ICSID) that focus on supporting the private sector in developing countries, but IBRD and IDA are the main components you should focus on for the exam.

What Does the World Bank Do?

The functions of the World Bank can be broken down into three main areas:

1. Financial Assistance (Loans & Grants)

• This is its most well-known function. The World Bank provides low-interest, long-term loans and grants to fund development projects.
• Examples of funded projects:
  • Building roads, ports, and power plants (Infrastructure).
  • Setting up schools and training teachers (Education).
  • Constructing hospitals and providing clean drinking water (Health & Sanitation).
  • Improving agricultural productivity (Rural Development).

2. Technical Assistance & Advisory Services

• The World Bank doesn’t just provide money; it also provides expertise.
• It offers policy advice, research, analysis, and technical assistance to help governments run their economies more effectively and manage specific sectors.

3. Knowledge Sharing

• The World Bank acts as a global “knowledge bank.”
• It publishes a vast amount of research, data, and analysis on development issues. A key annual publication you should know is the World Development Report. This research helps policymakers, academics, and other stakeholders make informed decisions.

The World Trade Organization (WTO) is the only global international organization that deals with the rules of trade between nations. Its main purpose is to ensure that global trade flows as smoothly, predictably, and freely as possible.

• Simple Analogy: Think of the WTO as the “traffic police” and “courtroom” for international trade. It sets the rules of the road for how countries can trade with each other and helps settle any disputes that arise.
• Origin: The WTO was established on January 1, 1995, but its trading system is much older. It is the successor to the General Agreement on Tariffs and Trade (GATT), which was created in 1948.

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Main Functions of the WTO

The WTO’s activities can be broken down into these key functions:

1. Administering Trade Agreements

The core of the WTO is the set of trade agreements that have been negotiated and signed by the majority of the world’s trading nations. The WTO works to implement and administer these agreements.

2. Forum for Trade Negotiations

The WTO provides a forum for its member countries to negotiate new trade agreements and to resolve any problems they may face with existing ones. The most recent round of negotiations was the “Doha Development Round.”

3. Settling Trade Disputes

This is a critical function. If one member country believes another member country is breaking the trade rules, it can file a case with the WTO. The WTO has a structured process, including panels of experts, to judge the case and issue a ruling. This prevents trade disagreements from escalating into larger political conflicts.

4. Technical Assistance and Training

The WTO provides technical assistance and training for developing countries to help them build their trading capacity, understand the complex rules, and benefit more from international trade.

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Core Principles of the WTO Trading System

The WTO agreements are built on several fundamental principles:

• Non-Discrimination: This is the most important principle and has two parts:
  • Most-Favoured-Nation (MFN): This rule requires a country to grant any trade advantage (like a lower tariff) it gives to one member country to all other WTO members equally. You can’t have special “favorites.”
  • National Treatment: This rule states that imported goods and locally-produced goods must be treated equally after the foreign goods have entered the market. You can’t discriminate against foreign goods to favor domestic ones.
• Freer Trade: The WTO works to lower trade barriers (like tariffs and import quotas) through negotiations.
• Predictability: The WTO system provides stability and predictability. By committing to certain tariff levels and rules, businesses know what the conditions of trade will be, which encourages investment and job creation.
• Promoting Fair Competition: The WTO is not just about “free” trade; it’s also about “fair” trade. It has rules to discourage unfair practices like dumping (selling goods in an export market at a price below their normal value) and providing unfair subsidies.

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