International Monetary Regime
Write an Essay on Global Political Economy.
World economy has been at present date has been evolving at rapid speed where the different states have been indulging with each other through the medium of trading. Though the idea of the free trading has evolved dated back in 17th century, however, it is fostering in present date with the rise in the trade between the countries all around the world (Best 2003). Now the problem with the international trade is different rule that the different trading partner place that make the playing ground uneven for the trading partners. Though there has been rise in the trade during the last five or six years, lack of institutional bodies that sets and allows all the trading economies to perform flawlessly with the identical trading rule all over the world was hampering the growth of the idea of free trade (Hannah et al. 2015). Thus international bodies like World Trade Organisation (WTO) came into existence. In order to aid the growth an allow the different state to indulge into trading as per their comparative advantage, world institution like International Monetary Fund (IMF) and World Bank came into existing. Through these international bodies the world came under one roof, where the trading partners imply same rule and terms and condition in order to grow their intra trade (Woods and Lombardi 2006).
All of these international bodies came into existence during the latter half of the 19th century, when the world was under strict credit crunch due to repercussive effect of the World War II, great depression during the 1970, however, there has been long standing debate that whether these international organisation still holds their importance or not (Thirkell-White 2007). Under the rapid growth of international trade in the present decade has made it obvious to come with the question like this that profoundly argue how and why these international bodies are still present and what is the justification for the same. In this context, this essay is aimed to analyse the importance of these said international institutions and trace how they are shaping the global trading environment. Through this essay it will analyse the importance of the presence and how the change in the present international trading framework is utilising these international bodies will be analysed. Through medium of literature review of the previous published journals this essay will try to find the relevance of the presence of the international bodies like IMF, WTO and World Bank.
Role of the IMF and World Bank
International law of trading has always issues with the liberal ideology regarding the authoritative nature of the international law. According to the Thomas Frank, international law can be acknowledged as the coherent and explicit in nature, which are applied differently to different state taking advantage of the timidity of different state (O’brien and Williams, 2016). Under this situation, Frank has argued that international laws need to be impartial and something that can be implemented worldwide rationally. Post Second World War scenario it can be seen that there has been gradual rise in the stretch of the international laws, which were meant to determine the transformation path of the future. Under the Bretton Woods system was a liberal approach to the Frank’s idea of liberalism, which was aimed to achieve much amount of benefit for the purpose of the embedded liberalism (Hill and Hernandez 2006). As the heart of the newly approved system of internationalisation in the Bretton Woods system, IMF came into existence, which was meant to provide fund to the needy states in order to become self-reliance and participate in trade. During the Bretton Woods regime states agreed with the international community and constraints administration discretion of the then financial system, however, does this still works as per the principal or not is under scanner of the researchers. There has been long standing debate regarding the performance of the IMF in present situation due to the fact that, there has been allegations against this international institution that it benefit the developed nation rather than the international community for the smooth growth (Pani 2011). During the 1970 the rule of the international body become coherent as per the words of the Frank that made it harder to initiate funding for all the member nation equally. Post the cold war between the two super power US and Russia, IMF was forced to adopt the explicit institutional agenda of public action for the different states that has made it simply a puppet for the developed nations like US. Under the whip of the US lawmakers, IMF become dwarf that can merely perform what it was meant to do. There has been large amount of mandate that IMF has outlived its utility and the other institution like the same that came into existence post the Second World War has also been exhausted (Pauly 1999). One of the institution like IMF was the World Bank, which was meant to provide fund to the member nations in order to overcome the drastic negativity of the world war, however, under the bipolar nature of the World Bank framework it performed in such a way, which is closely linked with the interest of the developed nation. It is often argued that that large investor of the world bank are benefited more than the world community through its endeavour and the conditionality that held aloft the free market dogma become a burden to the developing nations.
Stronghold of the WTO
The role of the international institution like IMF and World Bank was to champion the free market architecture in order to boost the lot free market framework post-Cold War situation, however, during the initiation period, west countries itself were not sure about the way forward of international institution like this. The task was huge and incentive to join this body was relatively low that has made it unstable in nature since the time of its initiation. According to the Helleiner (2011), if the US has produced large amount deficit in order to generate large amount of stimulus package, then Germany has to bring in much tighter fiscal policy, in order to control the flood of investment from the foreign nations. It will further deteriorate the situation of the European nations, as they will be suffering from the fiscal profligacy. It will beating the IMF in order to bail out the countries like Greece. However, scenario is not constrained to this; if the US economy creates large amount of deficit, it will affect all the economies around the world (Shandra et al. 2016). Asian economies will be largely hit by the fall in the fiscal deficit of the west and US because Asian economies are largely interrelated with the western and the US economy. Due to the excessive control of the western economies on the IMF and the World Bank, it will be forced to bail out the European nations at first instance, and it will eventually left out of cash to control the situation of the Asian economies that highlights the partial nature of these international institutions (Momani 2004). On the other hand it has been found that the regional monetary bodies has become huge success due its limited market access and the focused approach to its domestic region. Considering the case of the Asian Monetary Fund and Asian Development Bank, it can be seen that these bodies are performing with much amount of perfection and efficiency (Pyo 2018). This has made the countries like China, India to rethink their position about the convertibility of the rupee. With the better approach to the regional banks, states are now has focused view of the regional institutions that compile and aware the recommendation for the respective states for future growth, which will be inclusive in nature.
Other than international monetary institutions, there is WTO, which was meant to provide benefit to the developed nations a better ability to reach the different state around the world with the level playing ground. WTO was made in order to endorse the free trade principal of the developed nations in order to provide them better scope to reach and capture the different market around the world (Thompson 2009). Under this scenario, developed nations were benefited by large extent due to their comparative advantage in production of different goods and services. On the other hand, developing nation through indulging with the level playing ground theory opined by the WTO faced large amount of opportunity lost in case of trade. As argued by the Blanton et al. (2015), if there wouldn’t have been any international body like WTO, world would have been a better place with the better trading scenario, where the developed nations will not be able to extract all the juice out of the developing nations in order to build their own empire. Capitalist approach of the developed nation under the regime of the WTO has made the international trade scenario more complex, where the trading is largely controlled and enjoyed by the developed nation (Betz 2016). With the cooperation agreement among the IMF, WTO and World Bank has made the scenario more complex. Daily cooperation between these three international institutions has forced the participating nation to indulge in vicious trap that makes their economy hollowed from inside. Promoting the benefits of joining these international institutions by the means of providing technical support, cooperation in case of economic performance enhancement and surveillance, these international institutional bodies attract the state towards them. Additionally it can be seen from the operation of these bodies that they promise to strengthen the respective economies through providing assistance through the loans and by the means of providing essential growth inputs, however, in reality it does more harm than good (Broome and Seabrooke 2007). IMF and World Bank force the participating nations to sequential trade liberalization in order to benefit the developed nation and open up path for them to capture the respective market. On the other hand WTO makes the participating nations other than developed nation to imply free trade policy in order to get their loans sanctioned. As per the words of the Nesvetailova (2004), under the present scenario, international institutions operate under the double trap framework that capture and control the performance of the participating nations. Rather than providing benefit it extracts benefit for the different states depending upon the power of the whip. Under this situation, it would be ideal to entail that, international institutions has lost their charm and objectives are way gone from the line of achievement. Thus, it would be better to shut them down and focus on the regional frameworks of development so as to provide better growth of the respective nations with the principal of the free trade (Smets and Knack 2016).
Conclusion:
From the above discussion it has been found that the presence of the international monetary fund is not justifiable at all. Relevance of the global institutions like IMF, WTO and World Bank in the present scenario of rapid economic transformation need to be determined through the potential role it has to play in order to shaping the changing environment of the world business environment rather determine the justification for the same depending upon the purpose it has been made. The argument of the relevance of the said international institution has been under question since decades due to their lack of ability in order to aid the world economy to swiftly go through the transformation. In addition to this, there has been relative amount of debate regarding the influence of the developed nation in the performance of these international bodies. Many of the chosen journal has argued that, under the whip of the leaders of the developed nations, though these international bodies were meant to aid the growth of the overall world economy, however, in practical it did opposite; it biasedly aided the developed economy to earn more from the trade and through investing in the developing nation at higher cost than that of local institutions and has made the growth path hard for the developing nations. Though these institutional bodies were established with the holistic approach, yet it has failed to achieve what it was mean to achieve. Under this various allegations, it would be ideal to depict that presence of these international bodies is not essential in present date and as the enhancer of the world economic performance, local governing and funding bodies are capable of playing crucial role.
References:
Best, J., 2003. Review Article Moralizing finance: the new financial architecture as ethical discourse. Review of International Political Economy, 10(3), pp.579-603.
Betz, F., 2016. Why ‘Austerity’failed in Greece: testing the validity of macro-economic models. In Stability in International Finance (pp. 79-94). Springer, Cham.
Blanton, R.G., Blanton, S.L. and Peksen, D., 2015. The impact of IMF and World Bank programs on labor rights. Political Research Quarterly, 68(2), pp.324-336.
Broome, A. and Seabrooke, L., 2007. Seeing like the IMF: Institutional change in small open economies. Review of international political economy, 14(4), pp.576-601.
Cohn, T.H., 2016. Global political economy: Theory and practice. Routledge.
Hannah, E., Scott, J. and Trommer, S. eds., 2015. Expert knowledge in global trade (Vol. 109). Routledge.
Helleiner, E., 2011. Understanding the 2007–2008 global financial crisis: Lessons for scholars of international political economy. Annual Review of Political Science, 14, pp.67-87.
Hill, C.W. and Hernández-Requejo, W., 2006. Global business today.
Momani, B., 2004. American Politicization of the International Monetary Fund. Review of international political economy, 11(5), pp.880-904.
Nesvetailova, A., 2004. Coping in the global financial system: the political economy of nonpayment in Russia. Review of International Political Economy, 11(5), pp.995-1021.
O’brien, R. and Williams, M., 2016. Global political economy: Evolution and dynamics. Palgrave Macmillan.
Pani, N., 2011. Is the IMF still a globally relevant institution?. [online] The Economic Times. Available at: https://economictimes.indiatimes.com/opinion/et-commentary/is-the-imf-still-a-globally-relevant-institution/articleshow/8493970.cms [Accessed 21 May 2018].
Pauly, L.W., 1999. Good governance and bad policy: the perils of international organizational overextension. Review of International Political Economy, 6(4), pp.401-424.
Pyo, H.K., 2018. The Financial Crisis in South Korea: Anatomy and Policy Imperatives. In Asian Contagion (pp. 151-169). Routledge.
Shandra, J.M., Rademacher, H. and Coburn, C., 2016. The World Bank and organized hypocrisy? A cross-national analysis of structural adjustment and forest loss. Environmental Sociology, 2(2), pp.192-207.
Smets, L. and Knack, S., 2016. World Bank lending and the quality of economic policy. The Journal of Development Studies, 52(1), pp.72-91.
Thirkell-White, B., 2007. The international financial architecture and the limits to neoliberal hegemony. New Political Economy, 12(1), pp.19-41.
Thompson, H., 2009. The political origins of the financial crisis: The domestic and international politics of Fannie Mae and Freddie Mac. The Political Quarterly, 80(1), pp.17-24.
Woods, N. and Lombardi, D., 2006. Uneven patterns of governance: how developing countries are represented in the IMF. Review of International Political Economy, 13(3), pp.480-515.
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