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Roles of the WTO, World Bank and IMF in Current Global Crises. By Masood Khan Mandokhail (Barrister-at-Law) LLM (UK)
1.1 Introduction International Law is traditionally oriented towards defence and peace and economic self-sufficiently or mercantilism the international economic system is reflected in the Bretton Woods institution (i.e. the IMF, the WTO and the World Bank Group), is based on the market economy  and the promotion of global welfare, not so much the prevention of economic warfare. Whereas mercantilism is about safeguarding national economic power, the theory of comparatively advantages is concerned with increasing global economic welfare. International trade law operates not so much to regulate how the actions of one States affects the interests of another states, but rather it is concerned with those states actions because they reduce economic welfare. Key features of Public International Law are not present in the same manner in the field of International Economic Law. Thus because of globalisation it is not possible to talk about the national economy. Capital is no longer entirely domestic nor is the manufacturing process. States are increasingly less in control of their economies. Further, Key aspects of the international economic regime-for example, non-discrimination rules such as the national treatment requirement and the MFN standard-do not so much reflect the notion of sovereign quality of states, but rather serve to ensure that market mechanisms operate unhindered. Free trade undermines the notion of autonomies operating independently of each other. However, in this scheme the role of the state in economics is not disputed. States provide both a facilitative and regulatory infrastructure in the economic field. Furthermore, the international economic system (particularly the international trade regime) also reflects the nation state model of international law politics. Thus, for example, the international mechanism for tariff reduction is based on reciprocity. And some WTO system such as anti-dumping, safeguard measures and intellectual property measures, are not entirely consonant with comparative advantage is not without its shortcomings. Thus, comparative advantage is silent as to how the benefit of economic welfare is to be shared. The proposition that liberalisation enhance global welfare belies. It is contended, the question of whose welfare. Further, comparative advantage can be tampered with by states through, for example, the operation of a strategic trade policy.

2.1 Functions of the WTO

Article III of the Agreement Establishing the World Trade Organization provides the basic functions of the world trade organization, which are as under:-

1. The WTO shall facilitate the implementation, administration and operation, and further the objectives, of this Agreement and of the Multilateral Trade Agreements, and shall also provide the framework for the implementation, administration and operation of the Plurilateral Trade Agreements.

2. The WTO shall provide the forum for negotiations among its Members concerning their multilateral trade relations in matters dealt with under the agreements in the Annexes to this Agreement. The WTO may also provide a forum for further negotiations among its Members concerning their multilateral trade relations, and a framework for the implementation of the results of such negotiations, as may be decided by the Ministerial Conference.

3. The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes (hereinafter referred to as the "Dispute Settlement Understanding" or "DSU") in Annex 2 to this Agreement.

4. The WTO shall administer the Trade Policy Review Mechanism (hereinafter referred to as the "TPRM") provided for in Annex 3 to this Agreement.

5. With a view to achieving greater coherence in global economic policy-making, the WTO shall cooperate, as appropriate, with the International Monetary Fund and with the International Bank for Reconstruction and Development and its affiliated agencies. 2.2 At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit. Another priority of the WTO is the assistance of developing, least-developed and low-income countries in transition to adjust to WTO rules and disciplines through technical cooperation and training. The WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its annual publications and research reports on specific topics are produced by the organization. Finally, the WTO cooperates closely with the two other components of the Bretton Woods system, the IMF and the World Bank. 3.1 Role of World Bank The World Bank is one of five institutions created at the Bretton Woods Conference in 1944. The International Monetary Fund, a related institution, is the second. Delegates from many countries attended the Bretton Woods Conference. As The World Bank Annual Report 2011 portrays, helping developing countries meet the challenges of high and volatile food and fuel prices; rising inflation in emerging markets with some danger of overheating; the ravages caused by natural disasters, manage the risks, and seize the opportunities has been central to the work of World Bank. Its support goes beyond financial support and development advice. Increasingly, the Bank Group is linking developing countries so they can share knowledge gained from their experiences. This year, they have been urging the world to “put food first.” Higher food prices have pushed 44 million more people into extreme poverty. To help alleviate soaring food prices and increase agricultural productivity, the Bank Group has boosted its spending on agriculture to about $6 billion–$8 billion a year, from $4.1 billion in 2008. The Global Food Crisis Response Program is helping some 40 million people in 44 countries through $1.5 billion in support.

The World Bank is working across multiple sectors—health, nutrition, education, and social protection—with a renewed focus on systems, access, and results. The Bank Group has also increased financing of ecosystem and biodiversity services. At the Nagoya Biodiversity Summit in September2011, it launched an innovation to “green” national accounts by putting the value of natural resources into how a country measures its economy.

The World Bank’s cooperation with IFC and MIGA is a key part of its overall development work because the private sector can be a driver of change, growth, and opportunity in developing countries.

During fiscal 2011 1.	The Bank Group committed $57.3 billion in loans, grants, equity investments, and guarantees to its members and to private businesses. 2.	IBRD commitments totaled $26.7 billion compared with $44.2 billion in 2010, but still above pre-crisis levels. 3.	IDA, the Bank’s fund for the poorest countries, made commitments of $16.3 billion, a 12 percent increase over last year. 4.	Support from IFC increased by 3 percent to $12.2 billion, and 5.	MIGA issued $2.1 billion in guarantees, a 43 percent increase over fiscal 2010. The capital of the World Bank is currently to be more than $86 billion.

4.1 Role and Purposes of International Monetary Fund (IMF) The IMF works to foster global growth and economic stability. IMF is a permanent institution which provides the consultation, cooperation and collaboration on international monetary issues. It tries to drive the domestic economic policy by facilitating the expansion of trade and commerce and the development of productive resources. IMF promotes exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. It assists in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

It gives confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. The rationale for this is that private international capital markets function imperfectly and many countries have limited access to financial markets. Such market imperfections, together with balance of payments financing, provide the justification for official financing, without which many countries could only correct large external payment imbalances through measures with adverse effects on both national and international economic prosperity. The IMF can provide other sources of financing to countries in need that would not be available in the absence of an economic stabilization program supported by the Fund. Thus helping national governments manage their exchange rates and allowing these governments to prioritize economic growth, and to provide short-term capital to aid balance-of-payments. This assistance was meant to prevent the spread of international economic crises. The Fund was also intended to help mend the pieces of the international economy post the Great Depression and World War II. IMF is assisting my country Pakistan in its troubled economic times. In an interview to ‘The Wall Street Journal’  and as reported in the Pakistan’s media, The News, the State Bank Governor Yaseen Anwar said that Pakistan may have to return to the International Monetary Fund (IMF) for financial assistance amid an unstable macroeconomic situation. Anwar said that Pakistan could meet its overseas debt obligations for now but looming payments to the IMF from a program that ended last year are likely to test the nation’s finances in the months ahead. According to Anwar, the government’s failure to get the budget and trade deficit under control could make meeting the over $4 billion in IMF loans due in the fiscal year starting June 1 difficult.

5.1 Current Global Crisis

As Martin Wolf, writing in Financial Times, dated 17th May 2011, mentioned “A permanent precedent”, today’s global crisis and perils are not of concern to the Eurozone alone. Taken as a whole, this is the world’s second-largest economy, with the largest banking system. “The risk that a bigger Eurozone upheaval would cause a global crisis is real. As frightening is the likelihood that Eurozone crises would become permanent features of the world economy. What, then, are the dangers? Start with Greece. It is in a doom loop. Unemployment soared from 7 per cent of the labour force in May 2008 to 22 per cent in January 2012, while the unemployment rate of people aged under 25 jumped from 21 per cent to 51 per cent. Worse, despite fiscal austerity and debt restructuring, the International Monetary Fund estimates that gross public debt will be 160 per cent of gross domestic product in 2013, 50 percentage points higher than in 2008. Moreover, the IMF forecasts that the current account deficit – the balance of trade on goods and services – will be more than 7 per cent of GDP this year. Thus, the economy will be uncompetitive and depressed for years, if not decades. Not surprisingly, a dysfunctional Greek polity has collapsed. Politicians who believe they can obtain better terms are edging closer to power. This, in turn, creates a big potential dilemma for Athens’ outside supporters: either gives Greece more money to alleviate pain, or stick to the programme and risk its collapse. So what might a collapse entail? A cessation of external official funding could trigger a disorderly collapse. The government would default. The European Central Bank would argue that Greek banks no longer possess good collateral, which would prevent it from operating as a lender of last resort. There would be comprehensive bank runs. Athens would impose exchange controls, introduce a new currency, redenominate domestic contracts and default on external contracts denominated in euros. This would be chaos. Unpaid police officers and soldiers are unlikely to keep order. Looting and rioting could occur. A coup or civil war would be conceivable. Any new currency would depreciate and inflation would soar. In the medium run, however, order might be restored. Assume Greece managed to bring its fiscal deficit under control, which is not inconceivable, since the IMF forecasts its primary fiscal deficit (before interest) at 1 per cent of GDP this year. Assume its exporters were able to retain access to the European Union market. Then, as Arvind Subramanian of the Washington-based Peterson Institute for International Economics argues, Greece might enjoy a strong (though probably temporary) boom. An orderly departure would end up in much the same place, sooner. Outsiders could support the banking system and pay beneficiaries of public spending during transition to a new currency. That should limit unrest as well as reducing the currency collapse and inflationary upsurge. In a thought-provoking paper, “EMU Break-up: Pay Now, Pay Later”, Mark Cliffe of ING evaluates the consequences of a Greek exit. He assumes, first, that backstops for other countries would make such a departure a unique event. The result would be a manageable blow, with output falling 4 per cent between 2012 and 2014 in Greece and up to 2 per cent elsewhere in the Eurozone, compared with forecasts that assume no break-up. But non-Eurozone currencies would appreciate, with negative effects on their economies, as well. Yet limiting the impact would not be easy. A Greek exit, particularly a disorderly one, is likely to trigger bank runs in Portugal, Ireland, Italy and Spain, and even further afield. It could also cause collapses in the prices of financial and other assets. A flight to safety, to Germany or beyond the Eurozone, could accelerate. The doom loop in which several other nations are caught could worsen substantially. Spain’s official unemployment rate was 24 per cent in March, and its youth unemployment more than 50 per cent. The IMF forecasts its general government fiscal deficit at just over 6 per cent of GDP this year. With real GDP contracting, its fiscal position is worsening rapidly: gross debt is forecast to increase from 36 per cent of GDP in 2007 to 79 per cent and rising this year. Yields on government bonds are more than 6 per cent. A further large rise in these rates would be unmanageable. A decisive response from the Eurozone would be required to prevent severe contagion. The ECB would need to act as a lender of last resort on an unlimited scale, replacing money taken out in bank runs. Interest rates on sovereign debt would need to be capped by external measures, such as bond support schemes, and banking systems recapitalised. Above all, the commitment to keep the rest of the Eurozone together must be reinforced. That would demand stronger forms of fiscal solidarity, probably Eurobonds. Last but not least, the belief that countries can starve themselves back to health, in the absence of economic expansion and probably higher inflation in the core, would have to be abandoned. Suppose that such efforts were not undertaken and the Eurozone disintegrated. Mr. Cliffe has sought to evaluate such an event. He concludes that the impact on GDP would be huge, not least on Germany. Thus, “in 2012 a deep recession across the Eurozone emerges, dragging down the global economy. In the Eurozone, output falls range from 7 per cent in Germany to 13 per cent in Greece. Individual country experiences would vary depending upon their exposure to foreign trade and financial interlinkages.” Inflation would soar in the periphery; in core nations, deflation would set in. Inflation should erode peripheral nations’ debt mountains, provided they were promptly redenominated in the new domestic currencies. The value of the foreign assets of core countries would fall, their new currencies would soar relative to erstwhile partners and their economies shrink. It would be painful for all. This analysis may even be too optimistic in its estimate of the impact of a full break-up. The mechanisms at work would be powerful: runs; the imposition of (illegal) exchange controls; legal uncertainties; asset price collapses; unpredictable shifts in balance sheets; freezing of the financial system; disruption of central banking; collapse in spending and trade; and enormous shifts in the exchange rates of new currencies. Further government bailouts of financial systems would surely be needed, at great cost. Big recessions would also worsen already damaged fiscal positions. Such a break-up would also trigger legions of lawsuits. Beyond this, the EU would be cast into legal and political limbo, with its most important treaties and its proudest achievement in tatters. It is impossible to guess at the result of such a profound change in the European order. What, then, would be the impact of such a full break-up on non-Eurozone nations? The UK is heavily exposed on both the real and financial sides, and might suffer a 5 per cent fall in output, says Mr. Cliffe, Central and Eastern Europe, too, would be hit. The US could suffer at least a mild recession, as could Japan. Again, the wider ramifications of the implosion of Europe’s legal and political order are potentially even more significant. While unlikely to be as dangerous as the events of the 1930s, they could have incalculable consequences. If one accepts Mr. Cliff’s estimates, they would at any rate be worse than those of Lehman Brothers’ failure in 2008. This is perfectly plausible. The implication is that it cannot be allowed. Yet a Greek exit would greatly increase the likelihood of such an outcome, both now and for the indefinite future, by showing that the euro is not forever. Every¬body would then have to take into account at all times the possibility of break-up. If there were believed to be a serious risk of this, interest rates could explode across the board in weak countries. In such circumstances, moreover, activity-sapping fiscal austerity would not improve the attractions of the financial liabilities of weak borrowers but almost certainly reduce them, raising interest rates further. These dangers would be heightened by a Greek exit, more still by a successful one. Thus, if Greece leaves, the Eurozone will have to change fundamentally to make survival less painful and therefore more credible. If that is impossible, as many suppose, irrevocability must be seen as a mirage, which would in turn guarantee the repetition of large crises. It also destroys the economic arguments for the currency union by undermining financial integration and rendering long-term investments dependent on access to the entire Eurozone economy far riskier. It is a nightmare. Greek exit then would create a choice between big moves to a stronger union and a future of endless crises. It is a choice the dominant creditor nation, Germany, must make – among big steps to integration that horrify many of its people, a future of horrible crises or a horrible break up right now. No good choices exist. But the Eurozone must become a stronger union or it will disappear”.

6.1 Conclusion Today, the world economy is in danger with overriding concerns on the stability of the Eurozone, the concern over the dollar gaining strength against various currencies and its overall effect on developing countries’ economies. Due to the strengthening of the dollar, the developing countries are facing the weakening of their currencies, which effectively increases their trade deficit as the imports become costlier with the further rise in oil prices the most important commodity for the survival of the developing countries. It is in this backdrop that the global institutions like the world bank and the IMF help build and restore the confidence in the survival of the developing countries, by providing the necessary stability to the various developmental projects which could suffer due to the expected rise in cost escalation- due to fall in their respective currencies and the failure to rein in their balance of payment due to the shrinkage in their export trade. The Bretton woods institution have been effective over the past few decades in building the economies of various new countries like the aftermath of the break-up of erstwhile Russian federation, the opening up of the eastern European countries and their transition into Eurozone. The helping of South Africa by the IMF after the ANC taking over from the white regime in 1990s and other African countries suffering the natural ravages of floods and famines, as well as the East Asian countries which came under the attack by the foreign exchange speculator. The IMF has played a leading role in providing the necessary stability to the exchange rate mechanism and ensured that the currency market were maintained at the expected levels determined by the economic parameters. The World Bank played a key role in restoring the confidence in Pakistan’s economy during the 2010 massive floods that devastated major part of the countries agrarian support base. Over all the Bretton woods have been able to live up to their image and reputation set up by the irrespective charter and as envisaged by the founders of these institutions.

BIBLIOGRAPHY

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4.	Isard Peter, (2005) Globalization and the International Financial System: What's Wrong and What Can be Done. New York: Cambridge University Press.

Text Book

1.	A.H Qureshi and AR Ziegler, International Economic Law (2nd Edition Thomson/ Sweet and Maxwell, London 2007)

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Internet Sources

1.	See the Agreement Establishing the World Trade Organization, in the WTO web site available at web link < http://search.wto.org/search?q=Agreement+Establishing+the+World+Trade+Organization&site=English_website&client=english_frontend&proxystylesheet=english_frontend&output=xml_no_dtd&numgm=5&proxyreload=1&ie=ISO-8859-1&oe=ISO-8859-1>

2.	See the WTO in brief, WTO official web site, available at web link < http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm>

3.	See the WTO (TRTA) Assistance for developing Countries, WTO official web site, available at web link < http://www.wto.int/english/tratop_e/devel_e/teccop_e/tct_e.htm>

4.	 See WTO Economic research and analysis, WTO official web site, available at web link < http://www.wto.org/english/res_e/reser_e/reser_e.htm>

5.	See World Bank official web site, About The World Bank (FAQs), Available at web link < http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:20147466~menuPK:344189~pagePK:98400~piPK:98424~theSitePK:95474,00.html>

6.	See World Bank Annual Report 2011, Massage from the President of the World Bank Group- Robert B. Zoellick, Available at web link < http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/EXTANNREP/EXTANNREP2011/0,,menuPK:8070643~pagePK:64168427~piPK:64168435~theSitePK:8070617,00.html> 7.	See “About the IMF". International Monetary Fund web site, available at web link < http://www.imf.org/external/about.htm>

8.	Chore, Nissan, Sarah Babb (June 2009). "The Crisis of Neoliberalism and the Future of International Institutions: a comparison of the IMF and the WTO". Springer Science and Business Media, Available at web link < http://www.rochelleterman.com/ir/sites/default/files/Chorev1999.pdf>

News Papers

1.	As reported in the Daily News Paper, “The News”, Available at web link < http://www.thenews.com.pk/article-51565-Pakistan-may-seek-IMF-assistance:-SBP->

See Daily News Paper Financial Times, Available at web link <http://www.ft.com/cms/s/0/614df5de-9ffe-11e1-94ba-00144feabdc0.html#axzz1vcYaU3Bw