Institutions of the Global Economy

Since World War II a number of multilateral organizations have been founded to promote growth and stability within a more integrated global economy. These institutions include the United Nations, World Trade Organization, International Monetary Fund, and World Bank Group.

The United Nations System consists of the six main branches of the United Nations (UN) and an extended family of 26 largely autonomous specialized agencies, programs, and funds. The United Nations was founded in 1945 when 51 countries formally adopted the UN Charter at the San Francisco Conference. By 2013 membership had swelled to 193 nations. The United Nations System promotes world peace, sustainable economic development, and human rights. In 2000, the United Nations adopted eight Millennium Development Goals (MDGs) to coordinate global efforts to reduce poverty and hunger in the world, and to improve education, health care, the environment, and economic connectivity in the global economy. By 2013 progress had been made in achieving many of the MDGs.^[1]

The United Nations' specialized agencies, programs, and funds are largely autonomous, self-financing bodies. Yet these members of the UN family are linked through formal agreements and a shared mission to improve the human condition as defined by the MDGs. Of the 15 specialized agencies within the UN System, those that most directly influence the global economy are the World Bank Group; International Monetary Fund (IMF); World Health Organization (WHO); International Labor Organization (ILO); United Nations Educational, Scientific and Cultural Organization (UNESCO); Food and Agriculture Organization (FAO); and World Intellectual Property Organization (WIPO). Of the 11 UN programs and funds, those most vital to the operation of the global economy are the United Nations Development Program (UNDP), United Nations Environment Program (UNEP), United Nations Children's Fund (UNICEF), World Food Program (WFP), United Nations Population Fund (UNFPA), United Nations Conference on Trade and Development (UNCTAD), and the Office of the United Nations High Commissioner for Refugees (UNHCR).^[2]

The World Trade Organization (WTO) is an international organization that oversees the operation of a rules-based multilateral trading system. The WTO began operations on January 1, 1995. In July 2013 the WTO consisted of 159 member nations.^[3] The WTO, like its predecessor the General Agreement on Tariffs and Trade (GATT), is guided by core principles that support free trade. For instance, the WTO works to reduce trade barriers such as tariffs and import quotas. It also supports the principle of nondiscrimination. This means that member nations enjoy most favored nation (MFN) status, which guarantees that a trade concession granted to one member is automatically granted to all WTO member nations. Nondiscrimination also supports the equal treatment of all products, foreign and domestic, in nations' markets. In short, the WTO seeks to build a global trading system that is accessible, predictable, fair, and sustainable.^[4]

The WTO's main function is to promote and protect the smooth flow of trade in the global economy. Its four main areas of operations are trade negotiations, the implementation and monitoring of agreements, dispute settlement among members, and building trade capacity. First, trade negotiations bring all WTO member nations together to establish a common set of trade rules. These negotiations, often called trade rounds, are conducted over a span of years. The most recent trade round, the Doha Round, began in 2001 and was still active a dozen years later. Second, the WTO's monitoring and implementation functions concern members' compliance with trade rules. Third, the dispute settlement function offers a precise and timely process to hear formal trade complaints by one WTO member against another. The WTO's Dispute Settlement Body (DSB) renders a judgment on the trade dispute and can prescribe certain punishments, such as retaliatory tariffs, against offending nations. Fourth, building trade capacity assists poorer economies enter the global economy as full partners. To this end, the WTO offers poorer countries technical assistance and time extensions to comply with WTO trade rules.^[5]

The International Monetary Fund (IMF), also called the Fund, is a multilateral organization that promotes international monetary cooperation, financial stability, and growth in the global economy. Since its founding in the 1940s the Fund's mission has expanded, as has its collaboration with other institutions such as the World Bank. The Fund's assistance to countries is generally short term, and is focused on promoting financial and banking stability to facilitate international trade, sustainable economic growth, and poverty reduction. In 2013 IMF membership stood at 188 countries.^[6]

All members of the Fund are required to contribute to IMF coffers through quota subscriptions, or quotas, in rough proportion to the size of their economies. Historically five countries have contributed about 40 percent of all quotas—the United States (17.4 percent of all quota subscriptions), Japan (6.2 percent), Germany (6.1 percent), France (5 percent), and the United Kingdom (5 percent). Because voting power in the Fund is allotted in rough proportion to each country's financial contribution, these five donor nations hold considerable sway in the policies of the Fund. Major reforms in the Fund in 2008 and 2010 expanded the quotas for the emerging market and developing countries. Under these reforms China's quota, for example, became the third largest, and three other emerging economies cracked the top 10—India, the Russian Federation, and Brazil. At the same time, the Fund doubled total quota commitments from the member nations. When fully implemented the Fund's total quotas will increase from SDR 238.5 billion to SDR 477 billion, which is equivalent to $715 billion in U.S. currency. The SDR is the Fund's unit of accounting.^[7]

The cash reserves generated through quota subscriptions finance the Fund's main functions, which include surveillance, technical assistance, and financial assistance. Surveillance involves active monitoring of and consultation with member countries to encourage sound domestic economic policies. Technical assistance provides the financial know-how to create and maintain effective economic institutions, such as a central bank and a treasury. Technical assistance also helps countries develop policies related to taxation, accounting practices, exchange rates, and financial regulations. Finally, the Fund's financial assistance consists mainly of loans to help member countries stabilize currencies, honor foreign debt obligations, pay for imports, or increase foreign reserves. The IMF does not extend loans for major development projects, however.

The Fund has initiated a number of policies and programs to address global economic and financial crises since 2007. For instance, the Fund took steps to increase its lending power to support economic and financial stability in struggling economies. It raised additional money by doubling its quota subscriptions for member countries and by borrowing hundreds of billions of dollars from member nations. These additional resources have enabled the Fund to commit more than $300 billion in new loans since these crises began. In addition, the Fund has simplified the lending process and tailored its assistance to meet the individual needs of countries. In past years the Fund had been roundly criticized for setting rigid, burdensome conditions on loan recipients. Finally, in recent years the Fund has expanded the flow of concessional loans to low-income countries. Concessional loans typically carry lower interest rates and longer repayment periods than the regular nonconcessional loans.^[8]

The Fund's loans are granted in a unit of account called Special Drawing Rights (SDRs). The SDR is not a currency. Rather, it is an “international reserve asset,” which all member nations receive as a benefit of membership. Fund members can exchange their SDRs for sound currencies of other member nations. In most cases these exchanges are voluntary, but the Fund can mandate an SDR exchange for a “freely usable currency” such as the British pound, the European Union's euro, or the U.S. dollar. Among the Fund's largest borrowers in 2012 were Greece, Portugal, and Ireland.^[9]

The World Bank Group is a multilateral development organization. Like the IMF, the World Bank was founded as a specialized agency within the United Nations System during

ECONOMICS IN HISTORY: The Bretton Woods Conference of 1944

The Bretton Woods Conference took place in July 1944, during World War II. Its overall goal was to establish a basic framework for economic cooperation, financial stability, and economic growth for the postwar period. The conference was held in the United States at Bretton Woods, New Hampshire. Representatives from 44 countries attended the conference.

Delegates to the conference agreed to create the two Bretton Woods Institutions—the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF). IBRD, also called the World Bank, was designed to extend longer-term loans to help reconstruct Europe after World War II. The first IBRD loan was made to France in 1947. The IMF, also called the Fund, was designed to provide shorter-term loans to assist countries stabilize currencies and exchange rates, and thus facilitate international trade. Both the World Bank and the IMF were founded as specialized agencies within the United Nations System.^[10]

the 1940s. In its early years the World Bank consisted of a single organization, the International Bank for Reconstruction and Development (IBRD). IBRD's initial goal was to help rebuild war-torn Europe. Over time the World Bank's composition and mission expanded. Today the World Bank Group consists of five mutually supporting development institutions. Its financial resources come from the sale of securities in global financial markets, interest payments on past loans, and contributions from donor countries. Today the World Bank Group's overarching goals are poverty reduction and economic development through “inclusive and sustainable globalization.”^[11]

IBRD and its closest partner, the International Development Association (IDA), provide significant financial and technical development assistance to the world's emerging market and developing countries. IBRD extends low-interest development loans to the more creditworthy high-income and middle-income developing countries. Development loans are used to build schools, health facilities, and other infrastructure projects. Loans also target disease prevention, environmental protection, and resource management. In 2012 IBRD committed $20.6 billion to new development projects. In this same year IBRD's outstanding loans totaled $134 billion. Meanwhile, the IDA extends concessional loans and grants to less creditworthy low-income developing countries. Most concessional loans are made interest free, and the repayment period often extends from 25 to 40 years or more. In 2012 the IDA granted about $15 billion to finance over 160 projects in the world's poorest countries. Its outstanding loans in 2012 totaled $124 billion.^[12]

Complementing the work of IBRD and the IDA are three other partner organizations within the World Bank Group: the International Finance Corporation (IFC), the International Center for Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA). The IFC was founded in 1956 to encourage private sector investment. IFC financial and technical assistance is granted to private firms rather than to governments. ICSID was created in 1966 to reconcile disputes between foreign investors and host governments. Since the 1960s the dispute resolution mechanisms of ICSID have promoted FDI and have influenced numerous investment laws and bilateral investment treaties (BITs). MIGA was established in 1988 to provide investment insurance to foreign companies. MIGA protects these companies from nonfinancial commercial losses such as government expropriations of property, civil war, or other adverse changes to the business environment. From 1988 to 2012 MIGA issued more than $24 billion in political risk insurance for projects in the developing world.^[13]

• [1] United Nations (UN), The Millennium Development Goals Report: 2013 (New York: United Nations, 2013), 4-5; UN, “Growth in United Nations Membership, 1945–Present,”; UN, “Structure and Organization,”; UN Department of Public Information, “United Nations Development Goals, Factsheets 1–8,” September, 2010
• [2] UN, “Structure and Organization,”
• [3] WTO, WTO Annual Report 2013 (Geneva: WTO, 2013), 8-9; WTO, “Who We Are,” Understanding the WTO; World Trade Organization (WTO), “The GATT Years: From Havana to Marrakesh,” Understanding the WTO: Basics, 2012
• [4] Ibid.
• [5] WTO, “Explore our Areas of Activity,”
• [6] IMF, “The IMF and the World Bank: Factsheet,” August 22, 2012; IMF, “Cooperation and Reconstruction (1944–71),”; IMF, “Factsheet: The IMF at a Glance,” August 22, 2012
• [7] IMF, “IMF Members’ Quotas and Voting Power, and IMF Board of Governors,” July 16, 2013; IMF, “Quota and Voting Shares before and after Implementation of Reforms Agreed in 2008 and 2010,”; IMF, “Factsheet: IMF Quotas,” August 24, 2012; IMF, “Factsheet: Where the IMF Gets Its Money,” August 24, 2012
• [8] IMF, “Factsheet: IMF’s Response to the Global Economic Crisis,” March 29, 2013
• [9] IMF, “IMF Lending Arrangements as of December 31, 2012,”; IMF, “Factsheet: Special Drawing Rights (SDRs),” August 24, 2012
• [10] IMF, “The IMF and the World Bank: Factsheet,” August 22, 2012; World Bank Group, “World Bank History,” 2013
• [11] The World Bank, “History,” January 31, 2012
• [12] Ibid.; World Bank, “What We Do,” March 8, 2012; IBRD, Management’s Discussion & Analysis and Financial Statements, June 30, 2012, 2-3; IDA, Management’s Discussion & Analysis and Financial Statements, June 30, 2012, 3.
• [13] IFC, “About IFC,” www.ifc.org; MIGA, “Overview,”; ICSID, “About ICSID,”