Does International Business need International Financial Institutions, such as the IMF, the World Bank and the EBRD? Give reasons to support your views.
International Financial Institutions (IFIs) are the financial institutions that are formed by a number of countries, to help countries from going through global economic crisis or financial turmoil. These IFIs play a predominant role in ensuring that timely help is provided in the form of financial loans and, provide funding for government or private projects. Most importantly IFI’s such as World Bank and International Monetary Fund(IMF) help in providing better social and living conditions to the developing and undeveloped countries by providing long term funding, reducing global poverty and building economic infrastructure. These IFIs generally help in maintaining macroeconomic stability in the countries by providing financial advice and funding.
The recent globalisation and internationalisation of business has brought in equal number of problems as the benefits that it has reaped. However an important point made by many financial experts that all “global crisis” requires “global solutions” and hence proves the importance of international financial institutions and its role in international business environment.
The first International Financial Institutions were established as Bretton Woods Institutions that include World Bank and IMF, but due to rise in the growth of the international business environment, the need for more IFIs were required and consequently many IFIs were established such as EBRD, ADB etc which are formed based on specific objectives of their own framed agenda, most of these IFIs are multilateral development banks.
Importance of International Financial Institutions in International Business
The International Monetary Fund (IMF) is an in international financial institution that has been established in the year 1944, its primary function is to manage the global financial system by stabilising the international exchange rates and to assist in revamping the international payment system. The IMF assists its member countries by providing loans in order to sort out the problems of balance of payments and to sustain economic growth. International business can only prosper when all countries especially the developing and under developed countries have access to funds which help them to carry on trade and commerce, this is where IMF helps to solve their economic difficulties, because most developed countries and under developed countries have a very little access to global capital markets ( Morrison, 2009).
IMF only sanctions loans when the concerned country is following in the right direction for economic reforms. Loans from IMF provides the signal for potential investors from other countries to make an investment, thus IMF plays a larger role in facilitating international business. It also offers leveraged loans especially to the poorest countries, so that these countries can become economically competent to carry any form of trade in the global markets. IMF’s goal is to advocate international monetary collaboration, to contribute for international trade and help countries to use their resources efficiently so as to prosper and become economically stable. The IMF’s funding comes from its financial exchange reserves from its financially strong member countries.
The IMF places a lot of importance on a country’s social conditions before sanctioning loans or implementing any developmental programs, it emphasises lot on combating corruption as well as promoting a structured system for fair and transparent economy. This will ensure better international trade relations are established between countries. IMF provides for massive subsidised loans for the poorest developing countries. It recognises the importance of development strategies and encourages its members to systematically evaluate the macroeconomic reforms and its impact...
References: BBC NEWS (2010) Explained: the IMF and World Bank
http://news.bbc.co.uk/1/hi/business/95218.stm(accessed on 17/0510)
Euro Dad (2009)
http://www.eurodad.org/whatsnew/reports.aspx?id=4083(accessed on 17/0510)
Ghofrani, A (2009) The role of international financial institutions in development and resolving crises
http://www.presstv.ir/detail.aspx?id=92537§ionid=3510304(accessed on 17/0510)
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