CHAPTER

8 International Economic
Organisations

“Foreign capital infinitely prefers situations where the upside potential

is vast, if risks must be taken to get in”.
– Rudi Dorbush

Learning Objectives

1 To understand the role of international economic organizations in enhancing

the magnitude of global business.

2 To know the objectives, functions and achievements of International

Monetary Fund, World Bank and World Trade Organisation.

3 To study about the trade blocks, viz., SAARC, ASEAN and BRICS and their
objectives, functions and achievements.
8.1
Introduction
In the previous chapter, we have
studied the basis of trade, gains from
trade, terms of trade, BoP and foreign
exchange. When trade takes place among
countries, the developed countries always
stand to gain and the LDCs suffer from
adverse terms of trade as well as balance of
payments and they affect their exchange
rates. The Great Depression of 1930s and
World War II led to purely nationalistic
John Maynard Keynes (right) and
policies in which almost every country
Harry Dexter White, the “founding
imposed trade restrictions, exchange
fathers” of both the World Bank and the
controls and exchange depreciation so as
International Monetary Fund (IMF)
to boost exports and to restrict imports
considerably.

International Economic Organisations 154

12-Economics-Chapter_8.indd 154 05-02-2020 12:00:25

 The Brettonwoods Conference proposed IMF, World Bank and International Trade
Organisation (ITO) in 1944. The IMF and World Bank were started in 1945. Instead of
ITO, an interim arrangement was made and named GATT (General Agreement on Tariff
and Trade). The GATT was transformed into WTO (World Trade Organisation) from
1995. The IMF, IBRD and WTO headquarters are presented in the table.

Institution Headquarters Year of Establishment

International Monetary Fund Washington D.C 1945

World Bank Washington D.C 1945
World Trade Organisation Geneva 1995

8.2 iii) To ensure exchange rate stability

International Monetary Fund by curbing competitive exchange
depreciations.
The purpose of International
Monetary Fund is to secure and promote iv) To eliminate or reduce exchange
economic and financial cooperation controls imposed by member nations.
among member countries. The IMF was v) To establish multilateral trade and
established to assist the member nations payment system in respect of current
to tide over the Balance of Payments transactions instead of bilateral trade
disequilibrium in the short term. At agreements.
present, the IMF has 189 member
countries with Republic of Nauru joined vi) To promote the flow of capital from
in 2016. developed to developing nations.
vii) To solve the problem of international
liquidity.

8.2.2 Functions Of IMF

Exchange Stability
BoP crisis
assistance
8.2.1. Objectives Of IMF IMF
Functions
i) To promote international monetary
cooperation among the member nations. Facilitate
Foster sustainable
international
ii) To facilitate faster and balanced growth economic growth
trade
of international trade.

155 International Economic Organisations

12-Economics-Chapter_8.indd 155 05-02-2020 12:00:25

 i) Bringing stability in exchange rate v) Reducing trade restrictions
The IMF is maintaining exchange The Fund also aims at reducing
rate stability and emphasising devaluation tariffs and other trade barriers imposed
criteria, restricting members to go in for by the member countries with the purpose
multiple exchange rates and also to buy or of removing restrictions on remittance of
sell gold at prices other than declared par funds or to avoid discriminating practices.
value.
vi) Providing credit facilities
ii) Correcting BOP Disequilibrium
IMF is providing different borrowing
The IMF is helping the member and credit facilities with the objective of
countries in eliminating or minimizing helping the member countries. These credit
the short-period disequilibrium in their facilities offered by it include basic credit
balance of payments either by selling or facility, extended fund facility for a period
lending foreign currencies to the member of three years, compensatory financing
nation. facility and structural adjustment facility.

iii) Determining par values The functions of the IMF are grouped
under three heads.
IMF enforces the system of
determination of par values of the 1. Financial – Assistance to correct short
currencies of the member countries. and medium term deficit in BOP;
According to the Articles of Agreement
2. R
 egulatory – Code of conduct and
of the IMF, every member nation should
declare the par value of its currency in 3. C onsultative - Counseling and technical
terms of gold or US dollars. Under this consultancy.
article, IMF ensures smooth working of
the international monetary system, in 8.2.3 Facilities offered by IMF
favour of some developed countries.
The Fund has created several new credit
iv) 
Balancing demand and supply of facilities for its members. Chief among
currencies them are:
IMF is entrusted with the important (i) Basic Credit Facility:
function of maintaining balance between
demand and supply of various currencies. The IMF provides financial assistance
The Fund (IMF) can declare a currency as to its member nations to overcome their
scarce currency which is in great demand temporary difficulties relating to balance
and can increase its supply by borrowing of payments. A member nation can
it from the country concerned or by purchase from the Fund other currencies
purchasing the same currency in exchange or SDRs, in exchange for its own currency,
of gold. to finance payment deficits. The loan is
repaid when the member repurchases its

International Economic Organisations 156

12-Economics-Chapter_8.indd 156 05-02-2020 12:00:25

 own currency with other currencies or (iii) Compensatory Financing Facility
SDRs. A member can unconditionally
In 1963, IMF established
borrow from the Fund in a year equal to
compensatory financing facility to provide
25% of its quota. This unconditional
additional financial assistance to the
borrowing right is called the reserve
member countries, particularly primary
tranche.
producing countries facing shortfall in
export earnings. In 1981, the coverage of
Special Drawing Rights (SDRs) the compensatory financing facility was
The Fund has succeeded in extended to payment problem caused by
establishing a scheme of Special the fluctuations in the cost of cereal inputs.
Drawing Rights (SDRs) which is
(iv) Buffer Stock Facility
otherwise called ‘Paper Gold’. They
are a form of international reserves The buffer stock financing facility
created by the IMF in 1969 to solve was started in 1969. The purpose of this
the problem of international liquidity. scheme was to help the primary goods
They are allocated to the IMF members (food grains) producing countries to
in proportion to their Fund quotas. finance contributions to buffer stock
SDRs are used as a means of payment arrangements for the stabilisation of
by Fund members to meet balance primary product prices.
of payments deficits and their total
reserve position with the Fund. Thus (v) Supplementary Financing Facility
SDRs act both as an international unit
Under the supplementary financing
of account and a means of payment. All
facility, the IMF makes temporary
transactions by the Fund in the form of
arrangements to provide supplementary
loans and their repayments, its liquid
financial assistance to member countries
reserves, its capital, etc., are expressed
facing payments problems relating to their
in the SDR.
present quota sizes.
The achievements of the fund can
(vi) Structural Adjustment Facility
be summed up in the words of Haien
that ‘Fund is like an International The IMF established Structural
Reserve Bank.’ Adjustment Facility (SAF) in March 1986
to provide additional balance of payments
(ii) Extended Fund Facility assistance on concessional terms to the
poorer member countries. In December
Under this arrangement, the IMF 1987, the Enhanced Structural Adjustment
provides additional borrowing facility Facility (ESAF) was set up to augment the
up to 140% of the member’s quota, over availability of concessional resources to
and above the basic credit facility. The low income countries. The purpose of SAF
extended facility is limited for a period up and ESAF is to force the poor countries
to 3 years and the rate of interest is low. to undertake strong macroeconomic

157 International Economic Organisations

12-Economics-Chapter_8.indd 157 05-02-2020 12:00:25

 and structural programmes to improve
their balance of payments positions and 8.2.5. India and IMF
promote economic growth.
Till 1970, India stood fifth in the
Fund and it had the power to appoint a
8.2.4. Achievements Of IMF
permanent Executive Director. India has
The main achievements of been one of the major beneficiaries of the
International Monetary Fund are as Fund assistance. It has been getting aid
follows: from the various Fund Agencies from time
to time and has been regularly repaying its
i) 
Establishment of monetary reserve debt. India’s current quota in the IMF is
fund SDRs (Special Drawing Rights) 5,821.5
million, making it the 13th largest quota
The Fund has played a major role in
holding country at IMF with shareholdings
achieving the sizeable stock of the national
of 2.44%. Besides receiving loans to meet
currencies of different countries. To meet
deficit in its balance of payments, India
the foreign exchange requirements of the
has benefited in certain other respects
member nations, IMF uses its stock to
from the membership of the Fund.
help the member nations to meet foreign
exchange requirements.
What is SDR?
ii) 
Monetary discipline and  Fiat Money of the IMF
cooperation  A
 Potential Claim on Underlying
Currency Basket
The IMF has shown keen interest
in maintaining monetary discipline What Does SDR Stand For?
and cooperation among the member
 Special Drawing Rights (SDR)
countries. To achieve this objective, it
has provided assistance only to those Why Was the SDR Created?
countries which make sincere efforts to
 To be “The” World Reserve Currency
solve their problems.
 Create Global Liquidity
iii) Special interest in the problems of How is the SDR Valued?
UDCs
 Original 1969 Creation
The notable success of the Fund is
the maintenance of special interest in the “The value of the SDR was
acute problems of developing countries. initially defined as equivalent to
The Fund has provided financial assistance 0.888671 grams of fine gold - which,
to solve the balance of payment problem at the time, was also equivalent to one
of UDCs. However, many UDCs continue U.S. dollar.”
to be UDCs, while the developed countries
have achieved substantial growth.

International Economic Organisations 158

12-Economics-Chapter_8.indd 158 05-02-2020 12:00:26

 8.3 membership in International Monetary
Fund is a prerequisite to become a member
International Bank For
of IBRD. The IBRD was established to
Reconstruction And Development
provide long term financial assistance to
(IBRD) or World Bank
member countries.
The International Bank for
Reconstruction and Development (IBRD),
otherwise called the World Bank(WB)
was established in 1945 under the Bretton
Woods Conference in 1944. The purpose
is to bring about a smooth transition from
a war-time to peace-time economy. It is
known as a sister institution along with
the International Monetary Fund. The

World Bank Group

International Bank International International Multilateral International Centre

for Reconstruction Development Finance Investment for Settlement of
and Development Association Corporation Guarantee Agency Investment Disputes
A
T I O N L BA N A L AL CE
ION
I N
VELOPME E R N
NA AT
V TR
DE
K T E
ER N N
F I
A
N
N

E
T

ER
O

L
O
IN

T
R

TE

FO
RNA IONA

T
T I

M
O R AT I

• IN
AS

R •
IC
E N T
M U L
R N AT I O

WORLD BANK
S O C I AT

SI
SETTL

UTES
T

D
REC

EN T

•
•
RP

SP
G

EM
TE
ON

PM

Y
IO

DI
U
O

C
N
N

N
A
ST

EN
O

T T
A

R
C

I R
N

EN
L

UC
V
E L A E OF
TIO
N AND D
E FINANCE N T
E E A
G INV ESTM

The following are the objectives of the

8.3.1. Objectives of IBRD World Bank:

1. To help member countries for economic

Objectives of the World Bank reconstruction and development.
2. To stimulate long-run capital investment
1. Reconstruction and Development for restoring Balance of Payments
2. Encouragement to Capital Investment (BoP) equilibrium and thereby ensure
balanced development of international
3. Encouragement to International Trade
trade among the member nations.
4. Establishment of Peace-time Economy
3. To provide guarantees for loans meant
5. Environmental Protection
for infrastructural and industrial
projects of member nations.
159 International Economic Organisations

12-Economics-Chapter_8.indd 159 05-02-2020 12:00:26

 4. 
To help war ravaged economies 1. Investment for productive purposes
transform into peace economies.
The World Bank performs the
5. 
To supplement foreign private function of assisting in the reconstruction
investment by direct loans out of its and development of territories of member
own funds for productive purposes. nations through facility of investment for
productive purposes. It also encourages
World Bank’s Lending Procedure: the development of productive facilities
The Bank advances loans to members and resources in less developed countries.
in three ways
2. 
Balanced growth of international
i) Loans out of its own fund, trade
ii) Loans out of borrowed capital and Promoting the long range balanced
iii) Loans through Bank’s guarantee. growth of trade at international level
and the maintaining equilibrium in
The Bank(WB) has changed its BOPs of member nations by encouraging
development loan strategy and lays more international investment.
emphasis on financing schemes which
directly influence the well being of poor 3. Provision of loans and guarantees
masses of the member countries, especially
Arranging the loans or providing
the developing countries. The amount
guarantees on loans by various other
of agricultural loans has increased more
channels so as to execute important
rapidly than in any other sector. The bank
projects.
now also takes interest in the activities of
the development of rural areas such as: 4. P
 romotion of foreign private
investment
a) spread of education among the rural
people The promotion of private foreign
investment by means of guarantees on
b) development of roads in rural areas and
loans and other investment made by
c) electrification of the villages. private investors. The Bank supplements
private investment by providing finance
8.3.2 Functions of IBRD for productive purpose out of its own
resources or from borrowed funds.
The World Bank performs the major
role of providing loans for development 5. Technical services
works to member countries, especially
The World Bank facilitates different
to underdeveloped countries. The World
kinds of technical services to the member
Bank provides long-term loans for various
countries through Staff College and
development projects. Article 1 of the
experts.
Agreement states the functions performed
by the world bank as follows.

International Economic Organisations 160

12-Economics-Chapter_8.indd 160 05-02-2020 12:00:26

 v) 
The International Development
8.3.3. Achievements of World Bank
Association (IDA), the Soft Loan
Window of the Bank provides loans
The World Bank is said to be successful
to UDCs at very low rate of interest.
in achieving its primary objective of
However, the economic inequality
reconstruction and development of war
among the member-countries goes on
ravaged nations. It helped greatly in
increasing. Many African countries are
the reconstruction of Europe after the
yet to improve their economic status.
World War II. It has been providing the
developed and developing countries the
8.3.4. India and World Bank:
same treatment in the process of growth.
The name “International Bank
i) It is noted that the Bank’s membership for Reconstruction and Development”
has increased from the initial number of was first suggested by India to the
30 countries to 68 countries in 1960 and drafting committee. Since then the two
to 151 countries in 1988. The IBRD has have developed close relationship with
189 member countries. each other from framing the policies
of economic development in India to
ii) 
The Bank grants medium and long-
financing the implementation of these
term loans (i.e., payable over a period
policies. The World Bank has given large
of 15-20 years) for reconstruction and
financial assistance to India for economic
development purposes to the member
development. Special mention may be
countries. The actual term of a loan
made of the assistance World Bank has
depends upon the estimated useful life
given to India in the development of
of the equipment or plant financed.
infrastructure such as electric power,
iii) Initially the World Bank’s loans were transport, communication, irrigation
mainly directed at the European projects and steel industry.
countries for financing their
The World Bank has assisted a
programmes of reconstruction. Later it
number of projects in India. The IFC
changed its development loan strategy
has identified five priority areas, namely,
and lays more emphasis of financing
capital market development, direct foreign
schemes for the poor masses of the
investment, access to foreign markets,
developing countries.
equity investments in new and expanding
iv) 
The World Bank grants loans to companies and infrastructure. The World
member countries only for productive Bank has also assisted India in accelerating
purposes particularly for agriculture, programmes of poverty alleviation and
irrigation, power and transport. In economic development. Until China
other words, the Bank strengthens became the member of World Bank in
infrastructure needed for further 1980, India was the largest beneficiary of
development. the World Bank assistance.

161 International Economic Organisations

12-Economics-Chapter_8.indd 161 05-02-2020 12:00:27

 INDIA & IBRD : A Sustainable Relationship
 India is a member of four of the five constituents of the World Bank Group.
 International Bank for Reconstruction and Development(IBRD, 1945)
 International Development Association (IDA, 1960)
 International Finance Corporation (IFC, 1956)
 Multilateral Investment Guarantee Agency (MIGA, 1958)
 International Centre for Settlement of Investment Disputes (ICSID, 1966)
[India is not its member]
 India is one of the founder members of IBRD, IDA and IFC. World Bank
assistance in India started from 1948 when a funding for Agricultural Machinery
Project was approved.
 First investment of IFC in India took place in 1959 with US$ 1.5 million.
 India became a member of MIGA in January 1994.
 India has an Executive Director, in the Board of Directors of IBRD / IFC / IDA/
MIGA.

8.4 was held at Singapore in 1996. The recent

conference was held at Argentina in 2017.
World Trade Organization
It was planned to organize 12th ministerial
conference at Kazakhstan in 2020.
The WTO
was established in
1995 as a successor World Trade Centre
to the GATT. It is a
new international
organization set up
as a permanent body
and is designed to
play the role of watch dog in the spheres
of trade in goods and services, foreign
investment and intellectual property
rights. The Dunkel Draft, formulated
by Arthur Dunkel, its Secretary General
became the base for WTO. WTC headquarters located at New York,
USA. It featured the landmark Twin Towers
Every two years, the member which was established on 4th April 1973.
countries’ Commerce Ministers Later it was destroyed on 11th September
Conference are being organized to discuss 2001 by the craft attack. It brings together
and settle the important souls and trade businesses involved in international trade
related matters. The first WTO conference from around the globe.

International Economic Organisations 162

12-Economics-Chapter_8.indd 162 05-02-2020 12:00:27

 8.4.1. Objectives of WTO
The establishment of
the WTO's TRIPS
The basic aim is to expand
(trade-related aspects of
international trade and bring about
intellectual property rights) Agreement
economic prosperity by liberalizing trade
in 1995 changed the face of international
restrictions.
intellectual property (IP) law and
i) To ensure reduction of tariff and other policy-making. TRIPS negotiators
barriers. recognized that short comings and
inconsistencies in IP protection can
ii) To eliminate discrimination in trade. distort trade and impede its benefits.
iii) To facilitate higher standard of living. The TRIPS Agreement helps ease trade
tensions about IP issues while leaving
iv) 
To facilitate optimal use of world’s WTO members ample space to pursue
resources. diverse domestic policies.
v) To enable the LDCs to secure fair share
in the growth of international trade. Agreement on Trade Related Investment
Measures (TRIMs)
vi) 
To ensure linkages between trade
policies, environmental policies and TRIMs are related to conditions or
sustainable development. restrictions in respect of foreign investment
in the country. It calls for introducing
equal treatment for foreign companies on
WTO Agreements
par with national companies. TRIMs were
widely employed by developing countries.
Agreement on Trade
Restrictions on foreign investment on
Related Intellectual
following grounds are to be removed.
Property Rights (TRIPs)
 No restriction on area of investment.
Intellectual Property Rights
 No binding on use of local material.
include copy right, trade marks, patents,
 No mandatory exports.
geographical indications, trade secrets,
 No restriction on repatriation of royalty,
industrial designs, etc. TRIPS Agreement
dividend and interest.
provides for granting product patents
N  o trade balancing requirement,
instead of process patents. The period
i.e. imports not exceeding exports.
of protection will be 20 years for patents,
50 years for copy rights, 7 years for trade
General Agreement on Trade in Services
marks and 10 years for layout designs. As
(GATS)
a result of TRIPS, the dependence of LDCs
on advanced countries for seeds, drugs, GATS is the first multilateral set
fertilizers and pesticides has increased. of rules covering trade in services like
Farmers are depending on the industrial banking, insurance, transportation,
firm for their seeds. communication, etc., All member
163 International Economic Organisations

12-Economics-Chapter_8.indd 163 05-02-2020 12:00:27

 countries are supposed to extend MFN ii) It provides the forum for negotiations
(Most Favoured Nation) status to all other among its members, concerning their
countries without any discrimination. multilateral trade relations in matters
Transparency should be maintained by relating to the agreements.
publishing all relevant laws and regulations
iii) It administers the Understanding on
over services.
Rules and Procedures governing the
Phasing out of Multi Fibre Agreement Settlement of Disputes.
(MFA) iv) It cooperates with the IMF and the
The multi fibre agreement governed World Bank and its affiliated agencies
the world trade in textiles and garments with a view to achieving greater
since 1974. It imposed quotas on export coherence in global economic policy
of textiles by developing nations to the making.
developed countries. This quota system
was to be phased out over a period of ten Major WTO Functions
years. This was beneficial to India.  Administering WTO trade agreements
 Forum for trade negotiations
Agreement on Agriculture (AoA)
 Handling trade disputes
Agriculture was included for the first  Monitoring national trade policies
time under GATT. The important aspects  Technical assistance and training for
of the agreement are Tariffication, Tariff developing countries
cuts and Subsidy reduction.  Cooperation with other international
organizations
Dispute Settlement Body
The Disputes Settlement Body 8.4.3. Achievements of WTO
puts an end to procedural delays. It is
mandatory to settle any dispute within The major achievements of WTO are as
18 months. The disputes are resolved follows
through multilateral trading system.
However, India has lost a huge export 1) 
Use of restrictive measures for BoP
earnings because of the conditions laid problems has declined markedly;
out by the Body. 2) S ervices trade has been brought into the
multilateral system and many countries,
8.4.2. Functions of WTO as in goods, are opening their markets
for trade and investment;
The following are the functions of the
WTO 3) 
The trade policy review mechanism
has created a process of continuous
i) 
It facilitates the implementation,
administration and operation of the monitoring of trade policy
objectives of the Agreement and of the developments.
Multilateral Trade Agreements.
International Economic Organisations 164

12-Economics-Chapter_8.indd 164 05-02-2020 12:00:27

 3. Advanced technology has been obtained
WTO Ministerial Conferences at cheaper cost.
4. India is in a better position to get quick
redressal from the trade disputes.
5. The Indian exporters benefited from
12. Kazakhstan - 2020 wider market information.
11. Buenos Aires, 10-13
December 2017
8.5
10. Nairobi, 15-18 December 2015 Trade Blocks
09. Bali, 3-6 December 2013
 Some countries create business
08. Geneva, 15-17 December 2011
opportunities for themselves by
07. Geneva, 30 November - integrating their economies in order to
2 December 2009 avoid unnecessary competition among
06. Hong Kong, 13-18 December 2005 them. Trade blocks cover different
05. Cancún, 10-14 September 2003 kinds of arrangements between or
among countries for mutual benefit.
04. Doha, 9-13 November 2001
Economic integration takes the form
03. Seattle, November 30 – of Free Trade Area, Customs Union,
December 3 1999
Common Market and Economic Union.
02. Geneva, 18-20 May 1998
 A free trade area is the region
01. Singapore, 9-13 December 1996
encompassing a trade bloc whose
member countries have signed a
8.4.4. WTO and India free-trade agreement (FTA). Such
agreements involve cooperation
India is the founding member between at least two countries to
of the WTO. India favours multilateral reduce trade barriers. e.g. SAFTA,
trade approach. It enjoys MFN status and EFTA.
allows the same status to all other trading
partners. India benefited from WTO on  A customs union is defined as a type
following grounds: of trade block which is composed of
a free trade area with no tariff among
1. By reducing tariff rates on raw materials,
members and (zero tariffs among
components and capital goods, it was
members) with a common external
able to import more for meeting her
tariff. e.g. BENELUX (Belgium,
developmental requirements. India's
Netherland and Luxumbuarg).
imports go on increasing.
2. India gets market access in several  Common market is established
countries without any bilateral trade through trade pacts. A group formed
agreements. by countries within a geographical

165 International Economic Organisations

12-Economics-Chapter_8.indd 165 05-02-2020 12:00:27

 area to promote duty free trade and both common policies on product
free movement of labour and capital regulation, freedom of movement
among its members. e.g. European of goods, services and the factors of
Common Market (ECM) production and a common external
trade policy. (e.g. European Economic
 An economic union is composed Union)
of a common market with a customs
union. The participant countries have

Institution Headquarters Year of Establishment

South Asian Association for Regional
Kathmandu 1985
Cooperation (SAARC)
ASEAN Bangkok 1967
BRICS Shangai 2001

8.6 The Maldives, Nepal, Pakistan and Sri

South Asian Association For Lanka. In April 2007, Afghanistan became
Regional Co-Operation (SAARC) its eighth member. The basic aim of the
organisation is to accelerate the process
The South Asian Association for
of economic and social development of
Regional Co-operation (SAARC) is an
member states through joint action in the
organisation of South Asian nations, which
agreed areas of cooperation. The SAARC
was established on 8 December 1985 for
Secretariat was established in Kathmandu
the promotion of economic and social
(Nepal) on 16th January 1987. The first
progress, cultural development within the
SAARC summit was held at Dhaka in
South Asia region and also for friendship
the year 1985. SAARC meets once in two
and co-operation with other developing
years. Recently, the 20th SAARC summit
countries. The SAARC Group (SAARC)
was hosted by Srilanka in 2018.
comprises of Bangaladesh, Bhutan, India,

Members of SAARC

India Bhutan Pakistan Nepal

Bangaladesh Maldives Sri Lanka Afghanistan

Its seven founding members are Bangladesh, Bhutan, India, the Maldives, Nepal,
Pakistan and Sri Lanka. Afgharistan joined later on 3rd April, 2007
International Economic Organisations 166

12-Economics-Chapter_8.indd 166 05-02-2020 12:00:27

 2. 
Prevention of common problems
8.6.1. Objectives of SAARC associated with the member nations.

According to Article I of the Charter 3. Ensuring strong relationship among the

of the SAARC, the objectives of the member nations.
Association are as follows:
4. Removal of the poverty through various
i) To promote the welfare of the people of packages of programmes.
South Asia and improve their quality of
5. Prevention of terrorism in the region.
life;
ii) To accelerate economic growth, social 8.6.3. Achievements of SAARC
progress and cultural development in
the region; 1. 
The establishment of SAARC
Preferential Trading Agreement
iii) To promote and strengthen collective (SAPTA) and reduction in tariff and
self-reliance among the countries of non-tariff barriers on imports.
South Asia;
2. The setting up of Technical Committees
iv) 
To contribute to mutual trust, for economic cooperation among
understanding and appreciation of one SAARC countries relating to agriculture,
another’s problems; communications, education, health and
v) 
To promote active collaboration and population, rural development, science
mutual assistance in the economic, and technology, tourism, etc.
social, cultural, technical and scientific 3. 
SAARC has established a three-tier
fields; mechanism for exchanging information
vi) To strengthen co-operation with other on poverty reduction programmes
developing countries; which is passed on to member countries.
4. 
SAARC Agricultural Information
vii) 
To strengthen cooperation among Centre (SAIC) in 1988 works as a central
themselves in international forums on information institution for agriculture
matters of common interest; related resources like fisheries, forestry,
etc.
vii) To cooperate with international and
regional organisations with similar 5. 
S outh Asian Development Fund
aims and purposes. (SADF) for development projects,
human resource development
8.6.2. Functions of SAARC and infrastructural development
projects. With all these tall claims,
The main functions of SAARC are as the inter-SAARC Trade has not gone
follows. beyond three percent in the last 30
years.
1. Maintenance of the co operation in the
region
167 International Economic Organisations

12-Economics-Chapter_8.indd 167 05-02-2020 12:00:27

 8.7 countries to maintain their unity and
Association of solidarity by establishing a trade block.
South East Asian Nations (ASEAN) Foreign trade is the life blood of the
ASEAN countries following globalization
ASEAN was established on 8 August and prudent macroeconomic policies.
1967 in Bangkok by the five original The ASEAN Summit of the Heads of
member countries: Indonesia, Malaysia, Governments of member countries is the
Philippines, Singapore and Thailand. highest forum for ASEAN cooperation. Its
Later Brunei Darussalam, Vietnam, Laos meetings are held once in three years. The
and Myanmar and Cambodia joined. ASEAN \ministerial meeting of Foreign
Besides ten members of the ASEAN, there Ministers is the next highest decision-
are six “dialogue partners” which have making body.
been participating in its deliberations. India’s relationship with ASEAN
They are China, Japan, India, South Korea, started in 1992 when India became a
New Zealand and Australia. The ASEAN “sectoral dialogue partner” of ASEAN.
nations are expected to benefit from the The geographic proximity of ASEAN
FTA as it will reduce tariff and non-tariff countries to India facilitates faster exports
barriers. The common historical and and lower freight costs.
cultural background made the member

8.7.1 Objectives of ASEAN (ii) To promote regional peace and stability
and adherence to the principles of the
The ASEAN Declaration states the aims United Nations Charter;
and purposes of the Association as:
(iii) 
To promote cooperation among
(i) 
To accelerate the economic growth, the members of ASEAN through
social progress and cultural the exchange of knowledge and
development in the region; experience in the field of public sector
auditing.
International Economic Organisations 168

12-Economics-Chapter_8.indd 168 05-02-2020 12:00:27

 (iv) To provide a conducive environment the induction of South Africa in 2010. The
and facilities for research, training, term ‘BRIC’ was coined in 2001. The
and education among the members BRICS members are known for their
(v) To serve as a centre of information significant influence on regional affairs.
and as an ASEAN link with other Since 2009, the BRICS nations have met
international organizations. annually at formal summits. South Africa
hosted the 10th BRICS summit in July
8.7.2 Functions of the ASEAN 2018. The agenda for BRICS summit 2018
includes Inclusive growth, Trade issues,
(i) It facilitates free movement of goods, Global governance, Shared Prosperity,
services and investments within International peace and security.
ASEAN by creating a single regional
market like the European Union.

(ii) It provides free access to the marketers

of one member country to the markets
of all other member countries, thus
fostering growth in the region.

(iii) It improves business competitiveness It’s headquarters is at Shanghai,

between businesses from different China. The New Development Bank
countries and also narrow (NDB) formerly referred to as the BRICS
developmental gaps between member Development Bank was established by
countries. BRICS States. The first BRICS summit
was held at Moscow and South Africa
(iv) It paves way for market and investment hosted the Tenth Conference at
opportunities for the member nations. Johanesberg in July 2018. India had an
opportunity of hosting fourth and Eighth
(v) It fosters co-operations in many areas
summits in 2012 and 2016 respectively.
including industry and trade.

All the ASEAN economies experienced a Few Facts About The BRICS
great economic crisis in the year 1997. T
 he BRICS countries make up 21
percent of global GDP. They have
8.8 increased their share of global GDP
BRICS threefold in the past 15 years.
T
 he BRICS are home to 43 percent of
BRICS is the acronym for an the world's population.
association of five major emerging
national economies: Brazil, Russia, India, T
 he BRICS countries have combined
China and South Africa. Originally the foreign reserves of an estimated $4.4
first four were grouped as "BRIC" before trillion

169 International Economic Organisations

12-Economics-Chapter_8.indd 169 05-02-2020 12:00:27

 6. It acts as a catalytic in protecting the
8.8.1. Objectives of BRICS interests of middle powers on global
forum.
1. 
To increase trade co-operation by
making an exclusive trade block. 8.8.3 Achievements of BRICS
2. To use currency other than US Dollar.
Following are some of the major
Since Dollar is a dominant currency
achievements of BRICS.
and US can control the flow of dollar,
BRICS helps in the countries operating  The establishment of the Contingent

with alternative currencies. How far Reserve Arrangement (CRA) has
have they succeeded in this respect? further deepened and consolidated
Not much. the partnership of its members in the
economic-financial area.
3. To increase regional co-operation.
 I n the sixth BRICS summit in Brazil,
4. To create a separate trade block made
the member countries, signed an
for developing countries for trade
agreement to create a development
co-operation.
bank (New Development Bank) with
headquarters at Shangai, China in 2015
8.8.2. Functions of BRICS on the lines of Asian Development
Bank and the World Bank.
1. It acts as a promoter of more legitimate
international system and also advocating  The
 economic potential and
reform of the UN Security Council. demographic development are putting
the BRICS countries, increasingly in a
2. 
This group of nations is especially leading position in setting the global
meant for South-South framework for agenda and having a greater say in the
cooperation. global governance.
3. It performs as an agent to bridge the It has to be remembered that BRICS share
increasing gap between developed and 43% of world population, but only 21% of
developing countries. For instance, the global GDP.
in the WTO, the BRICS countries are
emphasizing to promote a fair order Summary:
regarding agricultural policies. The present chapter on International
Economic Organisations discusses the role
4. It performs a commendable contribution
played by the IMF in solving the problem
for assisting developing countries in
of trade related issues and credit facilities.
gaining in areas such as an advantage in
The financial, regulatory and consultative
trade and climate change negotiations.
functions of IMF and its benefits to
5. 
It disseminates information and India have been dealt with. Further, the
exchange platform beyond economic objectives, functions and achievements
cooperation. of the World Bank and WTO have been
covered.
International Economic Organisations 170

12-Economics-Chapter_8.indd 170 05-02-2020 12:00:27

 Also, the various agreements � M
 ultilateral trade agreement: It is a
implemented by the WTO such as TRIPS, multi national legal or trade agreements
TRIMS, GATS, AoA, MFA have been between countries. It is an agreement
discussed. between more than two countries but
not many.
The final part of the chapter deals
with the regional economic integration � T
 rade blocks: They are a set of
among the trade blocks such as SAARC countries which engage in international
(South Asian nations), ASEAN (South East trade together and are usually related
Asia) and BRICS and their achievements. through a free trade agreement or
other associations.
Glossary � F
 ree Trade Area: A region
encompassing a trade bloc whose
� S
 tructural Adjustment Facility:
member countries have signed a
Providing additional balance of
free-trade agreement (FTA). Such
payments assistance on concessional
agreements involve cooperation
terms to the poorer member nations to
between at least two countries to
undertake strong macroeconomic and
reduce trade barriers.
structural programmes.
� C
 ustoms Union: Free trade area
� S
 pecial Drawing Rights: International
(zero tariffs among members) with a
monetary reserve currency created
common external tariff.
by the International Monetary Fund
(IMF) that operates as a supplement to � C
 ommon Market: A group formed by
the existing money reserves of member countries within a geographical area
countries. to promote duty free trade and free
movement of labour and capital among
� T
 rade Related Intellectual Property
its members.
Rights (TRIPs): TRIPs include copy
right, trade mark, patents, geographical � E
 conomic Union: It is composed
indications, industrial designs and of a common market with a customs
invention of microbial plants. union. The participant countries have
both common policies on product
� T
 rade Related Investment Rights
regulation, freedom of movement
(TRIMs): TRIMs are related to
of goods, services and the factors of
conditions or restrictions imposed in
production and a common external
respect of foreign investment in the
trade policy.
country.

171 International Economic Organisations

12-Economics-Chapter_8.indd 171 05-02-2020 12:00:27

 MODEL QUESTIONS

Part – A
Multiple choice questions

1. 
International Monetary Fund was an 6. Which of the following countries is not
outcome of a member of SAARC?
a) Pandung Conference a) Sri Lanka
b) Dunkel Draft b) Japan
c) Bretton Woods Conference c) Bangladesh
d) Doha Conference d) Afghanistan

2. International Monetary Fund is having 7. International Development Association

its headquarters at is an affiliate of
a) Washington D.C. a) IMF
b) New York b) World Bank
c) Vienna c) SAARC
d) Geneva d) ASEAN

3. IBRD is otherwise called 8. ---------- relates to patents, copyrights,

a) IMF trade secrets, etc.,
b) World Bank a) TRIPS
c) ASEAN b) TRIMS
d) International Finance c) GATS
Corporation d) NAMA
4. The other name for Special Drawing 9. The first ministerial meeting of WTO
Rights is was held at
a) Paper gold
a) Singapore
b) Quotas
b) Geneva
c) Voluntary Export Restrictions
c) Seattle
d) None of these
d) Doha
5. The organization which provides long
term loan is 10. 
ASEAN meetings are held once in
every __________ years
a) World Bank
b) International Monetary Fund a) 2
c) World Trade Organisation b) 3
d) BRICS c) 4
d) 5

International Economic Organisations 172

12-Economics-Chapter_8.indd 172 05-02-2020 12:00:27

 11. 
Which of the following is not the 17. New Development Bank is associated
member of SAARC? with
a) Pakistan a) BRICS
b) Sri Lanka b) WTO
c) Bhutan c) SAARC
d) China d) ASEAN

12. SAARC meets once in ----------- years. 18. 

Which of the following does not
come under ‘Six dialogue partners’ of
a) 2
ASEAN?
b) 3
c) 4 a) China
d) 5 b) Japan
c) India
13. The headquarters of ASEAN is d) North Korea
a) Jaharta
19. 
SAARC Agricultural Information
b) New Delhi
Centre (SAIC) works as a central
c) Colombo
information institution for agriculture
d) Tokyo
related resources was founded on
14. The term BRIC was coined in a) 1985
a) 2001 b) 1988
b) 2005 c) 1992
c) 2008 d)1998
d) 2010
20. BENELUX is a form of
15. ASEAN was created in a) Free trade area
a) 1965 b) Economic Union
b) 1967 c) Common market
c) 1972 d) Customs union
d) 1997

16. The Tenth BRICS Summit was held in

July 2018 at
a) Beijing
b) Moscow
c) Johannesburg
d) Brasilia

173 International Economic Organisations

12-Economics-Chapter_8.indd 173 05-02-2020 12:00:27

 Answers

1 2 3 4 5 6 7 8 9 10
c a b a a b b a a b
11 12 13 14 15 16 17 18 19 20
d a a a b c a d b d
Part B

Answer the following questions (2 marks)

21. Write the meaning of Special Drawing rights.
22. Mention any two objectives of ASEAN.
23. Point out any two ways in which IBRD lends to member countries.
24. Define Common Market.
25. What is Free trade area?
26. When and where was SAARC Secretariat established?
27. Specify any two affiliates of World Bank Group.
Part C

Answer the following questions (3 marks):

28. Mention the various forms of economic integration.
29. What are trade blocks?
30. Mention any three lending programmes of IMF.
31. What is Multilateral Agreement?
32. Write the agenda of BRICS Summit, 2018.
33. State briefly the functions of SAARC.
34. List out the achievements of ASEAN.
Part D

Answer the following questions (5 marks)

35. Explain the objectives of IMF.
36. Bring out the functions of World Bank.
37. Discuss the role of WTO in India’s socio economic development.
38. Write a note on a) SAARC b) BRICS

International Economic Organisations 174

12-Economics-Chapter_8.indd 174 05-02-2020 12:00:27

 ACTIVITY
1.  he students are asked to go through the world map thoroughly to understand
T
the location of countries and its capital.
2.  he students may go to relevant websites to understand the international economic
T
organisations and its events.

References

1. C
 herunilam, Francis (2010), “International Economics”,
The McGraw Hill Publications, New Delhi.
2. J hingan, M.L., (2000), “International Economics”
Vrindha Publications Private Limited, New Delhi.
3. K
 rugman R. Paul (2003), “International Economics: Theory and Policy”,
Sixth Edition, Pearson Education, New Delhi.
4. M
 ithani, D M (1982), “International Economics”,
Himalaya Publishing House, New Delhi.
5. R
 ao, Subba, (2012), “International Business”,
Third Edition, Himalaya Publishing House, New Delhi.
6. R
 obert C. Feensta and Alan M. Taylor, (2008), “International Economics”,
Worth Publishers, New York.
7. V
 an Meerhaeghe, M.A.G. (1998), “International Economic Institutions”,
7th edition, Kluwer Academic Publishers, Dordrecht.

Website Link
[Link]
[Link]

175 International Economic Organisations

12-Economics-Chapter_8.indd 175 05-02-2020 12:00:27