What are the major World Economic Organizations?

03 October 2020
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In this article there is some information about the major World Economic Organizations including the International Monetary Fund (IMF), World Bank, the World Trade Organization (WTO), FAO and UNIDO, World Economic Forum, Regional Economic Cooperation Organization (ECO), Organization of Asian Southeast Nations (ASN).

Undoubtedly, Regional and World Economic Organization and institutions play a crucial role in regulation of foreign economic relations between different countries. The reason of this issue is rapid expansion of business and financial relations between world countries particularly in the recent half century. On the other hand, tying the economic interests of different countries to each other, these organizations and institutions cause regional and global peace and stability.

In this article we are going to a few of these organizations and institutions but before starting discussion we should mention two important points. First, almost all significant international and regional organizations and institutions in the world have been established after World War II and this time coincides with the rapid expansion of economic relations between the world countries. Second point is that the most prominent and effective international organizations and institutions are the ones who are affiliated with the United Nations.

International Monetary Fund (IMF)

One of the important Economic Institution which is affiliated with United Nations is International Monetary Fund (IMF). The agreement to establish the International Monetary Fund was signed by the representatives of 44 countries in July 1944 in Burton Woods, USA; but today all independent countries in the world are the members of this fund. The main aim of creating this fund was to help member countries resolve international monetary issues. However, as stated in the fund's articles of association, the institution has pursued other goals since its inception such as:

  • Improving the level of employment in member countries, increasing the real income and developing productive resources through the expansion of international trade
  • Currency stability and preventing competitive devaluation of currencies against each other
  • Helping to solve the problems of member countries’ Balance of foreign payments by giving loan to members if needed

In order to achieving mentioned goals, International Monetary Fund (IMF) put some principles for World Monetary Regulation. The most important ones are:

  1. Exchange rate stabilization in the member countries by defining the value of different currencies according to gold. For example, the official price of the dollar for gold was 0.9 grams of gold, the official price of the British pound was 2.2 grams of gold, and the Iranian rial was 34 percent of grams of gold.
  2. The fluctuation of the value of currencies to each other was set 1% higher or lower than exchange rate and any changes in the value of member countries' currencies were possible under certain conditions and with the permission of the Fund.
  3. Determining the dollar as the key currency and its ability to be converted to gold in order to maintain its value. This decision was made because of US’s enormous economic power at that time. US’s domestic production at that time was 40% of world production.

These principles were preserved till 1971 when the international monetary system underwent some changes. Among the main reasons of transformation of the International Monetary System we can point to the decrease of Economic power of US and the improvement of other countries’ economy such as Germany, Japan and other developing countries. On the other hand, Negative US foreign balance of payments growth which reached its peak following the wars in Korea and especially Vietnam weakened dollar and made impossible its ability to be converted to gold. One of the consequences of changes in the international monetary system is Acceptance of exchange rate flexibility (since 1973) and multiplication of the international monetary system.

World Bank

The other institution which is affiliated with United Nations is World Bank. World Bank is consists of three financial institutions which follow almost common goals. These three institutions are International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), International Development Association (IDA). Although the time of establishment and the initial purpose of these three institutions are different, but because of their common duties and organizational similarity to each other, we examine these institutions simultaneously and sequentially.

International Bank for Reconstruction and Development (IBRD) (World Bank)

This institute was founded in 1944 at the Bretton Woods Conference simultaneously with the establishment of the International Monetary Fund but it started its activity in 1946. This bank which was later called the World Bank, has been created by the aim of compensation for damage caused by World War II in member countries. By 1948, with the start of the Marshall Plan, the World Bank focused all its efforts on reconstructing Europe but since then its main duty was granting credit to developing countries.

International Finance Corporation (IFC)

International Finance Corporation was established on May 25, 1955 as a branch of the World Bank. Among important duties of this corporation we can point to expand private sector economic activities in developing countries. In order to achieve this goal, the mentioned corporation gives lend to private sector institutions in developing countries without guaranteeing the government to repay the loan. These loans should be used to modernize, expand industrial activities and increase the efficiency of such activities. The main aim of International Finance Corporation (IFC) is not to make a profit from investing in private sector enterprises, but it often makes a profit as well.

International Development Association (IDA)

International Development Association (IDA) was established on January 26, 1960, as another branch of the World Bank to deal with the debt situation of developing countries. The mentioned association has two groups of members; the first group includes 17 industrial countries which have paid their share in gold with convertible currencies. The second group includes the countries which have paid 10 percent of their share in foreign currency and the rest in domestic currency.

Among the main duties of International Development Association (IDA), we can point to expanding economical activities, increasing productivity and standard of living in developing countries by implementation of study plans, holding seminars and lectures, and granting credit to mentioned countries. The condition of granting credit from this association is better than the condition of World Bank.

This association pays loans only for development projects and with government guarantees and provides development assistance only to countries with very low per capita incomes.

World Trade Organization

On October 30, 1947, the General Tariff and Trade Agreement (formerly the GATT) was signed by representatives of 23 countries. The main purpose of this agreement was establishing a free international economic system. It called on signatory governments to minimize their involvement in international trade so that manufacturing firms enjoy the same international competitiveness and power. GATT wanted to achieve this ultimate goal through the following principles. Today this agreement (GATT) has been renamed as “World Trade Organization.

  • The principle of Most Favored Nations

According to this principle, if one of the members grants favorable conditions to a country in the field of import or export customs duties, other member states must automatically comply with these conditions.

  • The principle of Generalization of Domestic Behavior

According to this principle, the regulations for domestic and foreign goods must be the same. The purpose of this principle is to prevent the regulations which discriminate between domestic and foreign goods.

  • Gradual Reduction of Customs Duties

Conducting comprehensive negotiation, the members of GATT have been trying to reduce customs duties step by step.

  • Prohibition of Quantitative Restrictions

GATT prohibits considering trade limitations by setting quotas for member countries' exports and imports. Of course, this principle has different exceptions. One of the exceptions is the balance of payments deficit and trade with developing countries. Anyway, if a country wants to use quantitative restrictions, it does not have the right to discriminate.

  • Setting Trading Regulations

GATT has set some regulations in the field of export and its expansion. Accordingly, if a country "dumps" (i.e. sells goods abroad at a lower price than at home), the other countries are allowed to counter it by imposing "anti-dumping" duties.

At first, the members of GATT were 23 countries but by the early 1980s that number had risen to 83 and has grown ever since. GATT members are in constant contact with each other, and their meetings, known as "rounds," are held at the ministerial level every few years. Seventh round of these negotiations was held in Tokyo (Japan) in 1973. The following part is about some of the results of this round of negotiation which is known as Tokyo round. 

  • Reduction of customs duties between members by an average of 40%; Of course, this did not actually happen to this extent.
  • Eliminating or (at least) reducing non-tariff restrictions among members; this had a significant success in practice.
  • More freedom of trade in various sectors of the economy except military aviation.

FAO and UNIDO

Among the UN affiliated institutions, there are two economic organization which have special importance. These are the two terms “FAO” and “UNIDO” the former is in the field of agricultural development and the latter is in the field of industrial development.

The FAO was established on October 16, 1945 by 44 member states of the United Nations. The aim of this organization (As stated in its articles of association) is rising the standard of living and improving the nutrition of people, proper distribution of food in different parts of the world and in a word, food security.

FAO not only fights against "malnutrition" but also tries to increase agricultural productivity and nutrition in the world by providing the necessary information to various countries. The organization is headquartered in Rome (the capital of Italy).

United Nations Industrial Development Organization (UNIDO) was established in 1966 based on the United Nations General Assembly Resolution. According to UNIDO Resolution, the aim of this organization is expanding industrial development in member countries. UNIDO’s activities can be independent and coordinating. Independent activities of this organization includes collecting and sending information to technology, organizing administrative affairs, providing technical assistance and training of human resources.

UNIDO is also the coordinating center for the industrial activities of the member countries and does this activity mostly through close communication and cooperation with the regional economic institutions. The organization is headquartered in Vienna (central Austria).

World Economic Forum

One of the largest economic organizations in Switzerland. This organization generates more than $ 80 million a year and has a major impact on the global economy. More than a thousand world-renowned companies fund the forum by paying membership fees. This amount is at least 42 thousand Swiss francs a year. The presence of the heads of companies in the Davos meeting costs 18 thousand francs. Also the cost of participation in conference programs and plans is 250 to 500 thousand francs.

The World Economic Forum was first convened in January 1971 in Davos by Klaus Schwab as a gathering place for European economic leaders and capitalists. Schwab, who was teaching at the University of Geneva at that time, chose Davos to bring together economists, politicians, financiers, theorists and artists. The main idea of the summit was to bring these people together to discuss current European issues.

He then set up the European Management Association, a non-profit organization, in Geneva, which invites European business and industrial leaders to Davos each year in January. Since then the holding of regional meetings in different countries of the world after the annual Davos summit was added to the agenda of this forum. The events of 1973, including the Yom Kippur War and the Bretton Woods system collapse caused the Davos Summit to focus on the political and economic problems instead of focusing on management issues. One year later, world political leaders were invited to Davos for the first time. Since 1979, the World Management Assembly has also published a report on global economic competition; but in 1987 the “European Management Forum” was renamed the “World Economic Forum” and by expanding its scope of work, it sought to resolve global differences and problems by establishing an international platform.

Performance of the World Economic Forum

 In 1988, the leaders of Turkey and Greece signed the "Davos Declaration" to prevent war. A year later, the first meeting of Korean politicians at the ministerial level was held in this city. In the same year, the first talks on the unification of East and West Germany took place at the summit. In 1994, once again Davos hosted some characters who were less known. At that year, Yasser Arafat (leader of the Palestine Liberation Organization) and Shimon Peres (Israel's then foreign minister) reached a preliminary agreement on Gaza and Jericho.

Of course, Turkish President Recep Tayyip Erdogan created an unforgettable scene at the Davos summit in 2009. At that time Erdogan was the Prime Minister of Turkey and left the summit amid talks with then-Israeli President Shimon Peres, saying he did not attend the summit again anymore. In recent years, with the intensification of the economic crisis in Europe, the Davos summit once again focused more and more on the economic and trade problems of the Western world in a way that main topic of the Davos summit in 2015 was dedicated to these events.

Economic Cooperation Organization (ECO)

One of the most important regional economic organizations is called "ECO". The reason for the importance of this organization is its establishment by three strategic and important countries Iran, Pakistan and Turkey. The organization first started with the name "RCD", which is the acronym for the Regional Cooperation Organization. After Islamic Revolution of Iran, after a period continued its existence as “ECO”. After the collapse of the former Soviet Union and the accession of some new members, ECO gained considerable importance. The new members are Afghanistan, Azerbaijan, Turkmenistan, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan. Now, this organization has ten members, a population of about 330 million and an area of 7 million square kilometers; also some member countries’ facilities such as oil and gas can be used to help for developing other member countries. 

Goals of ECO

The most important goals of ECO are, in short, the following:

  • Improving the conditions for sustainable economic development of member countries
  • Taking action to gradual removal of trade barriers in the ECO area
  • Prepare a common program for human resource development
  • Accelerating development plans for transportation and communications infrastructure

In terms of production, the three founding members of the organization have better human resources and domestic capabilities, and are producers of agricultural and semi-industrial products. On the other hand, joining new members to ECO (formerly independent republics of Soviet) has increased the industrial abilities of the organization. Although each new member specializes in a few number of products, they are expert in their products and

they have advanced technologies. In this way, any of these countries can meet the mutual needs of the other members.

In terms of trade, the expansion of trade and exchange facilities between members can realize the development of trade between members. This can also improve the market system and ameliorate the quantity and quality of domestic products of all countries. At the same time, it converts many products that are not currently marketable due to their small scale into commercial products.

In terms of technology acquisition, as we know one of the ways to achieve new technology for developing countries is to transfer technology and acquire new technologies which can be possible by the means such as establishing economic relations and cooperation with countries with technology. Economic Cooperation Organization (ECO) has provided a proper opportunity in this regard. The reason is that many countries that are members of ECO have high technology in a special field. These include the following:

  • Uzbekistan in the field of aircraft and agricultural machinery
  • Kazakhstan in the field of nuclear and defense-military industries
  • Kazakhstan, Uzbekistan and Tajikistan on uranium enrichment
  • Azerbaijan and Iran in the field of oil industries and equipment
  • Turkey, Pakistan and Iran in the field of light and semi-light industrial industries

Anyway, similar to any other economic contract, ECO has its own problems which hinder the expansion of relations between member states. The most important problems are as follows.

  • Lack of capacity and facilities to produce some capital goods in ECO member countries and lack of complementarity in these areas
  • Economic similarities and similar productions of some of the ECO members especially Iran, Pakistan, and Turkey. Competition between them and, ultimately, reduction of ECO efficiency
  • Political uncertainty and differences in the ideology of member countries

The official language of ECO is English and any country that is geographically adjacent to the ECO and agrees with its goals can become a member. In the current structure of the ECO, the Council of Foreign Ministers of the member countries is in charge and meets at least once a year alternately in one of the member countries. The next pillar of the organization is the Council of Deputies of the Ministry of Foreign Affairs. The Planning Council is composed of the heads of the program organizations of the member countries, who also have meeting at least once a year. From other organizational components of the organization we can point to ECO technical committees, secretariats, and specialized organizations.

Organization of Asian Southeast Nations (ASN)

One of the almost old regional institute in East Asia is called “ASN”. Mentioned organization is an international economic organization which has been founded in 1967 with members from Malaysia, the Philippines, Thailand, Indonesia and Singapore. The purpose of the foundation of ASN was establishing economic cooperation between the countries of Southeast Asia but in practice it has not had much success. The reason for this failure can be seen in one of the "ECAFE” or Economic Commission for Asia and the Far East reports. According to this report, the factors of the failure of regional cooperation in Asia include the lack of political cooperation, the distance, the competitiveness of manufactured goods, and finally the difference in the degree of development in the countries of the region.

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