Often the roles of international organisations and government economic forums are poorly understood. However, global economic governing bodies including the World Trade Organisation(WTO), International Monetary Fund (IMF), OECD and government economic forums such as the G20 and G8 are instrumental to ensuring appropriate economic conditions conducive to sustainable growth and targeted economic development gains.
The IMF holds a dominant role to maintain international financial stability and facilitate growth in world trade and investment, often through;
The IMF also develops valued economic projections on the global economy and according policy recommendations for governments. In late June 2020, the IMF improved Australia’s 2020 growth forecast from -6.7% to -4.5%, the only developed economy to improve on April projections, reflecting the effectiveness of the Morrison Government and RBA’s successful macroeconomic policy coordination. Further, they also warned against rapid removal of wage subsidies like Job Keeper, calling for further fiscal support to direct employment from unsustainable, shrinking sectors to new industries; largely technology, healthcare and potentially domestic manufacturing, improving in a post-pandemic world. This will undoubtedly influence future government policies.
The World Trade organisation does not directly facilitate global growth like the IMF, but rather channels discussions into the creation of free trade agreements. Formed in 1955 and now comprising 164 member economies, the WTO has improved on failures of the GATT (General Agreement on Tariffs and Trade) by enforcing trade agreements and supporting their implementation. This is executed through dispute resolution and regular trade discussions through events such as the ‘Doha rounds’, launched in 2001. These trade liberalisation talks intend to open global trade and address key sectors of the global economy of concern to a multitude of economies such as;
The WTO typically struggles to drive meaningful free trade discussions, reflected in the poor performance of the 2017 Buenos Aires Ministerial Conference, where no agreements were made for agricultural trade. However in this pandemic world, more economies are eager to facilitate discussion under the WTO and diversify their exporting bases, which may reduce the manufacturing importance of China and other large South-East Asian manufacturers. Indicated by Australia’s position
The roles and ambition of the WTO is similar to that of the OECD (organisation for economic cooperation and development), comprising 34 economies committed to democracy and a market economy, therefore aiming for productive free trade and highest possible economic growth and employment rates.
Aside from economic growth concerns, the United Nations and World Bank are two global governing bodies who regulate economic development. The World Bank is primarily responsible for increasing living quality and standards in targeted economies, using its economic policy influence to create conditions conducive to foreign investment and domestic development. The United Nations achieves its development goals by developing international standards and published goals (Millenium Development Goals for example) as a measurable metric to induce policy changes and consistent global improvement.
A Regulatory body's ability to encourage free trade agreements and at the very least, drive greater trade between economies is key to driving global economic growth levels, expressed by increases in Gross World Product (GWP) and individual increases in countries. In Australia alone, trade liberalisation contributes on average 2-3% additional growth, particularly in manufacturing and services, whilst also driving down prices of production for export and import competing industries via reduced cost imports.
Groups like the IMF and WTO are consistently vital to overseeing economic growth and policy changes, but are especially vital in periods of uncertainty and exogenous shocks like the COVID pandemic. More economies become ‘inward thinkers’ and introduce fiscal policies which are self centred and protectionist, under a ‘beggar thy neighbour’ approach - where one economy introduces discretionary change beneficial to domestic growth, whilst negatively impacting other economies (similar to the negativity of US trade disputes and tariff introduction). In the 2008 GFC, a recent international downturn dwarfed by the coronavirus global recession, the IMF introduced a $250b global stimulus package as part of its stabilizing ‘rescue packages’. This functions identical to discretionary and automatic government spending, providing the means for greater consumption and investment, increasing Aggregate Demand expressed by a rightward shift of the AD curve (increasing output and price levels).
The G20 is also of importance to international growth, comprising the world’s largest 20 nations who contribute to 86% of world GDP. Their annual meetings are often focussed on international trade and employment, and as a key member, Australia benefits by driving its own unilateral liberalisation interests whilst forging connections to diversify the export base and form trade/national security relationships. The G20 in Buenos Aries (2018) and Osaka (2019) discussed improvement of growth within the technological era, through infrastructure development, environmentally conscious policies, continued trade increases and the increasing prevalence of electronic currencies.
Regulatory bodies are essential in facilitating international convergence, where economies of low development transition into emerging economies of rapid growth and then developed economies of stability and technological concentration. Without groups such as the UN or World Bank, existingly developed economies do not have a metric to track progress, or minimal incentive to actually supporting under-developed economies, concentrated in Africa, in their ventures to stable countries.
The UN and World Bank worked together on the formulation of the development goals, which have effectively reduced the level of people living on less than 1 dollar/day by more than 50% from 1990-2016. It has also reduced the amount of people living in low income economies from 29% to 14% of the world’s population. The World bank in response to GFC financial pressures also increased their lending by 150% from 13.5bn to 35bn to assist lower income economies and Begun the “Heavily Indebted poor countries Initiative”, which aimed to reduce debt
by 66% in 46 of the worlds’ poorest countries in Africa and Latin America This policy is called multilateral debt forgiveness, where developed economies ‘forgive’ and finance debt of developing countries. Despite support, the World Bank and similarly, the IMF’s financial support has been scrutinised for its strict imposition conditions, under ‘the Washington Consensus’. This intends to add stability to an economy and is a neoliberal approach for fiscal policy which sees regulatory bodies implement reliable sources of sovereign income through taxation reform to avoid fiscal deficits. This aims to provide the foundations for strong aggregate demand and aggregate supply growth, where accepting reforms under the consensus is often essential to receive economic guidance and funds. Seeing as the World Bank is controlled by Advanced economy funding, developing economies argue that the influence of economic decisions under the Washington Consensus undermines their financial sovereignty.
The G7 is an important government economic forum aiming to improve economic development, providing a medium for wealthy countries to discuss global economic conditions, with an agenda focussed on climate improvement and global poverty. Their strong individual economies and sound taxation systems ensure they have the financial ‘firepower’ to provide economic support to developing nations, also lending political expertise to improving governmental and financial structures. Despite not being a G7 economy, this is seen in Australia’s involvement in the development of Timor Leste, using our geographical position to strengthen the financial stability of the region.
The IMF is the dominant regulatory body focussed on ensuring external stability (the ability to fund external financial obligations with the rest of the world without sacrificing internal stability). Poor external stability is a key driver of civil unrest, political tension, declining economic development and poor economic growth. Particularly in already volatile markets/regions (Africa, Middle East), poor external stability can also transform into national security threats. The IMF’s implementation of a reliable, flexible multilateral payments system between member economies and their wide resource base to support economies in external obligation disasters represents their commitment to stability. In 2019, the IMF funded a $7b program to Pakistan, reducing balance of payment difficulties and providing longer term financial stability.
The IMF were also instrumental in the 1997 Asian economic crisis; By providing strong financial backing, whilst also encouraging restructuring of debt and economic policies, particularly in Thailand, the IMF helped avoid international recession and seemingly facilitate the rise of the South East Asian economic region as a powerhouse for growth and productivity. However, the IMF was and continues to be criticised in its external stability approach. By encouraging contractionary macroeconomic policies to reduce debt accumulation, economic concerns can be exacerbated. However, the IMF’s structural adjustment policies are tailored to support free trade of goods and services, stronger domestic savings and free movement of capital between domestic and global markets. Thus, difficult economic policies are necessary, and markets must be stable and open for financial assistance to be effective.