Exchange of goods across international boundaries in form of international trade has existed between West African countries and the North Africans even before the discovery of the Niger. However, the business of international trade was then seriously hampered because of lack international trade was the seriously hampered because of lack of well developed instituted international financing arrangements.
This gap continued to grow as there was no adequate arrangement to match the growing international trade with international financing arrangement that will Carter for the interest of the trading countries. The need became Paramount immediately after World War II. Necessitating world attention and a call for a conference by all allied countries that fought the war against Germany. The result of the conference was the establishment of World Bank and other sister financial institutions that today dictate the mode,the tempo and organization of international financial arrangements in almost all parts of the world.
Today, international financing is no longer a mere means of settling international indebtedness but a well constituted financial system,views as “the rules, institutions,policies and practices concerned with the adjustment and/or financing of external unbalances,the creation and distribution of international liquidity and the determination of exchange rates”. Thus the need for a country to join the international financial system becomes more glaring and include : political,social,economic, cultural, educational and developmental reasons.
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Some of these international finance institutions include:
- The International Monetary Fund (IMT)
- The International Development Association (IDA)
- The International Financing Coporation(IFC)
- The Bank for International Settlement(BIS)
- The African Export Import Bank(AFREXIM)
1. The International Monetary Fund(IMT)
The effects of the World War II was devastating in most European countries and their allied countries the prosecuted the war. Most economies were destroyed and the excessive imports and borrowings to prosecute the war,all led to the prolonged deficits in the balance of payment accounts of these countries. The need to rehabilitate and reconnect the war torn economies led to the convening of a meeting called ”The United Nations Monetary and Financing Monetary and Financial Conference ” by allies the fought the World War II against Germany. The meeting which was held at Bretton woods United State of America in 1944,gave birth to two international financial institutions.
2. The International Bank For Reconstruction and Development and Development (BRD)
Which was meant to source and provide funds for reconstruction of economies of member countries and for other development purposes. At times IBRD, and International Development Association (IDA) etc are simply called ” The Bank”.
The International Monetary Fund (IMF) was to proffer solutions to the balance of payment problems and other financial problems facing the member countries. The membership of any of the organizations is co-joint,that is a country desirous of joining one,must join the other. As at 1945,the agreement for the establishment of the two sister institutions had received enough ratification from willing members and so both bank commenced operation on 27th December, 1945 as specialized financial agency of the United Nations.
Membership and sources of Fund
The membership of the fund has been growing over the years moving towards universal membership. As at December 1992,the fund has a membership of 178 countries. Though the membership is optical, evidence is showing that the membership is shifting towards what we may now call “optional compulsory”. The ownership structure is gradually becoming global especially with most of the socialist block joining.
Every member on joining the fund will be required to pay 25 percent of it’s quota in Special Drawing Rights (SAR) as in currencies of other member selected by the fund and the balance of 25 percent in the member’s own currency. The voting power of a member is based on one vote for each SDR 100,000 of it’s quota plus the 250 basic votes allotted to every member on admission. The SDR quota allocated to member country will relatively depend on the size of the member’s economy.
The major sources of Fund available to the IMF include the following:
- The fund could venture into the international market to source for funds but this has to be approved by the member nations.
- Individual contributions made by members on quota basis as maybe directed from time to time by the Board of the directors.
- Under a special agreement called “General Agreement to Borrow”(GAB),the fund if mandated to borrow,can borrow from rich especially when it is becoming eminent that this problem is threatening the stability of international monetary system.
Aims and Objectives of International Monetary Fund( IMF)
- Creating a reserve base for members.
- Establishment of multi-lateral payment system.
- Reduction in balance of payment problems.
- Promotion of exchange rate stability.
- Promotion of international monetary co-operation.
- Providing assistance to a country in solving balance of payment problems that is, through provision of advice on fundamental re-structuring of the economy.