1 Introduction

"Globalization is not something we can hold off or turn off . . . it is the economic equivalent of a
force of nature -- like wind or water." Bill Clinton (American 42nd US president (1993-2001))
The first part of this research paper will define the major drivers of globalization and then
introduce some of the basic and advanced theories of international trade and business. With this
foundation it will then try to integrate theories and drivers and compare them to the actual
situation and discuss if they are appropriately describing what we are seeing today.

2 Drivers of Globalization

The media and almost every book on globalization and international business speak about
different drivers of globalization and they can basically be separated into five different groups:

1) Technological drivers
Technology shaped and set the foundation for modern globalization. Innovations in the
transportation technology revolutionized the industry. The most important developments among
these are the commercial jet aircraft and the concept of containerization in the late 1970s and
1980s. Inventions in the area of microprocessors and telecommunications enabled highly
effective computing and communication at a low-cost level. Finally the rapid growth of the
Internet1 is the latest technological driver that created global ebusiness and e-commerce.

2) Political drivers
Liberalized trading rules and deregulated markets lead to lowered tariffs and allowed foreign
direct investments in almost all over the world. The institution of GATT (General Agreement on
Tariffs and Trade) 1947 and the WTO (World Trade Organization) 1995 as well as the ongoing
opening and privatization in Eastern Europe are only some examples of latest developments.

3) Market drivers
As domestic markets become more and more saturated, the opportunities for growth are limited
and global expanding is a way most organizations choose to overcome this situation. Common
customer needs and the opportunity to use global marketing channels and transfer marketing to
some extent are also incentives to choose internationalization. (Ferrier, 2004)
4) Cost drivers
Sourcing efficiency and costs vary from country to country and global firms can take advantage
of this fact. Other cost drivers to globalization are the opportunity to build global scale
economies and the high product development costs nowadays. (Ferrier, 2004)

5) Competitive drivers
With the global market, global inter-firm competition increases and organizations are forced to
“play” international. Strong interdependences among countries and high two way trades and FDI
actions also support this driver.

INTERNATIONAL TRADE.

What is International Trade?

International trade is exchange of capital, goods, and services across international borders or
territories. It refers to exports of goods and services by a firm to a foreign-based buyer
(importer).

While international trade has been present throughout much of history (see Silk Road, Amber
Road), it’s economic, social, and political importance has been on the rise in recent centuries.

Industrialization, advanced transportation, globalization, multinational corporations, and

outsourcing are all having a major impact on the international trade system. Increasing
international trade is crucial to the continuance of globalization. International trade is a major
source of economic revenue for any nation that is considered a world power. Without
international trade, nations would be limited to the goods and services produced within their own
borders.

Risk in International Trade:

Companies doing business across international borders face many of the same risks as would
normally be evident in strictly domestic transactions. For example,

• Buyer insolvency (purchaser cannot pay);

 • Non-acceptance (buyer rejects goods as different from the agreed upon specifications);
• Credit risk (allowing the buyer to take possession of goods prior to payment);
• Regulatory risk (e.g., a change in rules that prevents the transaction);
• Intervention (governmental action to prevent a transaction being completed);
• Political risk (change in leadership interfering with transactions or prices); and
• War and Acts of God.

In addition, international trade also faces the risk of unfavorable exchange rate movements (and,
the potential benefit of favorable movements

Regulation of International Trade:

Traditionally trade was regulated through “bilateral treaties” between two nations. For centuries
under the belief in mercantilism1 most nations had high tariffs and many restrictions on
international trade. In the 19th century, especially in the United Kingdom, a belief in free trade
became paramount. This belief became the dominant thinking among western nations since then.
In the years since the Second World War, controversial “multilateral”2 treaties have attempted to
promote free trade while creating a globally regulated trade structure.

Free trade is usually most strongly supported by the most economically powerful nations, though
they often engage in selective protectionism for those industries which are strategically important
such as the protective tariffs applied to agriculture by the United States and Europe. The
Netherlands and the United Kingdom were both strong advocates of free trade when they were
economically dominant, today the United States, the United Kingdom, Australia and Japan are its
greatest proponents. However, many other countries (such as India, China and Russia) are

1
Mercantilism is an economic theory that holds the prosperity of a nation is dependent
upon its supply of capital, and that the global volume of international trade is
"unchangeable." Mercantilism suggests that the ruling government should advance these
goals by playing a protectionist role in the economy; by encouraging exports and
discouraging imports, notably through the use of tariffs and subsidies.[

2
Multilateral agreements: These trade agreements have often resulted in discontent and
protest with claims of unfair trade that is not beneficial to developing countries.
increasingly becoming advocates of free trade as they become more economically powerful
themselves. As tariff levels fall there is also an increasing willingness to negotiate non tariff
measures, including foreign direct investment, procurement and trade facilitation.The latter looks
at the transaction cost associated with meeting trade and customs procedures.

Today, the regulation of international trade is done through the World Trade Organization at the
global level like the General Agreement on Tariffs and Trade (GATT) and World Trade
Organization. The international organizations like IMF, World Bank also have a key role to play
in international trade.

At the regional level regional arrangements such as MERCOSUR in South America, the North
American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, and
the European Union between 27 independent states, Free Trade Area of the Americas (FTAA)
and similar agreements such as the Multilateral Agreement on Investment (MAI) also play
important role at the regional levels.

I- GATT.

a) Emergence:

Efforts to negotiate international trade agreements (International Trade Organization) began in

1927 at the League of Nations.

The International Trade Organization (ITO), was first proposed in February 1945 by the United
Nations Economic and Social Council

The General Agreement on Tariffs and Trade (typically abbreviated GATT) was negotiated
during the UN Conference on Trade and Employment and was the outcome of the failure of
negotiating governments to create the International Trade Organization (ITO).

The negotiating countries of the ITO began parallel negotiations for the GATT as a way to
introduce early tariff cuts. The plan called for the ITO to take control over GATT, once the ITO
was finalized. Owing to the United States failing to implement the ITO, GATT was the only
organization left.

GATT was formed in 1947 and lasted until 1994, when it was replaced by the World Trade
Organization in 1995.

The history of the GATT can be divided into three phases: the first, from 1947 until the Torquay
Round, largely concerned which commodities would be covered by the agreement and freezing
existing tariff levels. A second phase, encompassing three rounds, from 1959 to 1979, focused on
reducing tariffs. The third phase, consisting only of the Uruguay Round from 1986 to 1994,
extended the agreement fully to new areas such as intellectual property, services, capital, and
agriculture. Out of this round the WTO was born.

GATT signatories occasionally negotiated new trade agreements that all countries would enter
into. Each set of agreements was called a round. In general, each agreement bound members to
reduce certain tariffs. Usually this would include many special-case treatments of individual
products, with exceptions or modifications for each country.

Objective of GATT:

The GATT's main objective was the reduction of barriers to international trade. This was
achieved through the reduction of tariff barriers, quantitative restrictions and subsidies on trade
through a series of agreements. The GATT was a treaty, not an organization although a small
secretariat occupied what is today the Centre William Rappard in Geneva, Switzerland.

II- WORLD TRADE ORGANIZATION (WTO).

The World Trade Organization (WTO) is an international organization designed by its

founders to supervise and liberalize international trade. The organization officially commenced
on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs
and Trade (GATT), which commenced in 1947.
The World Trade Organization deals with regulation of trade between participating countries; it
provides a framework for negotiating and formalizing trade agreements, and a dispute resolution
process aimed at enforcing participants' adherence to WTO agreements which are signed by
representatives of member governments and ratified by their parliaments. Most of the issues that
the WTO focuses on derive from previous trade negotiations, especially from the Uruguay
Round (1986-1994).

The organization is currently endeavoring to persist with a trade negotiation called the Doha
Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable
participation of poorer countries which represent a majority of the world's population. However,
the negotiation has been dogged by "disagreement between exporters of agricultural bulk
commodities and countries with large numbers of subsistence farmers on the precise terms of a
'special safeguard measure' to protect farmers from surges in imports. At this time, the future of
the Doha Round is uncertain."

The WTO has 153 members, representing more than 97% of total world trade [8] and 30
observers, most seeking membership. The WTO is governed by a ministerial conference,
meeting every two years; a general council, which implements the conference's policy decisions
and is responsible for day-to-day administration; and a director-general, who is appointed by the
ministerial conference. The WTO's headquarters is at the Centre William Rappard, Geneva,
Switzerland.

Functions of WTO:

Among the various functions of the WTO, these are regarded by analysts as the most important:

• It oversees the implementation, administration and operation of the covered agreements.

• It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to
ensure the coherence and transparency of trade policies through surveillance in global economic
policy-making. Another priority of the WTO is the assistance of developing, least-developed and
low-income countries in transition to adjust to WTO rules and disciplines through technical
cooperation and training.

The WTO is also a center of economic research and analysis: regular assessments of the global
trade picture in its annual publications and research reports on specific topics are produced by
the organization. Finally, the WTO cooperates closely with the two other components of the
Bretton Woods system, the IMF and the World Bank.

Criticism:

The World Trade Organization is the most powerful legislative and judicial body in the world.
By promoting the "free trade" agenda of multinational corporations above the interests of local
communities, working families, and the environment, the WTO has systematically undermined
democracy around the world.

In the ten years of its existence, WTO panels composed of corporate attorneys have ruled that:
the US law protecting sea turtles was a barrier to "free trade"; that US clean air standards and
laws protecting dolphins are too; that the European Union law banning hormone-treated beef is
illegal. According to the WTO, our democratically elected public officials no longer have the
rights to protect the environment and public health.

Unlike United Nations treaties, the International Labor Organization conventions, or multilateral
environmental agreements, WTO rules can be enforced through sanctions. This gives the WTO
more power than any other international body. The WTO's authority even eclipses national
governments.

III- WORLD BANK.

World Bank3 is a term used to describe an international financial institution that provides
leveraged loans to developing countries for capital programs. The World Bank has a stated goal
of reducing poverty.

The World Bank is one of two institutions created at the Bretton Woods Conference in 1944.
The International Monetary Fund, a related institution is the second. Delegates from many
countries attended the Bretton Woods Conference. The most powerful countries in attendance
were the United States and United Kingdom which dominated negotiations

The World Bank's current focus is on the achievement of the Millennium Development Goals
(MDGs)4, lending primarily to "middle-income countries" at interest rates which reflect a small
mark-up over its own (AAA-rated) borrowings from capital markets; while the IDA provides
low or no interest loans and grants to low income countries with little or no access to
international credit markets. The IBRD is a market-based nonprofit organization, using its high
credit rating to make up for the relatively low interest rate on its loans, while the IDA is funded
primarily by periodic "replenishments" (grants) voted to the institution by its more affluent
member countries. The Bank’s mission is to aid developing countries and their inhabitants to
achieve development and the reduction of poverty, including achievement of the MDGs, by
helping countries develop an environment for investment, jobs and sustainable growth, thus

3
The World Bank differs from the World Bank Group, in that the World Bank comprises only two institutions: the
International Bank for Reconstruction and Development (IBRD) and the International Development Association
(IDA), whereas the latter incorporates these two in addition to three more:[3] International Finance Corporation
(IFC), Multilateral Investment Guarantee Agency (MIGA), and International Centre for Settlement of Investment
Disputes (ICSID).

4
The Millennium Development Goals (MDGs) are eight international development goals that 192 United Nations
member states and at least 23 international organizations have agreed to achieve by the year 2015. They include:

• Goal 1: Eradicate extreme poverty and hunger

• Goal 2: Achieve universal primary education
• Goal 3: Promote gender equality and empower women
• Goal 4: Reduce child mortality
• Goal 5: Improve maternal health
• Goal 6: Combat HIV/AIDS, malaria, and other diseases
• Goal 7: Ensure environmental sustainability
• Goal 8: Develop a global partnership for development
promoting economic growth through investment and enabling the poor to share the fruits of
economic growth.

The World Bank sees the five key factors necessary for economic growth and the creation of an
enabling business environment as:

1. Build capacity: Strengthening governments and educating government officials.

2. Infrastructure creation: implementation of legal and judicial systems for the

encouragement of business, the protection of individual and property rights and the
honoring of contracts.

3. Development of Financial Systems: the establishment of strong systems capable of

supporting endeavors from micro credit to the financing of larger corporate ventures.

4. Combating corruption: Support for countries' efforts at eradicating corruption.

5. Research, Consultancy and Training: the World Bank provides platform for research
on development issues, consultancy and conduct training programs (web based, on line,
tele-/ video conferencing and class room based) open for those who are interested from
academia, students, government and non-governmental organization (NGO) officers etc.

World Bank obtains funding for its operations primarily through the IBRD’s sale of AAA-rated
bonds in the world’s financial markets. The IBRD’s income is generated from its lending
activities, with its borrowings leveraging its own paid-in capital, plus the investment of its
"float"5.

The World Bank is active in the following areas:

Agriculture and Rural Development; Conflict and Development ; Development

Operations and Activities ; Economic Policy ; Education; Energy; Environment ;
Financial Sector; Gender ; Governance; Health, Nutrition and Population; Industry;
Information and Communication Technologies; Information, Computing and
5
The IDA obtains the majority of its funds from forty donor countries who replenish the bank’s funds every three
years, and from loan repayments, which then become available for re-lending.
 Telecommunications; International Economics and Trade; Labor and Social Protections;
Law and Justice; Macroeconomic and Economic Growth; Mining; Poverty Reduction;
Poverty; Private Sector; Public Sector Governance; Rural Development; Social
Development; Social Protection; Trade; Transport; Urban Development; Water
Resources; Water Supply and Sanitation.

Many achievements have brought the MDG targets for 2015 within reach in some cases. For the
goals to be realized, the following (six) criteria are set and met:

Stronger and more inclusive growth in Africa and fragile states, More effort in health and
education, Integration of the development and environment agendas, More and better aid,
Movement on trade negotiations, and Stronger and more focused support from
multilateral institutions like the World Bank.

Criticism:

The World Bank has long been criticized by non-governmental organizations, such as the
indigenous rights group Survival International, and academics, including its former Chief
Economist Joseph Stiglitz who is equally critical of the International Monetary Fund, the US
Treasury Department, US and other developed country trade negotiators.

Critics argue that the so-called free market reform policies which the Bank advocates are often
harmful to economic development if implemented badly, too quickly ("shock therapy"), in the
wrong sequence or in weak, uncompetitive economies.

In Masters of Illusion: The World Bank and the Poverty of Nations (1996), Catherine Caufield
argued that the assumptions and structure of the World Bank harms southern nations. Caufield
criticized its formulaic recipes of "development". To the World Bank, different nations and
regions are indistinguishable and ready to receive the "uniform remedy of development". She
argued that to attain even modest success, Western practices are adopted and traditional
economic structures and values abandoned. A second assumption is that poor countries cannot
modernize without money and advice from abroad.
A number of intellectuals in developing countries have argued that the World Bank is deeply
implicated in contemporary modes of donor and NGO imperialism and that its intellectual
contribution function to blame the poor for their condition.

One of the strongest criticisms of the World Bank has been the way in which it is governed.
While the World Bank represents 186 countries, it is run by a small number of economically
powerful countries. These countries choose the leadership and senior management of the World
Bank so their interests dominate the bank.

The World Bank has dual roles that are contradictory: that of a political organization and that of
a practical organization. As a political organization the World Bank must meet the demands of
donor and borrowing governments, private capital markets and other international organizations.
As an action-oriented organization, it must be neutral, specializing in development aid, technical
assistance and loans. The World Bank’s obligations to donor countries and private capital
markets have caused it to adopt policies which dictate that poverty is best alleviated by the
implementation of "market" policies.

In the 1990s the World Bank and the IMF forged the Washington Consensus, policies which
included deregulation and liberalization of markets, privatization and the downscaling of
government. Though the Washington Consensus was conceived as a policy that would best
promote development, it was criticized for ignoring equity, employment and how reforms like
privatization were carried out. Many now agree that the Washington Consensus placed too much
emphasis on the growth of GDP and not enough on the permanence of growth or on whether
growth contributed to better living standards.

Some analysis shows that the World Bank has increased poverty and been detrimental to the
environment, public health and cultural diversity. Some critics also claim that the World Bank
has consistently pushed a neoliberal agenda, imposing policies on developing countries which
have been damaging, destructive and anti-developmental.

It has also been suggested that the World Bank is an instrument for the promotion of US or
Western interests in certain regions of the world. Even South American nations have established
the Bank of the South in order to reduce US influence in the region. Criticism of the bank, that
the President is always a citizen of the United States, nominated by the President of the United
States (though subject to the "approval" of the other member countries). There have been
accusations that the decision-making structure is undemocratic as the US has a veto on some
constitutional decisions with just over 16% of the shares in the bank; decisions can only be
passed with votes from countries whose shares total more than 85% of the bank's shares. A
further criticism concerns internal management and the manner in which the World Bank is said
to lack accountability.

Criticism of the World Bank often takes the form of protesting as seen in recent events such as
the World Bank Oslo 2002 Protests, the October Rebellion, and the Battle of Seattle. Such
demonstrations have occurred all over the world, even amongst the Brazilian Kayapo people

In 2008, a World Bank report which found that bio-fuels had driven food prices up 75% was not
published. Officials confided that they believed it was suppressed to avoid embarrassing the
President of the United States, George W. Bush.

Knowledge production:

The World Bank has been criticised for the manner in which it engages in “the production,
accumulation, circulation and functioning” of knowledge. The Bank’ production of knowledge
has become integral to the funding and justification of large capital projects. The Bank relies on
“a growing network of trans-local scientists, technocrats, NGOs, and empowered citizens to help
generate data and construct discursive strategies”. Its capacity to produce authoritative
knowledge is a response to intense scrutiny of Bank projects resulting from the successes of
growing anti-Bank and alternative-development movements. “Development has relied
exclusively on one knowledge system, namely, the modern Western one. The dominance of this
knowledge system has dictated the marginalization and disqualification of non-Western
knowledge systems”. It has been remarked, that in these alternative knowledge systems
researchers and activists might find alternative rationales to guide interventionist action away
from Western (Bank) produced ways of thinking. Knowledge production has become an asset to
the Bank and “it is generated and used in highly strategic ways” to provide justifications for
development.
Structural adjustment:

The effect of structural adjustment policies on poor countries has been one of the most
significant criticisms of the World Bank. The oil crisis in the late 1970s plunged many countries
into economic crises. The World Bank responded with structural adjustment loans which
distributed aid to ailing countries while enforcing policy changes meant to reduce inflation and
fiscal imbalance. Some of these policies included encouraging production, investment and
labour-intensive manufacturing, changing real exchange rates and altering the distribution of
government resources. Structural adjustment policies were most effective in countries with an
institutional framework that allowed these policies to be implemented easily. For some countries,
particularly in Sub-Saharan Africa economic growth regressed and inflation worsened. The
alleviation of poverty was not a goal of structural adjustment loans and the circumstances of the
poor often worsened due to a reduction in social spending and an increase in the price of food as
subsidies were lifted.

By the late 1980s, international organizations began to admit that structural adjustment policies
were worsening life for the world’s poor. The World Bank changed structural adjustment loans
allowing for social spending to be maintained and encouraging a slower change to policies such
as transfer of subsidies and price rises. In 1999 the World Bank and the IMF introduced the
Poverty Reduction Strategy Paper approach to replace structural adjustment loans. The Poverty
Reduction Strategy Paper approach has been interpreted as an extension of structural adjustment
policies as it continues to reinforce and legitimize global inequities. Neither approach has
addressed the inherent flaws within the global economy that contribute to economic and social
inequities within developing countries. By reinforcing the relationship between lending and
client states, many believe that the World Bank has usurped indebted countries' power to make
economic policy.

Water privatization:

Sociologist Michael Goldman has argued that “Industry analysts predict that private water will
soon be a capitalized market as precious, and as war-provoking, as oil”. Goldman says “These
days, an indebted country cannot borrow capital from the World Bank or IMF without a
domestic water privatization policy as a precondition”. The Bank is utilizing “the 'Washington
Consensus' model of "development" to promote water privatization. Following this model the
World Bank is forcing many countries to commodify their water resources, rather than using
their expertise in the public sector to acknowledge water as a universal human right and an
essential public service”. The push for water privatization development plays upon “the
shocking tragedy that much of the world lacks affordable clean water”. This image creates “new
opportunities in development though it may have little to do with ultimately quenching” the
needs of impoverished countries. “The problem of water scarcity for the world’s poor has been
analyzed by the World Bank as one in which the public sector has failed to deliver and has
therefore prevented development from “taking off” and the economy from modernizing. If the
state cannot deliver something as basic as water and sanitation, the argument goes, it is a strong
indication of a general failure of public-sector capacity”. However, “with the sale or lease of a
public good comes more than simply a privatized service; alongside it comes a wide set of
postcolonial institutional forces that intervenes in state-citizen relations and North-South
dynamics”

Business and political interests of main stakeholders:

Although controversial and far from proven, there is criticism that World Bank and IMF are used
as a means to fulfill business (interests of large corporations to enter the natural resource markets
of the country and obtain the legal guarantees that it can stay there) or political needs of the main
IMF donors (mostly USA), that were previously historically obtained by more direct activity -
war, economic blockade, espionage.6

Sovereign immunity:

Despite claiming goals of “good governance and anti-corruption″ the World Bank requires
sovereign immunity against countries it deals with. Sovereign immunity waives a holder from all
legal liability for their actions. It is proposed that this immunity from responsibility is a “shield
to which [The World Bank] wants resort to for escaping accountability and security by the

6
See for example Confessions of an Economic Hit Man.
people.” As the United States has veto power, it can prevent the World Bank from taking action
against its interests.

IV- INTERNATIONAL MONETARY FUND. (IMF) 7

GENESIS OF IMF:

The IMF was founded more than 60 years ago toward the end of World War II. During the Great
Depression of the 1930s, countries attempted to shore up their failing economies by sharply
raising barriers to foreign trade, devaluing their currencies to compete against each other for
export markets, and curtailing their citizens' freedom to hold foreign exchange. These attempts
proved to be self-defeating. World trade declined sharply and employment and living standards
plummeted in many countries.

This breakdown in international monetary cooperation led the IMF's founders to plan an
institution charged with overseeing the international monetary system—the system of exchange
rates and international payments that enables countries and their citizens to buy goods and
services from each other. The new global entity would ensure exchange rate stability and
encourage its member countries to eliminate exchange restrictions that hindered trade.

In other words, the founders aimed to build a framework for economic cooperation that would
avoid a repetition of the disastrous economic policies that had contributed to the Great
Depression of the 1930s and the global conflict that followed.

II- OBJECTIVES OF IMF:

More specifically, the IMF aims to

• provide a forum for cooperation on international monetary problems

• facilitate the growth of international trade, thus promoting job creation, economic growth,
and poverty reduction;
• promote exchange rate stability and an open system of international payments; and

7
For more details on IMF ref: http://www.imf.org.
 • lend countries foreign exchange when needed, on a temporary basis and under adequate
safeguards, to help them address balance of payments problems.

Today, with its near-global membership of 186 countries, the IMF is uniquely placed to help
member governments take advantage of the opportunities—and manage the challenges—posed
by globalization and economic development more generally. The IMF tracks global economic
trends and performance, alerts its member countries when it sees problems on the horizon,
provides a forum for policy dialogue, and passes on know-how to governments on how to tackle
economic difficulties.

It also provides policy advice and financing to members in economic difficulties and also works
with developing nations to help them achieve macroeconomic stability and reduce poverty.

Also, the IMF supports its membership by providing:

 Research, statistics, forecasts, and analysis based on tracking of global, regional, and
individual economies and markets;
 Loans to help countries overcome economic difficulties;
 Concessional loans to help fight poverty in developing countries; and
 Technical assistance and training to help countries improve the management of their
economies.

Marked by massive movements of capital and abrupt shifts in comparative advantage,

globalization affects countries' policy choices in many areas, including labor, trade, and tax
policies. Helping a country benefit from globalization while avoiding potential downsides is an
important task for the IMF.

The IMF's way of operating has changed over the years and has undergone rapid change since
the beginning of the 1990s as it has sought to adapt to the changing needs of its expanding
membership in an globalized world economy.

III- ACTIVITY AREAS OF IMF:

IMF has three major activity areas viz., 1. Surveillance 2. Technical assistance and 3. Lending.
The details of them are as follows:

1. Surveillance.

When a country joins the IMF, it agrees to subject its economic and financial policies to the
scrutiny of the international community. It also makes a commitment to pursue policies that are
conducive to orderly economic growth and reasonable price stability, to avoid manipulating
exchange rates for unfair competitive advantage, and to provide the IMF with data about its
economy. The IMF's regular monitoring of economies and associated provision of policy advice
is intended to identify weaknesses that are causing or could lead to financial or economic
instability. This process is known as surveillance. It is done at the following three levels.

a) Country level surveillance

Country surveillance is an ongoing process that culminates in regular (usually annual)

comprehensive consultations with individual member countries, with discussions in between as
needed. The consultations are known as "Article IV consultations" because they are required by
Article IV of the IMF's Articles of Agreement. During an Article IV consultation, an IMF team
of economists visits a country to assess economic and financial developments and discuss the
country's economic and financial policies with government and central bank officials. IMF staff
missions also often meet with parliamentarians and representatives of business, labor unions, and
civil society.

The team reports its findings to IMF management and then presents them for discussion to the
Executive Board, which represents all of the IMF's member countries. A summary of the Board's
views is subsequently transmitted to the country's government. In this way, the views of the
global community and the lessons of international experience are brought to bear on national
policies. Summaries of most discussions are released in Public Information Notices and are
posted on the IMF's web site, as are most of the country reports prepared by the staff.

In June 2007 the IMF's Executive Board adopted a comprehensive policy statement on
surveillance. The 2007 Decision on Bilateral Surveillance over Member's Policies, complements
Article IV of the IMF’s Articles of Agreement and introduces the concept of external stability as
an organizing principle for bilateral surveillance. This means that the main focus of the
discussions between the IMF and country officials is whether there are risks to the economy’s
domestic and external stability that would call for adjustments to that country’s economic or
financial policies.

b) Regional level surveillance

Regional surveillance involves examination by the IMF of policies pursued under currency
unions—i ncluding the euro area, the West African Economic and Monetary Union, the Central
African Economic and Monetary Community, and the Eastern Caribbean Currency Union.
Regional economic outlook reports are also prepared to discuss economic developments and key
policy issues in Asia Pacific, Europe, Middle East and Central Asia, Sub-Saharan Africa, and the
Western Hemisphere.

c) Global level surveillance

Global surveillance entails reviews by the IMF's Executive Board of global economic trends and
developments. The main reviews are based on the World Economic Outlook reports and the
Global Financial Stability Report, which covers developments, prospects, and policy issues in
international financial markets. Both reports are published twice a year, with updates being
provided on a quarterly basis. In addition, the Executive Board holds more frequent informal
discussions on world economic and market developments.

The IMF also has the option of holding multilateral consultations, involving smaller groups of
countries, to foster debate and develop policy actions designed to address problems of global or
regional importance. In 2006, multilateral consultations brought together China, euro area
countries, Japan, Saudi Arabia, and the United States to discuss global economic imbalances.

2 Technical Assistance.

The IMF shares its expertise with member countries by providing technical assistance and
training in a wide range of areas, such as central banking, monetary and exchange rate policy, tax
policy and administration, and official statistics. The objective is to help improve the design and
implementation of members' economic policies, including by strengthening skills in institutions
such as finance ministries, central banks, and statistical agencies. The IMF also gives advice to
countries that have had to reestablish government institutions following severe civil unrest or
war.

In 2008, the IMF embarked on an ambitious reform effort to enhance the impact of its technical
assistance. The reforms emphasize better prioritization, enhanced performance measurement,
more transparent costing and stronger partnerships with donors.

Technical assistance being one of the IMF's core activities, it is concentrated in critical areas of
macroeconomic policy where the Fund has the greatest comparative advantage. Thanks to its
near-universal membership, the IMF's technical assistance program is informed by experience
and knowledge gained across diverse regions and countries at different levels of development.

About 80 percent of the IMF's technical assistance goes to low- and lower-middle-income
countries, in particular in sub-Saharan Africa and Asia. Post-conflict countries are major
beneficiaries. The IMF is also providing technical assistance aimed at strengthening the
architecture of the international financial system, building capacity to design and implement
poverty-reducing and growth programs, and helping heavily indebted poor countries (HIPC) in
debt reduction and management.

The IMF's technical assistance takes different forms, according to needs, ranging from long-term
hands-on capacity building to short-notice policy support in a financial crisis. Technical
assistance is delivered in a variety of ways. IMF staff may visit member countries to advise
government and central bank officials on specific issues, or the IMF may provide resident
specialists on a short- or a long-term basis. Technical assistance is integrated with country
reform agendas as well as the IMF's surveillance and lending operations.

The IMF is providing an increasing part of its technical assistance through regional centers
located in Gabon, Mali, and Tanzania for Africa; in Barbados for the Caribbean; in Lebanon for
the Middle East; and in Fiji for the Pacific Islands. As part of its reform program, the IMF is
planning to open four more regional technical assistance centers in Africa, Latin America, and
central Asia. The IMF also offers training courses for government and central bank officials of
member countries at its headquarters in Washington, D.C., and at regional training centers in
Austria, Brazil, China, India, Singapore, Tunisia, and the United Arab Emirates.

Contributions from bilateral and multilateral donors are playing an increasingly important role in
enabling the IMF to meet country needs in this area, now financing about two thirds of the IMF's
field delivery of technical assistance. Strong partnerships between recipient countries and donors
enable IMF technical assistance to be developed on the basis of a more inclusive dialogue and
within the context of a coherent development framework. The benefits of donor contributions
thus go beyond the financial aspect.

The IMF is currently seeking to leverage the comparative advantages of its technical assistance
to expand donor financing to meet the needs of recipient countries. As part of this effort, the
Fund is strengthening its partnerships with donors by engaging them on a broader, longer-term
and more strategic basis.

The idea is to pool donor resources in multi-donor trust funds that would supplement the IMF's
own resources for technical assistance while leveraging the Fund's expertise and experience.
Expansion of the multi-donor trust fund model is envisaged on a regional and topical basis,
offering donors different entry points according to their priorities. The IMF is planning to
establish a menu of seven topical trust funds over the next two years, covering anti-money
laundering/combating the financing of terrorism; fragile states; public financial management;
management of natural resource wealth, public debt sustainability and management, statistics
and data provision; and financial sector stability and development.

3. Lending.

A country in severe financial trouble, unable to pay its international bills, poses potential
problems for the international financial system, which the IMF was created to protect. Any
member country, whether rich, middle-income, or poor, can turn to the IMF for financing if it
has a balance of payments need—that is, if it cannot find sufficient financing on affordable terms
in the capital markets to make its international payments and maintain a safe level of reserves.
IMF loans are meant to help member countries tackle balance of payments problems, stabilize
their economies, and restore sustainable economic growth. The IMF is not a development bank
and, unlike the World Bank and other development agencies, it does not finance projects

Purposes of lending:

Article I of the IMF's Articles of Agreement states that the purpose of lending by the IMF is "...to
give confidence to members by making the general resources of the Fund temporarily available
to them under adequate safeguards, thus providing them with opportunity to correct
maladjustments in their balance of payments without resorting to measures destructive of
national or international prosperity."

In practice, the purpose of the IMF's lending has changed dramatically since the organization
was created. Over time, the IMF's financial assistance has evolved from helping countries deal
with short-term trade fluctuations to supporting adjustment and addressing a wide range of
balance of payments problems resulting from terms of trade shocks, natural disasters, post-
conflict situations, broad economic transition, poverty reduction and economic development,
sovereign debt restructuring, and confidence-driven banking and currency crises.

Today, IMF lending serves three main purposes. First, it can smooth adjustment to various
shocks, helping a member country avoid disruptive economic adjustment or sovereign default,
something that would be extremely costly, both for the country itself and possibly for other
countries through economic and financial ripple effects (known as contagion).

Second, IMF programs can help unlock other financing, acting as a catalyst for other lenders.
This is because the program can serve as a signal that the country has adopted sound policies,
reinforcing policy credibility and increasing investors' confidence. Third, IMF lending can help
prevent crisis. The experience is clear: capital account crises typically inflict substantial costs on
countries themselves and on other countries through contagion. The best way to deal with capital
account problems is to nip them in the bud before they develop into a full-blown crisis.

Conditions for lending

When a member country approaches the IMF for financing, it may be in or near a state of
economic crisis, with its currency under attack in foreign exchange markets and its international
reserves depleted, economic activity stagnant or falling, and a large number of firms and
households going bankrupt.

The IMF aims to ensure that conditions linked to IMF loan disbursements are focused and
adequately tailored to the varying strengths of members' policies and fundamentals. To this end,
the IMF discusses with the country the economic policies that may be expected to address the
problems most effectively. The IMF and the government agree on a program of policies aimed at
achieving specific, quantified goals in support of the overall objectives of the authorities'
economic program. For example, the country may commit to fiscal or foreign exchange reserve
targets.

The IMF discusses with the country the economic policies that may be expected to address the
problems most effectively. The IMF and the government agree on a program of policies aimed at
achieving specific, quantified goals in support of the overall objectives of the authorities'
economic program. For example, the country may commit to fiscal or foreign exchange reserve
targets.

Loans are typically disbursed in a number of installments over the life of the program, with each
installment conditional on targets being met. Programs typically last up to 3 years, depending on
the nature of the country's problems, but can be followed by another program if needed. The
government outlines the details of its economic program in a "letter of intent" to the Managing
Director of the IMF. Such letters may be revised if circumstances change.

For countries in crisis, IMF loans usually provide only a small portion of the resources needed to
finance their balance of payments. But IMF loans also signal that a country's economic policies
are on the right track, which reassures investors and the official community, helping countries
find additional financing from other sources.

o0o
 Anti-globalization & Pro-globalization (globalism)

Various aspects of globalization are seen as harmful by anti-globalization, public-interest

activists. There is a wide variety of different kinds of "anti-globalization." In general, critics
claim that the results of globalization have not been what was predicted when the attempt to
increase free trade began, and that many institutions involved in the system of globalization have
not taken the interests of poorer nations and labor into account.

Economic arguments by fair trade theorists claim that unrestricted free trade benefits those with
more financial leverage (i.e. the rich) at the expense of the poor.

Many anti-globalism activists see globalization as the promotion of a Corporatist agenda, which
is intent on constricting the freedoms of individuals in the name of profit. They also claim that
increasing autonomy and strength of corporate entities increasingly shape the political policy of
nation-states.

Some anti-globalism groups argue that globalism is necessarily imperialistic, is one of the
driving reasons behind the Iraq war and that it has forced savings to flow into the United States
rather than developing nations.

Some argue that globalization imposes credit based economics, resulting in unsustainable growth
of debt and debt crises.

Few activists favor getting rid of globalization completely. Rather, the main opposition is to
unfettered globalization (neoliberal; laissez-faire capitalism), guided by governments and quasi-
governments (such as the International Monetary Fund and the World Bank) that are not held
responsible to the populations that they govern and instead respond mostly to the interests of
corporations. Many conferences between trade and finance ministers of the core globalizing
nations have been met with large, and occasionally violent, protests from opponents of
"corporate globalism".

Supporters of democratic globalization can be labelled pro-globalists. They consider that the first
phase of globalization, which was market-oriented, should be completed by a phase of building
global political institutions representing the will of World citizens. The difference with other
globalists is that they do not define in advance any ideology to orientate this will, which should
be left to the free choice of those citizens via a democratic process.

Supporters of free trade point out that economic theories such as comparative advantage suggests
that free trade leads to a more efficient allocation of resources, with all those involved in the
trade benefitting. In general, they claim that this leads to lower prices, more employment and
better allocation of resources.

Libertarians and other proponents of laissez-faire capitalism sees differences in capitalism as the
main reason that the western world is rich and that other parts of the world are poor. They see
globalization as the beneficial spread of the capitalistic system to other countries. One effect
being that the percentage of people in developing countries living below $1 (adjusted for
inflation) per day have halved in only twenty

Many pro-capitalists are also critical of the WHO and IMF, arguing that they are corrupt
bureaucracies controlled and financed by states, not corporations. Many loans have been given to
dictators who never did any reforms. Instead leaving the common people to pay the debts later.
They thus see too little capitalism, not too much. They also note that some of the resistance to
globalization come from special interest groups with conflicting interests like Western world
unions.