Economic Crisis Impact on Changes in International Financial Institutions Operating

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Abstract:

The emergence and deepening global economic crisis is in large part reflected in the operation of international financial institutions and their current structure. Long-term financial crisis has increased demands for decisive reform moves in operating and structure of the IMF, World Bank Group and other global and regional financial institutions. This means that so far the results of their policies are inadequate and that their role is subject to critical observation. The crisis has imposed the need to reform international financial institutions and new global financial architecture. Changes in their structure and operation should lead to global economic stability. Members of the Euro zone are faced with a new attitude towards the international financial institutions, particularly the International Monetary Fund. Proclaimed missions of International Monetary Fund and World Bank clearly differ in theory, but with the passage of time their activities have become increasingly intertwined.

Keywords: The Economic crisis, impact, changes, structure, functioning, financial institutions.

Jel Classification: G01, G2

INTRODUCTION

International financial institutions have come a long way over the last sixty years from a stability guarantor of the global financial system, through a savior of creditor and debtor countries in the world debt crisis (the eighties of the twentieth century) and finally to the role of adviser and financier of the transition process in post-socialist countries during the nineties. However, almost seventy years having passed since their foundation (the IMF and World Bank), it may be inferred that international public financial institutions have failed to fulfil the vision, mission and goal of their existence. The neoliberal project of international financial institutions operating has achieved a high degree of economic efficiency (till emergence of a new economic crisis), but at the high social cost reflected in the spread of poverty. Therefore, in current circumstances the long-term financial and general economic crisis has necessitated a radical reform of international financial institutions, especially revising voting rights at the IMF and World Bank, which represent the two major international financial institutions. Each IMF member country pays a certain quota into Fund1. Undoubtedly, the results of international financial institutions policies can be assessed as unsatisfactory, since the recent financial crisis is not the first one the international financial institutions have been confronted with, failing to respond adequately to it2. The foundations the international financial institutions policy has been based on heretofore, especially the IMF's ones, represent a recipe applied everywhere, regardless of time, place or economic system distinctiveness consisting of constant rigor, rapid privatization and wild liberalization. Results of international financial institutions policy may be characterised as devastating3. However, in order to mitigate the negative effects of globalization sustaining beneficial ones, it is necessary to reform the international financial institutions managing this process, globalization itself presenting no problem. The need for reformed international financial institutions poses numerous questions, such as: where are decisions to be made in the future, where is the taxation centre to be located and where the legislative power one? Dependent on the extent to which legislative, tax, and even judicial power shifttowards the international stage, what is the international institution management going to look like in the future? What will represent the balance between developed and developing countries, especially with the change over time in population and economic balance in favor of countries developing now? These are only some questions answers should be provided to in the process of changing international financial institutions structure and their manner of operating. …