Contemporary Issues in International Business - Essay Example

? Rapid globalization in the era of advancing technology has tremendously impacted international business. The diminishing geographical boundaries and highly competitive environment has redefined international business in terms of mutually beneficial economic cooperation and trade practices. Thus, inter-dependency of states has become a critical factor that necessitates evolution of monetary system for currency exchange in the inter-state trade practices. In the post WWII era, Bretton Wood System had addressed the issue of international finance and currency relationship to promote stable trade amongst the countries. As a result, international agencies like International Monetary Fund (IMF) and World Bank had emerged. IMF’s major objective was to facilitate and promote international business and stabilize foreign exchange through balance of payment for countries that were unable to meet their debt payments. At the same time, World Bank provides grants and low interest or interest free loans on easy term to credit worthy under developed and developing countries in the areas of poverty alleviation, health, education, environment conservation, sustainable development etc. The bank gets its finance from the donation from its member countries and the repayment of loans and interest money. In the recent times, the roles of these two agencies have come under lot of criticism. Thus, the roles of IMF and World Bank need to be analyzed and evaluated for introducing to make them more effective in the contemporary environment of global values. IMF is primarily a monetary system that was created in 1944. The initiatives taken in the Bretton Wood System had promoted US dollars as major currency because at that time, America was economically strong and was seen as a major facilitator of economic growth and opportunities. Another major factor was that the dollar was backed by huge reserve of gold deposit in America. IMF provided the necessary impetus to the international trade and economic cooperation amongst nation through mechanisms that included multilateral system of payment by member countries, stability in foreign exchange and supporting economically weak member nations with short term problems of ‘balance of payment’. It had also extended long term funds to developing countries which had faced the balance of payments problem during the structural changes that were needed to promote the socio-economic development of the region. World Bank was also an important actor in the socio-economic development process of under developed and developing countries. While it extended soft term loans and grants to these countries, it is also a commercial lender and is not totally dependent on the developed nations for its financial viability. It has relatively huge foreign exchange reserve and is therefore able to meet its various obligations. But in the recent times, many of its creditors have failed to repay the loans. Oxfam has claimed for 100% debt relief to 33 highly indebted poor countries (Mallaby, 2004). At the same time, emerging new economies like India and China have developed huge foreign reserves of their own and rely less on these agencies for funds. Most importantly, the transforming global economy has disturbed the dominant position of US dollars. The fast emerging economies like India and China have challenged the American monopoly in the global market. It has not only not remained a major donor to the international agencies but the deteriorating economic conditions of America with a large foreign debt and deficit account balance, have adversely impacted dollar. The fixed exchange rate of currency has collapsed under new market based economy. The diktats of free trade and liberalization of economies across the globe have become important factors that demand new mechanisms for creating mutually beneficial trade practices. With market enforced floating currency rates, the political legitimacy of IMF and World Bank has become highly controversial. These agencies need to redefine their goals vis-a-vis new market oriented policies and guidelines that would require structural and policy changes within its framework. Interestingly, in the new global political economy, the developing countries who were major borrowers have now turned the table and become key lenders in the international market and America has become major borrow. The present monetary system has been observed as Bretton Wood System II with roles reversal of major industrial nations. Indeed, while Bretton Wood System I, backed by America had ushered in the economic stability after the ravages of WWII, the emerging new economies of South East Asia have today become important facilitator of foreign exchange stability across the world. Thus, changes within IMF and World Ban have become imminent to accommodate the interests of these rising economic entities. The fundamental principle on which IMF and World Bank was established was focused on reconstruction of economies in post WWII period. It has lost relevance in the contemporary dynamics of emerging new economies which are challenging the dominant position of developed countries. The focus has now shifted towards developing economies and regional markets that have huge potential of growth. The situation has changed dramatically in the favour of emerging new economies that have started managing their currencies relative to US Dollar and have consistently diverted their surplus to the US through export. At the same time, their increased forex reserves have provided them with an edge in the new transformed global business environment. Thus, the interdependent market forces and mutual dependency of states in economic cooperation have necessitated drastic changes in IMF and World Bank who need to incorporate the interests of the new world political economy. Last but not the least important issue is the develop of new paradigms of global concern like environment; climate change; need to enforce equity across race, culture, colour and nationality; meet the menace of HIV/AIDS etc in the under developed nations etc.; corporate governance and transparency within the fiscal policies of governments across the nations. These factors have become critical elements of international business that promote sustainable development. The limited power of these agencies to effectively enforce stringent measures has become key issue for reforms. A clearly defined roadmap for creating a monetary system and international credit agency that has equal representation from under-developed, developing and developed countries has become the need of the hour. Thus, there is urgent requirement for institutional reforms within the IMF and World Bank so that more effective mechanisms could be developed to tackle the socio-economic and political dilemma of emerging global political economy. (words: 1034) Reference Mallaby, Sebastian. (2004). Saving the World Bank. Retrieved from: Read More