International financial system in a modern sense was formed after the World War II. This is when the two key institutions specializing in international financial relations, International Bank for Reconstruction and Development and International Monetary Fund were created. The necessity to create international financial institutions (organizations) of a new level was caused by the need to recover the economy of Europe after World War II and to expand financial cooperation of countries with the aim to elaborate the better ways to address financial problems.
The main international financial organizations
The International Bank for Reconstruction and Development is one of the two main subdivisions of the World Bank. The second subdivision is the International Development Association. The bank officially started functioning in 1946 but in fact it had been created two years earlier. IBRD headquarters are situated in Washington, the USA. Initially the purpose of IBRD was to encourage investments into countries of Western Europe. At the end of 50s the situation in Europe stabilized and IBRD started investing in other regions, including South-East Asia and Latin America. Besides investments IBRD also supports the development of international trade, publishes international economic statistics. IBRD aspires to attract private investments to infrastructure and industrial branches and the branches that usually don’t attract a lot of private funds. Since the 90s IBRD has been trying to solve the problem of settlement of debts of developing countries. Credits are granted for a long term, usually for 15-20 years under the guarantee of a government. To obtain a credit from IBRD a country should be a member of the International Monetary Fund.
IBRD and Russia. Russia joined IBRD in 1992. In the first years of cooperation the majority of loans were connected with structural reforms in Russian economy. In the last couple of years IBRD credits have been used in to support small businesses, develop microfinancing and implement projects in health care and social spheres of Russia. Russia and IBRD more actively cooperated in 1997 and 1998. Within the period from 1992 to 2010 IBRD provided financing for the amount of 14 billion US dollars to Russian projects.
International Monetary Fund was established on March 1, 1947. IMF provides loans to members with balance-of-payments deficit. Currently, 188 countries consist in IMF; its subdivisions employ more than 2500 people. IMF’s paid-up capital is formed by contributions of its member countries. The USA is the largest number of votes in IMF. Currently IMF is allocating quotas in favor of developing countries and newly industrialized countries. Today, IMF plays an important role in resolving the global financial crisis, helps countries facing financial disasters. In a way, IMF is a global treasury or central bank.
IMF and Russia. Russian quota in IMF increased to 2,71% (last year it was 2,49%). It ranks 9th among other member countries. Russia participates in the Fund’s activities. In summer 2012 Russia increased quota in IMF by investing 300 billion Rubles. IMF publishes reviews and forecasts of Russian economy. Recent IMF’s recommendations are related to the improvement of the investment climate, liberalization of foreign trade and conduction of fiscal consolidation and avoidance of overheating.
One of the key financial institutions of the World Bank is the International Finance Corporation. IFC was created in 1956 to provide economic aid to developing countries. The President of the World Bank group is also the President of IFC. The shareholders of IFC are 184 countries; the USA plays the key role in the organization. The specific character of IFC consists in the fact that this financial organization invests in private sector and does not help the governments of countries. The main goal of IFC is to help to develop businesses and eliminate obstacles for the development of the private sector in the field of infrastructure and social sphere. In addition, IFC facilitates the development of local financial markets. IFC doesn’t require government guarantees in respect of investments made. IFC is financed by contributions of member countries, bonds and proceeds from its activities. IFC has invested more than 20 billion US dollars in developing countries.
IFC and Russia. Russia joined IFC in 1993 and since then IFC invested more than 6 billion US dollars in Russian projects. 1,5 billion dollars were allocated among 250 Russian projects in various sectors of the economy in a form of syndicated credits. Today, IFC’s investment portfolio of 2,5 billion US dollars is the third largest after Canada and India. In Russia IFC invests in high-tech projects, projects in power industry and in the projects that help to diversify Russian economy. In November 2012 it was reported that IFC planned to place bonds worth 23 billion Rubles in Russia.
Another significant international financial organization is the Bank for International Settlements. The Bank for International Settlements supports the cooperation of central banks and creates new opportunities for international financial transactions. BIS also renders a wide range of financial services to central banks providing loans and accepting deposits it also acts as an intermediary or guarantor.
The Basel Committee on Banking Supervision was created under BTS in 1974, it elaborates recommendations for perfection of banking regulations and introduction of common regulating standards. The Basel Committee’s recommendations are not binding, however, in most cases; they are adopted by various countries. Today, adoption of new Basel standards (Basel-III) is in process; moreover, these new standards will be binding. The adoption of the new standards is caused by the need to overcome the consequences of the financial crisis. These standards introduce new, stringent capital adequacy and liquidity rules for the banks. Some countries and experts believe that the adoption of such standards will slow down the growth of the global economy.
Regional international organizations
The European Investment Bank founded in 1958 is a financial institution of the EU. It was founded by the EU countries. The main purpose of EIB is to support the economic, social and territorial cohesion of the EU. The bank facilitates the development of private investments in the EU, provides loans for the development of infrastructure, energy security and supports the programs of ecological development. Since 2000 EIB has been focusing on the enhancement of the competitiveness of the European economy, support of small businesses and venture capital investments. Despite the fact that the primary activity of EIB is aimed at the implementation of European projects (90% of 61 billion US dollars were provided to European countries). Among the partners of EIB there are 150 countries of South-Eastern Asia, Latin America, the Caribbean, and Africa. At the present moment, the Bank’s capital amounts to 232 billion US dollars, the Bank was rated AAA.
The European Bank for Reconstruction and Development was created in 1991, right after the collapse of the socialist system. Initially it was aimed at the support of the countries of the former socialist block and development of the market economy in those countries. Today, EBRD has 61 member countries, including Russia. EBRD supports private businesses, stands for privatization and increasing competition. EBRD actively support the projects not only in Europe but also in Central Asia and former Soviet republics
EBRD and Russia. EBRD has been supporting Russian private companies for more than 20 years. EBRD has invested more than 12 billion US dollars in Russian projects, 83% of that money was used to support non-governmental projects. EBRD invests in the projects implemented outside two Russian capitals, Moscow and Saint Petersburg. EBRD’s projects are implemented in 47 Russian regions. The bank’s activity in Russia is aimed at increasing the competitiveness of Russian economy, its diversification, enhancement energy efficiency and adoption of ecological standards. The African Development Bank Group is African financial organization created in 1966 with the aim to support African countries. Its equity is 33 billion USD dollars; however, African countries invested no more than 6%. ADB raises funding on the global market under the guarantee of its capital. By 2003 the Bank had financed more than 47 billion US dollars. The bank supports the projects on the development of infrastructure, private businesses and extractive industries. ADB pays a lot of attention to projects facilitating regional integration. In addition, ADB supports African governments that aspire to conduct economic reforms. Since 1982 other countries are allowed to join ADB.
The Asian Development Bank was created in 1966 with the aim to support economic development of Asia and Far East. Today, the organization has 48 regional and 19 non-regional members. The Bank’s paid-up capital is 55 billion US dollars, 7% of the paid-up capital was formed by contributions of the member countries, the rest was formed by means of international borrowings and investment income. In 2011 ADB granted loans for the amount of more than 22 billion US dollars to finance the projects of 59 countries. Usually ADB provides loans for 15-20 years. Some credits are given under commercial conditions, others – from the special fund. The priority sectors are transport, utilities, energy, water supply ecological projects and social projects. The main goal of ADB is to fight the poverty in Asian countries
The Inter-American Development Bank was established in 1959 to provide economic support to the countries of Latin America and the Caribbean. Currently, 48 countries are the shareholders of the Bank, 26 of which have the right to act as borrowers; the other members mostly represented by the countries of Western Europe are creditors. The Bank provides loans to the governments of IDB member countries under commercial conditions. The Bank provides its loans under the guarantee of 22 developed countries that are not borrowers which allows IDB to have the highest credit rating. The IDB group consists of three organizations: the Inter-American Development Bank, the Inter-American Investment Corporation and the Multilateral Investment Fund. The Bank’s main aims are to fight the poverty and inequality, develop private initiatives and to support social projects. The Bank encourages the projects on regional cooperation and integration. The priority sectors of investments are transport, energy, ecological projects.
We have made an attempt to describe the institutional base of the global financial community in this article. The international financial institutions featured in the article play the key role in the development of the global economy and finances. International financial organizations and institutions invest in promising projects, support the latest developments, help to form social and transport infrastructure in developing countries. Russia established mutually beneficial cooperation with many international organizations and institutions. Moreover, the nature of such cooperation is constantly changing. For example, in the 90s, Russia was a recipient accepting the support from international organizations; today the country can render its help and increase its influence in the global financial system.
Cooperation of Russian and international financial organizations is constantly and expanding. The World Bank, the IMF, the International Bank for Reconstruction and Development, the International Finance Corporation, the European Bank for Reconstruction and Development have invested billions of dollars in the projects of Russia and continue invest actively as they believe that Russia has a great potential. International institutions invest in regional projects, help to diversify the economy and increase the share of the non-governmental sector, help to develop crediting of SMEs and ameliorate microfinancing. These are very promising areas for cooperation.
We believe that there is a great potential in cooperation with international financial organizations and their subdivisions. One of the priority tasks of cooperation is the creation of an international financial center in Moscow. RCFD is ready to maintain the interests of foreign investors in Russian economy and financial market and to help to establish mutually beneficial contacts. RCFD is capable to play an important role in developing the trust of foreign investors and international financial institutions in Russia.