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MULTILATERAL FINANCIAL INSTITUTIONS The Bretton Woods conference gave birth to the International Bank for Reconstruction and Development (IBRD), more particularly known as the World Bank. Functions Give loans to member countries initially for the reconstruction of their war-ravaged economies Development of the economies of the poorer member countries By far the bulk of the loans have been for financing specific projects Recent years witness that the bank has bee engaged in giving structural adjustment loans to the heavily indebted countries Constituents The World Bank itself International Development Association (IDA) International Finance Corporation (IFC) Multilateral Investment Guarantee Agency (MIGA) International Centre for settlement of Investment Disputes

Goals IBRD & IDA IBRD & IDA engaged in helping its borrowers to reduce poverty Strengthening economies and expanding markets To improve the quality of life for people everywhere, especially the poorest Make loans to borrower Governments for projects and programs that promote economic and social projects, ensuring better life Provide advice and technical assistance

2 IFC & MIGA Work closely with private investors and invests in commercial enterprises in developing countries MIGA encourages direct foreign investment in developing countries by offering insurance against noncommercial risk Both share the same overall goals ICSID Share the World Banks objective of promoting increased flows of international investment Providing facilities for settling disputes between foreign investors and their host countries Collectively, these five institutions are known as the World Bank Group. Analysis of the institutions IBRD- Established in 1945, owned by the governments of 181 countries. To join the IBRD, countries must first be members of the IMF.Upon joining the IBRD members subscribe to its capital stock.. The amount of shares each member is allocated reflects its quota in the IMF, which in turn reflects the countrys relative economic strength in the world economy. Members may pay in a small portion of the value of their shares; the remainder is callable capital and would only be paid should the IBRD be unable to meet its obligations-a situation that has never arisen. IBRD lends only to creditworthy borrowers and only for projects that promise high real rates of economic return to the country. As a matter of policy, the IBRD does not re-schedule payments, and it has suffered no losses on the loans it has made. While it does not aim to maximize profits, but rather to intermediate development funds at the lowest cost, the IBRD has earned a net income every year since 1948.

IBRD borrows most of the money it lends through medium and long term borrowings in capital markets across the globe. It also borrows funds at 2 Market-based rates from central banks and other government institutions. Conservative lending policies, strong financial backing from members and prudent financial management give the IBRD strong standing in the markets. As well as borrowings, the IBRD is funded by the capital its members have paid in; its retained earnings and repayment on its loans. IDA Established in 1960 to provide assistance to poorer developing countries that cannot meet the IBRDs near-commercial terms. IDA provides credits to the poorest countries-mainly those with an annual per capita gross national product of about USD 1000 or less. By this criterion, about seventy countries are eligible. All members of the IBRD are eligible to join IDA, and 160 have done so. Unlike the IBRD. Most of IDAs funds are contributed by its richer members, although some developing countries contribute to IDA as well. In addition IDA receives transfers from the net earnings of the IBRD and repayments on its credits. IDA credits are made only to governments. The repayment period is thirtyfive to forty years. Credits carry no interest, but there is a small service charge, currently 0.75%. There is also a commitment charge, which is set annually, within a range of 0-0.5% of the undisbursed balance; the commitment charge is currently set at zero percent. Although IDA is legally and financially distinct from the IBRD, it shares the same staff and the projects it supports have to meet the same criteria as do projects supported by the IBRD. Under its Articles of Agreement, the World Bank cannot allow itself to be influenced by the political character of a member country. Only economic considerations are relevant. To ensure that its borrowers get the best value for the money they borrow, Bank assistance is untied and may be used to purchase goods and services from any member country. IFC Established in 1956, helps promote private sector growth in developing countries and helps mobilize domestic and foreign capital for this purpose. It has 174 members. Legally and financially the IFC and the World Bank are separate entities, and the IFC has its own operating and

legal staff. It draws upon the World Bank for administrative and other services, however. 3 The IFC provides loans and makes equity investments in support of projects. Unlike most multilateral institutions, the IFC does not accept government guarantees for its financing. Like a private financial institution, the IFC seeks profitable returns and prices its finance and service, to the extent possible, in line with the market while taking into account the cost of its funds. The IFC shares full project risks with its private sector partners. The IFC issues its own annual report. ICSID established in 1966 to help promote international investment. It does this by providing facilities for the settlement, by conciliation and arbitration, of disputes between foreign investors and their host countries. Provisions referring to arbitration under the auspices of ICSID are a common feature of international investment contracts, investment laws, and bilateral and multilateral treaties. ICSID has 129 members. In addition to its dispute-settling activities, ICSID undertakes research, advisory services and publishing in the fields of arbitration and investment law. Its publication includes multivolume collections of Investment Laws of the World and Investment Treaties and the semi-annual ICSID Review-Foreign Investment Law Journal. ICSID issues its own annual report. MIGA Established in 1988 to promote the flow of foreign direct investment in member countries. It does this by providing guarantees to private investors against major political risks and offering investment and marketing services to host governments to help them attract foreign investment. MIGA is an independent self-supporting agency of the World Bank Group. Like the IFC, it has its own capital base and country membership, but it shares the World Banks development mandate to promote the economic growth of its developing countries. MIGA has 145 members. MIGA issues its own annual report.. Besides the World Bank Group, there are also multilateral regional development banks (like the Manila-based ADB) for Latin America, Africa and Asia. While technically these are independent of the World Bank Group, their functioning is similar to that of the World Bank itself.

An unwritten, code of conduct and compliance, is in place, whereby, resources are made available to the smaller ADB members

INTERNATIONAL EQUITY MARKETS

International new equity markets with globally syndicated offerings emerged during the
1980s. The initial impetus was provided by the desire on the part of institutional investors To diversify their portfolios globally as foreign exchange regulations were relaxed in the advanced western economies. Institutional investors in UK, USA, and Japan transferred huge amounts of money into foreign equities Share of their aggregate portfolios accounted for < 10% October 1987 crash in the major stock markets resulted in slow rate of growth globally Cross-border equity investment was confined to stock markets of developed countries initially The emerging stock markets of South East Asian countries have also attracted large investments Indian context Till 1992, no Indian firm had approached the world capital markets to raise equity financing. India Growth Fund , a closed ended mutual fund had been listed on the New York stock exchange earlier In June 1992, Reliance Industries made a small issue of Global Depository Receipts. Unfortunately the prices plunged, as roumers of serious trouble on the Indian Stock markets had become rampant. A partial recovery was made, but this experience forced other Indian companies to postpone their plans of making their offerings in the international markets.

Things changed radically during 1993. As a result of improvement in foreign investors perception of India, a number of Indian corporate was able to raise substantial amount of funds through GDR issues. It is estimated that around 3 billion dollars of funding was mobilized via the GDR and convertible Eurobond issues during 1993.