INTERNATIONAL FINANCIAL INSTITUTIONS:ADB Projects in Pakistan, Paris Club

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Management of Financial Institutions - MGT 604

Lecture # 12

INTERNATIONAL FINANCIAL INSTITUTIONS

World Trade Organization

(WTO) is an international organization designed to supervise and liberalize international

trade. The WTO came into being on January 1, 1995, and is the successor to the General

Agreement on Tariffs and Trade (GATT), which was created in 1947, and continued to

operate for almost five decades as a de facto international organization. The WTO is

governed by a Ministerial Conference, which meets 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 are in Geneva, Switzerland.

Criticism on WTO

Although the stated aim of the WTO is to promote free trade and stimulate economic

growth, some believe that globally free trade results in the rich (both people and countries)

becoming richer, while the poor are getting poorer. Martin Khor, Director of the Third

World Network, argues that the WTO does not manage the global economy impartially, but

in its operation has a systematic bias toward rich countries and multinational corporations,

harming smaller countries which have less negotiation power. He argues that developing

countries have not benefited from the WTO Agreements of the Uruguay Round, because

(among other reasons): market access in industry has not improved; these countries have no

gains yet from the phasing out of textiles quotas; non-tariff barriers such as anti-dumping

measures have increased; domestic support and export subsidies for agricultural products in

the rich countries remain high. Other critics have characterized the decision making in the

WTO as complicated, ineffective, unrepresentative, and non-inclusive, and they have

proposed the establishment of a small, informal steering committee (a "consultative board")

that can be delegated responsibility for developing consensus on trade issues among the

member countries.

Role of WTO in Pakistan Trade Environment

Pakistan is one of the founder Members of the WTO since 1995, and its predecessor

organization the GATT set up in 1948. We are following an export led growth strategy and

as such market access is of vital importance for our businesses. The increase in preferential

arrangements and free trade areas between some members is also eroding our market

access. Therefore in order to maintain current markets and gain new ones for our exportable

goods and services we are dependent on the WTO to get tariff and non tariff barriers

lowered on an MFN basis. Such MFN liberalization effectively levels the playing field for

competitive suppliers.

Pakistan has been actively engaged in the Doha round of trade talks that were launched in

the Qatari capital in November 2001. Aptly named the "Doha Development Agenda", this

round of trade talks has been focusing on removing distortions in the world agriculture

markets and attaining enhanced market access for both products and service providers from

Pakistan.

Since 2001, there have two more ministerial conferences in Cancun in 2003 and Hong Kong

in 2005 respectively. There have been many ups and downs in the road to a successful

conclusion to the Doha round that takes into account the myriad interests of the developing

membership. There was a breakdown of talks in the summer of 2006 which led many

observers to be skeptical of the entire process. However, sustained efforts by the

Management of Financial Institutions - MGT 604

membership led to a partial resumption of the talks in November 2006 & full resumption

since January 2007 after the annual meeting of the World economic forum at Davos.

Asian Development Bank

(ADB) is a regional development bank established in 1966 to promote economic and social

development in Asian and Pacific countries through loans and technical assistance. It is a

multilateral development financial institution owned by 67 members, 48 from the region

and 19 from other parts of the globe. ADB's vision is a region free of poverty. Its mission is

to help its developing member countries reduce poverty and improve the quality of life of

their citizens.

The work of the Asian Development Bank (ADB) is aimed at improving the welfare of the

people in Asia and the Pacific, particularly the 1.9 billion who live on less than $2 a day.

Despite many success stories, Asia and the Pacific remains home to two thirds of the

world's poor. All projects funded by the Asian Development Bank are evaluated to assess

their development effectiveness. There are two levels of evaluation--self evaluation and

independent evaluation.

All projects are self-evaluated by the relevant ADB operations department in a project

completion report. ADB's project completion reports are publicly disclosed and are

available on ADB's Internet site. Client governments are also required to prepare their own

project completion reports.

ADB Projects in Pakistan

ADB started its operations for Pakistan in 1968. As of 31 December 2001, ADB's

cumulative assistance to Pakistan totaled some $11.5 billion, of which $8.0 billion had been

disbursed. Cumulatively, 47 percent of this assistance has been from our soft window, the

Asian Development Fund (ADF), while the balance 53 percent came from our Ordinary

Capital Resources (OCR) window. In addition, we have provided cumulative grant technical

assistance of $92 million.

Investment projects have a common theme of poverty reduction and recent examples

include:

1. Trade, Export Promotion and Industry Programme (TEPI - US$300 million)

approved in March 1999 focuses on providing support to the Government for trade

liberalization and modernization of trade policies. The Program was completed in July

2002;

2. Micro-finance Sector Development Programme (MFSDP-US$ 150 million) approved

in December 2000 focuses on the development of sustainable rural microfinance services

through commercial banking & credit unions to provide access to easy loans, assisted

establishment of the Khushhali Bank. The Program is still ongoing;

3. Energy Sector Restructuring Programme (ESRP-US$ 355 million) approved in

December 2000 focuses on a major reform of the energy sector by putting in place a self

sustaining, efficient and competitive power sector. The Program is currently ongoing;

4. Decentralization Support Programme (DSP- US$300 million) approved in November

2002 supports the ongoing decentralization process and related reforms of the Government;

Management of Financial Institutions - MGT 604

5. Rural Finance Sector Development Programme (RFSDP- US$250 million) approved

in December 2002 is providing easy access to loans by the rural population, provision of

finance for the poor, expansion of rural finance, promotion of SMEs, and restructuring of

the (ADBP);

6. Punjab Road Sector Development Project - US$150 million was approved in 2002 to

build up the existing road structure, provincial highways, capacity building of executing

agencies in Punjab. The Project has commenced recently.

Paris Club

The Paris Club is an informal group of financial officials from 19 of the world's richest

countries, which provides financial services such as debt restructuring, debt relief, and debt

cancellation to indebted countries and their creditors. Debtors are often recommended by

the International Monetary Fund after alternative solutions have failed. Pakistan first went

to the Paris Club in January 1999 for rescheduling of bilateral loans, which were contracted

up to September 30, 1997.

The country was granted debt service relief of $ 3 billion for the first consolidation period,

which extended from January 1, 1999 to December 31, 2000.

At the end of this period, Pakistan signed a second rescheduling agreement in January 2001,

which covered debt service payments due in the period from January 1, 2001 to September

30, 2001.

In 2004, the Club decided to write-off the debts of Iraq, as the rebuilding of Iraq is

incomparable. After the 2004 Indian Ocean earthquake, the Paris Club decided to suspend

temporarily some of the repayment obligations of the affected countries.

In order to secure comparable treatment of its debt due to all its external public or private

creditors, Pakistan commits itself to seek promptly from all its external creditors debt

reorganization arrangements on terms comparable to those set forth in the present Agreed

Minute, while trying to avoid discrimination among different categories of creditors.

Consequently, Pakistan commits itself to accord all categories of creditors -and in particular

creditor countries not participating in the present Agreed Minute, and private creditors- a

treatment not more favorable than that accorded to the Participating Creditor Countries for

credits of comparable maturity.

For the purpose of the comparison between the arrangements concluded by the Islamic

Republic of Pakistan with its creditors not listed in the present Agreed Minute on the one

hand, and with the Participating Creditor Countries on the other hand, all relevant elements

will be taken into account, including the real exposure of the creditors not participating in

the present Agreed Minute, the level of cash payments received by those creditors from the

Islamic Republic of Pakistan as compared to their share of the Islamic Republic of

Pakistan's external debt, the nature and characteristics of all treatment applied, including

debt buy backs, and all characteristics of the reorganized claims.and in particular their

repayment terms whatever forms they take and in general the financial relations between the

Islamic Republic of Pakistan and the creditors not listed in the present Agreed Minute.

The Islamic Republic of Pakistan will inform in writing the Chairman of the Paris Club not

later than September 1, 2002 of the progress made in negotiations with other creditors, as

well as of the contents of the negotiations. the Islamic Republic of Pakistan will further

inform in writing regularly the Chairman of the Paris Club of the status of its negotiations

Management of Financial Institutions - MGT 604

with other creditors, as well as of the payments made to them. Pakistan receives economic

aid from several sources as loans and grants. The International Monetary Fund (IMF),

World Bank (WB), Asian Development Bank (ADB), etc provides long term loans to

Pakistan. Pakistan also receives bilateral aid from developed and oil-rich countries.

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