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Management of Financial Institutions

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Management of Financial Institutions - MGT 604
VU
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
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Management of Financial Institutions - MGT 604
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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;
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Management of Financial Institutions - MGT 604
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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
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Management of Financial Institutions - MGT 604
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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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Table of Contents:
  1. Financial Environment & Role of Financial Institutions:FINANCIAL MARKETS &INSTITUTIONS
  2. FINANCIAL INSTITUTIONS:Non Banking Financial Companies
  3. CENTRAL BANK:Activities and responsibilities, Interest Rate Interventions
  4. POLICY INSTRUMENTS:Open Market Operations, Capital Requirements
  5. BALANCE OF TRADE:Balance of Payments Equilibrium, Public Policy and Financial Stability
  6. STATE BANK OF PAKISTAN:History, Regulation of Liquidity, Departments
  7. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS:Banking Inspection Department
  8. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Debt Management
  9. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Training Programs by SBP
  10. STATE BANK OF PAKISTAN - VARIOUS DEPARTMENTS (Contd.):Human Resources Department
  11. MAJOR DRIVERS OF FINANCIAL INDUSTRY:GLOBAL FINANCIAL SYSTEM, The World Bank
  12. INTERNATIONAL FINANCIAL INSTITUTIONS:ADB Projects in Pakistan, Paris Club
  13. PAKISTAN ECONOMIC AID & DEBT:Macroeconomic Stability, Strengthening Institutions
  14. INCREASING FOREIGN DIRECT INVESTMENT:Industrial Sector, Managing the Debt
  15. ROLE OF COMMERCIAL BANKS:Services Typically Offered by Banks, Types of banks
  16. ROLE OF COMMERCIAL BANKS:Types of investment banks, The Management of the Banks
  17. ROLE OF COMMERCIAL BANKS:Public perceptions of banks, Capital adequacy, Liquidity
  18. ROLE OF COMMERCIAL BANKS:Problem bank management, BANKING SECTOR REFORMS
  19. ROLE OF COMMERCIAL BANKING:Private Deposit Insurance,
  20. BRANCH BANKING IN PAKISTAN:Remittances, Online Fund Transfer
  21. ROLE OF COMMERCIAL BANKS IN MICRO FINANCE SECTOR
  22. Mutual funds:Types of international mutual funds, Mutual funds vs. other investments
  23. Mutual Funds:Criticism of managed mutual funds, Money Market Fund
  24. Mutual Funds:Balanced Funds, Growth Funds, Specialized Funds, Measuring Risks
  25. Mutual Funds:Cost of Ownership, Redemption Fee, Reports to Shareholders
  26. Mutual Funds:Internet Fraud, The Pyramid Scheme, How to Avoid Investment Fraud
  27. Mutual Funds:Investing In International Mutual Funds, How to Pre-Select a Mutual Fund
  28. Role of Investment Banks:Recent evolution of the business, Possible conflicts of interest
  29. Letter of Credit:Elements of a Letter of Credit, Commercial Invoice, Tips for Exporters
  30. Letter of Credit and International Trade:Terminology, Risks in International Trade
  31. Foreign Exchange & Financial Institutions:Investment management firms, Exchange Traded Fund
  32. Foreign Exchange:Factors affecting currency trading, Economic conditions include
  33. Leasing Companies:Basic Purpose of Leasing, Technological Benefits
  34. The Leasing Sector in Pakistan and its Role in Capital Investment
  35. Role of Insurance Companies:Indemnification, Insurer’s business model
  36. Role of Insurance Companies:Life insurance and saving
  37. Role of financial Institutions in Agriculture Sector:What is “Revolving Credit Scheme”?
  38. Agriculture Sector and Financial Institutions of Pakistan:What is SMEs
  39. Can Government of Pakistan Lay a Pivotal Role in this Sector?:Business Environment
  40. Financial Crimes:Process of Money Laundering, Terrorist Financing
  41. DFIs & Risk Management:Managing Credit Risk, Managing Operational Risk
  42. Banking Fraud & Misleading Activities:Rogue Traders, Uninsured Deposits
  43. The Collapse of ENRON:Auditing Issues, Corporate Governance Issues, Corrective Actions
  44. Classic Financial Scandals:Corruption, Discovery, Black Wednesday
  45. RECAP:FINANCIAL INSTITUTIONS, CENTRAL BANK,