Quick questions on Global financial flows and international organisations: HSC Economics Topic 1

Three broad categories of cross-border financial flow:

The World Bank Group is the development-finance arm of the post-war Bretton Woods system. Five constituent organisations, of which IBRD (lending to middle-income countries) and IDA (concessional lending to low-income countries) are the largest. The World Bank funds long-term infrastructure, health, education and governance projects, lending around USD 100 billion per year.

Financial liberalisation is the removal of restrictions on cross-border capital flows. Australia floated the dollar in 1983 and removed exchange controls in 1983 to 1985.

Since the 1980s reforms, Australia has run a persistent current account deficit (around 2 to 4 percent of GDP in most years) financed by net capital inflow. The capital has funded mining investment, housing and infrastructure. The cost is a higher net foreign liabilities position (around 55 percent of GDP) and exposure to global financial conditions through the AUD and bond yields. The RBA tracks global financial conditions closely in its monthly Statement on Monetary Policy.

IMF = short-term, crisis, conditionality, exchange rate stability. World Bank = long-term, development, poverty reduction. A response that blurs the two loses marks even if the surrounding detail is otherwise strong.