International
Environment:
The domestic environment of every business firm in a country is also influenced by the relationships it has with other countries in the form of membership of international organisations such as IMF, World Bank, the “Bretton woods” institutions as are popularly known, bilateral or multilateral trade agreements or strategic alliances, and cultural ties. These relationships give rise to what is known s international environment. Let us have a look at major treaties affecting international environment.
The domestic environment of every business firm in a country is also influenced by the relationships it has with other countries in the form of membership of international organisations such as IMF, World Bank, the “Bretton woods” institutions as are popularly known, bilateral or multilateral trade agreements or strategic alliances, and cultural ties. These relationships give rise to what is known s international environment. Let us have a look at major treaties affecting international environment.
Paris, 1818-19:
A useful starting point to survey such efforts is the Paris Peace Conference of
1818-19, which followed World War- I Although its main purpose was to redraw
political borders and establish principles for avoiding a repeat of the War,
establishing a framework for restoring free trade and flow of capital was also
on the agenda. These initial efforts led to establishment of the League of
Nations, but its power was limited. The Failure may in a way responsible for
unstable financial relations among countries and economic depression[1].
London, 1933:
Between the wars, the most notable event was the World Monetary and Economic
Conference held under the auspicious of the League of Nations. As with the
League of Nations, this effort failed primarily because of a lack of support
from the U.S. government.
Bretton Woods, 1944: During
World War II, U.K. and U.S. Treasures initiated plans to overcome the
weaknesses of the piecemeal inter war approaches by establishing multilateral
financial institutions for the post war period. U.K. economist John Maynard
Keynes and Harry Dexter White of the United States prepared the first draft of
the plans. This became the basis for Bretton Woods Conference. United States
along with Delegations from 45 countries met in Bretton Woods in 1944. The
planners of Bretton Woods intended to create three multilateral institutions
not two[2]. Established in 1944 and named after the
New Hampshire town where the agreements were drawn up, the Bretton Woods system
created an international basis for exchanging one currency for another. It also
led to the creation of the International Monetary Fund (IMF) and the
International Bank for Reconstruction and Development, now known as the World
Bank. The former was designed to monitor exchange rates and lend reserve
currencies to nations with trade deficits, the latter to provide underdeveloped
nations with needed capital. A proposed international trade
organisation proved to be too politically divisive, and so a decision on it was
postponed until after the war, with nearly fatal effect. As a fallback option,
a group of countries established the less potent General Agreement on Tariff
and Trade (GATT) in 1948.It was not until 1994 that the World Trade
Organisation came into being.
Following substantial pressures on exchange rates in the
1960s and official termination of gold convertibility of the U.S. dollar in
1971 it became apparent that a new monetary order was needed. The major
industrial countries agreed to create a Committee
of 20, which later proposed that Goal of Exchange Rate stability be
abandoned. Thus, the era of fixed exchange rate ended.
The world experienced First Oil Shock during 1973-74. The OECD countries and IMF prepared
a proposal to ease the BoP crisis of developing countries. IMF established Oil
facility that was borrowing from petroleum exporting countries and lending on
low conditionality terms to oil importing countries both industrial and developing.
The exchange rates instability during first half of the 1980s
led lenders to give a call for new Bretton woods.
The
discussion above makes it clear that international environment over past
century evolved in response to circumstances of the moment. The world leaders
were however less interested in long-term solutions. Each of the major attempts
to revise the international financial architecture came in response to a
crisis. The international environment never remains static and therefore no
permanent institution can avoid any crisis or provide off-hand solutions for
future. The business firms should keep a watch on the international environment
closely. It should keep an eye on the investment, saving, exchange rate,
balance of payment export, import and the inflation. Any neglect of these and
other factors may endanger the very survival of the business.
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