Understanding The Roles of World Bank and IMF and How Do They Differ?

 |Image: VOA News|

There is no question that the International Monetary Fund (IMF) and World Bank continue to be amongst the most relevant and significant powerful norm-setters, convenors, knowledge-holders and influencers of the international development and financial landscape. The IMF and the World Bank are closely linked – so close that their headquarters are across the street in Washington DC, USA. So what’s the difference between the two?|The Wholistic View Explains (5 Min Read)|

Founded in 1944 by Delegates of 44 nations in Bretton Woods, New Hampshire, U.S.A., with a general consensus that the old system of exchange rates and payments had failed, leading to the Great Depression, currency devaluations and the collapse of the gold standard. the World Bank Group (WBG, or Bank) and the International Monetary Fund (IMF, or Fund) are twin intergovernmental institutions that are influential in shaping the structure of the world’s development and financial order. The international community was consciously trying to establish a division of labour in setting up the two agencies. Those who deal professionally with the IMF and Bank find them categorically distinct. To the rest of the world, the niceties of the division of labour are even more mysterious than are the activities of the two institutions.

|Image: Bretton Woods Conference,1944/Getty Images|

Superficially the Bank and IMF exhibit many common characteristics. Both are in a sense owned and directed by the governments of 189 member nations. The People's Republic of China, by far the most populous state on earth, is a member so is the biggest economic power i.e. The United States. In Fact, virtually every country on earth is a member of both institutions. Staff members of both the Bank and IMF often appear at international conferences, speak the same erudite language of the economics and development professions, or are reported in the media negotiating for mystifying programs of economic adjustment with ministers of finance or other government officials.

Despite these and other similarities, however, the Bank and the IMF remain distinct. The fundamental difference is this: the Bank is primarily a development institution; the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations. Each has a different purpose, a distinct structure, receives its funding from different sources, assists different categories of members, and strives to achieve distinct goals through methods peculiar to itself.

|Image: David Malpass, President of World Bank|

At Bretton Woods the international community assigned to the World Bank the aims implied in its formal name, the International Bank for Reconstruction and Development (IBRD), giving it primary responsibility for financing economic development. The Bank’s first loans were extended during the late 1940s to finance the reconstruction of the war-ravaged economies of Western Europe. When these nations recovered some measure of economic self-sufficiency, the Bank turned its attention to assisting the world’s poorer nations, known as developing countries, to which it has since the 1940s loaned more than $330 billion. The World Bank has one central purpose: to promote economic and social progress in developing countries by helping to raise productivity so that their people may live a better and fuller life.

|Image: IMF Annual Spring Conference, 2018|

The international community assigned to the IMF a different purpose. In establishing the IMF, the world community was reacting to the unresolved financial problems instrumental in initiating and protracting the Great Depression of the 1930s: sudden, unpredictable variations in the exchange values of national currencies and a widespread disinclination among governments to allow their national currency to be exchanged for foreign currency. Set up as a voluntary and cooperative institution, the IMF attracts member nations that are prepared, in a spirit of enlightened self-interest, to relinquish some measure of national sovereignty by abjuring practices injurious to the economic well-being of their fellow member nations. IMF was tasked with overseeing a system of fixed exchange rates linking global currencies to the U.S. dollar, which was pegged to gold. The fund was also assigned the charge of issuing short-term loans to countries struggling to meet their balance of payments.

The IMF is not, however, primarily a lending institution as is the Bank. It is first and foremost an overseer of its members’ monetary and exchange rate policies. Philosophically committed to the orderly and stable growth of the world economy, the IMF is an enemy of surprise. It receives frequent reports on members’ economic policies and prospects, which it debates, comments on, and communicates to the entire membership so that other members may respond in full knowledge of the facts and a clear understanding of how their own domestic policies may affect other countries. The IMF is convinced that a fundamental condition for international prosperity is an orderly monetary system that will encourage trade, create jobs, expand economic activity, and raise living standards throughout the world.

Both Institutions include 189 member countries but the IMF has around 2700 employees, compared to the world bank's staff of 10,000. The IMF is funded mainly by quotas, basically subscription fees, from member countries. It received about $675  Billion in quotas, with the U.S., Japan, China and Germany contributing the most. The World Bank is financed mostly by issuing bonds to global investors. The Group's lending commitments reached nearly $59 Billion in the fiscal year 2017. The IMF has committed $160 billion under its current lending arrangement. Today, The IMFs biggest borrowers include Greece, Ukraine, Portugal and Pakistan. The Places where the World Bank is running the most projects are in Africa and East Asia.

|Image: Graffiti in Greece after the Bailout Protest|

One thing the IMF and the World Bank have in common is they both have some opponents. Critics point to the conditions attached to their loans, saying they don't always address the specific economic issues within a country. The IMF has come under fire for continuing to bail out Greece even as the country has failed to clean up its finances. Human Rights Groups have criticized the World Bank for ignoring the environmental and social impacts of some of its projects in countries like Ethiopia or Myanmar. 

Volumes of documents testify to the experiences of millions of people negatively impacted by Bank and Fund policies and programmes. Together they suggest that Bank and Fund’s policies have failed to achieve their stated objectives and instead support an economic order that benefits elites and private sector interests at the expense of poor and marginalised communities. The domination by rich countries also attracts berating of IMF. Though the majority of the members of the IMF are from the less developed countries of Asia, Africa and South Africa, the IMF is dominated by the rich countries like the USA. It is said that the policies and operations of the IMF are in favour of rich countries. At one stage, the IMF was regarded as “rich countries’ club”. These rich countries are considered partial towards the issues faced by poor countries.

Despite these criticisms, the IMF and the World Bank say they promote global economic stability, the make countries less vulnerable to crises, promote higher living standards and provide vital help to countries that need it.

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